<PAGE>
As filed with the Securities and Exchange Commission on October 21, 1997
Registration No. 333-26679-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 6
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------------
Education Loans Incorporated
(Exact name of registrant as specified in its charter)
Delaware 91-1819974
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
6799
(Primary Standard Industrial Classification Code Number)
105 First Avenue Southwest
Aberdeen, South Dakota 57401
(605) 622-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
A. Norgrin Sanderson
105 First Avenue Southwest
Aberdeen, South Dakota 57401
(605) 622-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
Timothy S. Hearn, Esq. David M. Reicher, Esq.
Dorsey & Whitney LLP Foley & Lardner
Pillsbury Center South Firstar Center
220 South Sixth Street 777 East Wisconsin Avenue
Minneapolis, Minnesota Milwaukee, Wisconsin 53202-5367
(612) 340-7802 (414) 297-5763
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 OCTOBER 21, 1997
$923,470,000
EDUCATION LOANS INCORPORATED
STUDENT LOAN ASSET-BACKED CALLABLE NOTES, SERIES 1997-1
CONSISTING OF
$274,900,000 TAX EXEMPT AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES,
SENIOR SERIES 1997-1A THROUGH E
$24,055,000 TAX EXEMPT FIXED RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES,
SENIOR SERIES 1997-1F
$107,500,000 TAXABLE AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES,
SENIOR SERIES 1997-1G AND H
$424,600,000 TAXABLE LIBOR RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES,
SENIOR SERIES 1997-1I AND J
$33,215,000 TAX EXEMPT FIXED RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES,
SUBORDINATE SERIES 1997-1K
$59,200,000 TAXABLE LIBOR RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES,
SUBORDINATE SERIES 1997-1L
----------
Education Loans Incorporated (formerly known as Student Loan Finance
Corporation), a South Dakota nonprofit corporation (the "Original Issuer"), is
offering $923,470,000 aggregate principal amount of its Student Loan Asset-
Backed Callable Notes, Series 1997-1 (the "Series 1997-1 Notes"). In connection
with an election to be made by the Original Issuer under Section 150(d)(3) of
the Internal Revenue Code of 1986, as amended, Education Loans Incorporated, a
separate, newly organized Delaware corporation (the "Corporation"), will,
immediately upon the issuance of the Series 1997-1 Notes, assume all of the
Original Issuer's liabilities and obligations with respect to the Notes, and
the Original Issuer will be released from all such liabilities and obligations.
See "The Original Issuer" and "The Corporation" herein.
(cover continued on next page)
PROSPECTIVE INVESTORS IN THE SERIES 1997-1 NOTES SHOULD CONSIDER THE
DISCUSSION OF CERTAIN MATERIAL FACTORS SET FORTH UNDER "RISK FACTORS" ON PAGE
32 OF THIS PROSPECTUS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REP-
RESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Series 1997-1 Notes will represent limited obligations of the
Corporation, payable solely from the Trust Estate created under the Indenture
and described herein. The Series 1997-1 Notes are not insured or guaranteed by
any government agency or instrumentality, by any affiliate of the Corporation
(including the Original Issuer), by any insurance company or by any other
person or entity. The Holders will have recourse to the Trust Estate pursuant
to the Indenture, but will not have recourse to any other assets of the
Corporation or the Original Issuer. The Corporation, moreover, will have no
significant assets available to make payment on the Series 1997-1 Notes other
than the Trust Estate pledged as collateral for the Notes under the Indenture.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING ORIGINAL
PUBLIC FEE (1) ISSUER (2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax Exempt Auction Rate Series 1997-1 Senior Notes....... % . % . %
- -----------------------------------------------------------------------------------------------------
Tax Exempt Fixed Rate Series 1997-1 Senior Notes......... % . % . %
- -----------------------------------------------------------------------------------------------------
Taxable Auction Rate Series 1997-1 Senior Notes.......... % . % . %
- -----------------------------------------------------------------------------------------------------
Taxable LIBOR Rate Series 1997-1 Senior Notes............ % . % . %
- -----------------------------------------------------------------------------------------------------
Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes.... % . % . %
- -----------------------------------------------------------------------------------------------------
Taxable LIBOR Rate Series 1997-1 Subordinate Notes....... % . % . %
- -----------------------------------------------------------------------------------------------------
Total.................................................... $ $ $
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) SLFC has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Original Issuer, estimated to be
$1,830,000.
----------
As a result of the transfer requirements described herein, the Auction Rate
Series 1997-1 Senior Notes will not be freely transferable, which may limit the
liquidity and marketability of Auction Rate Series 1997-1 Senior Notes and
therefore may not yield a Noteholder the best possible price for an Auction
Rate Series 1997-1 Senior Note. The ratings of the Auction Rate Series 1997-1
Senior Notes by the Rating Agencies will not address the market liquidity of
such Notes.
The Series 1997-1 Notes are offered by the Underwriters subject to prior
sale, when, as and if issued to the Underwriters. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the Series 1997-1 Notes will be made
in book-entry-only form through the Same Day Funds Settlement System of The
Depository Trust Company and also Cedel Bank, societe anonyme or the Euroclear
System on or about November 5, 1997.
SMITH BARNEY INC.
FBS INVESTMENT SERVICES, INC.
AN OPERATING DIVISION
OF U.S. BANCORP
INVESTMENTS, INC.
DOUGHERTY SUMMIT SECURITIES LLC MILLER & SCHROEDER FINANCIAL, INC.
NORWEST INVESTMENT SERVICES, INC.
SALOMON BROTHERS INC
The date of this Prospectus is October , 1997.
<PAGE>
(continued from previous page)
The Series 1997-1 Notes are to be issued in twelve series designated as Tax
Exempt Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series
1997-1A through 1997-1E (the "Tax Exempt Auction Rate Series 1997-1 Senior
Notes"), Tax Exempt Fixed Rate Student Loan Asset-Backed Callable Notes, Senior
Series 1997-1F (the "Tax Exempt Fixed Rate Series 1997-1 Senior Notes"), Taxable
Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1G and
1997-1H (the "Taxable Auction Rate Series 1997-1 Senior Notes"), Taxable LIBOR
Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1I and 1997-1J
(the "Taxable LIBOR Rate Series 1997-1 Senior Notes"), Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1K (the "Tax
Exempt Fixed Rate Series 1997-1 Subordinate Notes"), and Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1L (the
"Taxable LIBOR Rate Series 1997-1 Subordinate Notes"). See "Description of
Series 1997-1 Notes" herein.
The rights of the Holders of Tax Exempt Fixed Rate Student Loan Asset-
Backed Notes, Subordinate Series 1997-1K and Taxable LIBOR Rate Student Loan
Asset-Backed Notes, Subordinate Series 1997-1L to receive payments with respect
to the Notes and to direct remedies upon default will be subordinated to such
rights of the Series 1997-1 Senior Noteholders and any other Senior
Beneficiaries to the extent described in this Prospectus. See "Source of
Payment and Security for the Notes -- Priorities."
The Tax Exempt Auction Rate Series 1997-1 Senior Notes, the Tax Exempt
Fixed Rate Series 1997-1 Senior Notes, the Taxable Auction Rate Series 1997-1
Senior Notes, the Taxable LIBOR Rate Series 1997-1 Senior Notes, the Tax Exempt
Fixed Rate Series 1997-1 Subordinate Notes and the Taxable LIBOR Rate Series
1997-1 Subordinate Notes will be issued in the initial aggregate principal
amounts of $274,900,000, $24,055,000, $107,500,000, $424,600,000, $33,215,000
and $59,200,000, respectively. The Series 1997-1 Notes will be issued pursuant
to an Indenture of Trust dated as of July 1, 1997 (as amended and supplemented
from time to time, the "Indenture") from the Original Issuer to First Bank
National Association, as trustee (together with any successor and any other
corporation which may be substituted in its place pursuant to the Indenture, the
"Trustee"). The Series 1997-1 Notes will be payable from and secured by: (i)
Financed Student Loans (which are loans for post-secondary education originated
or acquired with moneys held under the Indenture) and moneys due or paid
thereunder after the applicable date of acquisition or origination; (ii) funds
on deposit in certain trust funds and accounts held under the Indenture
(including investment earnings thereon); and (iii) rights of the Corporation in
and to certain agreements, including the Servicing Agreement, the Student Loan
Purchase Agreements and the Guarantee Agreements, as the same relate to Financed
Student Loans (as more specifically described herein, the "Trust Estate"). See
"Prospectus Summary -- Trust Estate" and "Source of Payment and Security for the
Notes --General". At the time of acquisition or origination from moneys held
under the Indenture, Student Loans are required to meet certain eligibility
criteria described herein, and upon acquisition or origination such Student
Loans are referred to as Financed Eligible Loans. See "Glossary of Certain
Defined Terms". The initial Financed Eligible Loans have been acquired by the
Original Issuer pursuant to its programs of purchasing Student Loans from
lenders. Additional Financed Eligible Loans are expected to be originated or
acquired by the Trustee on behalf of the Corporation. The Corporation will
contract with Student Loan Finance Corporation, a newly organized South Dakota
corporation ("SLFC"), to provide origination, acquisition, administration and
collection services with respect to the Financed Student Loans and to perform
certain of the Corporation's obligations under the Indenture (referred to in
such capacities as the Servicer). See "The Servicer" and "Certain Relationships
Among Financing Participants" herein.
The Series 1997-1 Notes are subject to optional and special call for
redemption and prepayment as more fully described herein. See "Description of
Series 1997-1 Notes" herein.
The Tax Exempt Auction Rate Series 1997-1 Senior Notes and the Taxable
Auction Rate Series 1997-1 Senior Notes (collectively, the "Auction Rate Series
1997-1 Senior Notes") will be issued in the series and respective principal
amounts set forth in the table below, and will bear interest at the respective
Initial Interest Rates described
(cover continued on next page)
-2-
<PAGE>
(continued from previous page)
herein during the respective Initial Interest Periods, being the periods from
the Date of Issuance to, but not including, the respective Initial Interest Rate
Adjustment Dates set forth in the following table:
<TABLE>
<CAPTION>
Initial Interest
Series Principal Amount Rate Adjustment Dates
--------- ---------------- ---------------------
<S> <C> <C>
1997-1A $74,900,000 December 4, 1997
1997-1B 50,000,000 December 11, 1997
1997-1C 50,000,000 December 18, 1997
1997-1D 50,000,000 December 30, 1997
1997-1E 50,000,000 January 6, 1998
1997-1G 53,500,000 December 8, 1997
1997-1H 54,000,000 December 15, 1997
</TABLE>
After the Initial Interest Periods, interest on each series of the Auction Rate
Series 1997-1 Senior Notes will accrue at the Auction Rate with respect thereto,
determined from time to time pursuant to the applicable Auction Procedures
described herein. Interest on the Tax Exempt Auction Rate Series 1997-1 Senior
Notes will be paid on each June 1 and December 1, commencing December 1, 1997.
Interest on the Taxable Auction Rate Series 1997-1 Senior Notes will be paid on
the first Business Day following the expiration of each respective Auction
Period. The Auction Rate Series 1997-1 Senior Notes will mature June 1, 2020.
See "Terms of the Tax Exempt Auction Rate Series 1997-1 Senior Notes" and "Terms
of the Taxable Auction Rate Series 1997-1 Senior Notes."
The purpose of the Auction Procedures is to set the interest rates on the
Auction Rate Series 1997-1 Notes. By purchasing Auction Rate Series 1997-1
Senior Notes, whether in an Auction (as defined herein) or otherwise, each
purchaser will be deemed to have agreed: (i) to participate in Auctions on the
terms described herein, and (ii) so long as the beneficial ownership of the
Auction Rate Series 1997-1 Senior Notes is maintained in book-entry form, to
sell, transfer or otherwise dispose of the Auction Rate Series 1997-1 Senior
Notes only pursuant to a bid or a sell order in an Auction, or to or through a
specified broker-dealer (initially, Smith Barney Inc.); provided, that in the
case of any transfer other than one pursuant to an Auction, either the owner of
the Auction Rate Series 1997-1 Senior Notes so transferred, its participant or a
specified broker-dealer advises the Auction Agent (as defined herein) of such
transfer. Broker-Dealer fees (which are based on the Broker-Dealer fee rate
specified in the Indenture) are paid by the Auction Agent from moneys furnished
to it by the Corporation or the Trustee from amounts available therefor under
the Indenture. Noteholders do not pay additional fees and commissions in
disposing of Auction Rate Series 1997-1 Notes. See "Auction of the Auction Rate
Series 1997-1 Senior Notes" herein.
The Tax Exempt Fixed Rate Series 1997-1 Senior Notes will mature on the
dates, and in the respective principal amounts, and will bear interest at the
respective rates per annum, set forth in the following table:
<TABLE>
<CAPTION>
Maturity Date Principal Amount Interest Rate
--------------- ---------------- --------------
<S> <C> <C>
June 1, 2010 $14,270,000 ____%
June 1, 2020 9,785,000 ____
</TABLE>
Interest on the Tax Exempt Fixed Rate Series 1997-1 Senior Notes will be payable
on each June 1 and December 1, commencing December 1, 1997. See "Terms of the
Tax Exempt Fixed Rate Series 1997-1 Senior Notes."
The Taxable LIBOR Rate Series 1997-1 Senior Notes will be issued in the
series and respective principal amounts, and will mature on the respective
dates, set forth in the table below:
(cover continued on next page)
-3-
<PAGE>
(continued from previous page)
<TABLE>
<CAPTION>
Series Principal Amount Maturity Date
--------- ---------------- -------------
<S> <C> <C>
1997-1I $209,000,000 June 1, 2002
1997-1J 215,600,000 June 1, 2020
</TABLE>
Interest on the Taxable LIBOR Rate Series 1997-1 Senior Notes will be payable
monthly on the first day of each month, commencing December 1, 1997. The
Taxable LIBOR Rate Series 1997-1 Senior Note Interest Rate with respect to each
series of Taxable LIBOR Rate Series 1997-1 Senior Notes will be determined by
the Trustee monthly as described herein to equal the One-Month LIBOR plus ____%
per annum with respect to the Series 1997-1I Notes and the One-Month LIBOR plus
____% per annum with respect to the Series 1997-1J Notes. See "Terms of the
Taxable LIBOR Rate Series 1997-1 Senior Notes."
The Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes will bear
interest at the rate of __% per annum, payable on each June 1 and December 1,
commencing December 1, 1997. The Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes will mature June 1, 2020. See "Terms of the Tax Exempt Fixed
Rate Series 1997-1 Subordinate Notes."
Interest on the Taxable LIBOR Rate Series 1997-1 Subordinate Notes will be
payable monthly on the first day of each month, commencing December 1, 1997. The
Taxable LIBOR Rate Series 1997-1 Subordinate Note Interest Rate will be
determined by the Trustee monthly as described herein to equal the One-Month
LIBOR plus __% per annum. The Taxable LIBOR Rate Series 1997-1 Subordinate Notes
will mature June 1, 2020. See "Terms of the Taxable LIBOR Rate Series 1997-1
Subordinate Notes."
Principal payments on Financed Student Loans are not anticipated to be used
to retire principal of the Taxable Auction Rate Series 1997-1 Senior Notes until
all Taxable LIBOR Rate Series 1997-1 Notes have been paid in full, and principal
of the Series 1997-1J Notes will not be paid from principal payments on Financed
Student Loans until the Series 1997-1I Notes have been paid in full.
The Indenture authorizes the issuance of other Notes ("Additional Notes")
in the future, which Additional Notes may be issued on a parity basis (as to
payment and security) with the Series 1997-1 Senior Notes or with the Series
1997-1 Subordinate Notes or on a subordinate basis to all such Notes. The
Series 1997-1 Notes and any Additional Notes are collectively referred to herein
as the "Notes." Any Additional Notes will not be offered or sold pursuant to
this Prospectus.
In the opinion of Bond Counsel, under existing laws, regulations, rulings
and decisions, interest on the Tax Exempt Series 1997-1 Notes is not includable
in the gross income of the owners thereof for federal income tax purposes.
Interest on the Tax Exempt Series 1997-1 Notes is an item of tax preference
which is included in alternative minimum taxable income for purposes of the
federal alternative minimum tax applicable to all taxpayers, and is includable
in certain other taxes imposed upon corporations. For a more detailed
description of the tax status of the interest on the Tax Exempt Series 1997-1
Notes, Bond Counsel's opinion with respect thereto (including its reliance on
the Original Issuer's, SLFC's and the Corporation's compliance with covenants
made by them to satisfy certain requirements of the Internal Revenue Code of
1986, as amended) and certain income tax consequences of Tax Exempt Series 1997-
1 Note ownership, see "Tax Matters -- Tax Exempt Series 1997-1 Notes."
Neither the Original Issuer nor the Corporation has authorized any offer of
Series 1997-1 Notes to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 (the "U.K. Regulations"). The
Series 1997-1 Notes may not lawfully be offered or sold to persons in the United
Kingdom
(cover continued on next page)
-4-
<PAGE>
(continued from previous page)
except in circumstances which do not result in an offer to the public in the
United Kingdom within the meaning of the U.K. Regulations or otherwise are in
compliance with all applicable provisions of the U.K. Regulations.
Certain persons participating in this offering may engage in transactions
which stabilize, maintain or otherwise affect the price of the Series 1997-1
Notes, including over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids. See "Plan of Distribution" herein.
There is currently no secondary market for the Series 1997-1 Notes and
there is no assurance that one will develop. The Underwriters expect, but will
not be obligated, to make a market in the Series 1997-1 Notes. There is no
assurance that such a market will develop or, if such a market does develop,
that such market will continue. The Series 1997-1 Notes will not be listed on
any national securities exchange or quoted on any inter-dealer quotation system.
It is a condition of issuance of the Series 1997-1 Notes that Moody's
Investors Service, Inc. rate the Series 1997-1 Senior Notes "Aaa" and the Series
1997-1 Subordinate Notes at least "A3" and that Fitch Investors Service, L.P.
rate the Series 1997-1 Senior Notes "AAA" and the Series 1997-1 Subordinate
Notes at least "A". See "Ratings of the Series 1997-1 Notes."
Upon receipt of a request by an investor who has received an electronic
Prospectus from any Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
such Underwriter will promptly deliver, or cause to be delivered, without
charge, to such investor a paper copy of the Prospectus.
-5-
<PAGE>
AVAILABLE INFORMATION
The Corporation has filed a Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Series 1997-1 Notes. The
Registration Statement and amendments thereof and the exhibits thereto, as well
as certain reports referred to below under "Reports to Noteholders" and other
information, are available for inspection without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of the Registration Statement and amendments thereof
and exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants, such as the Corporation, that file electronically with the
Commission at the following address: (http://www.sec.gov).
REPORTS TO NOTEHOLDERS
Monthly unaudited reports concerning the Notes and the Trust Estate (the
"Monthly Servicing Reports"), prepared by the Servicer, will be provided to the
Noteholders as required by the Indenture. The Series 1997-1 Notes will be issued
in book-entry form and registered in the name of Cede & Co. ("Cede & Co."), the
nominee of The Depository Trust Company, New York, New York ("DTC"). Unless and
until definitive Notes are issued (which will occur under the limited
circumstances described herein) all Monthly Servicing Reports will be provided
to Cede & Co., as the sole Holder of the Notes. The receipt by a beneficial
owner of a Series 1997-1 Note of any Monthly Servicing Report will depend on
Cede & Co. forwarding such report to the appropriate Participant or Indirect
Participant of DTC, and such Participant or Indirect Participant then forwarding
such report to the beneficial owner. See "Description of Series 1997-1 Notes --
Book-Entry-Only System" herein. In addition, at the request of any beneficial
owner of Series 1997-1 Notes, the Trustee will mail Monthly Servicing Reports
directly to such beneficial owner. The Corporation 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, and will suspend the filing of such reports at its
option if not so required. In accordance with the Exchange Act and such rules
and regulations, the Corporation expects that its obligation to file such
reports will be terminated after June 30, 1998.
-6-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used herein and not defined shall have the respective meanings assigned to them
under "Glossary of Certain Defined Terms" beginning on page 173 of this
Prospectus.
Issuer The Series 1997-1 Notes will be issued by Education Loans
Incorporated, a South Dakota nonprofit corporation formerly
known as Student Loan Finance Corporation (the "Original
Issuer"). The Original Issuer is a corporation described in
Section 150(d) of the Code. Section 150(d) permits certain
nonprofit corporations (such as the Original Issuer) to
finance the acquisition of Student Loans made under the
Higher Education Act by issuing obligations, the interest on
which is not includable in the gross income of the owners
thereof for federal income tax purposes. In connection with
the Original Issuer's election under Section 150(d)(3) of
the Code to terminate its status as a corporation described
in Section 150(d) following the issuance of the Series 1997-
1 Notes, the Original Issuer will issue the Series 1997-1
Notes and then immediately transfer its interest in the
Trust Estate (see "Trust Estate" below) and be released from
all obligations with respect to the Notes and under the
Indenture.
Immediately following the issuance of the Series 1997-1
Notes, the Original Issuer will transfer all of its student
loans (including its rights in Financed Student Loans),
student loan acquisition and servicing operations and
physical facilities, together with certain other assets
(including the Original Issuer's interest in the other
assets comprising the Trust Estate) to Student Loan Finance
Corporation, a newly organized South Dakota corporation and
wholly-owned subsidiary of the Original Issuer ("SLFC"), and
SLFC will assume all of the Original Issuer's obligations
with respect to the Notes, the Indenture, the Trust Estate
and all related contracts. See "The Servicer" herein.
Immediately upon the transfer of the Original Issuer's
interest in the Trust Estate to SLFC, SLFC will assign such
interest in the Trust Estate to Education Loans
Incorporated, a separate, newly organized Delaware
corporation (the "Corporation"), which will assume all of
the obligations of the Original Issuer with respect to the
Notes and under the Indenture. In connection with these
assignments and assumptions, SLFC and the Corporation will
not issue new Notes to the Holders of the Series 1997-1
Notes in exchange for those issued by the Original Issuer.
Thus, the securities offered by this Prospectus are
obligations of the issuer under the Indenture, which
initially will be the Original Issuer but immediately after
the issuance thereof will be the Corporation (and not the
Original Issuer). Although the Original Issuer and the
Corporation initially will have the same name, they are
different entities. Because all functions and obligations of
the issuer of the Series 1997-1 Notes under the Indenture
will immediately be assumed by the Corporation, discussions
of those functions and obligations in this Prospectus
generally refer to the Corporation, notwithstanding that the
Series 1997-1 Notes will actually be issued by the Original
Issuer.
Following the transfer described above, the Original Issuer
will have no further obligations or liabilities with respect
to the Notes or otherwise under the Indenture. It also will
change its name to Great Plains Education Foundation, Inc.
and continue to exist, though it will change its purposes.
Section 150(d)(3) of the Code requires, however, that it
continue to be an organization described in Section
501(c)(3) of the Code. A Section 501(c) organization must be
organized and operated exclusively for certain purposes
specified in the Code, including charitable or educational
purposes, and
-7-
<PAGE>
no part of its net earnings may inure to the benefit of any
private individual or shareholder. The Original Issuer
expects that its new purposes following the transfer will be
charitable or educational. See "The Original Issuer", "The
Corporation" and "Certain Relationships Among Financing
Participants" herein.
As of September 30, 1997, $912,425,000 aggregate principal
amount of the Original Issuer's bonds and notes were
outstanding, bearing interest at rates per annum between
3.75% and 7.85%, and maturing from August 1, 1998 through
August 1, 2020. A portion of the proceeds of the Series
1997-1 Notes will be used to refund the entire outstanding
principal amount of such bonds and notes, which have been
issued to finance the Original Issuer's Student Loan
program.
Trust Estate The Trust Estate will consist of: (i) Financed Student
Loans, as described below, and moneys payable with respect
thereto after their respective dates of acquisition or
origination from moneys under the Indenture; (ii) moneys and
investment securities in the Funds and Accounts held by the
Trustee under the Indenture; (iii) rights of the Corporation
in and to the Servicing Agreement, the Student Loan Purchase
Agreements and the Guarantee Agreements, as the same relate
to Financed Student Loans, and (iv) the rights of the
Corporation under certain other related contracts.
Securities Offered The Series 1997-1 Notes are to be issued in twelve series,
designated as Tax Exempt Auction Rate Student Loan Asset-
Backed Callable Notes, Senior Series 1997-1A through 1997-1E
(the "Tax Exempt Auction Rate Series 1997-1 Senior Notes"),
Tax Exempt Fixed Rate Student Loan Asset-Backed Callable
Notes, Senior Series 1997-1F (the "Tax Exempt Fixed Rate
Series 1997-1 Senior Notes"), Taxable Auction Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1G and
1997-1H (the "Taxable Auction Rate Series 1997-1 Senior
Notes"), Taxable LIBOR Rate Student Loan Asset-Backed
Callable Notes, Senior Series 1997-1I and 1997-1J (the
"Taxable LIBOR Rate Series 1997-1 Senior Notes"), Tax Exempt
Fixed Rate Student Loan Asset-Backed Callable Notes,
Subordinate Series 1997-1K (the "Tax Exempt Fixed Rate
Series 1997-1 Subordinate Notes"), and Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series
1997-1L (the "Taxable LIBOR Rate Series 1997-1 Subordinate
Notes"). See "Description of Series 1997-1 Notes" herein.
The original principal amounts of the Tax Exempt Auction
Rate Series 1997-1 Senior Notes, the Tax Exempt Fixed Rate
Series 1997-1 Senior Notes, the Taxable Auction Rate Series
1997-1 Senior Notes, the Taxable LIBOR Rate Series 1997-1
Senior Notes, the Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes and the Taxable LIBOR Rate Series 1997-1
Subordinate Notes shall be $274,900,000, $24,055,000,
$107,500,000, $424,600,000, $33,215,000 and $59,200,000,
respectively. The Series 1997-1 Subordinate Notes are
subordinated in certain respects to the Series 1997-1 Senior
Notes and any other Senior Obligations, as more fully
described herein. The Series 1997-1 Notes will be issued
pursuant to the Indenture as hereinafter described.
Risk Factors There are material risks associated with an investment in
the Series 1997-1 Notes. See "Risk Factors". The material
risks include:
. the limited recourse nature of the Series 1997-1 Notes
and the limited assets available for their payment
. the subordination of the Series 1997-1 Subordinate Notes
-8-
<PAGE>
. the risk that failure to comply with Student Loan
origination and servicing procedures may result in loss
of Guarantee Payments
. the lack of recourse against the Original Issuer for any
failure to comply with Student Loan origination and
servicing procedures
. the risk of changes in law adversely affecting the
Federal Family Education Loan Program and the Financed
Student Loans
. the risk that competition from the Federal Direct Student
Loan Program may result in higher servicing costs,
reduced Student Loan values and higher prepayments of
Financed Student Loans
. the Corporation's right to issue Additional Notes without
the consent of Noteholders
. the risk that the interest rates on Financed Student
Loans may be insufficient to cover the interest on
certain Series 1997-1 Notes due to differences in indexes
or to borrower incentive programs
. risks associated with changing assets in the Trust Estate
and the variability of the actual cash flows provided by
such assets
. the Original Issuer's and Corporation's reliance on
representations of Lenders as to qualification of
Financed Eligible Loans
. the possible inability of Lenders to honor their
repurchase obligations under Student Loan Purchase
Agreements
. the risk that adverse regional economic conditions could
affect geographically concentrated borrowers' ability to
repay Financed Student Loans
. the risk of loss of the tax exemption of interest on the
Tax Exempt Series 1997-1 Notes
. risks associated with the insolvency of the Original
Issuer, SLFC, the Corporation or Lenders
. the risk that failure to comply with the Original
Issuer's Plan for Doing Business may result in a loss of
Special Allowance Payments
. the risk that Guarantee Payments, interest subsidy
payments and Special Allowance Payments with respect to
Financed Student Loans could be offset against
obligations with respect to other Student Loans held
under the same lender number
. the risk of the Trustee's security interest in the Trust
Estate being defeated
. risks associated with the failure to comply with consumer
protection laws
-9-
<PAGE>
. the possibility that Series 1997-1 Noteholders may be
unable to reinvest amounts received from calls for
redemption or prepayments of the Series 1997-1 Notes
except at lower yields
. the possible inability of Guarantee Agencies to make
Guarantee Payments
. the relatively greater risk of prepayment of the Series
1997-1I Notes and the Series 1997-1J Notes
. the possible insufficiency of Financed Student Loans and
other Trust Estate assets to provide for payment of all
Notes
. risks associated with the acquisition of investment
agreements
. the risk that ratings of the Series 1997-1 Notes may be
reduced
. the limited liquidity of the Series 1997-1 Notes
. risks associated with Swap Agreements that the
Corporation may enter into in the future
. the effect of book-entry registration
Payment of Interest
on Series 1997-1
Notes
Tax Exempt The Tax Exempt Fixed Rate Series 1997-1 Senior Notes
Fixed Rate maturing on the dates set forth below will bear interest at
Series 1997-1 the respective rates per annum set forth below, payable on
Senior Notes each June 1 and December 1, commencing December 1, 1997, to
the Holders thereof as of the fifteenth day of the month
preceding the Interest Payment Date:
Maturity Date Interest Rate
------------- ------------
June 1, 2010 ____%
June 1, 2020 ____
Tax Exempt The Series 1997-1A, 1997-1B, 1997-1C, 1997-1D and 1997-1E
Auction Notes will bear interest at initial rates of _____%,_____%,
Rate Series 1997-1 _____%, _____%, and _____% per annum, respectively, to the
Senior Notes respective Initial Interest Rate Adjustment Dates, which
will be December 4, 1997 for the Series 1997-1A Notes,
December 11, 1997 for the Series 1997-1B Notes, December 18,
1997 for the Series 1997-1C Notes, December 30, 1997 for the
Series 1997-1D Notes, and January 6, 1998 for the Series
1997-1E Notes.
After the Initial Interest Period for the Tax Exempt Auction
Rate Series 1997-1 Senior Notes of each series, each
Interest Period will generally consist of 35 days, subject
to adjustment as set forth in "Auction of the Auction Rate
Series 1997-1 Senior Notes -Changes in Auction Terms -
Changes in Auction Period or Periods." The interest rates
for the Tax Exempt Auction Rate Series 1997-1 Senior Notes
will be reset at the Auction Rates pursuant to the Auction
Procedures described in "Auction of the Auction Rate
-10-
<PAGE>
Series 1997-1 Senior Notes - Auction Procedures" (but in no
event exceeding the Maximum Auction Rate, as defined
herein). See "Auction Procedures" below. Interest on the Tax
Exempt Auction Rate Series 1997-1 Senior Notes will be
payable on each June 1 and December 1, commencing December
1, 1997, to the Holders thereof as of the fifteenth day of
the month preceding the Interest Payment Date.
Taxable Auction The Series 1997-1G and 1997-1H Notes will bear interest at
Rate Series 1997-1 initial rates of _____% and _____% per annum, respectively,
Senior Notes to the respective Initial Interest Rate Adjustment Dates,
which will be December 8, 1997 for the Series 1997-1G Notes
and December 15, 1997 for the Series 1997-1H Notes.
After the Initial Interest Period for the Taxable Auction
Rate Series 1997-1 Senior Notes of each series, each
Interest Period will generally consist of 28 days, subject
to adjustment as set forth in "Auction of the Auction Rate
Series 1997-1 Senior Notes -Changes in Auction Terms -
Changes in Auction Period or Periods". The interest rates
for the Taxable Auction Rate Series 1997-1 Senior Notes will
be reset at the Auction Rates pursuant to the Auction
Procedures described in "Auction of the Auction Rate Series
1997-1 Senior Notes - Auction Procedures" (but in no event
exceeding the Maximum Auction Rate, as defined herein). See
"Auction Procedures" below. Interest on each series of
Taxable Auction Rate Series 1997-1 Senior Notes will be
payable on the first Business Day following the expiration
of each Auction Period for such series, to the Holders
thereof as of the Business Day next preceding each Auction
Date.
Auction The following summarizes certain procedures that will be
Procedures used in determining the interest rates on the Auction Rate
Series 1997-1 Senior Notes. "Auction of the Auction Rate
Series 1997-1 Senior Notes - Auction Procedures" provides a
more detailed description of these procedures. Prospective
investors in the Auction Rate Series 1997-1 Senior Notes
should read carefully the following summary, along with the
more detailed description in "Auction of the Auction Rate
Series 1997-1 Senior Notes - Changes in Auction Terms -
Changes in Auction Period or Periods."
The interest rate on each series of Auction Rate Series
1997-1 Senior Notes will be determined periodically
(generally, for periods ranging from 7 days to one year, and
initially 28 days, in the case of the Taxable Auction Rate
Series 1997-1 Senior Notes, or 35 days, in the case of the
Tax Exempt Auction Rate Series 1997-1 Senior Notes) by means
of a "Dutch auction." In this Dutch auction, investors and
potential investors submit orders through an eligible
Broker-Dealer as to the principal amount of Auction Rate
Series 1997-1 Senior Notes such investors wish to buy, hold
or sell at various interest rates. The Broker-Dealers submit
their clients' orders to the Auction Agent, who processes
all orders submitted by all eligible Broker-Dealers and
determines the interest rate for the upcoming interest
period. The Broker-Dealers are notified by the Auction Agent
of the interest rate for the upcoming interest period and
are provided with settlement instructions relating to
purchases and sales of Auction Rate Series 1997-1 Senior
Notes.
Taxable LIBOR The Taxable LIBOR Rate Series 1997-1 Senior Note Interest
Rate Series 1997-1 Rate with respect to each series of Taxable LIBOR Rate
Senior Notes Series 1997-1 Senior Notes will be determined by the Trustee
monthly as described herein to equal the One-Month LIBOR
plus ____% per annum with respect to the Series 1997-1I
Notes and the One-Month LIBOR plus ____% per annum with
respect to the Series 1997-1J Notes. Interest on each series
of the Taxable LIBOR Rate Series 1997-1 Senior Notes will be
payable monthly on the first day of each month, commencing
December 1, 1997, to the Holders thereof as of the last
-11-
<PAGE>
Business Day preceding the Interest Payment Date. See "Terms
of the Taxable LIBOR Rate Series 1997-1 Senior Notes."
Tax Exempt Fixed The Series 1997-1K Notes will bear interest at the rate of
Rate Series __% per annum, payable on each June 1 and December 1,
1997-1 commencing December 1, 1997, to the Holders thereof as of
Subordinate the fifteenth day of the month preceding the Interest
Notes Payment Date.
Taxable LIBOR The Taxable LIBOR Rate Series 1997-1 Subordinate Note
Rate Series Interest Rate will be determined by the Trustee monthly as
1997-1 described herein to equal the One-Month LIBOR plus __% per
Subordinate annum. Interest on the Taxable LIBOR Rate Series 1997-1
Notes Subordinate Notes will be payable monthly on the first day
of each month, commencing December 1, 1997, to the Holders
thereof as of the last Business Day preceding the Interest
Payment Date. See "Terms of the Taxable LIBOR Rate Series
1997-1 Subordinate Notes."
Payment of
Principal on
Series 1997-1
Notes
Stated Maturity The Stated Maturity dates and respective principal amounts
Dates of the Tax Exempt Fixed Rate Series 1997-1 Senior Notes are
as follows:
Date Principal Amount
---- ----------------
June 1, 2010 $ 14,270,000
June 1, 2020 $ 9,785,000
The Stated Maturity date of the Series 1997-1I Notes is June
1, 2002.
The Stated Maturity date of all other Series 1997-1 Notes is
June 1, 2020.
Optional Call for At the Corporation's option, Auction Rate Series 1997-1
Redemption Senior Notes of any series may be called for redemption on
any Interest Rate Adjustment Date or regularly scheduled
Interest Payment Date for such series, in whole or in part,
at a Redemption Price of 100% of Principal Amount of such
Notes to be redeemed, plus accrued interest thereon to the
Redemption Date.
At the Corporation's option, Tax Exempt Fixed Rate Series
1997-1 Senior Notes and Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes may be called for redemption at any time
on and after December 1, 2007, in whole or in part, at the
following respective Redemption Prices (expressed as
percentages of Principal Amount) plus accrued interest
thereon to the Redemption Date:
Redemption Period
(both dates inclusive) Redemption Price
---------------------- ----------------
December 1, 2007, through November 30, 2008 102%
December 1, 2008, though November 30, 2009 101%
December 1, 2009 and thereafter 100%
-12-
<PAGE>
Prepayment of Principal of the Taxable LIBOR Rate Series 1997-1 Notes
Taxable LIBOR Rate shall be prepaid on any Interest Payment Date from moneys
Series credited to the Retirement Account as hereinafter described.
1997-1 Notes The Corporation is required to direct the Trustee to
transfer to the Retirement Account from the Special
Redemption and Prepayment Account any moneys therein, up to
an amount equal to the Special Prepayment Amount, which the
Corporation has not determined are reasonably expected to be
required to be transferred to the Note Fund, the Rebate Fund
or the Reserve Fund prior to the next succeeding regularly
scheduled Interest Payment Date, provided no deficiencies
exist at the time of such transfer in the Note Fund, the
Rebate Fund or the Reserve Fund. See "Description of Flow of
Revenues in the Funds." Such prepayments of principal of
Taxable LIBOR Rate Series 1997-1 Notes shall, subject to the
Senior Asset Requirement, be allocated between the Taxable
LIBOR Rate Series 1997-1 Senior Notes and the Taxable LIBOR
Rate Series 1997-1 Subordinate Notes pro rata. Principal of
the Taxable LIBOR Rate Series 1997-1 Senior Notes so
allocated to be prepaid shall be applied to the Series
1997-1I Notes so long as any such Notes remain Outstanding,
and thereafter to the Series 1997-1J Notes. Within a given
series of Taxable LIBOR Rate Series 1997-1 Notes, the
Principal Amount of such series to be prepaid shall be
allocated pro rata to the reduction of the Principal Amount
of all Notes of such series. The Senior Asset Requirement
requires the maintenance of certain ratios between the
Outstanding Principal Amounts of the Series 1997-1 Senior
Notes and the Series 1997-1 Subordinate Notes and the Value
of the assets of the Trust Estate following calls for
redemption and prepayments. In general, the Senior Asset
Requirement requires that the Senior Percentage is at least
110% and the Subordinate Percentage is at least 100%, though
each such percentage may be lowered under the conditions
prescribed in the Indenture. See "Description of Series
1997-1 Notes -- Senior Asset Requirement," "Glossary of
Certain Defined Terms" and "Summary of the Indenture -- Call
for Redemption, Prepayment or Purchase of Notes; Senior
Asset Requirement".
The Special Prepayment Amount is an amount, as of the last
day of any month, equal to the excess, if any, of (1) the
sum of (a) all payments received as of such last day with
respect to principal of Financed Student Loans credited to
the Series 1997-1 Taxable Acquisition Account, plus (b) the
amount of any Balances theretofore transferred from the
Series 1997-1 Taxable Acquisition Account to the Retirement
Account to redeem Taxable Auction Rate Series 1997-1 Senior
Notes which are called for redemption as described below
under "Call for Redemption of Auction Rate Series 1997-1
Notes and Fixed Rate Series 1997-1 Notes from Unused
Proceeds," minus (c) the aggregate amount of interest on
Financed Student Loans credited to the Series 1997-1 Taxable
Acquisition Account which has been capitalized after the
Financing thereof, minus (d) the principal component of the
repurchase price of Student Loans originally Financed from
Balances in Series 1997-1 Taxable Acquisition Account which
have been repurchased from a Guarantee Agency upon
rehabilitation of such Student Loans pursuant to the Higher
Education Act, over (2) the sum of (a) the aggregate amount
of all previous prepayments of the Principal Amount of all
Taxable LIBOR Rate Series 1997-1 Notes, plus (b) the
aggregate Principal Amount of Taxable LIBOR Rate Series
1997-1 Notes to be prepaid on the next regularly scheduled
Interest Payment Date from Balances then on hand in the
Retirement Account. Payments described in clause (1)(a) of
the preceding sentence include, without limitation, any
prepayments by borrowers from the proceeds of a
consolidation loan made or acquired by the Trustee on behalf
of the Corporation or from any other sources, but exclude,
for this purpose, proceeds of the sale or other disposition
of Financed Student Loans to any Person other than a
Guarantee Agency, with respect to Guarantee payments, or a
Lender, with respect to the repurchase of Financed Student
-13-
<PAGE>
Loans by such Lender pursuant to its repurchase obligation
under a Student Loan Purchase Agreement.
In general, this prepayment provision is intended to require
the Corporation to prepay Taxable LIBOR Rate Series 1997-1
Notes in amounts related to the amount of principal payments
received with respect to Student Loans Financed with
proceeds of the Taxable Series 1997-1 Notes in the
Acquisition Fund. See "Weighted Average Life of the Taxable
LIBOR Rate Series 1997-1 Notes" for a description of the
Corporation's projected schedule of such prepayments.
Because of the uncertainties relating to the timing of
receipt of principal of Student Loans expected to be
Financed with proceeds of the Taxable Series 1997-1 Notes,
the actual level of prepayments resulting therefrom cannot
be definitively stated. See "Risk Factors -- Holders of
Series 1997-1 Notes Which are Prepaid or Called for
Redemption Due to Accelerated Payments with respect to
Financed Student Loans May Have to Reinvest Amounts Received
From Prepayments or Calls for Redemption at a Lower Rate of
Return" and " -- The Average Life of the Series 1997-1 Notes
May Be Lengthened As a Result of Extension of Payments on
the Financed Student Loans".
Special Call for
Redemption
Call for Tax Exempt Auction Rate Series 1997-1 Senior Notes of any
Redemption of Tax series, Tax Exempt Fixed Rate Series 1997-1 Senior Notes and
Exempt Auction Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes, may,
Rate Series 1997-1 at the Corporation's option, be called for redemption, in
Senior Notes, Tax whole or in part, at a Redemption Price of 100% of Principal
Exempt Fixed Rate Amount of such Notes to be redeemed, plus accrued interest
Series 1997-1 thereon to the Redemption Date, on any Interest Rate
Senior Notes and Adjustment Date or regularly scheduled Interest Payment Date
Tax Exempt Fixed for such series occurring on or after December 1, 1998, from
Rate Series 1997-1 amounts transferred to the Series 1997-1 Tax Exempt
Subordinate Notes Retirement Sub-Account from the Series 1997-1 Tax Exempt
from Excess Surplus Sub-Account and the Series 1997-1 Tax Exempt Reserve
Revenues Account. In general, such transfers are intended to allow
the Corporation to call Tax Exempt Auction Rate Series
1997-1 Senior Notes, Tax Exempt Fixed Rate Series 1997-1
Senior Notes and Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes for redemption to the extent that revenues
allocable to the Tax Exempt Series 1997-1 Notes under the
Indenture exceed scheduled debt service payments on the Tax
Exempt Series 1997-1 Notes, payments on other Indenture
Obligations and other expenses payable under the Indenture.
See "Description of Series 1997-1 Notes -- Special Call for
Redemption -- From Moneys in the Surplus Account" and
"Summary of the Indenture -- Funds and Accounts -- Surplus
Fund" and " -- Reserve Fund".
Call for Taxable Auction Rate Series 1997-1 Senior Notes of any
Redemption of series may, at the Corporation's option, be called for
Taxable Auction redemption, in whole or in part, at a Redemption Price of
Rate Series 1997-1 100% of Principal Amount of such Notes to be redeemed, plus
Senior Notes from accrued interest thereon to the Redemption Date, on any
Excess Revenues regularly scheduled Interest Payment Date for such series
occurring on or after December 1, 1998, from amounts
transferred to the Series 1997-1 Taxable Retirement Sub-
Account from the Series 1997-1 Taxable Surplus Sub-Account
and the Series 1997-1 Taxable Reserve Account. In general,
such transfers are intended to allow the Corporation to call
Taxable Auction Rate Series 1997-1 Senior Notes for
redemption to the extent that revenues under the Indenture
allocable to Taxable Series 1997-1 Notes exceed scheduled
debt service payments on the Taxable Series 1997-1 Notes,
prepayments of Taxable LIBOR Rate Series 1997-1 Notes,
payments on other Indenture Obligations and other expenses
payable under the Indenture. Such revenues
-14-
<PAGE>
could result in whole or in part from Student Loans acquired
with, and from investment earnings on, the proceeds of
Additional Notes. (Any Additional Notes will not be offered
or sold pursuant to this Prospectus.) See "Description of
Series 1997-1 Notes -- Special Call for Redemption -- From
Moneys in the Surplus Account" and "Summary of the
Indenture -- Funds and Accounts -- Surplus Fund" and
"-- Reserve Fund."
Call for Taxable Auction Rate Series 1997-1 Senior Notes of any
Redemption of series may, at the Corporation's option, be called for
Auction Rate redemption, in whole or in part, at a Redemption Price of
Series 1997-1 100% of Principal Amount of such Notes to be redeemed, plus
Senior Notes and accrued interest to the Redemption Date, on any regularly
Tax Exempt Fixed scheduled Interest Payment Date for such series, from
Rate Series 1997-1 proceeds of the Series 1997-1 Notes in the Series 1997-1
Notes from Unused Taxable Acquisition Account that have not been used to
Proceeds acquire Eligible Loans and from amounts in the Series 1997-1
Taxable Reserve Account. Such Series 1997-1 Notes shall be
so called for redemption on the regularly scheduled Interest
Payment Date for such series in December 1998 (from proceeds
remaining as of November 1, 1998), unless the Trustee
receives certain certifications from the Corporation. See
"Description of Series 1997-1 Notes -- Special Call for
Redemption -- From Unused Proceeds" and "Summary of the
Indenture -- Funds and Accounts -- Acquisition Fund" and
"-- Reserve Fund".
Tax Exempt Auction Rate Series 1997-1 Senior Notes of any
series may, at the Corporation's option, be called for
redemption, in whole or in part, on any Interest Rate
Adjustment Date for such series or on any regularly
scheduled Interest Payment Date for such series, and (if no
Tax Exempt Auction Rate Series 1997-1 Senior Notes remain
Outstanding) Tax Exempt Fixed Rate Series 1997-1 Notes may,
at the Corporation's option, be called for redemption, in
whole or in part, on any date, in each case at a Redemption
Price of 100% of Principal Amount of such Notes to be
redeemed, plus accrued interest thereon to the Redemption
Date, from proceeds of the Series 1997-1 Notes in the Series
1997-1 Tax Exempt Acquisition Account that have not been
used to acquire Eligible Loans and from amounts in the
Series 1997-1 Tax Exempt Reserve Account. Such Series 1997-1
Notes shall be so called for redemption on June 1, 2001 (to
the extent the proceeds remaining in the Series 1997-1 Tax
Exempt Acquisition Account exceed $59,725,000 as of April
15, 2001) and on June 1, 2002 (from such proceeds remaining
as of April 15, 2002), in each case unless the Trustee
receives certain certifications from the Corporation. See
"Description of Series 1997-1 Notes -- Special Call for
Redemption -- From Unused Proceeds" and "Summary of the
Indenture -- Funds and Accounts -- Acquisition Fund" and
"-- Reserve Fund".
Call for The Series 1997-1 Notes may, at the Corporation's option, be
Redemption of called for redemption, in whole but not in part, at a
Series 1997-1 Redemption Price of 100% of Principal Amount, plus accrued
Notes upon interest thereon to the Redemption Date, on any date when
Reduction of the remaining aggregate outstanding principal balance of
Portfolio Balance Student Loans Financed with the proceeds of the Series
1997-1 Notes is less than 10% of the amount deposited to the
Acquisition Fund on the Date of Issuance.
Selection of If less than all Outstanding Series 1997-1 Notes are to be
Series 1997-1 called for redemption, the particular series to be called
Notes for Call for for redemption will be determined by the availability of
Redemption particular amounts (in the case of special call for
redemption) or the Corporation's decision to call Notes of
such series for redemption based upon its analysis that such
redemption is in the best interest of the Corporation (in
the case of optional call for redemption). To the extent
Series 1997-1 Subordinate Notes are subject to call for
redemption, such Notes will (unless specifically provided
otherwise or unless the Corporation elects otherwise and
provides certain required certifications) be called for
-15-
<PAGE>
redemption pro rata with Series 1997-1 Senior Notes. If less
than all Outstanding Series 1997-1 Notes of a given series
are to be called for redemption, the particular Notes to be
called for redemption will be determined by lot. See
"Description of Series 1997-1 Notes -- Selection of Series
1997-1 Notes for Call for Redemption".
Date of Issuance November __, 1997.
Denominations The Tax Exempt Auction Rate Series 1997-1 Senior Notes, the
Taxable Auction Rate Series 1997-1 Senior Notes, the Taxable
LIBOR Rate Series 1997-1 Senior Notes and the Taxable LIBOR
Rate Series 1997-1 Subordinate Notes will be issued in
denominations of $100,000 in original Principal Amount and
any multiple thereof. The Tax Exempt Fixed Rate Series
1997-1 Senior Notes and the Tax Exempt Fixed Rate Series
1997-1 Subordinate Notes will be issued in denominations of
$5,000 in original Principal Amount and any multiple
thereof.
Indenture The Series 1997-1 Notes are being issued pursuant to the
Indenture (including the First Supplemental Indenture)
between the Original Issuer and the Trustee and are payable
solely from the funds and assets held thereunder. The
Original Issuer's rights under the Indenture will be
assigned to, and the Original Issuer's obligations under the
Indenture will be assumed by, the Corporation. The
Corporation expects to issue additional series of Notes in
the future which also will be secured by the Trust Estate.
The Series 1997-1 Senior Notes constitute "Senior Notes"
under the Indenture, secured on a basis which is on a parity
with any other Senior Obligations and which is senior to the
Series 1997-1 Subordinate Notes and any Additional Notes
secured on a parity with or subordinate to the Series 1997-1
Subordinate Notes. The Series 1997-1 Subordinate Notes
constitute "Subordinate Notes" under the Indenture, secured
on a basis which is on a parity with any other Subordinate
Obligations and which is subordinate to the Series 1997-1
Senior Notes and any other Senior Obligations. Additional
Notes or Other Indenture Obligations secured on a parity
with or on a basis subordinate to the Series 1997-1 Senior
Notes may be issued under the Indenture. Such Additional
Notes or Other Indenture Obligations may be secured on a
basis which is senior to or on a parity with the Series
1997-1 Subordinate Notes. Any Additional Notes will not be
offered or sold pursuant to this Prospectus.
Trustee First Bank National Association, the headquarters of which
is located in Minneapolis, Minnesota. The Trustee is also
the trustee for the Original Issuer's outstanding bond and
note issues, which will be refunded by the Series 1997-1
Notes. The Trustee, either directly or through its
affiliates, has in the past entered into student loan
purchase agreements with the Original Issuer, including
Student Loan Purchase Agreements pursuant to which the
Original Issuer acquired Eligible Loans which will be
Financed under the Indenture. The Corporation expects that
the Trustee will enter into Student Loan Purchase Agreements
providing for the sale of a substantial amount of additional
Eligible Loans. The Original Issuer also has obtained (and
the Corporation may in the future obtain) financial services
from the Trustee and related entities. U.S. Bancorp
Investments, Inc., one of the Underwriters of the Series
1997-1 Notes, is a wholly-owned subsidiary of the Trustee.
See "Certain Relationships Among Financing Participants"
herein.
-16-
<PAGE>
The Higher Education Act provides that only "eligible
lenders" (defined to include banks and certain other
entities) may hold title to student loans made under the
Federal Family Education Loan Program. Because the
Corporation does not qualify as an "eligible lender," the
Trustee will hold title to all such Financed Student Loans
on behalf of the Corporation. The Trustee will agree under
the Indenture to maintain its status as an "eligible lender"
under the Higher Education Act.
Use of Proceeds The Original Issuer estimates that the proceeds from the
sale of the Series 1997-1 Notes will be applied as follows:
<TABLE>
<S> <C>
Deposit to Acquisition Fund:
Series 1997-1 Tax Exempt Acquisition Account $ 332,170,000
Series 1997-1 Taxable Acquisition Account 572,828,000
Deposit to Reserve Fund 18,472,000
-------------
Total $ 923,470,000
</TABLE>
Approximately $72,445,000 of the proceeds deposited to the
Series 1997-1 Tax Exempt Acquisition Account and
approximately $516,828,000 of the proceeds deposited to the
Series 1997-1 Taxable Acquisition Account are expected to be
used on the Date of Issuance to refinance a portfolio of
Student Loans currently owned by the Original Issuer, which
Student Loans have been acquired by the Original Issuer
pursuant to its secondary market program or originated by
the Original Issuer. These Student Loans currently secure
outstanding obligations of the Original Issuer used to
acquire such Student Loans, which will be refunded from the
proceeds of the Series 1997-1 Notes. The remaining proceeds
deposited to the Series 1997-1 Tax Exempt Acquisition
Account are expected to be used to purchase Eligible Loans
from Lenders or to originate Eligible Loans on or before
April 15, 2002. At the Corporation's option, or if not
expended as of certain dates, such proceeds may be
transferred to the Retirement Account and used to redeem Tax
Exempt Series 1997-1 Notes which are called for redemption.
The remaining proceeds deposited to the Series 1997-1
Taxable Acquisition Account are expected to be used to
purchase Eligible Loans from lenders or to originate
Eligible Loans on or before November 1, 1998. At the
Corporation's option, or if not expended as of November 1,
1998, such proceeds may be transferred to the Retirement
Account and used to redeem Taxable Auction Rate Series 1997-
1 Senior Notes which are called for redemption. See
"Description of Series 1997-1 Notes -- Special Call for
Redemption -- From Unused Proceeds" herein.
The Financed Financed Eligible Loans will initially consist solely of
Eligible Loans loans originated pursuant to the Federal Family Education
Loan Program as described herein under "Description of the
Federal Family Educational Loan Program" to students or
parents of students enrolled in qualified accredited
institutions of higher education. Based upon outstanding
principal balances as of September 30, 1997, approximately
60.0% of the Eligible Loans expected to be Financed on the
Date of Issuance with the proceeds of the Series 1997-1
Notes are guaranteed by Education Assistance Corporation
("EAC"), approximately 34.3% of such Eligible Loans are
guaranteed by Pennsylvania Higher Education Assistance
Agency ("PHEAA"), and substantially all of the remainder are
guaranteed by one of the following Guarantee Agencies:
United Student Aid Funds, Inc., Northstar Guarantee Inc.,
Great Lakes Higher Education Corporation, Student Loans of
North Dakota, Iowa College Aid Commission, Missouri
Coordinating Board for Higher Education, Illinois Student
Aid Commission, or Educational Credit Management Corporation
(formerly known as Transitional Guaranty Agency, Inc.). The
Corporation expects that California Student
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Aid Commission also will be a Guarantee Agency for Eligible
Loans to be Financed following the Date of Issuance. Any
other state agency or private nonprofit institution or
organization which administers a Guarantee Program may also
be a Guarantee Agency of Eligible Loans to be Financed,
subject to meeting certain requirements of the Indenture.
See "Description of the Guarantee Agencies."
The Corporation may in the future acquire or originate (or
cause the Trustee to acquire or originate) Eligible Loans
under the Indenture which are not originated pursuant to the
Federal Family Education Loan Program.
Some Financed Eligible Loans will have been originated by
the Original Issuer or by the Trustee on behalf of the
Corporation. The remainder of the Financed Eligible Loans
will have been originated by independent third parties and
subsequently sold to the Original Issuer (before the Date of
Issuance) or to the Trustee on behalf of the Corporation
(after the Date of Issuance). The Financed Eligible Loans
included in the Trust Estate will vary from time to time and
are required to be Eligible Loans. Eligible Loans are (A)
Student Loans which: (1) have been or will be made to an
Eligible Borrower for post-secondary education, (2) are
guaranteed by a Guarantee Agency as to at least 98% of the
principal of and accrued interest on such Student Loans and
are covered by Federal Reimbursement Contracts providing,
among other things, for reimbursement to the Guarantee
Agency for losses incurred by it on defaulted Financed
Student Loans insured or guaranteed by the Guarantee Agency
to the extent provided in the Higher Education Act, (3) are
"eligible loans" as defined in Section 438 of the Higher
Education Act for purposes of receiving Special Allowance
Payments (other than Nonsubsidized Stafford Loans originally
financed by the Original Issuer), and (4) bear interest at
rates per annum not less than or in excess of the applicable
rates of interest provided by the Higher Education Act, or
such lesser rates as may be approved by the Rating Agencies;
or (B) other Student Loans if the Corporation shall have
received the necessary Rating Agency, Bond Counsel and other
approvals. See "Glossary of Certain Defined Terms." The
Corporation expects that most of the Eligible Loans to be
acquired with the proceeds of the Series 1997-1 Notes will
be those described in clause (A) above. Eligible Loans to be
Financed with the proceeds of the Tax Exempt Series 1997-1
Notes (or from Balances in the Series 1997-1 Tax Exempt
Surplus Sub-Account) must be made to an Eligible Borrower
for the post-secondary education of (a) a resident of the
State of South Dakota attending a post-secondary school
located within or without the State of South Dakota, or (b)
a resident of a state other than the State of South Dakota
attending a post-secondary school located within the State
of South Dakota.
Although other types of Eligible Loans may be permitted to
be Financed under clause (B), in general, the descriptions
of Eligible Loans in this Prospectus (except for an
immaterial amount of non-Guaranteed Loans as shown herein
under "Characteristics of the Initial Financed Eligible
Loans -- Distribution of Financed Eligible Loans by
Guarantee Agency as of September 30, 1997") relate to those
described in clause (A). The Corporation has no current
plans to acquire other Eligible Loans described under clause
(B) and cannot predict what the terms of any such Eligible
Loans might be. However, a broad range of loans, including
loans which are not made under the Federal Family Education
Loan Program, may qualify as Eligible Loans under clause (B)
upon receiving the necessary approvals from the Rating
Agencies and Bond Counsel. Eligible Loans not made under the
Federal Family Education Loan Program may be insured by
other entities or uninsured.
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The Federal The Financed Student Loans will initially consist solely of,
Family and are expected at all times to consist primarily of,
Education Loan student loans originated pursuant to the Federal Family
Program Education Loan Program under the Higher Education Act.
Pursuant to the Federal Family Education Loan Program, each
such Financed Eligible Loan is guaranteed as to the payment
of at least 98% of principal and interest by a state or
private non-profit Guarantee Agency. The Guarantee Agencies
each have reinsurance contracts with the Secretary of the
United States Department of Education (the "Department of
Education"), pursuant to which the Department of Education
reimburses the Guarantee Agencies for such portions of
guarantee claims paid by the Guarantee Agencies as is
provided in the Higher Education Act. In addition, the
Department of Education is obligated to make certain
interest and other subsidy payments to the holders of such
Financed Eligible Loans. See "Description of the Federal
Family Educational Loan Program" for a more complete
description of the provisions of the Higher Education Act
that provide for such programs. The obligations of the
Guarantee Agencies to the holders of loans, such as the
Trustee, are payable from the general funds available to
each such Guarantee Agency, including reserve funds
maintained by the Guarantee Agencies as required by the
Higher Education Act. Certain delays in receiving
reimbursement could occur if a Guarantee Agency fails to
meet its obligations. In addition, failure to properly
originate or service an Eligible Loan can cause an Eligible
Loan to lose its guarantee and/or its eligibility for
federal interest payments and subsidies. See "Risk
Factors --Risk That Failure to Comply with Student Loan
Origination and Servicing Procedures for Financed Student
Loans May Result in the Department of Education's Refusal to
Make Certain Payments to Guarantee Agencies and the Trustee
and the Guarantee Agencies' Refusal to Make Guarantee
Payments to the Trustee" and " -- Risk That Financial Status
of Guarantee Agencies Will Affect Their Ability to Make
Guarantee Payments".
Student Loan The pool of Financed Student Loans included in the Trust
Portfolio Estate from time to time is sometimes referred to herein as
Characteristics the "Student Loan Portfolio." A description of the initial
Student Loan Portfolio expected to be Financed with the
proceeds of the Series 1997-1 Notes and pledged to the
Trustee on the Date of Issuance is included herein under
"Characteristics of the Initial Financed Eligible Loans."
The Corporation expects the Trustee to originate and acquire
additional Student Loans on behalf of the Corporation, and
Financed Student Loans may be sold and certain events may
occur with respect to individual Financed Student Loans.
Consequently, the Student Loan Portfolio characteristics are
expected to change during the period that the Series 1997-1
Notes are Outstanding. See "Risk Factors -- Changes in the
Assets of the Trust Estate, Including Future Funding of
Student Loans, Changing Characteristics of Financed Student
Loans, Financed Eligible Loans That are Not Made Under the
Federal Family Education Loan Program, and Financed Student
Loans That are Not Eligible Loans in the Surplus Account"
and "--Reduction in Amounts Available to Pay Notes Due to
the Variability of Actual Cash Flows and Due to the
Inability of Guarantee Agencies to Make Guarantee Payments,"
"Description of the Federal Family Education Loan Program,"
and "Characteristics of the Initial Financed Eligible
Loans".
Investment The Corporation expects that the proceeds of the Series
Agreements 1997-1 Notes that are deposited into the Reserve Fund and,
pending use to finance additional Student Loans, proceeds
that are deposited into the Acquisition Fund and not used on
the Date of Issuance to acquire Eligible Loans will be used
to acquire a series of investment agreements. The
Corporation also expects that amounts deposited in the
Revenue Fund, the Note Fund and the Surplus Fund relating to
the Series 1997-1 Notes also will be used to acquire a
series of investment agreements. Each investment agreement
will require the financial institution to which such amounts
are loaned (each, an "Investment Provider") to repay
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such amounts when requested by the Corporation or the
Trustee (subject to such limitations as may be provided
therein), and to pay interest on such amounts periodically.
Each Investment Provider will be a party which meets the
Rating Agencies' criteria for creditworthiness or which has
pledged collateral satisfactory to the Rating Agencies to
secure its repayment obligations. Such investment agreements
will be part of the Trust Estate securing the Series 1997-1
Notes.
Servicer and the SLFC shall act as the Servicer and custodian of the Financed
SLFC Servicing Student Loans. See "The Servicer" and "Certain
Agreement Relationships Among Financing Participants".
The Corporation and the Trustee will enter into a Servicing
Agreement, dated as of July 1, 1997 (the "SLFC Servicing
Agreement"), with SLFC. Pursuant to the SLFC Servicing
Agreement, SLFC agrees to provide services to the
Corporation and the Trustee in connection with the
origination and acquisition of Student Loans to be Financed,
and to service the Financed Student Loans. SLFC is required
to perform all services under the SLFC Servicing Agreement
in compliance with the Higher Education Act, applicable
requirements of the Guarantee Agencies and all other
applicable federal, state and local laws and regulations.
SLFC may perform all or part of its origination,
acquisition, and servicing activities through a
subcontractor (for which SLFC will be responsible).
SLFC also agrees to perform various administrative and
management activities on behalf of the Corporation,
including duties of the Corporation under the Indenture. The
SLFC Servicing Agreement subjects SLFC to various
obligations relating to audits, examinations and
inspections.
SLFC is required to be paid a monthly fee for the
performance of its functions under the SLFC Servicing
Agreement (from funds available for such purpose under the
Indenture) in an amount each month equal to 0.104167% of the
outstanding principal balance of all Financed Student Loans
as of the last day of the immediately preceding month. Such
fee is subject to adjustment under certain circumstances.
See "The SLFC Servicing Agreement."
Lenders With the exception of certain Consolidation Loans that have
been originated by the Original Issuer and certain Eligible
Loans that may be originated by the Trustee on behalf of the
Corporation, the Student Loans expected to be Financed have
been or will be originated by banks, savings and loan
associations, credit unions and other financial institutions
that qualify as "eligible lenders" under the Higher
Education Act. The Lenders have sold or will sell the
Student Loans to be Financed to the Original Issuer, or to
the Trustee on behalf of the Corporation, pursuant to
Student Loan Purchase Agreements.
Repurchases and Pursuant to each Student Loan Purchase Agreement, the Lender
Exchanges of Loans will be obligated to repurchase any Financed Eligible Loan
if: (i) any representation or warranty made or furnished by
such Lender in or pursuant to the Student Loan Purchase
Agreement shall prove to have been materially incorrect as
to such Financed Eligible Loan; (ii) the Department of
Education or a Guarantee Agency, as the case may be, refuses
to honor all or part of a claim filed with respect to a
Financed Eligible Loan on account of any circumstance or
event that occurred prior to the sale of such Financed
Eligible Loan to the Original Issuer or to the Trustee, on
behalf of the Original Issuer or the Corporation, as the
case may be; or (iii) on account of any circumstance or
event that occurred prior to the sale of a Financed Eligible
Loan to the Original Issuer or to the Trustee, on behalf
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of the Original Issuer or the Corporation, as the case may
be, a valid defense that makes the Financed Eligible Loan
unenforceable is asserted by a maker (or endorser, if any)
of the Financed Eligible Loan with respect to his or her
obligation to pay all or any part of the Financed Eligible
Loan.
The Financed Student Loans owned by the Original Issuer as
of the Date of Issuance, together with the Original Issuer's
rights under the related Student Loan Purchase Agreements,
will be assigned by the Original Issuer and acquired by the
Trustee under the Indenture, without recourse or warranty.
Neither the Corporation, the Trustee, nor any other party
will have any recourse to the Original Issuer in the event
any Financed Student Loan should fail to qualify as an
Eligible Loan or in any other circumstance.
The Indenture permits the Corporation to exchange Financed
Student Loans for other Eligible Loans which evidence
additional obligations of borrowers whose Student Loans have
already been Financed.
Funds and Pursuant to the Indenture, there will be established the
Accounts Acquisition Fund, the Revenue Fund, the Note Fund, the
Administration Fund, the Reserve Fund, the Rebate Fund and
the Surplus Fund.
Acquisition Fund The Indenture establishes the Acquisition Fund, within which
will be established a Series 1997-1 Tax Exempt Acquisition
Account and a Series 1997-1 Taxable Acquisition Account.
With respect to each series of Notes, the Trustee shall
credit to the Acquisition Fund the amount, if any, specified
in the Supplemental Indenture providing for the issuance of
such series of Notes (which amount, with respect to the
Series 1997-1 Notes, is described below). The Trustee shall
also deposit in the Acquisition Fund: (i) any funds to be
transferred thereto from the Surplus Fund, and (ii) any
other amounts specified in a Supplemental Indenture.
Balances in the Acquisition Fund shall be used only for (a)
the purchase or origination of Eligible Loans, (b) the
redemption of Notes which are called for redemption or the
purchase of Notes as provided in a Supplemental Indenture
providing for the issuance of such series of Notes, (c) the
payment of Debt Service on the Senior Notes and Other Senior
Obligations when due (upon transfer to the Note Fund), (d)
the payment of the purchase price of any Senior Notes
required to be purchased on a Purchase Date or a Mandatory
Tender Date (upon transfer to the Note Fund), or (e) to cure
deficiencies in the Rebate Fund. The Trustee shall make
payments to Lenders from the Acquisition Fund for the
acquisition of Eligible Loans (such payments to be made from
the Series 1997-1 Tax Exempt and Taxable Acquisition
Accounts at a purchase price not in excess of 100% of the
remaining unpaid principal amount of such Eligible Loan,
plus accrued noncapitalized borrower interest thereon, if
any, to the date of purchase, reasonable transfer,
origination or assignment fees, if applicable, and a premium
not to exceed certain limitations set forth in the
Indenture). The Trustee shall also make payments from the
Acquisition Fund for the origination of Eligible Loans.
The sum of $904,998,000 will be deposited in the Series
1997-1 Tax Exempt and Taxable Acquisition Accounts on the
Date of Issuance of the Series 1997-1 Notes and
approximately $589,273,000 of such amount will be used on
the Date of Issuance to refinance a portfolio of Eligible
Loans, which is described herein. See "Characteristics of
the Initial Financed Eligible Loans" herein. The remaining
proceeds deposited in the Series 1997-1 Tax Exempt and
Taxable Acquisition Accounts in the Acquisition Fund on the
Date of Issuance are expected to be used to acquire
additional Eligible Loans from
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<PAGE>
Lenders or to originate Eligible Loans on or before April
15, 2002. Proceeds deposited in the Series 1997-1 Tax Exempt
and Taxable Acquisition Accounts in the Acquisition Fund and
not used to purchase Eligible Loans may be transferred to
the Retirement Account and used to redeem Series 1997-1
Notes which are called for redemption.
Revenue Fund The Indenture establishes the Revenue Fund, which is
comprised of two Accounts: the Repayment Account and the
Income Account. The Trustee shall credit to the Revenue
Fund: (i) all amounts received as interest, including
federal interest subsidy payments, and principal payments
with respect to Financed Student Loans, including all
Guarantee Payments and all Special Allowance Payments with
respect to Financed Student Loans (excluding, except in the
case of the Eligible Loans to be Financed on the Date of
Issuance, any federal interest subsidy payments and Special
Allowance Payments that accrued prior to the date on which
such Student Loans were Financed), (ii) unless otherwise
provided in a Supplemental Indenture, proceeds of the resale
to a Lender of any Financed Student Loans pursuant to such
Lender's repurchase obligation under the applicable Student
Loan Purchase Agreement, (iii) all amounts received as
earnings on or income from Investment Securities in the
Acquisition Fund, the Reserve Fund, the Administration Fund,
the Surplus Fund and the Note Fund, and (iv) all amounts to
be transferred to the Revenue Fund from the Rebate Fund. The
Trustee shall deposit and credit all such amounts received
as payments of principal of Financed Student Loans to the
Repayment Account, and all other such amounts shall be
credited by the Trustee to the Income Account. The Indenture
requires the Trustee to transfer moneys on a monthly basis
(after taking into account any periodic rebate fee payment
required to be made in respect of Student Loans Financed
under the Indenture), first from the Repayment Account and
then from the Income Account, to the following Funds and
Accounts in the following order: the Rebate Fund, the
Interest Account for the payment of Senior Obligations, the
Principal Account for the payment of Senior Obligations, the
Retirement Account for the redemption of Senior Notes which
are called for redemption, the Interest Account for the
payment of Subordinate Obligations, the Principal Account
for the payment of Subordinate Obligations, the Retirement
Account for the redemption of Subordinate Notes which are
called for redemption, the Administration Fund (but only
from the Income Account), the Reserve Fund, the Principal
Account (relating to cumulative sinking fund installments
with respect to Subordinate Term Notes to be called for
redemption on a Sinking Fund Payment Date), the Special
Redemption and Prepayment Account and the Surplus Account.
In addition, any amounts payable by a Swap Counterparty
pursuant to a Swap Agreement are required to be credited
directly to the Interest Account.
Note Fund The Indenture establishes the Note Fund, which is comprised
of three Accounts: the Interest Account, the Principal
Account and the Retirement Account. The Note Fund shall be
used only for the payment when due of principal of, premium,
if any, and interest on the Senior Notes and the Subordinate
Notes, the purchase price of Senior Notes and Subordinate
Notes to be purchased on a Purchase Date or Mandatory Tender
Date in accordance with the Indenture, Other Indenture
Obligations and Carry-Over Amounts (including any accrued
interest thereon) and to make transfers to the credit of the
Rebate Fund. The principal of and interest on the Class C
Notes are payable from the Surplus Fund.
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Interest Account The Trustee shall deposit in the Interest Account (i) that
portion of the proceeds from the sale of Financed Student
Loans representing accrued interest and Special Allowance
Payments thereon, (ii) that portion of the proceeds from the
sale of the Corporation's bonds, notes or other evidences of
indebtedness, if any, to be used to pay interest on the
Senior Notes or the Subordinate Notes, (iii) all
Counterparty Swap Payments, (iv) all payments under any
Credit Enhancement Facilities to be used to pay interest on
(or the interest portion of the purchase price of) the Notes
and (v) all amounts required to be transferred thereto from
other Funds and Accounts, as described below.
To provide for the payment of each installment of interest
which falls due upon Senior Notes or Subordinate Notes on
each regularly scheduled Interest Payment Date and all
Corporation Swap Payments and fees to a Credit Facility
Provider payable on such Interest Payment Date, the Trustee
shall make deposits to the credit of the Interest Account on
each Monthly Payment Date (less certain credits against such
payments). If, on any Interest Payment Date (including a
Redemption Date or a date that Notes are to be purchased
that is not a regularly scheduled Interest Payment Date),
moneys in the Interest Account are insufficient to pay the
accrued interest due on the Senior Notes and Subordinate
Notes and all Corporation Swap Payments and fees to a Credit
Enhancement Facility Provider payable on such Interest
Payment Date or constituting a portion of the purchase price
of Notes to be so purchased, the Trustee shall deposit
immediately to the credit of the Interest Account an amount
equal to such deficiency by transfer from the following
Funds and Accounts, in the following order of priority: the
Revenue Fund, the Surplus Fund (other than that portion of
the Balance thereof consisting of Eligible Loans), the
Reserve Fund, the Administration Fund, the Surplus Fund
(including any portion of the Balance thereof consisting of
Eligible Loans), the Retirement Account, the Principal
Account and, as to Senior Notes and Other Senior Obligations
only, the Acquisition Fund (other than that portion of the
Balance thereof consisting of Student Loans); provided that
such transfers in respect of Subordinate Notes or Other
Subordinate Obligations shall be so made from the Principal
Account or the Retirement Account only if, and to the
extent, any amounts to be so transferred are in excess of
the requirements of such Accounts with respect to Senior
Obligations payable therefrom.
If, as of any regularly scheduled Interest Payment Date, any
Carry-Over Amount (including any accrued interest thereon)
is due and payable with respect to a series of Notes, as
provided in the related Supplemental Indenture, the Trustee
shall transfer to the Interest Account (to the extent
amounts are available therefor in the Surplus Account, after
taking into account all other amounts payable from the
Surplus Fund on such Interest Payment Date) an amount equal
to such Carry-Over Amount (including any accrued interest
thereon) so due and payable.
Balances in the Interest Account shall be transferred to the
credit of the Rebate Fund to the extent necessary, after
transfers thereto from the Revenue Fund, the Surplus Fund,
the Reserve Fund, the Administration Fund, the Retirement
Account and the Principal Account, to make any deposit to
the credit of the Rebate Fund required by the Indenture.
(See "Rebate Fund" below.)
Apart from transfers to the Rebate Fund and transfers to the
Principal Account as described under "Principal Account"
below, Balances in the Interest Account shall be applied,
first, to the payment of interest on all Senior Notes,
Corporation Swap Payments under Senior Swap Agreements and
fees payable to Senior Credit Facility Providers due on an
Interest Payment Date, and if such money (after the
transfers hereinabove described, including all amounts, to
the extent necessary, in the Principal Account) is less
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than such interest and Other Senior Obligations on such
Interest Payment Date, such money shall be applied, pro
rata, among such indebtedness based upon such amounts then
owing to Senior Beneficiaries and to be paid from the
Interest Account; second, to the payment of interest on all
Subordinate Notes, Corporation Swap Payments under
Subordinate Swap Agreements and fees payable to Subordinate
Credit Facility Providers due on an Interest Payment Date,
and if such money (after the transfers hereinabove
described, including all amounts, to the extent necessary,
in the Principal Account over and above the amount on
deposit therein to meet any accrued obligations to pay
principal of the Senior Notes or amounts, other than fees,
to Senior Credit Facility Providers) is less than such
interest and Other Subordinate Obligations on such Interest
Payment Date, such money shall be applied, pro rata, among
such indebtedness based upon such amounts then owing to
Subordinate Beneficiaries and to be paid from the Interest
Account; and third, to the payment of all Carry-Over Amounts
(including any accrued interest thereon) due and payable on
all series of Notes, and if such money is less than such
Carry-Over Amounts (including any accrued interest thereon)
on an Interest Payment Date, such money shall be applied,
pro rata, among such Carry-Over Amounts (including any
accrued interest thereon) based upon such amounts then
otherwise due and payable to Noteholders and to be paid from
the Interest Account.
Other Indenture Obligations payable from the Interest
Account would include reimbursement to any Credit Facility
Provider for interest paid on Senior Notes or Subordinate
Notes from amounts derived from the related Credit
Enhancement Facility, which reimbursement shall have the
same priority of payment from the Interest Account as the
interest so paid.
Principal Account The Trustee shall deposit to the credit of the Principal
Account: (i) that portion of the proceeds from the sale of
Financed Student Loans representing principal thereof, (ii)
that portion of the proceeds from the sale of the
Corporation's bonds, notes or other evidences of
indebtedness, if any, to be used to pay principal of the
Senior Notes and the Subordinate Notes, (iii) all payments
under any Credit Enhancement Facilities to be used to pay
principal of Senior Notes or Subordinate Notes or the
purchase price of Senior Notes or Subordinate Notes to be
purchased on a Purchase Date or Mandatory Tender Date, and
(iv) all amounts required to be transferred thereto from the
following Funds, in the following order of priority: (1) in
the case of payment of principal of Notes at Stated
Maturity, call of Senior Notes for redemption on a Sinking
Fund Payment Date or the purchase of Notes on a Purchase
Date or Mandatory Tender Date, the Revenue Fund, the Surplus
Fund (other than that portion of the Balance thereof
consisting of Eligible Loans), the Reserve Fund, the
Administration Fund and the Surplus Fund (including any
portion of the Balance thereof consisting of Eligible
Loans), and (2) in the case of call of Subordinate Notes for
redemption on a Sinking Fund Payment Date, the Revenue Fund
and the Surplus Fund (other than that portion of the Balance
thereof consisting of Eligible Loans); provided, however,
that if principal is payable on Senior Notes at the Stated
Maturity thereof or upon a Sinking Fund Payment Date
therefor, or the purchase price is payable on Senior Notes
on a Purchase Date or Mandatory Tender Date, and money
credited to the Principal Account, after the foregoing
transfers, is insufficient to pay such principal or purchase
price, funds shall be transferred, to the extent necessary,
to the Principal Account for this purpose, (i) from the
Interest Account, but only to the extent that the Balance in
the Interest Account exceeds any then accrued payments of
interest on the Senior Notes, Corporation Swap Payments
under Senior Swap Agreements and fees owing to Senior Credit
Enhancement Providers and (ii) thereafter from the
Acquisition Fund (other than that portion of the Balance
thereof consisting of Student Loans).
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To provide for the payment of principal due on the Stated
Maturity of Senior or Subordinate Serial Notes or on a
Sinking Fund Payment Date for Senior or Subordinate Term
Notes, the Trustee shall make deposits to the credit of the
Principal Account on each Monthly Payment Date from amounts
available therefor in the Revenue Fund and the other Funds
referred to above.
In the event that the Corporation is required to furnish
moneys to the Depositary to purchase Notes on a Purchase
Date or Mandatory Tender Date, the Trustee shall, subject to
the applicable provisions of the related Supplemental
Indenture, immediately deposit to the credit of the
Principal Account moneys sufficient to pay the purchase
price thereof.
Balances in the Principal Account shall be transferred to
the credit of the Rebate Fund to the extent necessary, after
transfers thereto from the Revenue Fund, the Surplus Fund,
the Reserve Fund, the Administration Fund and the Retirement
Account, to make any required deposit to the credit of the
Rebate Fund. (See "Rebate Fund" below.)
Balances to the credit of the Principal Account shall be
applied in the following order of priority: first, for
transfer to the Rebate Fund; second, to the Interest Account
to the extent required (see "Interest Account" above) for
the payment of interest on Senior Notes and Other Senior
Obligations payable therefrom; third, to the payment of
Senior Notes at their Stated Maturity or on their Sinking
Fund Payment Date and Other Senior Obligations payable
therefrom; fourth, to the payment of the purchase price of
Senior Notes on a Purchase Date or Mandatory Tender Date;
fifth, to the Interest Account to the extent required (see
"Interest Account" above) for the payment of interest on
Subordinate Notes and Other Subordinate Obligations payable
therefrom; sixth, to the payment of Subordinate Notes at
their Stated Maturity and Other Subordinate Obligations
payable therefrom; seventh, to the payment of the purchase
price of Subordinate Notes on a Purchase Date or Mandatory
Tender Date; and eighth, to the payment of Subordinate Term
Notes on a Sinking Fund Payment Date.
Other Indenture Obligations payable from the Principal
Account would include reimbursement to any Credit Facility
Provider for principal or the purchase price paid on Senior
Notes or Subordinate Notes from amounts derived from the
related Credit Enhancement Facility, which reimbursement
shall have the same priority of payment from the Principal
Account as the principal so paid.
Balances in the Principal Account may also be applied to the
purchase of Senior Notes or Subordinate Notes. Any such
purchase shall be limited to those Senior Notes or
Subordinate Notes whose Stated Maturity or Sinking Fund
Payment Date is the next succeeding Principal Payment Date.
Retirement The Trustee shall deposit to the credit of the Retirement
Account Account (i) any amounts transferred thereto from the Reserve
Fund and the Surplus Fund, (ii) that portion of the proceeds
from the sale of the Corporation's bonds, notes or other
evidences of indebtedness, if any, to be used to pay the
principal or Redemption Price of Senior Notes or Subordinate
Notes on a date other than the Stated Maturity thereof or a
Sinking Fund Payment Date therefor, and (iii) all payments
under any Credit Enhancement Facilities to be used to pay
the Redemption Price of Notes payable from the Retirement
Account. All Senior Notes or Subordinate Notes which are to
be retired, or the principal of which is to be prepaid,
other than with moneys in the Principal Account shall be
retired or prepaid with moneys deposited to the credit of
the Retirement Account.
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Balances in the Retirement Account shall be transferred to
the credit of the Rebate Fund to the extent necessary, after
transfers thereto from the Revenue Fund, the Surplus Fund,
the Reserve Fund and the Administration Fund, to make any
required deposit to the Rebate Fund. (See "Rebate Fund"
below.) After taking into account any such required
transfers to the Rebate Fund, Balances in the Retirement
Account shall be transferred to the credit of the Interest
Account to the extent required (see "Interest Account"
above) for the payment of interest on Notes and Other
Indenture Obligations payable therefrom.
Other Indenture Obligations payable from the Retirement
Account will include reimbursement to any Credit Facility
Provider for the Redemption Price paid on Senior Notes or
Subordinate Notes from amounts derived from the related
Credit Enhancement Facility, which reimbursement shall have
the same priority of payment from the Retirement Account as
the Redemption Price so paid.
Balances in the Retirement Account (other than any portion
thereof to be applied to the mandatory prepayment of
principal of any Notes) may also be applied to the purchase
of Senior Notes or Subordinate Notes.
Administration With respect to each series of Notes, the Trustee shall,
Fund upon delivery thereof and from the proceeds thereof, credit
to the Administration Fund established under the Indenture
the amount, if any, specified in the Supplemental Indenture
providing for the issuance of such series of Notes. The
Trustee shall also credit to the Administration Fund all
amounts transferred thereto from the Revenue Fund and the
Surplus Account. Amounts in the Administration Fund shall be
used to pay Costs of Issuance, Administrative Expenses and
Note Fees or to reimburse another fund, account or other
source of the Corporation for the previous payment of Costs
of Issuance, Administrative Expenses or Note Fees.
Balances in the Administration Fund shall also be applied to
remedy deficiencies in the Rebate Fund and the Note Fund
after transfers thereto from the Revenue Fund, the Surplus
Fund (other than that portion of the Balance thereof
consisting of Eligible Loans) and the Reserve Fund.
Deposits to the credit of the Administration Fund shall be
made from the following sources in the following order of
priority: the Income Account after transfers therefrom to
the Rebate Fund, the Interest Account, the Principal Account
(other than with respect to the payment of sinking fund
installments for Subordinate Notes), and the Retirement
Account; and the Surplus Account after transfers therefrom
to the Rebate Fund, the Interest Account, the Principal
Account (other than with respect to the payment of sinking
fund installments for Subordinate Notes) and the Retirement
Account, provided that any such deposit from the Surplus
Account shall only be made to the extent that portion of the
Balance thereof not consisting of Eligible Loans is
sufficient therefor.
Reserve Fund Immediately upon the delivery of any series of Senior Notes
or Subordinate Notes, and from the proceeds thereof or, at
the option of the Corporation, from any amounts to be
transferred thereto from the Surplus Fund, the Trustee shall
credit to the Reserve Fund the amount, if any, specified in
the Supplemental Indenture providing for the issuance of
that series of Notes, such that, upon issuance of such
Notes, the Balance in the Reserve Fund shall not be less
than the Reserve Fund Requirement, which is an amount
initially equal to the greater of 2% of the aggregate
principal amount of all Notes then Outstanding or $500,000.
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If on any Monthly Payment Date the Balance in the Reserve
Fund is less than the Reserve Fund Requirement, the Trustee
shall transfer and credit thereto an amount equal to the
deficiency from moneys available therefor in the following
Funds and Accounts in the following order of priority: the
Repayment Account, the Income Account and the Surplus Fund.
The Balance in the Reserve Fund shall be used and applied
solely for (i) transfers to the Rebate Fund to the extent
necessary, after transfers thereto from the Revenue Fund and
the Surplus Fund (other than that portion of the Balance
thereof consisting of Eligible Loans), to make any required
deposit to the Rebate Fund (see "Rebate Fund" below), and
(ii) after such transfer, if any, to be made pursuant to the
preceding clause (i) has been taken into account, the
payment when due of principal and interest on the Senior
Notes and the Subordinate Notes and any Other Indenture
Obligations and the purchase price of Senior Notes and
Subordinate Notes on a Purchase Date or Mandatory Tender
Date, and the other purposes specified in the Indenture (see
"Note Fund" above).
Rebate Fund The Indenture establishes the Rebate Fund into which the
Trustee is required to make annual deposits from Balances in
the Revenue Fund, the Surplus Fund, the Reserve Fund, the
Administration Fund, the Bond Fund and the Acquisition Fund,
in that order, equal to the amount computed under Section
148(f) of the Code as being subject to rebate to the United
States (the "Rebate Amount") and certain amounts
constituting Excess Earnings on the Financed Student Loans.
The Trustee is required to pay to the United States
Treasury, at least once every five years, an amount which
ensures that not less than 90% of the cumulative Rebate
Amount will have been paid to the United States Treasury.
The Trustee is required to consult with Bond Counsel and
take such action as may be required under the Code (which
may include forgiveness of principal of Financed Student
Loans or payments to the United States Treasury) with
respect to Excess Earnings. Under certain circumstances,
including delivery to the Trustee of a favorable opinion of
Bond Counsel, certain amounts determined not to be subject
to rebate or other disposition may be transferred from the
Rebate Fund to the Income Account.
Surplus Fund The Indenture establishes a Surplus Fund comprised of two
Accounts: the Special Redemption and Prepayment Account and
the Surplus Account. The Trustee shall deposit to the credit
of the Surplus Fund Balances in the Revenue Fund not
required for deposit to any other Fund or Account. Deposits
to the Surplus Fund from the Revenue Fund shall be credited
to the Special Redemption and Prepayment Account to the
extent the Balance thereof is less than the Special
Redemption and Prepayment Account Requirement for each
series of Notes, and otherwise to the Surplus Account.
Balances in the Surplus Fund shall be used first to make up
deficiencies in, or make required transfers to, the Rebate
Fund, the Note Fund, the Administration Fund and the Reserve
Fund. Balances in the Surplus Fund may also be applied, as
determined by the Corporation from time to time, to the
payment of principal of or interest on Class C Notes when
due or upon the call thereof for redemption at the option of
the Corporation, subject to meeting certain conditions
described in "Summary of the Indenture -- Funds and
Accounts -- Surplus Fund" are met.
If the Trustee shall have first certified that no
deficiencies exist in any of the Rebate Fund, the Note Fund,
the Reserve Fund or the Special Redemption and Prepayment
Account, and shall have received certain certifications from
the Corporation, Balances in the Surplus Account may be used
to redeem Notes which are called for redemption (including
Series 1997-1 Notes as described under "Description of
Series 1997-1 Notes --
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Special Call for Redemption -- From Moneys in the Surplus
Account") or to purchase Notes, or may be: (a) used to
acquire Student Loans meeting the requirements of clauses
(A) (1) and (2) or clause (B) of the definition of "Eligible
Loans" (see "Glossary of Certain Defined Terms"); or (b)
released from the Indenture to be used for certain other
authorized purposes; provided, however, that the Indenture
prohibits the use of the Surplus Account to acquire Student
Loans that are not Eligible Loans and for the purposes
specified in clause (b) above unless, after taking into
account any such application (i) the Senior Percentage will
be not less than 112%, and (ii) the Subordinate Percentage
will be not less than 102%; provided that such percentages
may be lower upon receipt of certain approvals from each
Rating Agency and, under certain circumstances, consent of
Other Beneficiaries.
Balances in the Special Redemption and Prepayment Account
may be transferred to the credit of the Retirement Account
to redeem Senior Notes or Subordinate Notes which are called
for redemption or to prepay Senior Notes or Subordinate
Notes as provided in a Supplemental Indenture relating
thereto (provision for which, in the case of the Taxable
LIBOR Rate Series 1997-1 Notes has been made in the First
Supplemental Indenture and is described under "Prepayment of
Taxable LIBOR Rate Series 1997-1 Notes" above) or to the
Acquisition Fund for the acquisition or origination of
Eligible Loans as provided in the Indenture and as further
authorized or limited in a Supplemental Indenture. Balances
in the Special Redemption and Prepayment Account (other than
any portion thereof to be applied to the mandatory
prepayment of principal of any Notes) may also be
transferred to the Note Fund for the purchase of Notes.
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Flow of Revenues in the Funds and Accounts
[CHART APPEARS HERE]
The above chart is intended to illustrate, in simple form, the flow of revenues
to and from the Funds and Accounts under the Indenture. For a more detailed
description of such flow of funds, see "Source of Payment and Security for
the Notes -- Description of Flow of Revenues in the Funds" and "Summary of the
Indenture -- Funds and Accounts."
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Additional Parity The Corporation may, upon complying with the provisions of
Notes the Indenture, issue from time to time Additional Notes or
incur certain other Indenture Obligations secured by the
Trust Estate on a parity with or subordinate to the Senior
Notes. Any Additional Notes will not be offered or sold
pursuant to this Prospectus. See "Summary of the Indenture"
herein.
Subordination The rights of the Series 1997-1 Subordinate Noteholders to
receive payments with respect to the Notes will be
subordinated to such rights of the Series 1997-1 Senior
Noteholders and any other Senior Beneficiaries to the extent
described in this Prospectus. This subordination is intended
to enhance the likelihood of timely receipt by the Series
1997-1 Senior Noteholders of the full amount of scheduled
payments of principal and interest due them. Thus, payments
of interest and principal on the Series 1997-1 Subordinate
Notes will be made when due (on a parity basis with any
other Subordinate Obligations) only to the extent there are
sufficient monies available for such payment, after making
all payments due on such date with respect to the Senior
Obligations. So long as Senior Obligations remain
Outstanding under the Indenture, the failure to make
interest or principal payments on the Series 1997-1
Subordinate Notes will not constitute an Event of Default
under the Indenture. Payments of principal and interest on
the Series 1997-1 Subordinate Notes would be similarly
subordinated to Senior Obligations if the Notes were
accelerated because of an Event of Default.
The Series 1997-1 Subordinate Notes are also subordinated to
the Series 1997-1 Senior Notes and any other Senior
Obligations as to the direction of remedies upon default.
Federal Income Tax In the opinion of Dorsey & Whitney LLP, the Series 1997-1
Treatment of Notes will be treated as debt of the Original Issuer (and
Series 1997-1 upon the assumption by the Corporation of the Original
Notes Issuer's obligations under the Indenture, as debt of the
Corporation), rather than as an interest in the Financed
Student Loans and other Trust Estate assets, for federal
income tax purposes. As such, the owners of the Taxable
Series 1997-1 Notes will be required to include in income
interest on such Taxable Series 1997-1 Notes as paid or
accrued, in accordance with their respective accounting
methods and the provisions of the Code. See "Tax Matters --
Federal Income Tax Consequences".
Exclusion of In the opinion of Dorsey & Whitney LLP, as Bond Counsel,
Interest on Tax under existing laws, regulations, rulings and decisions,
Exempt Series interest on the Tax Exempt Series 1997-1 Notes is not
1997-1 Notes includable in the gross income of the owners thereof for
from Gross Income federal income tax purposes. Interest on the Tax Exempt
Series 1997-1 Notes is an item of tax preference which is
included in alternative minimum taxable income for purposes
of the federal alternative minimum tax applicable to all
taxpayers, and is includable in certain other taxes imposed
upon corporations. For a more detailed description of the
tax status of the interest on the Tax Exempt Series 1997-1
Notes, Bond Counsel's opinion with respect thereto
(including its reliance on the Original Issuer's, SLFC's and
the Corporation's compliance with covenants made by them to
satisfy certain requirements of the Code) and certain income
tax consequences of Tax Exempt Series 1997-1 Note ownership,
see "Tax Matters -- Tax Exempt Series 1997-1 Notes".
ERISA The Series 1997-1 Notes are eligible for purchase by or on
Considerations behalf of employee benefit plans, retirement arrangements,
individual retirement accounts and Keogh Plans, subject to
certain considerations discussed under "ERISA
Considerations".
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Ratings It is a condition to the issuance of the Series 1997-1 Notes
that the Series 1997-1 Senior Notes each be rated "AAA" by
Fitch Investors Service, L.P. and "Aaa" by Moody's Investors
Services, Inc., and that the Series 1997-1 Subordinate Notes
each be rated no less than "A" by Fitch and "A3" by Moody's.
The ratings of each series of Series 1997-1 Notes address
the likelihood of the timely payment of principal and
interest on such Series 1997-1 Notes. The ratings do not
address the market liquidity of Series 1997-1 Notes or the
likelihood of prepayments of the Series 1997-1 Notes. 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. See "Ratings".
Registration of The Series 1997-1 Notes of each series initially will be
Notes represented by one or more certificates registered in the
name of Cede & Co., as a nominee of DTC. No person acquiring
an interest in such Notes will be entitled to a definitive
certificate representing such person's interest, except in
the event that definitive securities are issued under the
limited circumstances described herein. See "Description of
Series 1997-1 Notes -- Book-Entry-Only System".
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RISK FACTORS
Prospective investors should consider, among other things, the
following factors regarding the purchase of the Series 1997-1 Notes.
The Series 1997-1 Notes are Limited Recourse Obligations and Limited Assets of
the Corporation are Available for the Payment of the Series 1997-1 Notes
The Corporation is a special purpose corporation and the Series 1997-1
Notes will represent obligations solely of the Corporation. The Series 1997-1
Notes are not insured or guaranteed by any government agency or instrumentality,
by any affiliate of the Corporation, by any insurance company or by any other
person or entity. The Corporation will have no significant assets available to
make payment on the Series 1997-1 Notes other than the Trust Estate pledged as
collateral for the Notes under the Indenture. Moreover, the Series 1997-1 Notes
are limited obligations of the Corporation, payable solely from the Trust Estate
and not from any other assets which the Corporation may have or any other
revenues to which the Corporation may be entitled. The Trust Estate will not
have, nor is it expected to have, any significant assets or sources of funds
other than the Financed Student Loans, the Acquisition Fund, the Reserve Fund
and the other Funds and Accounts. Payments on the Series 1997-1 Notes will
depend solely on the amount and timing of payments and collections in respect of
the Financed Student Loans, investment earnings on the various Funds and
Accounts established pursuant to the Indenture, amounts on deposit in the
Reserve Fund and the other Funds and Accounts, and the payment priority of the
Series 1997-1 Notes, any Additional Notes to be issued in the future and any
credit enhancement obtained with respect to such Additional Notes. (Any
Additional Notes will not be offered or sold pursuant to this Prospectus.)
There will be no additional recourse to the Corporation or any other person if
such proceeds are insufficient. As a result, Noteholders must depend on the
cash flow with respect to the Financed Student Loans and funds on deposit in the
Acquisition Fund, the Reserve Fund and the other Funds and Accounts for payment
of principal of and interest on the Series 1997-1 Notes.
Holders of the Series 1997-1 Subordinate Notes are Subordinate in Payment
Priority and as to the Direction of Remedies
Payments of principal of and interest on the Series 1997-1 Subordinate
Notes are subordinated in priority of payment to payments of principal of and
interest on the Series 1997-1 Senior Notes and any other Senior Obligations that
may be outstanding from time to time. See "Source of Payment and Security for
the Notes". The Series 1997-1 Subordinate Notes are also subordinated to the
Series 1997-1 Senior Notes and any other Senior Obligations as to the direction
of remedies upon an Event of Default.
Failure to Comply with Student Loan Origination and Servicing Procedures for
Financed Student Loans May Result in the Department of Education's Refusal to
Make Certain Payments to Guarantee Agencies and the Trustee and the Guarantee
Agencies' Refusal to Make Guarantee Payments to the Trustee
The Higher Education Act requires lenders and their agents making and
servicing student loans under the Federal Family Education Loan Program and
Guarantee Agencies guaranteeing such student loans to follow specified
procedures, including due diligence procedures, to ensure that such student
loans are properly originated, disbursed and collected. Certain of those
procedures, which are specifically set forth in the Higher Education Act, are
summarized herein. See "Description of Financed Eligible Loan Program" and
"Description of the Federal Family Education Loan Program." Generally, those
procedures require that completed loan applications be processed, a
determination of whether an applicant is an eligible borrower under the Higher
Education Act be made, the borrower's responsibilities under the loan be
explained to him or her, the promissory note evidencing the loan be executed by
the borrower and the loan proceeds be disbursed by the lender in a specified
manner. After the loan is made, the lender must establish repayment terms with
the borrower, properly administer deferments and forbearances and credit the
borrower for payments made. If a borrower becomes delinquent in repaying a
loan,
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a lender must perform certain collection procedures (including numerous
telephone calls and demand letters, skip-tracing procedures, and requesting
assistance from the applicable Guarantee Agency) which vary depending upon the
length of time a loan is delinquent.
The Corporation believes that the Original Issuer has followed these
procedures in its acquisition, servicing and collection of the Eligible Loans to
be Financed. In addition, SLFC will agree in the SLFC Servicing Agreement to
perform origination, servicing and collection procedures on behalf of the
Trustee and the Corporation in compliance with those procedures. However,
failure of the Original Issuer to have followed these procedures with respect to
the existing Student Loan Portfolio, failure of SLFC or any successor Servicer
to follow these procedures or failure of any Lender or any other originator or
Servicer of the Financed Student Loans to have followed or to follow these
procedures with respect to any Financed Student Loans may result in the
Department of Education's refusal to make reinsurance payments to the Guarantee
Agencies or to make Special Allowance Payments or Interest Subsidy Payments to
the Trustee with respect to such Financed Student Loans or in the Guarantee
Agencies' refusal to make payments under their Guarantee Agreements with the
Trustee ("Guarantee Payments") with respect to such Financed Student Loans.
Failure of the Guarantee Agencies to receive reinsurance payments from the
Department of Education could adversely affect the Guarantee Agencies' ability
or legal obligation to make Guarantee Payments to the Trustee. Loss of any such
Guarantee Payments, Special Allowance Payments or Interest Subsidy Payments with
respect to Financed Student Loans could adversely affect the amount of revenues
under the Indenture and the Corporation's ability to pay principal of and
interest on the Series 1997-1 Notes. See "Description of the Federal Family
Education Loan Program."
No Recourse Exists Against the Original Issuer for Any Failures to Comply with
Origination and Servicing Procedures Relating to the Financed Student Loans
The transfer of the original portfolio of Financed Student Loans from
the Original Issuer to the Trustee is without recourse. Neither the Corporation
nor the Trustee will have any right to resell the Financed Student Loans to the
Original Issuer or otherwise to make recourse to or collect from the Original
Issuer if such Financed Student Loans should fail to meet the requirements of an
Eligible Loan for any reason or if such transfer should fail to provide the
Trustee with good title to such Financed Student Loans.
The failure of any Financed Student Loan to conform to all of the
requirements of the Higher Education Act or the Guarantee Agencies with respect
thereto could result in the loss of the Trustee's right to receive Guarantee
Payments, Special Allowance Payments, and/or Interest Subsidy Payments with
respect to such Financed Student Loan.
Changes in Law Could Adversely Affect the Federal Family Education Loan Program
and the Financed Student Loans
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 herein and the loans made
thereunder, including the Financed Student Loans or the Guarantee Agencies. The
Federal Family Education Loan Program has been the subject of numerous
amendments and proposed amendments to the Higher Education Act, including
amendments designed to reduce the federal budget deficit. Amendments to the
Higher Education Act in the past several years have reduced the portion of loans
covered by Guarantee Payments and the portion of Guarantee Payments covered by
reinsurance, reduced certain administrative expense allowances paid by the
Department of Education to Guarantee Agencies, reduced the premiums and default
collections that Guarantee Agencies are entitled to receive and/or retain, and
given the Department of Education broad powers over Guarantee Agencies and their
reserves, including the authority to require a Guarantee Agency to pay a portion
or all reserve funds to the Department of Education in certain circumstances.
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Several proposals have been made by Congress and the Administration to
amend the Higher Education Act, including proposals that would significantly
alter the Federal Family Education Loan Program and the roles of its
participants. It is impossible to predict whether any such proposals will be
adopted as legislation or, if so, what impact such legislation may have on the
Corporation's or Trustee's receipt of revenues with respect to Financed Student
Loans.
The Competing Federal Direct Student Loan Program May Result in Higher Servicer
Costs Because of Reduced Economies of Scale; a Smaller Secondary Market and
Reduced Value for Financed Student Loans; and Higher Prepayments of Financed
Student Loans Through Consolidations
The Higher Education Act provides for a Federal Direct Student Loan
Program. This program, established in academic year 1994-1995, has a statutory
target volume of 60% of student loan demand in academic year 1998-1999, which
could result in reductions in the volume of loans made under the Federal Family
Education Loan Program. As the Federal Direct Student Loan Program expands, the
Servicer may experience increased costs due to reduced economies of scale to the
extent the volume of new loans serviced by the Servicer is reduced. Such cost
increases could affect the ability of the Servicer to satisfy its obligations to
service the Financed Eligible Loans. Such volume reductions could also reduce
revenues received by the Guarantee Agencies available to pay claims on defaulted
Eligible Loans. Finally, the level of competition currently in existence in the
secondary market for loans made under the Federal Family Education Loan Program
could be reduced, resulting in fewer potential buyers of the Eligible Loans and
lower prices available in the secondary market for those loans. Further, the
Department of Education has implemented a direct consolidation loan program,
which program may further reduce the volume of loans made under the Federal
Family Education Loan Program and is expected to result in prepayments of
Financed Student Loans. See "Description of the Federal Family Education Loan
Program."
Additional Notes May be Issued Without Noteholder Consent
The Corporation may, from time to time pursuant to the provisions of
the Indenture, issue Additional Notes or incur other Indenture Obligations
secured by the Trust Estate on a parity with or subordinate to the Series 1997-1
Senior Notes and senior to, on a parity with or subordinate to the Series 1997-1
Subordinate Notes, as determined by the Corporation, without the consent or
approval of the Holders of any Notes then Outstanding. While the Indenture
requires that the Corporation satisfy certain conditions, including, but not
limited to, the condition that the issuance of the Additional Notes will not
adversely affect the ratings on the then outstanding Notes, if Additional Notes
are issued and the Financed Student Loans acquired with the proceeds of such
Additional Notes do not produce sufficient revenue to pay principal of and
interest on those Additional Notes, it may result in a delay in or reduction of
payments on the Series 1997-1 Notes. Moreover, if Additional Notes are issued
and an Event of Default occurs with respect to such Additional Notes and such
Event of Default is not cured or waived, then all Notes which are then
outstanding, including the Series 1997-1 Notes, are subject to acceleration.
Any Additional Notes will not be offered or sold pursuant to this Prospectus.
This Prospectus relates only to the Series 1997-1 Notes. See "Additional Notes"
herein.
The Interest Rates on Financed Student Loans and Other Investments May be
Insufficient to Cover Interest on the Series 1997-1 Notes (Other Than Tax Exempt
Fixed Rate Series 1997-1 Senior Notes and Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes) Due to Rate-Index Difference
The interest rates with respect to the Series 1997-1 Notes (other than
the Tax Exempt Fixed Rate Series 1997-1 Senior Notes and the Tax Exempt Fixed
Rate Series 1997-1 Subordinate Notes) may fluctuate from one interest period to
another in response to changes in benchmark rates or general market conditions.
The Corporation can make no representation as to what such rates may be in the
future. The interest rates on each series of Auction Rate Series 1997-1 Senior
Notes will be based generally on the outcome of each Auction of such series of
Notes. The interest rates on each series of Taxable LIBOR Rate Series 1997-1
Notes will be based generally on One-Month LIBOR. The Financed Student Loans,
however, generally bear interest at an effective rate (taking into account any
Special Allowance Payments, the "Loan Rates") equal to the average bond
equivalent rates of weekly auctions of
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91-day Treasury bills for each quarter (the "91-day Treasury Bill Rate") (or, in
certain circumstances, 52-week Treasury bills) plus margins specified for such
Financed Student Loans. See "Description of the Federal Family Education Loan
Program -- Loan Terms -- Interest Rates" and " -- Federal Special Allowance
Payments." As a result of these differences between the indices used to
determine the Loan Rates and the interest rates on the variable rate Series
1997-1 Notes, there could be periods of time when the Loan Rates are inadequate
to cover the interest on the Series 1997-1 Notes and expenses required under the
Indenture. Moreover, the Net Loan Rate will be determined as of a date as much
as two months prior to the determination of the rates borne by the variable rate
Taxable Series 1997-1 Notes. Thus, in a period of rapidly rising interest
rates, the Net Loan Rate may not increase as quickly as the variable interest
rates with respect to the Taxable Series 1997-1 Notes. To the extent that the
Loan Rates decrease or do not increase as fast as the variable interest rates
with respect to the Taxable Series 1997-1 Notes, the interest rates with respect
to such Taxable Series 1997-1 Notes may be limited to the Net Loan Rate or may
be deferred to future periods. There can be no assurance that sufficient funds
will be available in future periods to make up for any shortfalls in the current
payments of interest on the Taxable Series 1997-1 Notes. Further, if there is a
decline in the Loan Rates, the amount of funds representing interest deposited
into the Trust Estate may be reduced and, even if there is a similar reduction
in the variable interest rates applicable to any series of Series 1997-1 Notes,
there may not necessarily be a similar reduction in the other amounts required
to be funded out of such funds (such as certain administrative expenses). In
addition, proceeds of and revenues relating to the Series 1997-1 Notes in the
Reserve Fund, the Acquisition Fund, the Revenue Fund, the Note Fund and the
Surplus Fund will be used to acquire investment agreements at fluctuating
interest rates. Although the Corporation will structure such investment
agreements to minimize such risk, there can be no assurance that the interest
rates on such investment agreements will keep pace with the fluctuating interest
rates on the Series 1997-1 Notes.
Changes in Repayment Terms of Financed Student Loans Pursuant to Incentive
Program.
The Original Issuer currently makes available and the Corporation may
hereafter make available certain incentive programs to borrowers. It cannot be
predicted with certainty how many borrowers will qualify or decide to
participate in these programs. The effect of these incentive programs may be to
reduce the yield on the Financed Student Loans. Reductions in the yield on the
Financed Student Loans resulting from such incentive programs will result in a
reduction of the Net Loan Rate. There is no assurance that the Net Loan Rate
(and thus the interest rate on the Taxable Series 1997-1 Notes) will not be
reduced below the rates that would otherwise be borne by such Notes.
Changes in the Assets of the Trust Estate, Including Future Funding of Student
Loans, Changing Characteristics of Financed Student Loans, Financed Eligible
Loans That are Not Made Under the Federal Family Education Loan Program and
Financed Student Loans That are Not Eligible Loans in the Surplus Account
The initial Student Loan Portfolio to be Financed on the Date of
Issuance with a portion of the proceeds of the Series 1997-1 Notes is described
herein under "Characteristics of the Initial Financed Eligible Loans." The
investment agreements which will be acquired on the Date of Issuance with the
remaining proceeds of the Series 1997-1 Notes are described herein under
"Application of Series 1997-1 Note Proceeds." After the Date of Issuance, the
Corporation intends to cause the Trustee to purchase Financed Eligible Loans
from Lenders and to originate Eligible Loans from amounts initially deposited in
the Acquisition Fund and used to acquire such investment agreements (upon
repayment of such amounts pursuant to such investment agreements). The actual
characteristics of the Student Loan Portfolio will change from time to time due
to factors such as adjustments made in the normal course of business, amendments
to the Higher Education Act, changes in the classifications of Eligible Loans,
sales or exchanges of Eligible Loans by the Trustee on behalf of the
Corporation, scheduled amortization, prepayment or the occurrence of
delinquencies or defaults. In addition, the Indenture allows the Corporation to
apply balances in the Surplus Account to the acquisition of Student Loans that
do not qualify as Eligible Loans. See "Summary of the Indenture - Funds and
Accounts - Surplus Fund." Moreover, though all Financed Eligible Loans will
initially be loans made under the Federal Family Education Loan Program,
Eligible Loans that are not made under such
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program may be Financed in the future and such other Eligible Loans may have
different features and be of lesser credit quality. Among possible differences,
such loans may be Guaranteed at lesser reimbursement rates by the Guarantee
Agencies, may be insured by private entities or uninsured, may have different
interest rates and repayment terms, and may not have any third party subsidies.
If Student Loans are Financed which are not Eligible Loans (whether or not made
under the Federal Family Education Loan Program), they may have no third party
guarantee or eligibility for interest subsidies and Special Allowance Payments,
and thus may bear a lower rate of return and a greater risk of loss from
borrower default in payment.
Reliance Upon Lenders' Representations and Warranties Relating to Financed
Student Loans Without Conducting Complete Individual Student Loan Document
Examinations
The Original Issuer has acquired the majority of the initial Student
Loan Portfolio, and the Corporation expects to cause the Trustee to acquire
additional Financed Eligible Loans, from Lenders pursuant to Student Loan
Purchase Agreements under which each Lender has agreed or will agree to sell to
the Original Issuer or to the Trustee, on behalf of the Corporation, Eligible
Loans which comply with certain representations and warranties. The Student
Loan Purchase Agreements provide for the repurchase by the Lender of Financed
Student Loans that do not comply with such representations and warranties.
However, neither the Original Issuer, SLFC nor the Corporation has conducted or
will conduct an examination of documents relating to the Eligible Loans to be
Financed of sufficient scope to determine whether the Lenders who have sold such
Eligible Loans to the Original Issuer, or will sell such Eligible Loans to the
Trustee on behalf of the Corporation, have met or will have met all the
conditions of the Higher Education Act necessary for such loans to qualify for
Guarantee Payments from the applicable Guarantee Agency. Moreover, no assurance
can be given that any Lender will honor, or be able to honor, its obligations to
sell Eligible Loans to the Trustee or to repurchase non-conforming Student
Loans, or that the Trustee would be able to acquire Eligible Loans in an
equivalent amount, with similar characteristics or at comparable prices from
other sources in the event that any Lenders fail to sell Eligible Loans to the
Trustee or are required to repurchase Financed Student Loans.
Inability of Lenders to Honor Their Obligations to Repurchase Financed Student
Loans
Under the circumstances set forth in the Student Loan Purchase
Agreements, a Lender may be obligated to repurchase Financed Student Loans from
the Trustee. If a Lender were to become insolvent or otherwise be unable to
repurchase such Financed Student Loans, it is unlikely that a repurchase of such
Financed Student Loan from the Trustee would occur. The failure of such a
Lender to repurchase a Financed Student Loan would constitute a breach of the
respective Student Loan Purchase Agreement, enforceable by the Trustee, but
would not constitute an Event of Default under the Indenture or permit the
exercise of remedies thereunder.
Geographically Concentrated Borrowers May be Subject to Regional Economic
Conditions that Adversely Affect Their Ability to Repay Student Loans
Although the Original Issuer has not experienced any geographical
risks, it is possible that geographically concentrated borrowers will be subject
to economic risks specific to their region which could adversely affect their
ability to repay Student Loans. See "Characteristics of the Initial Financed
Eligible Loans -- Distribution of Financed Eligible Loans by Borrowers' Address
as of September 30, 1997 (Based on Address as of October 1, 1997)."
Possible Loss of Tax Exemption of the Interest on the Tax Exempt Series 1997-1
Notes
Provisions of the Code impose continuing requirements that must be met
after the issuance of the Tax Exempt Series 1997-1 Notes for interest thereon to
be and remain excludable from gross income for federal income tax purposes.
Noncompliance with such requirements may cause the interest on the Tax Exempt
Series 1997-1 Notes to be includable in gross income for such purposes, either
prospectively or retroactively to the date of issuance of the Tax Exempt Series
1997-1 Notes. These requirements include, but are not limited to, provisions
that prescribe that the proceeds of the Tax Exempt Series 1997-1 Notes and
certain other amounts are subject to yield
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and other investment limits and provisions that require that certain investment
earnings be rebated on a periodic basis to the Treasury Department of the United
States. These provisions limit the return to which the Corporation is entitled
from investments allocable to the Tax Exempt Series 1997-1 Notes (1) in the case
of Student Loans, generally to 2% in excess of the yield on the Tax Exempt
Series 1997-1 Notes, and (2) in the case of other investments, generally to the
yield on the Tax Exempt Series 1997-1 Notes. To the extent such investments are
permitted to, and do, produce a yield in excess of such limitations, such excess
would generally be required to be rebated to the Treasury Department every five
years.
In addition, Section 150(d)(3) of the Code contains numerous
provisions that must be complied with at and after the time an election under
such section is made for interest on the Tax Exempt Series 1997-1 Notes to be
and remain excludable from gross income. Although the Original Issuer and the
Corporation believe that the issuance of the Series 1997-1 Notes, the
organization of SLFC and the Corporation, and the transfers of assets and
assumptions of obligations described herein under "The Original Issuer" and "The
Corporation" will comply with the requirements of Section 150(d)(3) of the Code,
no determination has been obtained or is expected to be sought from the Internal
Revenue Service with respect to such compliance. Moreover, the Original Issuer
believes that it will be the first entity to make the election provided for in
Section 150(d)(3) of the Code, and no established practices have developed nor
have any regulations or other guidance been published by the Internal Revenue
Service.
It is possible that future action or inaction by the Corporation, SLFC
or the Original Issuer could cause the inclusion of interest on the Tax Exempt
Series 1997-1 Notes in gross income for federal income tax purposes (in some
cases retroactively to the date of their original issuance). In such event, it
is probable that certain (and possibly all) of the interest payments received by
owners of Tax Exempt Series 1997-1 Notes would be subject to Federal income
taxes, thereby having the effect of reducing (possibly substantially) the
effective, after-tax yield on their investment in the Tax Exempt Series 1997-1
Notes.
Insolvency of the Original Issuer, SLFC or the Corporation
The Corporation has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by the Original Issuer or SLFC under the
United States Bankruptcy Code or other insolvency laws, as the case may be
("Insolvency Laws"), will not result in consolidation of the assets and
liabilities of the Corporation with those of the Original Issuer and/or SLFC.
These steps include the creation of the Corporation as a separate, limited-
purpose subsidiary of SLFC pursuant to a certificate of incorporation containing
certain limitations (including restrictions on the nature of the Corporation's
business and a restriction on the Corporation's ability to commence a voluntary
case or proceeding under any Insolvency Law without the prior unanimous
affirmative vote of all of its directors, including at least two directors who
must be independent of the Corporation and its affiliates). However, there can
be no assurance that the activities of the Corporation would not result in a
court concluding that the assets and liabilities of the Corporation should be
consolidated with those of the Original Issuer or SLFC in a proceeding under any
Insolvency Law. If a court were to reach such a conclusion or if a filing were
made under any Insolvency Law by or against the Corporation, or if an attempt
were made to litigate any of the foregoing issues, then delays in payments on
the Notes could occur or reductions in the amounts of such payments could
result. See "The Original Issuer", "The Corporation" and "Certain Relationships
Among Financing Participants."
The Original Issuer will transfer all of its rights and interest in
and to the Financed Student Loans (subject to the lien of the Trustee under the
Indenture) to SLFC, and SLFC will in turn transfer all such rights and interest
in and to the Financed Student Loans to the Corporation.
The Original Issuer intends that its transfer of the Financed Student
Loans to SLFC constitute a sale of all of the Original Issuer's rights in such
Financed Student Loans (subject to the lien of the Trustee under the Indenture),
rather than a pledge to secure indebtedness. Similarly, SLFC intends that its
transfer of the Financed Student Loans to the Corporation constitute a sale of
all of SLFC's rights in such Financed Student Loans, rather
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than a pledge to secure indebtedness. Dorsey & Whitney LLP, counsel to the
Original Issuer and SLFC, will deliver a legal opinion of the effect that,
subject to the qualifications and limitations expressed therein, the transfers
of the Financed Student Loans from the Original Issuer to SLFC and from SLFC to
the Corporation each constitute a true sale, rather than a pledge to secure
indebtedness, and that the Financed Student Loans would not be considered
property of the Original Issuer or SLFC should either entity thereafter become
subject to any Insolvency Law.
If, however, the Original Issuer or SLFC were to become subject to any
Insolvency Law and a creditor or trustee-in-bankruptcy of the Original Issuer or
SLFC were to take the position that the sale of the Financed Student Loans by
the Original Issuer to SLFC or by SLFC to the Corporation, as appropriate,
should instead be treated as a pledge of such interest to secure a borrowing
from SLFC or the Corporation, as appropriate, delays in payments on the Notes
from collections on Financed Student Loans could occur or (should the court rule
in favor of the Original Issuer or SLFC, as appropriate, or such creditor)
reductions in the amounts of such payments could result.
Upon the occurrence of any of certain events of bankruptcy or insolvency
with respect to the Corporation, the Financed Student Loans may be liquidated.
The proceeds from any such liquidation of Financed Student Loans would be
treated as collections on the Financed Student Loans and deposited in the
Revenue Fund. There can be no assurance that the proceeds from the liquidation
of the Financed Student Loans and amounts (if any) on deposit in the Reserve
Fund and the other Funds and Accounts held under the Indenture would be
sufficient to pay the Notes in full. See "Summary of the Indenture--Events of
Default."
As the Servicer of the Financed Student Loans, the insolvency of SLFC may
result in a disruption in the servicing of the Financed Student Loans and the
receipt of payments with respect thereto, and also may result in a failure to
comply with servicing requirements of the Department of Education and the
Guarantee Agencies.
Failure to Comply with the Original Issuer's Plan for Doing Business May Result
in the Department of Education Refusing to Make Special Allowance Payments with
Respect to Financed Student Loans or Seeking to be Reimbursed for Prior Special
Allowance Payments
The Higher Education Act provides that, for holders of Federal Family
Education Loan Program loans that are financed with tax exempt debt to be
eligible for Special Allowance Payments with respect to such loans, the issuer
of the debt must adopt, obtain approval of, and comply with, a plan for doing
business meeting the requirements of the Higher Education Act. The Original
Issuer has adopted, and the Governor of the State of South Dakota has approved,
such a plan. Because the Original Issuer expects to terminate its participation
in the Federal Family Education Loan Program, the Original Issuer will no longer
be capable of carrying out certain provisions of such plan for doing business.
The Original Issuer, SLFC, and the Corporation will each covenant to comply with
the provisions of such plan for doing business that apply to their respective
operations. However, if any such party fails to comply with such provisions of
the plan for doing business, or if the Original Issuer failed to comply in the
past with all provisions of its plan for doing business, or if the Department of
Education determines that the Original Issuer's plan for doing business or the
reallocation of responsibilities thereunder in connection with the Original
Issuer's election under Section 150(d)(3) of the Code does not comply with the
Higher Education Act, Financed Student Loans could lose their eligibility for
Special Allowance Payments and the Original Issuer, the Corporation and/or the
Trustee may be required to repay Special Allowance Payments theretofore made to
the Original Issuer or the Trustee with respect to Financed Student Loans.
Depending on the amount involved, loss of Special Allowance Payments or required
repayment of Special Allowance Payments could have a materially adverse affect
on the Corporation's ability to pay the principal of and interest on the Series
1997-1 Notes.
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Use of a Shared Lender Identification Number May Result in The Guarantee
Agencies and the Department of Education Offsetting Against Guarantee Payments
and Other Federal Benefit Payments Owed to the Trustee
Due to Department of Education policy limiting the granting of new
lender identification numbers, the Indenture will allow the Trustee, if
necessary, to use the Department of Education lender identification number that
it uses for the Financed Student Loans for other Student Loans held by the
Trustee as trustee under other indentures, if any, securing obligations of the
Corporation or obligations of other subsidiaries of SLFC, or for trusts
established by the Corporation or other subsidiaries of SLFC. In that event,
the billings submitted to the Department of Education for interest subsidy
payments and Special Allowance Payments on Financed Student Loans would be
consolidated with the billings for such payments for Student Loans held under
such other indentures and trusts using the same lender identification number and
payments on such billings would be made by the Department of Education to the
Trustee in lump sum form. Such lump sum payments would then be allocated by the
Trustee among the various trusts and indentures using the same lender
identification number.
In addition, such sharing of the lender identification number may
result in the receipt of Guarantee Payments by Guarantee Agencies in lump sum
form. In that event, such payments would be allocated by the Trustee among the
various trusts and indentures in a manner similar to the allocation process for
interest subsidy payments and Special Allowance Payments.
The Department of Education regards the Trustee as the party primarily
responsible to the Department of Education for any liabilities owed to the
Department of Education or Guarantee Agencies resulting from the Trustee's
activities in the Federal Family Education Loan Program. As a result, if the
Department of Education or a Guarantee Agency were to determine that the Trustee
owes a liability to the Department of Education or a Guarantee Agency on any
Student Loans for which the Trustee is or was legal titleholder, including loans
held under the Indenture or such other trusts or indentures, the Department of
Education or the Guarantee Agency might seek to collect that liability by offset
against payments due the Trustee under the Indenture. If the Department of
Education or a Guarantee Agency determines such a liability exists in connection
with a trust or indenture using the shared lender identification number, the
Department of Education or the Guarantee Agency would be likely to collect that
liability by offsetting against amounts due the Trustee under the shared lender
identification number, including amounts owed in connection with the Financed
Student Loans. Such offsetting of payments due to the Trustee with respect to
the Financed Student Loans could adversely affect the receipt of revenues under
the Indenture and the Corporation's ability to pay interest and principal on the
Notes.
In addition, other trusts or indentures using the shared lender
identification number may in a given quarter incur origination fees that exceed
the interest subsidy payments and Special Allowance Payments payable by the
Department of Education on the loans held under such other trusts and
indentures, resulting in the payment from the Department of Education received
by the Trustee under such shared lender identification number for that quarter
equaling an amount that is less than the amount owed by the Department of
Education on the Financed Student Loans for that quarter.
The Indenture and the indentures or trust agreements under which the
Trustee may separately hold Student Loans which share the lender identification
number to be used by the Trustee (the separate trusts created thereunder being
collectively referred to herein as the "Corporation Trusts") may require a
Corporation Trust (including the Trust Estate under the Indenture) to indemnify
the other Corporation Trusts for a shortfall or an offset by the Department of
Education or a Guarantee Agency arising from the Student Loans held by the
Trustee on such Corporation Trust's behalf. To the extent that the Trustee is
required to indemnify other Corporation Trusts from the assets held under the
Indenture as part of the Trust Estate with respect to an offset by the
Department of Education or a Guarantee Agency arising from Financed Student
Loans held by the Trustee under the Indenture, such indemnification obligation
could adversely affect the amount of assets in the Trust Estate and the
Corporation's ability to pay principal of and interest on the Notes. Also, to
the extent that the Trustee may be entitled to indemnification with respect to
an offset by the Department of Education or a Guarantee Agency arising from
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Student Loans held by the Trustee for a Corporation Trust other than the Trust
Estate under the Indenture, there can be no assurance that the amount of funds
available to the Trustee with respect to such right of indemnification may be
adequate to compensate the Trust Estate under the Indenture and Noteholders for
any previous reduction in the Trust Estate.
Defeat or Lack of Perfected Security Interest in Trust Estate Assets
The Higher Education Act provides that a security interest in student
loans made pursuant to the Federal Family Education Loan Program may be
perfected either through the taking of possession of such loans or by the filing
of notice of such security interest in the manner in which security interests in
accounts may be perfected by applicable state law. The Uniform Commercial Code
as in effect in the State of South Dakota provides for perfection of security
interests in accounts by the filing of financing statements with the Secretary
of State. The perfection of the security interest in the Financed Student Loans
granted by the Corporation to the Trustee is to be accomplished by the filing of
financing statements. SLFC, acting as custodial agent for the Trustee, will
retain possession of the promissory notes evidencing the Financed Student Loans.
The Corporation is a wholly-owned subsidiary of SLFC. If, through fraud,
inadvertence or otherwise, a third-party lender or purchaser acting in good
faith were to obtain possession of any such promissory notes, the security
interest of the Trustee in the related Financed Student Loans could be defeated.
See "Certain Relationships Among Financing Participants" herein.
The Trustee's security interest in revenues, moneys, evidences of
indebtedness (including any Financed Student Loans that are not made under the
Federal Family Education Loan Program) and, unless registered in the name of the
Trustee, securities payable into the various Funds and Accounts under the
Indenture does not constitute a perfected security interest until such revenues,
moneys, evidences of indebtedness and securities are received by the Trustee.
Insolvency of Lenders Affecting the Transfer of Student Loans
Each Student Loan Purchase Agreement is structured as, and intended to
effectuate, a valid sale and assignment by the Lender to the Original Issuer or
the Trustee on behalf of the Corporation, as applicable, of the Financed Student
Loans transferred thereunder. Notwithstanding the foregoing, if a Lender were
to become subject to any Insolvency Law and a creditor or trustee-in-bankruptcy
of such Lender were to take the position that the sale of Financed Student Loans
by such Lender should instead be treated as a pledge of such Financed Student
Loans to secure a borrowing, delays in payments on the Notes from collections on
Financed Student Loans could occur or (should the court rule in favor of such
Lender or such creditor) reductions in the amounts of such payments could
result. In the event of insolvency of any such Lender that is a bank, moreover,
its affairs might become subject to Federal Deposit Insurance Corporation
("FDIC") receivership. In such case, the FDIC, as a receiver, or a court could
treat the transfer of the Financed Student Loans to the Original Issuer or the
Trustee on behalf of the Corporation as an assignment of collateral as security
for the benefit of the Original Issuer or the Corporation as a creditor of such
Lender. If the transfer of the Financed Student Loans to the Original Issuer or
the Trustee on behalf of the Corporation is deemed to create a security interest
therein, a tax or government lien on property of such Lender arising before the
Financed Student Loans were transferred may have priority over the Trustee's
interest in such Financed Student Loans. If such Lender becomes subject to
receivership, to the extent that the transfer of the Financed Student Loans is
deemed to create a security interest, and that such interest was validly
perfected before such Lender's insolvency and was not taken in contemplation of
insolvency or with the intent to hinder, delay or defraud such Lender or its
creditors, such security interest should not be subject to avoidance and
payments with respect to the Financed Student Loans should not be subject to
recovery by such Lender's creditors. The Corporation will receive an opinion of
counsel, subject to the assumptions and limitations set forth therein, that the
provisions of the Indenture, the Student Loan Purchase Agreements, and the SLFC
Servicing Agreement and the actions required thereunder in connection with the
acquisition of Financed Student Loans are sufficient to create both a perfected
security interest in favor of the Trustee against any such Lender in the
Financed Student Loans, if the transfer of Financed Student Loans by such Lender
is considered as an assignment of collateral as security for an obligation, as
well as a perfected security interest in favor of the Trustee against the
Corporation in the
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Financed Student Loans. No assurance can be given that delays in receipt of
funds with respect to the Financed Student Loans will not occur even if no such
prior liens exist. Moreover, no assurance can be given that the FDIC would not
seek to effect the release of the Financed Student Loans to it, as receiver, by
accelerating such Lender's "debt" and repaying the outstanding amount thereof.
Failure to Comply with 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 state laws
are, in large part, preempted by the Higher Education Act. However, the form of
promissory notes required by the Department of Education for Federal Family
Education Loan Program loans provides that holders of such promissory notes
evidencing certain loans made to borrowers attending for-profit schools are
subject to any defenses that the borrower may have against the school.
Moreover, the Indenture permits, under certain circumstances, the Financing of
Student Loans other than those made under the Federal Family Education Loan
Program. Such state laws may not be pre-empted as they apply to any such
Student Loans.
Holders of Auction Rate Series 1997-1 Notes and Tax Exempt Fixed Rate Series
1997-1 Notes May Have to Reinvest Amounts Received From Calls for Redemption
From Unused Proceeds at a Lower Rate of Return
The Corporation expects approximately $259,725,000 of the Series 1997-
1 Note proceeds deposited in the Series 1997-1 Tax Exempt Acquisition Account to
be used to originate or purchase Eligible Loans on or before April 15, 2002. If
such proceeds are not so used, they may be used to redeem Tax Exempt Auction
Rate Series 1997-1 Senior Notes which are called for redemption and, if no Tax
Exempt Auction Rate Series 1997-1 Senior Notes remain Outstanding, Tax Exempt
Fixed Rate Series 1997-1 Notes which are called for redemption. Investors
holding such Tax Exempt Series 1997-1 Notes (particularly Tax Exempt Fixed Rate
Series 1997-1 Notes) which are called for redemption may be unable to reinvest
the proceeds of the redemption at the same yield as the Tax Exempt Series 1997-1
Notes. Also, depending on the price at which investors purchased such Series
1997-1 Notes, their yield may be adversely affected by such early call for
redemption.
The Corporation expects approximately $56,000,000 of the Series 1997-1
Note proceeds deposited in the Series 1997-1 Taxable Acquisition Account to be
used to originate or purchase Eligible Loans on or before November 1, 1998. If
such proceeds are not so used, they may be transferred to the Retirement Account
and used to redeem Taxable Auction Rate Series 1997-1 Senior Notes which are
called for redemption. Investors holding such Taxable Auction Rate Series 1997-
1 Senior Notes which are called for redemption may be unable to reinvest the
proceeds of the redemption at the same yield as the Taxable Auction Rate Series
1997-1 Senior Notes. Also, depending on the price at which investors purchased
such Series 1997-1 Notes, their yield may be adversely affected by such early
call for redemption. See "Application of Series 1997-1 Note Proceeds" and
"Description of Series 1997-1 Notes -- Special Call for Redemption -- From
Unused Proceeds."
Reduction in Amounts Available to Pay Notes Due to the Variability of Actual
Cash Flows and Due to the Inability of Guarantee Agencies to Make Guarantee
Payments
Amounts received with respect to the Financed Student Loans for a
particular period may vary in both timing and amount from the payments actually
due on the Financed Student Loans for a variety of economic, social and other
factors, including both individual factors, such as additional periods of
deferment or forbearance prior to or after a borrower's commencement of
repayment, and general factors, such as a general economic downturn which could
increase the amount of defaulted Financed Student Loans. Failures by borrowers
to pay timely the principal and interest on the Financed Student Loans will
affect the amount of revenues, which may reduce the amount available to be paid
to the Series 1997-1 Noteholders. The inability of any Guarantee Agency to meet
its guarantee obligations could reduce the amount available to be paid to the
Series 1997-1 Noteholders.
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Holders of Series 1997-1 Notes Which are Prepaid or Called for Redemption Due to
Accelerated Payments with respect to Financed Student Loans May Have to Reinvest
Amounts Received From Prepayments or Calls for Redemption at a Lower Rate of
Return
Principal payments with respect to the Financed Student Loans may be
influenced by a variety of economic, geographic, social and other factors. The
Financed Student Loans may be prepaid at any time without penalty. The
Corporation believes that in a fluctuating interest rate environment a factor
affecting the prepayment rate on a large pool of loans such as the Student Loan
Portfolio is the difference between the interest rates on the loans and
prevailing interest rates generally (giving consideration to the cost of any
refinancing). In general, if interest rates fall below the interest rates on
the Financed Student Loans, the rate of prepayment would be expected to
increase. Conversely, if interest rates rise above the interest rates on the
Financed Student Loans, the rate of prepayment would be expected to decrease.
Historically, the Original Issuer has not tracked instances of partial or full
prepayment of its Student Loan Portfolio except to the extent such prepayments
occurred in connection with defaults. No assurances can be given as to the
actual rate of prepayment with respect to the Financed Student Loans in the
Student Loan Portfolio. Other factors affecting prepayment of loans include
changes in the borrower's employment and other economic circumstances, and
refinancing opportunities which may provide more favorable repayment terms such
as those offered under various consolidation loan programs, including the
federal direct consolidation loan programs. Because of the benefits of
consolidating numerous Student Loans into a single loan and, in some cases,
obtaining more favorable repayment terms, a borrower may choose to prepay
Financed Student Loans through consolidation programs regardless of the general
level of interest rates. In addition, the rate of the payments of principal on
the Notes will be directly related to the actual amortization schedules of the
Financed Eligible Loans. See "Description of Federal Family Education Loan
Program -- Loan Terms -- Repayment."
Receipt of principal and interest on Financed Student Loans may be
accelerated due to: (1) default claims or claims due to the disability, death or
bankruptcy of the borrowers or school closure; (2) actual principal amortization
periods which are shorter than those assumed based upon the current analysis of
the expected Student Loan Portfolio; (3) the commencement of principal repayment
by borrowers on earlier dates than are assumed based upon the current analysis
of the expected Student Loan Portfolio; and (4) economic conditions being such
that borrowers elect to refinance or prepay their loans prior to maturity.
Eligible lenders, including the Trustee on behalf of the Corporation, and the
Secretary of Education may make Consolidation Loans to borrowers for the purpose
of retiring borrowers' existing loans under various federal higher education
loan programs. To the extent that Financed Student Loans are repaid with
Consolidation Loans, the Corporation will realize payment of such loans earlier
than projected. In addition, under certain circumstances, a Lender will be
obligated to repurchase Financed Student Loans from the Trust Estate pursuant to
its Student Loan Purchase Agreement as a result of breaches of its
representations, warranties or covenants.
Taxable LIBOR Rate Series 1997-1 Notes are subject to prepayment in
amounts related to the amount of principal payments received with respect to
Student Loan Financed with the proceeds of the Taxable Series 1997-1 Notes in
the Acquisition Fund. Because of the uncertainties relating to the timing of
receipt of principal of Student Loans expected to be Financed with proceeds of
the Taxable Series 1997-1 Notes, the actual level of prepayments resulting
therefrom cannot be definitively stated. Investors holding Taxable LIBOR Rate
Series 1997-1 Notes which are prepaid may be unable to reinvest the proceeds of
the prepayment at the same yield as the Taxable LIBOR Rate Series 1997-1 Notes.
Also, depending on the price at which investors purchased such Series 1997-1
Notes, their yield may be adversely affected by such prepayment.
The Series 1997-1 Notes (other than the Taxable LIBOR Rate Series
1997-1 Notes) are subject to call for redemption from revenues under the
Indenture in excess of required debt service payments and other expenses under
the Indenture and all Series 1997-1 Notes are subject to call for redemption if
the Student Loan Portfolio balance is less than 10% of the amount deposited to
the Acquisition Fund on the Date of Issuance. Investors holding Series 1997-1
Notes which are called for redemption may be unable to reinvest the proceeds of
the redemption at the same yield as the Series 1997-1 Notes they previously
held. Also, depending on the price at which investors purchased such Series
1997-1 Notes, their yield may be adversely affected by such call for redemption.
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Differences in Principal Payments Among Series of Taxable Series 1997-1 Notes
with respect to Receipt of Payments on the Financed Student Loans
The Taxable Auction Rate Series 1997-1 Senior Notes are not expected
to receive any payments of principal from principal payments on Financed Student
Loans until all Taxable LIBOR Rate Series 1997-1 Notes have been paid in full.
Series 1997-1J Notes will receive no payments of principal from such source
until the Series 1997-1I Notes have been paid in full. Therefore, the Series
1997-1I Notes and (as compared to all Taxable Series 1997-1 Notes other than
Series 1997-1I Notes) the Series 1997-1J Notes bear relatively greater risk than
other series of Taxable Series 1997-1 Notes of an increased rate of principal
payments derived from principal payments relating to Financed Student Loans.
The Average Life of the Series 1997-1 Notes May Be Lengthened As a Result of
Extension of Payments on the Financed Student Loans
Principal and interest payments on Financed Student Loans may be
delayed due to: (1) borrowers entering Deferment Periods due to a return to
school or other eligible purposes: (2) forbearance being granted to borrowers;
(3) loans becoming delinquent for periods longer than assumed; (4) actual loan
principal amortization periods which are longer than those expected based upon
the current analysis of the expected Student Loan Portfolio; and (5) the
commencement of principal repayment by borrowers at dates later than those
assumed based upon the current analysis of the Eligible Loans expected to be
Financed. These factors may lengthen the remaining term of the Financed Student
Loans and the average life of the Series 1997-1 Notes. See "Description of
Federal Family Education Loan Program -- Loan Terms -- Repayment."
The Trustee's Inability to Liquidate Financed Student Loans and Possible
Insufficiency of Trust Estate Assets
If an Event of Default occurs under the Indenture, subject to certain
conditions, the Trustee is authorized, without the consent of the Noteholders,
to sell the Financed Student Loans. There can be no assurance that the Trustee
would be able to find a purchaser for the Financed Student Loans in a timely
manner or that the market value of such Financed Student Loans would, at any
time, be sufficient to provide for the payment of all amounts due with respect
to the Notes. The Higher Education Act requires that the purchaser of the
Student Loans must be an eligible lender under the Higher Education Act.
Additionally, any such sale by the Trustee would need to comply with
the applicable requirements of the Uniform Commercial Code then in effect in the
State of South Dakota, which currently provides that such sale may be by private
or public proceedings conducted at any time or place and on any terms, provided
that every aspect of the sale, including the method, manner, time, place and
terms, be commercially reasonable. If it were established that the Trustee
failed to proceed in a commercially reasonable manner, the Corporation may be
entitled to recover from the Trustee (which would, in turn, look to the Trust
Estate for indemnification) any loss to the Corporation caused by such failure.
However, if the Trustee sells the Student Loans in the usual manner in any
recognized market therefor, or sells at the price current in such market at the
time of such sale, or has otherwise sold the Student Loans in conformity with
reasonable commercial practices among dealers in Student Loans, the Trustee will
have sold the Student Loans in a commercially reasonable manner. Further, a
sale which has been approved in any judicial proceeding or by any bona fide
creditors' committee or representatives of creditors of the Corporation shall
conclusively be deemed to be commercially reasonable. Seeking such approval
could result in delays in the ultimate disposition of the Financed Student
Loans.
The Financial Status of Guarantee Agencies Will Affect Their Ability to Make
Guarantee Payments
The Higher Education Act requires all loans made under the Federal
Family Education Loan Program to be unsecured. As a result, the only security
for payment of the Financed Eligible Loans is the Guarantee Agreements between
the Trustee and each Guarantee Agency. A deterioration in the financial status
of the Guarantee Agencies and their ability to honor guarantee claims with
respect to the Financed Eligible Loans could
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result in a delay in making or a failure to make Guarantee Payments to the
Trustee. Failures by borrowers of Student Loans generally to pay timely the
principal and interest due on such Student Loans could obligate the Guarantee
Agencies to make payments thereon, which could adversely affect the solvency of
the Guarantee Agencies and their ability to meet their guarantee obligations
(including with respect to the Financed Student Loans). Moreover, to the extent
that the Department of Education pays reimbursement claims submitted by a
Guarantee Agency for any fiscal year exceeding certain specified levels (see
"Description of the Guarantee Agencies -- Effect of Annual Claims Rate"), the
Department of Education's obligation to reimburse the Guarantee Agency for
losses will be reduced on a sliding scale from a maximum of 100% (98% for loans
made on or after October 1, 1993) to a minimum of 80% (78% for loans made on or
after October 1, 1993) of Guarantee Agency payments, except that death,
disability, bankruptcy, closed school and false certification claims are
reimbursed 100% by the Department of Education.
Pursuant to Section 432(o) of the Higher Education Act, if the
Department of Education has determined that a Guarantee Agency is unable to meet
its insurance obligations, the holders of loans guaranteed by such Guarantee
Agency may submit claims directly to the Department of Education and the
Department of Education is required to pay the full Guarantee Payment due with
respect thereto in accordance with standards no more stringent than those
applied by the Guarantee Agency. However, the Department of Education's
obligation to pay guarantee claims directly in this fashion is contingent upon
the Department of Education making the determination referred to above. There
can be no assurance that the Department of Education would ever make such a
determination with respect to a Guarantee Agency or, if such a determination
were made, that such determination or the ultimate payment of such guarantee
claims would be made in a timely manner. See "Description of the Federal Family
Education Loan Program."
Use of Series 1997-1 Note Proceeds and Revenues to Acquire Investment Agreements
The proceeds of the Series 1997-1 Notes that are not used to acquire
Financed Student Loans on the Date of Issuance will be used to acquire a limited
number of investment agreements with one or more Investment Providers. Revenues
deposited in the Revenue Fund, the Note Fund and the Surplus Fund also are
expected to be used to acquire a limited number of investment agreements with
one or more Investment Providers. Each such investment agreement will initially
involve a significant portion of the proceeds of the Series 1997-1 Notes. If
any Investment Provider were unable to repay funds loaned to it under an
unsecured investment agreement, or if the collateral pledged for a secured
investment agreement were insufficient or unavailable for any reason, the
Corporation's ability to pay the principal of and interest on the Series 1997-1
Notes could be adversely affected.
Change of Ratings of the Series 1997-1 Notes
It is a condition to issuance of the Series 1997-1 Notes that they be
rated as indicated under the caption "Ratings." Ratings are based primarily on
the credit underlying the Financed Eligible Loans, the existence and amount of
subordinate debt, any credit enhancement and the legal structure of the
transaction. The ratings are not a recommendation to purchase, hold or sell
Series 1997-1 Notes and do not take into account factors such as the market
price or suitability for a particular investor. There is no expectation that
any additional rating agency will rate the Series 1997-1 Notes, and there can be
no assurance the rating that would be assigned by any such other rating agency
would be equivalent to the initial ratings described herein. Moreover, there
can be no assurance that the ratings will remain for any given period of time or
that ratings will not be lowered or withdrawn by any Rating Agency if in such
Rating Agency's judgment circumstances so warrant. Any such lowering or
withdrawal could adversely affect the market value of the Series 1997-1 Notes.
Limited Liquidity of the Series 1997-1 Notes
The Series 1997-1 Notes will not be listed on any national security
exchange. There is currently no secondary market for the Series 1997-1 Notes
and there is no assurance that one will develop or, if such a market does
develop, that such market will continue. The Underwriters expect, but will not
be obligated, to make a market
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in the Series 1997-1 Notes. As a result, investors must be prepared to bear the
risk of holding the Series 1997-1 Notes for so long as the Series 1997-1 Notes
remain outstanding.
Swap Agreements
Under the Indenture, the Corporation may execute Swap Agreements if
certain requirements are met, including that the Trustee shall have received
written confirmation from each Rating Agency that the execution and delivery of
the Swap Agreement will not cause the reduction or withdrawal of any rating or
ratings then applicable to any Outstanding Notes. No Swap Agreement is being
entered into in connection with the issuance of the Series 1997-1 Notes. See
"Source of Payment and Security for the Notes -- Additional Indenture
Obligations." Swap Agreements carry risks relating to the credit quality of the
counterparty and the legal enforceability of the Swap Agreement.
Effect of Book-Entry Registration
Initially, the Series 1997-1 Notes will be in the form of certificates
registered in the name of Cede & Co., the nominee for DTC, and will not be
registered in the names of the beneficial owners of the Series 1997-1 Notes or
their nominees. Because of this, unless and until definitive securities are
issued, beneficial owners of the Series 1997-1 Notes will not be recognized by
the Trustee as "Holders" (as such term is used in the Indenture). Therefore,
unless and until certificated securities are issued, beneficial owners of the
Series 1997-1 Notes will only be able to exercise the rights of Holders
indirectly through DTC and its participating organizations in the United States
or Cedel Bank, societe anonyme or the Euroclear System in Europe. See
"Description of Series 1997-1 Notes -- Book-Entry-Only System."
DESCRIPTION OF SERIES 1997-1 NOTES
The Series 1997-1 Notes will be issued pursuant to the Indenture. The
form of the Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
Terms of the Series 1997-1 Notes
For summaries of the terms of the Series 1997-1 Notes, see "Terms of
the Tax Exempt Auction Rate Series 1997-1 Senior Notes," "Terms of the Tax
Exempt Fixed Rate Series 1997-1 Senior Notes," "Terms of the Taxable Auction
Fixed Rate Series 1997-1 Senior Notes," "Terms of the Taxable LIBOR Rate Series
1997-1 Senior Notes," "Terms of the Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes" and "Terms of the Taxable LIBOR Rate Series 1997-1
Subordinate Notes."
Book-Entry-Only System
The description which follows of the procedures and record keeping
with respect to beneficial ownership interests in the Series 1997-1 Notes,
payment of principal of and interest on the Series 1997-1 Notes to DTC
Participants, Cedel Participants and Euroclear Participants (as hereinafter
respectively defined) or to purchasers of the Series 1997-1 Notes, confirmation
and transfer of beneficial ownership interests in the Series 1997-1 Notes, and
other securities-related transactions by and between DTC, Cedel, Euroclear, DTC
Participants, Cedel Participants, Euroclear Participants and Beneficial Owners
(as hereinafter defined), is based solely on information furnished by DTC, Cedel
and Euroclear and has not been independently verified by the Original Issuer,
the Corporation or the Underwriters. The inclusion of this information is not,
and should not be construed as, a representation by the Original Issuer, the
Corporation or the Underwriters as to its accuracy or completeness or otherwise.
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DTC will act as securities depository for the Series 1997-1 Notes.
Upon the issuance of the Series 1997-1 Notes, one or more fully registered notes
for each series, in the aggregate principal amount of the Series 1997-1 Notes,
are to be registered in the name of Cede & Co., as nominee for DTC. So long as
Cede & Co. is the Holder of the Series 1997-1 Notes, as nominee of DTC,
references herein to the owners or Holders of the Series 1997-1 Notes shall mean
DTC or its nominee, Cede & Co., and shall not mean the Beneficial Owners of the
Series 1997-1 Notes. Noteholders may hold their certificates through DTC (in
the United States) or Cedel or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Notes. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositories
(collectively, the "Depositories") which in turn will hold such positions in
customers' securities accounts in the Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants (the "DTC Participants") deposit with
DTC. DTC also facilitates the settlement among DTC Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in DTC Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
DTC Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a
number of DTC Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or
indirectly (the "Indirect Participants"). The Rules applicable to DTC and the
DTC Participants are on file with the Commission.
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; 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 Depository 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 Depositories.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
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Day traders that use Cedel or Euroclear and that purchase the globally
offered Series 1997-1 Notes from DTC Participants for delivery to Cedel
Participants or Euroclear Participants should note that these trades may fail on
the sale side unless affirmative actions are taken. Participants should consult
with their clearing system to confirm that adequate steps have been taken to
assure settlement.
Purchases of the Series 1997-1 Notes (in authorized denominations)
under the book-entry system may be made only through brokers and dealers who
are, or act through, DTC Participants. The DTC Participants purchasing the
Series 1997-1 Notes will receive a credit balance in the records of DTC. The
ownership interest of the actual purchaser of each Series 1997-1 Note (a
"Beneficial Owner") will be recorded in the records of the applicable DTC
Participant or Indirect Participant. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected to
receive from the applicable DTC Participant or Indirect Participant written
confirmations providing details of the transaction, as well as periodic
statements of their holdings. Transfers of beneficial ownership of the Series
1997-1 Notes will be accomplished by book entries made by the DTC Participants
or Indirect Participants who act on behalf of the Beneficial Owners and, if
necessary, in turn by DTC. No Series 1997-1 Notes will be registered in the
names of the Beneficial Owners, and Beneficial Owners will not receive
certificates representing their ownership interest in the Series 1997-1 Notes,
except in the event participation in the book-entry system is discontinued as
described below.
The Corporation and the Trustee will recognize DTC or its nominee as
the Holder of the Series 1997-1 Notes for all purposes, including notice
purposes. DTC has no knowledge of the actual Beneficial Owners of the Series
1997-1 Notes; DTC's records reflect only the identity of the DTC Participants to
whose accounts such Series 1997-1 Notes are credited, which may or may not be
the Beneficial Owners. The DTC Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect Participants and by DTC
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among DTC, DTC Participants, Indirect Participants and Beneficial
Owners, subject to any statutory and regulatory requirements as may be in effect
from time to time. Beneficial Owners may desire to make arrangements with a DTC
Participant or an Indirect Participant so that all notices of calls of Series
1997-1 Notes for redemption or other communications to DTC which affect such
Beneficial Owners, and notification of all interest payments, will be forwarded
in writing by the DTC Participant or Indirect Participant. Any failure of DTC
to advise any DTC Participant, or of any DTC Participant or Indirect Participant
to advise a Beneficial Owner, of any notice of call for redemption or its
content or effect will not affect the validity of the redemption of the Series
1997-1 Notes called for redemption or any other action premised on such notice.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Series 1997-1 Notes. Under its usual procedures, DTC mails an Omnibus Proxy to
the Corporation as soon as possible after the record date it establishes. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those DTC
Participants to whose accounts the Series 1997-1 Notes are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Payments of principal of, premium, if any, and interest on the Series
1997-1 Notes will be made to DTC or its nominee, Cede & Co., as Holder of the
Series 1997-1 Notes. DTC's current practice is to credit the accounts of the
DTC Participants on payment dates in accordance with their respective holdings
shown on the records of DTC, unless DTC has reason to believe that it will not
receive payment on that date. Payments by DTC Participants and Indirect
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such DTC Participant or Indirect Participant and not of DTC or
the Corporation, subject to any statutory and regulatory requirements as may be
in effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Corporation and the Trustee, disbursement of such payments
to DTC Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of DTC
Participants and Indirect Participants.
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By purchasing the Auction Rate Series 1997-1 Senior Notes, whether in
an Auction or otherwise, each prospective purchaser of the Auction Rate Series
1997-1 Senior Notes or its Broker-Dealer must agree and will be deemed to have
agreed: (i) to have its beneficial ownership of the Auction Rate Series 1997-1
Senior Notes maintained at all times in Book-Entry Form for the account of its
DTC Participant, which in turn will maintain records of such beneficial
ownership, and to authorize such DTC Participant to disclose to the Auction
Agent such information with respect to such beneficial ownership as the Auction
Agent may request; and (ii) so long as the beneficial ownership of the Auction
Rate Series 1997-1 Senior Notes is maintained in Book-Entry Form, to sell,
transfer or otherwise dispose of the Auction Rate Series 1997-1 Senior Notes
only pursuant to a Bid or a Sell Order in an Auction, or otherwise through a
Broker-Dealer, provided that in the case of all transfers other than those
pursuant to an Auction, the Existing Holder of the Auction Rate Series 1997-1
Senior Notes so transferred, its DTC Participant or Broker-Dealer advises the
Auction Agent of such transfer.
For every transfer of the Series 1997-1 Notes, the Beneficial Owner
may be charged a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto.
So long as Cede & Co. or its registered assign is the registered
holder of the Series 1997-1 Notes, the Corporation and the Trustee will be
entitled to treat Cede & Co., or its registered assign, as the absolute owner
thereof for all purposes of the Indenture and any applicable laws,
notwithstanding any notice to the contrary received by the Corporation or the
Trustee, and the Corporation and the Trustee will have no responsibility for
transmitting payments to, communicating with, notifying, or otherwise dealing
with any Beneficial Owners of the Series 1997-1 Notes.
If (i) the Series 1997-1 Notes of any series are not eligible for the
services of DTC, (ii) DTC determines to discontinue providing its services with
respect to the Series 1997-1 Notes of any series or (iii) the Corporation
determines that a system of book-entry transfers for Series 1997-1 Notes of any
series, or the continuation thereof, through DTC is not in the best interest of
the Beneficial Owners or the Corporation, the Corporation may either identify
another qualified securities depository or direct or cause Series 1997-1 Note
certificates for such series to be delivered to Beneficial Owners thereof or
their nominees and, if certificates are delivered to the Beneficial Owners, the
Beneficial Owners or their nominees, upon authentication of the Series 1997-1
Notes of such series in authorized denominations and registration thereof in the
Beneficial Owners' or nominees' names, shall become the Holders of such Series
1997-1 Notes for all purposes. In any such event, the Trustee is to mail an
appropriate notice to the securities depository for notification to DTC
Participants and Beneficial Owners of the substitute securities depository or
the issuance of Series 1997-1 Note certificates to Beneficial Owners or their
nominees, as applicable.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws
of Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 32 currencies, including United States dollars.
Cedel provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of the Series
1997-1 Notes. 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
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and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 32 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in 25
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, Societe
Cooperative, a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Cooperative. The Cooperative Board establishes policy for the
Euroclear System. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of any Series of Notes.
Indirect access to the Euroclear System is also available to other firms that
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of
securities and cash within the Euroclear System, withdrawal of securities and
cash from the Euroclear System, and receipts of payments with respect to
securities in the Euroclear System. All securities in the Euroclear System are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
The Euroclear Operator has advised as follows: Under Belgian law,
investors that are credited with securities on the records of the Euroclear
Operator have a co-property right in the fungible pool of interests in
securities on deposit with the Euroclear Operator in an amount equal to the
amount of interests in securities credited to their accounts. In the event of
the insolvency of the Euroclear Operator, Euroclear Participants would have a
right under Belgian law to the return of the amount and type of interests in
securities credited to their accounts with the Euroclear Operator. If the
Euroclear Operator did not have a sufficient amount of interests in securities
on deposit of a particular type to cover the claims of all Participants credited
with such interests in securities on the Euroclear Operator's records, all
Participants having an amount of interests in securities of such type credited
to their accounts with the Euroclear Operator would have the right under Belgian
law to the return of their pro-rata share of the amount of interests in
securities actually on deposit. Under Belgian law, the Euroclear Operator is
required to pass on the benefits of ownership in any interests in securities on
deposit with it (such as dividends, voting rights and other entitlements) to any
person credited with such interests in securities on its records.
Distributions with respect to Series 1997-1 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 Depository. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Tax Matters -- Federal Tax Consequences" and "-- Certain
U.S. Federal Income Tax Documentation Requirements." Cedel or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Series 1997-1 Noteholder 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 Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Series 1997-1 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.
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Denomination and Payment
The Tax Exempt Auction Rate Series 1997-1 Senior Notes and the Taxable
Series 1997-1 Notes are being issued in denominations of $100,000 in original
Principal Amount and any multiple thereof. The Tax Exempt Fixed Rate Series
1997-1 Notes are being issued in denominations of $5,000 in original Principal
Amount and any multiple thereof.
The principal of and premium, if any, on the Series 1997-1 Notes,
together with interest payable on the Series 1997-1 Notes at the Maturity
thereof if the date of such Maturity is not a regularly scheduled Interest
Payment Date, shall be payable in lawful money of the United States of America
upon, except as otherwise provided in the Indenture with respect to a Securities
Depository, presentation and surrender of such Series 1997-1 Notes at the
Principal Office of the Trustee, as Paying Agent with respect to the Series
1997-1 Notes, or a duly appointed successor Paying Agent. Interest on each
series of the Series 1997-1 Notes shall be payable on each regularly scheduled
Interest Payment Date with respect to such series, except as otherwise provided
in the Indenture with respect to a Securities Depository, by check or draft
drawn upon the Paying Agent and mailed to the person who is the Holder thereof
as of 5:00 p.m. in the city in which the Principal Office of the Note Registrar
is located on the Regular Record Date for such Interest Payment Date at the
address of such Holder as it appears on the Note Register, or, in the case of
any Series 1997-1 Note the Holder of which is the Holder of Series 1997-1 Notes
in the aggregate Principal Amount of $1,000,000 or more (or, if less than
$1,000,000 in Principal Amount of Series 1997-1 Notes is outstanding, the Holder
of all outstanding Series 1997-1 Notes), at the direction of such Holder
received by the Paying Agent by 5:00 p.m. in the city in which the Principal
Office of the Paying Agent is located on the last Business Day preceding the
applicable Regular Record Date, by electronic transfer by the Paying Agent in
immediately available funds to an account designated by such Holder. The
Regular Record Date is (i) with respect to any regularly scheduled Interest
Payment Date for a series of the Auction Rate Series 1997-1 Senior Notes or the
Taxable LIBOR Rate Series 1997-1 Notes, the last Business Day preceding such
Interest Payment Date, and (ii) with respect to any regularly scheduled Interest
Payment Date for the Tax Exempt Fixed Rate Series 1997-1 Senior Notes or the Tax
Exempt Fixed Rate Series 1997-1 Subordinate Notes, the fifteenth day (whether or
not a Business Day) of the calendar month immediately preceding such Interest
Payment Date. Any interest not so timely paid or duly provided for (herein
referred to as "Defaulted Interest") shall cease to be payable to the person who
is the Holder thereof at the close of business on the Regular Record Date and
shall be payable to the person who is the Holder thereof at the close of
business on a special record date established by the Trustee (a "Special Record
Date") for the payment of any such Defaulted Interest. Such Special Record Date
shall be fixed by the Trustee whenever moneys become available for payment of
the Defaulted Interest, and notice of the Special Record Date shall be given to
the Holders of the Series 1997-1 Notes not less than 10 days prior thereto by
first-class mail to each such Holder as shown on the Note Register on a date
selected by the Trustee, stating the date of the Special Record Date and the
date fixed for the payment of such Defaulted Interest. All payments of principal
of and interest on the Series 1997-1 Notes shall be made in lawful money of the
United States of America.
Prepayment of Taxable LIBOR Rate Series 1997-1 Notes
Principal of the Taxable LIBOR Rate Series 1997-1 Notes shall be
prepaid on any Interest Payment Date from moneys credited to the Retirement
Account as hereinafter described. The Corporation is required to direct the
Trustee to transfer to the Retirement Account from the Special Redemption and
Prepayment Account any moneys therein, up to an amount equal to the Special
Prepayment Amount, which the Corporation has not determined are reasonably
expected to be required to be transferred to the Note Fund, the Rebate Fund or
the Reserve Fund prior to the next succeeding regularly scheduled Interest
Payment Date, provided no deficiencies exist at the time of such transfer in the
Note Fund, the Rebate Fund or the Reserve Fund. See "Source of Payment and
Security for the Notes -- Description of Flow of Revenues in the Funds." Such
prepayments of principal of Taxable LIBOR Rate Series 1997-1 Notes shall,
subject to the Senior Asset Requirement, be allocated between the Taxable LIBOR
Rate Series 1997-1 Senior Notes and the Taxable LIBOR Rate Series 1997-1
Subordinate Notes pro rata. All such prepayments of principal allocated to the
Taxable LIBOR Rate Series 1997-1 Senior Notes shall be applied to the Series
1997-1I Notes so long as any such Notes remain Outstanding, and thereafter to
the Series 1997-1J Notes.
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Within a given series of Taxable LIBOR Rate Series 1997-1 Notes, the Principal
Amount of such series to be prepaid shall be allocated pro rata to the reduction
of the Principal Amount of all Notes of such series.
The "Special Prepayment Amount" is an amount, as of the last day of
any month, equal to the excess, if any, of (1) the sum of (a) all payments
received as of such last day with respect to principal of Financed Student Loans
credited to the Series 1997-1 Taxable Acquisition Account, plus (b) the amount
of any Balances theretofore transferred from the Series 1997-1 Taxable
Acquisition Account to the Retirement Account to redeem Taxable Auction Rate
Series 1997-1 Senior Notes which are called for redemption as described below
under "Special Call for Redemption -- From Unused Proceeds," less (c) the
aggregate amount of interest on Financed Student Loans credited to the Series
1997-1 Taxable Acquisition Account which has been capitalized after the
Financing thereof, less (d) the principal component of the repurchase price of
Student Loans originally Financed from Balances in Series 1997-1 Taxable
Acquisition Account which have been repurchased from a Guarantee Agency upon
rehabilitation of such Eligible Loans pursuant to the Higher Education Act, over
(2) the sum of (a) the aggregate of the amounts previously applied to the
reduction of the Principal Amount of all Taxable LIBOR Rate Series 1997-1 Notes,
plus (b) the aggregate Principal Amount of Taxable LIBOR Rate Series 1997-1
Notes to be prepaid on the next regularly scheduled Interest Payment Date from
Balances then on hand in the Retirement Account. Payments described in clause
(1)(a) of the preceding sentence include, without limitation, any prepayments by
borrowers from the proceeds of a Consolidation Loan made or acquired by the
Trustee on behalf of the Corporation or from any other sources, but exclude, for
this purpose, proceeds of the sale or other disposition of Financed Student
Loans to any Person other than a Guarantee Agency, with respect to Guarantee
Payments, or a Lender, with respect to the repurchase of Financed Student Loans
by such Lender pursuant to its repurchase obligation under a Student Loan
Purchase Agreement.
In general, this prepayment provision is intended to require the
Corporation to prepay Taxable LIBOR Rate Series 1997-1 Notes in amounts related
to the amount of principal payments received with respect to Student Loans
Financed with proceeds of the Taxable Series 1997-1 Notes in the Acquisition
Fund. See "Weighted Average Life of the Taxable LIBOR Rate Series 1997-1
Notes." Because of the uncertainties relating to the timing of receipt of
principal of Student Loans expected to be Financed with proceeds of the Taxable
Series 1997-1 Notes, the actual level of prepayments resulting therefrom cannot
be definitively stated. See "Risk Factors -- Holders of Series 1997-1 Notes
Which are Prepaid or Called for Redemption Due to Accelerated Payments with
respect to Financed Student Loans May Have to Reinvest Amounts Received From
Prepayments or Calls for Redemption at a Lower Rate of Return."
Special Call for Redemption
From Moneys in the Surplus Account
Tax Exempt Auction Rate Series 1997-1 Senior Notes of any series, Tax
Exempt Fixed Rate Series 1997-1 Senior Notes and Tax Exempt Fixed Rate Series
1997-1 Subordinate Notes, may, at the Corporation's option but subject to
compliance with the conditions described under "Senior Asset Requirement" below,
be called for redemption, in whole or in part, and if in part as described under
"Selection of Series 1997-1 Notes for Call for Redemption" below, at a
Redemption Price equal to 100% of Principal Amount of such Notes to be redeemed,
plus accrued interest thereon to the Redemption Date, on any Interest Rate
Adjustment Date or regularly scheduled Interest Payment Date for such series
occurring on or after December 1, 1998, from amounts transferred to the Series
1997-1 Tax Exempt Retirement Sub-Account from the Series 1997-1 Tax Exempt
Surplus Sub-Account and the Series 1997-1 Tax Exempt Reserve Account. In
general, such transfers are intended to allow the Corporation to call Tax Exempt
Auction Rate Series 1997-1 Senior Notes, Tax Exempt Fixed Rate Series 1997-1
Senior Notes and Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes for
redemption to the extent that revenues allocable to the Tax Exempt Series 1997-1
Notes under the Indenture exceed scheduled debt service payments on the Tax
Exempt Series 1997-1 Notes, payments on other Indenture Obligations and other
expenses payable under the Indenture. See "Summary of the Indenture -- Funds
and Accounts -- Surplus Fund" and " -- Reserve Fund".
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<PAGE>
Taxable Auction Rate Series 1997-1 Senior Notes of any series may, at
the Corporation's option but subject to compliance with the conditions described
under "Senior Asset Requirement" below, be called for redemption, in whole or in
part, and if in part as described under "Selection of Series 1997-1 Notes for
Call for Redemption" below, at a Redemption Price equal to 100% of Principal
Amount of such Notes to be redeemed, plus accrued interest thereon to the
Redemption Date, on any regularly scheduled Interest Payment Date for such
series occurring on or after December 1, 1998, from amounts transferred to the
Series 1997-1 Taxable Retirement Sub-Account from the Series 1997-1 Taxable
Surplus Sub-Account and the Series 1997-1 Taxable Reserve Account. In general,
such transfers are intended to allow the Corporation to call Taxable Auction
Rate Series 1997-1 Senior Notes for redemption to the extent that revenues under
the Indenture allocable to Taxable Series 1997-1 Notes exceed scheduled debt
service payments on the Taxable Series 1997-1 Notes, prepayments of Taxable
LIBOR Rate Series 1997-1 Notes, payments on other Indenture Obligations and
other expenses payable under the Indenture. Such revenues could result in whole
or in part from Student Loans acquired with, and from investment earnings on,
the proceeds of Additional Notes. (Any Additional Notes will not be offered or
sold pursuant to this Prospectus.) See "Summary of the Indenture -- Funds and
Accounts -- Surplus Fund" and "-- Reserve Fund."
Because of the uncertainties relating to the amounts and timing of
receipt of revenues under the Indenture, and the amounts and terms of additional
Indenture Obligations, if any, the amounts expected to be available in the
Surplus Account for such call for redemption cannot be definitively stated. In
addition, it is difficult to predict whether the Corporation will elect to
exercise such option. However, the Corporation expects that such calls for
redemption will occur.
From Unused Proceeds
Subject to compliance with the conditions described under "Senior
Asset Requirement" below, Taxable Auction Rate Series 1997-1 Senior Notes of any
series may, at the Corporation's option, be called for redemption (and shall be
so called for redemption under the circumstances described below), in whole or
in part, and if in part as described under "Selection of Series 1997-1 Notes for
Call for Redemption" below, on any regularly scheduled Interest Payment Date for
such series at a Redemption Price of 100% of Principal Amount of such Notes to
be redeemed, plus accrued interest thereon to the Redemption Date, from proceeds
of the Series 1997-1 Notes in the Series 1997-1 Taxable Acquisition Account that
have not been used to acquire Eligible Loans and from amounts in the Series
1997-1 Taxable Reserve Account. Such Series 1997-1 Notes shall be so called for
redemption on the regularly scheduled Interest Payment Date for such series in
December 1998 (from such proceeds remaining as of November 1, 1998), unless the
Corporation delivers to the Trustee: (i) a Corporation certificate certifying
that, based on a Cash Flow Projection, the failure to so call Series 1997-1
Notes for redemption will not materially adversely affect the Corporation's
ability to pay Debt Service on the Outstanding Notes and other Indenture
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees or to make
required deposits to the Rebate Fund, and (ii) written confirmation from each of
the Rating Agencies then rating the Series 1997-1 Notes to the effect that the
failure to call such Series 1997-1 Notes for redemption will not result in a
reduction or withdrawal of the rating of the Series 1997-1 Notes. See "Summary
of the Indenture -- Funds and Accounts -- Acquisition Fund" and " -- Reserve
Fund".
Subject to compliance with the conditions described under "Senior
Asset Requirement" below, Tax Exempt Auction Rate Series 1997-1 Senior Notes of
any series may, at the Corporation's option, be called for redemption (and shall
be so called for redemption under the circumstances described below), in whole
or in part, and if in part as described under "Selection of Series 1997-1 Notes
for Call for Redemption" below, on any Interest Rate Adjustment Date or
regularly scheduled Interest Payment Date for such series, and (if no Tax Exempt
Auction Rate Series 1997-1 Senior Notes remain Outstanding) Tax Exempt Fixed
Rate Series 1997-1 Notes may, at the Corporation's option, be called for
redemption (and shall be so called for redemption under the circumstances
described below), in whole or in part, and if in part as described under
"Selection of Series 1997-1 Notes for Call for Redemption" below, on any date,
in each case at a Redemption Price of 100% of Principal Amount of such
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Notes to be redeemed, plus accrued interest thereon to the Redemption Date, from
proceeds of the Series 1997-1 Notes in the Series 1997-1 Tax Exempt Acquisition
Account that have not been used to acquire Eligible Loans and from amounts in
the Series 1997-1 Tax Exempt Reserve Account. Such Series 1997-1 Notes shall be
so called for redemption on June 1, 2001 (to the extent the proceeds remaining
in the Series 1997-1 Tax Exempt Acquisition Account exceed $59,725,000 as of
April 15, 2001) and on June 1, 2002 (from such proceeds remaining as of April
15, 2002), in each case unless the Corporation delivers to the Trustee: (i) an
opinion of Bond Counsel stating in effect that such call for redemption is not
required pursuant to the Code and that failure to so call Tax Exempt Series
1997-1 Notes for redemption will not adversely affect the tax exempt status of
interest on any Tax Exempt Series 1997-1 Notes for federal income tax purposes,
(ii) a Corporation certificate certifying that, based on a Cash Flow Projection,
the failure to so call Series 1997-1 Notes for redemption will not materially
adversely affect the Corporation's ability to pay Debt Service on the
Outstanding Notes and Other Indenture Obligations, Carry-Over Amounts (including
accrued interest thereon) with respect to Outstanding Notes, Administrative
Expenses or Note Fees or to make required deposits to the Rebate Fund, and (iii)
written confirmation from each of the Rating Agencies then rating the Series
1997-1 Notes to the effect that the failure to call such Series 1997-1 Notes for
redemption will not result in a reduction or withdrawal of the rating of the
Series 1997-1 Notes. See "Summary of the Indenture -- Funds and Accounts --
Acquisition Fund" and " -- Reserve Fund".
Call for Redemption of Series 1997-1 Notes Upon Reduction of Portfolio Balance
The Series 1997-1 Notes may, at the Corporation's option but subject
to compliance with the conditions described under "Senior Asset Requirement"
below, be called for redemption in whole but not in part, at a Redemption Price
of 100% of Principal Amount, plus accrued interest thereon to the Redemption
Date, on any date when the remaining aggregate outstanding principal balance of
Student Loans Financed with the proceeds of the Series 1997-1 Notes is less than
10% of the amount deposited to the Acquisition Fund on the Date of Issuance.
Optional Call for Redemption
At the Corporation's option but subject to compliance with the
conditions described under "Senior Asset Requirement" below, Auction Rate Series
1997-1 Senior Notes of any series may be called for redemption on any Interest
Rate Adjustment Date or regularly scheduled Interest Payment Date for such
series, in whole or in part, and if in part as described under "Selection of
Series 1997-1 Notes for Call for Redemption" below, at a Redemption Price of
100% of Principal Amount of such Notes to be redeemed, plus accrued interest
thereon to the Redemption Date.
At the Corporation's option but subject to compliance with the
conditions described under "Senior Asset Requirement" below, Tax Exempt Fixed
Rate Series 1997-1 Senior Notes and Tax Exempt Series 1997-1 Subordinate Notes
may be called for redemption on December 1, 2007, or on any date thereafter, in
whole or in part, and if in part as described under "Selection of Series 1997-1
Notes for Call for Redemption" below, at the following Redemption Prices
(expressed as a percentage of Principal Amount) plus accrued interest to the
Redemption Date:
<TABLE>
<CAPTION>
Redemption Period
(both dates inclusive) Redemption Price
---------------------- ----------------
<S> <C>
December 1, 2007, through November 30, 2008 102%
December 1, 2008, though November 30, 2009 101%
December 1, 2009 and thereafter 100%
</TABLE>
Notwithstanding the foregoing, no Series 1997-1 Notes shall be so
called for redemption unless the Trustee receives a Corporation certificate
certifying that, based on a Cash Flow Projection, such redemption will not
materially adversely affect the Corporation's ability to pay Debt Service on the
Outstanding Notes and other
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<PAGE>
Indenture Obligations, Carry-Over Amounts (including accrued interest thereon)
with respect to Outstanding Notes, Administrative Expenses or Note Fees or to
make required deposits to the Rebate Fund.
Selection of Series 1997-1 Notes for Call for Redemption
If less than all Outstanding Series 1997-1 Notes are to be called for
redemption, the Principal Amounts of each series of Series 1997-1 Notes to be
called for redemption shall be selected as follows, to the extent that the
provisions of the Indenture described under "Senior Asset Requirement" below
will not be violated thereby: either (1) except as otherwise specifically
provided above under "Special Call for Redemption" or as described in clause
(2), to the extent Series 1997-1 Subordinate Notes are subject to call for
redemption, that Principal Amount thereof shall be called for redemption which
bears, as nearly as practicable, the same proportion to the Principal Amount of
all Series 1997-1 Notes to be called for redemption as the aggregate Principal
Amount of Outstanding Series 1997-1 Subordinate Notes bears to the aggregate
Principal Amount of all Outstanding Series 1997-1 Notes, or (2) if the Trustee
receives a Corporation certificate certifying that, based on a Cash Flow
Projection, a different proportion of Series 1997-1 Subordinate Notes to be
called for redemption will not materially adversely affect the Corporation's
ability to pay Debt Service on the Outstanding Notes and other Indenture
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees or to make
required deposits to the Rebate Fund, Series 1997-1 Subordinate Notes shall be
called for redemption in such principal amount as is designated by the
Corporation in such certificate. The remaining Series 1997-1 Notes to be called
for redemption on a given Redemption Date shall be selected from the appropriate
series of Series 1997-1 Senior Notes.
If less than all Outstanding Series 1997-1 Senior Notes subject to
call for redemption are to be called for redemption, and more than one series of
Series 1997-1 Senior Notes is so subject, the Principal Amounts of each series
of Series 1997-1 Notes to be called for redemption shall be selected from each
such series in such Principal Amounts as the Corporation may designate or, in
the absence of such designation, from each such series in, as nearly as
practicable, the same proportion to the aggregate Principal Amount of all
Outstanding Series 1997-1 Senior Notes to be called for redemption as the
aggregate Principal Amount of Outstanding Series 1997-1 Senior Notes of such
series bears to the aggregate Principal Amount of all Outstanding Series 1997-1
Senior Notes subject to such call for redemption.
Notwithstanding the foregoing, if Series 1997-1 Subordinate Notes
cannot be called for redemption due to the application of the provisions of the
Indenture described under "Senior Asset Requirement" below, but Series 1997-1
Senior Notes can be called for redemption without violating such provisions, the
particular Series 1997-1 Notes to be called for redemption shall be selected
from the appropriate series of the Series 1997-1 Senior Notes according to the
provisions described above.
If less than all of the Outstanding Series 1997-1 Notes of a given
series are to be called for redemption, the particular Series 1997-1 Notes to be
called for redemption shall be selected by the Trustee by lot in such manner as
the Trustee shall deem fair and appropriate and which may provide for the
selection for call for redemption of portions of the principal of Series 1997-1
Notes in authorized denominations.
Senior Asset Requirement
No call for redemption or prepayment of any Series 1997-1 Note under
any of the foregoing provisions is to be made unless, after giving effect to the
call for redemption or prepayment: (a) in the case of the call for redemption
or prepayment of Series 1997-1 Senior Notes, either the Senior Asset Requirement
will be met or the Senior Percentage will be greater than it would have been
without such call for redemption or prepayment, and (b) in the case of the call
for redemption or prepayment of Series 1997-1 Subordinate Notes, the Senior
Asset Requirement will be met. Compliance with the Senior Asset Requirement
will be determined as of the date of the selection of Series 1997-1 Notes to be
called for redemption or as of the date on which moneys are transferred to the
Retirement Account to make any prepayment of Taxable LIBOR Rate Series 1997-1
Notes, as the case may be,
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<PAGE>
and any failure to meet the Senior Asset Requirement as of the Redemption Date
or prepayment date, as applicable, will not affect such determination. In
general, the "Senior Asset Requirement" requires that the Senior Percentage is
at least 110% and the Subordinate Percentage is at least 100%, although each
such percentage may be lowered under the conditions prescribed in the Indenture.
See "Glossary of Certain Defined Terms" and "Summary of the Indenture -- Call
for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement".
Notice and Effect of Call for Redemption
Notice of call for redemption of the Series 1997-1 Notes shall be
given by first class mail, mailed not less than 15 days (in the case of Auction
Rate Series 1997-1 Senior Notes) or 30 days (in the case of any other Series
1997-1 Notes), as the case may be, prior to the date fixed for redemption to
each Holder (which initially will be DTC or its nominee) of Series 1997-1 Notes
to be called for redemption at the address of such Holder appearing in the Note
Register; but no defect in or failure to give such mailed notice of call for
redemption shall affect the validity of proceedings for the redemption of any
Series 1997-1 Note not affected by such defect or failure. All notices of call
for redemption shall state: (i) the Redemption Date; (ii) the Redemption Price;
(iii) the name, Stated Maturity and CUSIP numbers of the Series 1997-1 Notes to
be called for redemption, the principal amount of Series 1997-1 Notes of each
series to be called for redemption, and, if less than all Outstanding Notes of
such series are to be called for redemption, the identification (and, in the
case of partial redemption, the respective principal amounts) of the Series
1997-1 Notes to be called for redemption; (iv) that, on the Redemption Date, the
Redemption Price of and accrued interest on each such Series 1997-1 Note will
become due and payable and interest thereon shall cease to accrue on and after
such date; (v) the place or places where such Series 1997-1 Notes are to be
surrendered for payment of the Redemption Price thereof and accrued interest
thereon; and (vi) if it be the case, that such Series 1997-1 Notes are to be
called for redemption by the application of certain specified trust moneys and
for certain specified reasons.
Notice of call for redemption having been given as provided above, the
Series 1997-1 Notes designated in such notice shall become due and payable at
the applicable Redemption Price, plus interest accrued thereon to the Redemption
Date, and, upon surrender in accordance with such notice, shall be so paid, and
thereafter such Series 1997-1 Notes shall cease to accrue interest.
No such notice shall be required with respect to prepayments of the
Taxable LIBOR Rate Series 1997-1 Notes as described above under "Prepayment of
Taxable LIBOR Rate Series 1997-1 Notes."
APPLICATION OF SERIES 1997-1 NOTE PROCEEDS
The Original Issuer and the Corporation intend to use the proceeds of
the sale of the Series 1997-1 Notes in the following amounts for the following
purposes:
(1) $332,170,000 will be deposited in the Series 1997-1 Tax Exempt
Acquisition Account and used as follows:
(a) approximately $72,445,000 will be used on the Date of
Issuance to refinance approximately $70,586,000 aggregate principal
amount of Eligible Loans previously acquired or originated by the
Original Issuer; and
(b) the remainder will be used to acquire or originate additional
Eligible Loans;
(2) $572,828,000 will be deposited in the Series 1997-1 Taxable
Acquisition Account and used as follows:
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<PAGE>
(a) approximately $516,828,000 will be used on the Date of
Issuance to refinance approximately $507,181,000 aggregate principal
amount of Eligible Loans previously acquired or originated by or on
behalf of the Original Issuer; and
(b) the remainder will be used to acquire or originate additional
Eligible Loans; and
(3) $18,472,000 will be deposited in the Reserve Fund.
It is expected that immediately after the deposit of the proceeds of the
Series 1997-1 Notes as described above, the principal amount of, and accrued
interest on and Special Allowance Payments with respect to, Financed Eligible
Loans, together with the remaining proceeds in the Acquisition Fund and the
Balance in the Reserve Fund, will equal 100% of the principal amount of the
Series 1997-1 Notes.
The characteristics as of September 30, 1997 of the Eligible Loans expected
to be Financed on the Date of Issuance with proceeds deposited to the Series
1997-1 Tax Exempt Acquisition Account and to the Series 1997-1 Taxable
Acquisition Account (aggregating approximately $574 million as of that date) are
more particularly described under "Characteristics of the Initial Financed
Eligible Loans." These Eligible Loans currently secure outstanding obligations
of the Original Issuer used to acquire such Student Loans, which will be
refunded from the proceeds of the Series 1997-1 Notes.
The Corporation expects the remaining proceeds deposited to the Series
1997-1 Tax Exempt Acquisition Account (approximately $259,725,000 or 28% of the
Series 1997-1 Note proceeds) to be used to purchase Eligible Loans (see
"Glossary of Certain Defined Terms") from Lenders or to originate Eligible Loans
on or before April 15, 2002, approximately according to the following
schedule:
<TABLE>
<CAPTION>
Amount
By June 30 (millions)
------------ ----------
<S> <C>
1998 $37.2
1999 60.9
2000 62.4
2001 64.0
2002 35.2
</TABLE>
At the Corporation's option, or if not expended as of certain dates, such
proceeds may be transferred to the Retirement Account and used to redeem Tax
Exempt Auction Rate Series 1997-1 Senior Notes which are called for redemption
and, if no Tax Exempt Auction Rate Series 1997-1 Senior Notes remain
Outstanding, Tax Exempt Fixed Rate Series 1997-1 Notes which are called for
redemption. See "Description of Series 1997-1 Notes -- Special Call for
Redemption -- From Unused Proceeds" herein. Investors holding such Tax Exempt
Series 1997-1 Notes (particularly Tax Exempt Fixed Rate Series 1997-1 Notes)
which are called for redemption may be unable to reinvest the proceeds of the
redemption at the same yield as the Tax Exempt Series 1997-1 Notes. Also,
depending on the price at which investors purchased such Series 1997-1 Notes,
their yield may be adversely affected by such early call for redemption.
The Corporation expects the remaining proceeds deposited to the Series
1997-1 Taxable Acquisition Account (approximately $56,000,000 or 6% of the
Series 1997-1 Note proceeds) to be used to purchase Eligible Loans from Lenders
or to originate Eligible Loans on or before November 1, 1998. At the
Corporation's option, or if not expended as of November 1, 1998, such proceeds
may be transferred to the Retirement Account and used to redeem Taxable Auction
Rate Series 1997-1 Senior Notes which are called for redemption. See
"Description of Series 1997-1 Notes -- Special Call for Redemption -- From
Unused Proceeds" herein. Investors holding such Taxable Auction Rate Series
1997-1 Senior Notes which are called for redemption may be unable to
reinvest
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<PAGE>
the proceeds of the redemption at the same yield as the Taxable Auction Rate
Series 1997-1 Senior Notes. Also, depending on the price at which investors
purchased such Series 1997-1 Notes, their yield may be adversely affected by
such early call for redemption.
For a more detailed description of the Original Issuer's programs of
Financing Eligible Loans (which will be continued by SLFC on behalf of the
Corporation pursuant to the Servicing Agreement), Eligible Loans expected to be
Financed after the Date of Issuance, and possible limitations on the expenditure
of these proceeds as expected, see "Description of Financed Eligible Loan
Program." Use of the moneys in the Acquisition Fund pending Financing of
Eligible Loans is more particularly described in "Summary of the Indenture --
Funds and Accounts -- Acquisition Fund."
Balances in the Acquisition Fund representing proceeds of the Series 1997-1
Notes not used to acquire Eligible Loans on the Date of Issuance, and Balances
in the Reserve Fund, are expected to be used to acquire one or more investment
agreements meeting the requirements of the Indenture. Each investment agreement
will require the Investment Provider (a financial institution to which such
proceeds are loaned) to repay such proceeds when requested by the Corporation or
the Trustee (subject to such limitations as may be provided therein), and to pay
interest on such proceeds periodically. Each Investment Provider will be a
party which meets the Rating Agencies' criteria for creditworthiness or which
has pledged collateral satisfactory to the Rating Agencies to secure its
repayment obligations. See "Summary of the Indenture -- Investments".
Although the Corporation expects that the investment return on the Balances
in the Acquisition Fund pending its use to finance Eligible Loans, together with
other Pledged Revenues and Pledged Funds and Accounts (each as defined in
"Source of Payment and Security for the Notes -- General") under the Indenture
(including Financed Eligible Loans), will be sufficient to meet principal and
interest payments on the Series 1997-1 Notes and required expenses under the
Indenture, various risk factors could adversely affect that expectation. See
"Risk Factors."
The Costs of Issuance of the Series 1997-1 Notes will be paid by the
Original Issuer from other moneys available therefor.
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES
General
The Notes will be limited obligations of the Corporation payable solely
from the Trust Estate created under the Indenture, consisting of certain
revenues ("Pledged Revenues") and Funds and Accounts pledged under the Indenture
(the "Pledged Funds and Accounts", which do not include the Rebate Fund). The
Pledged Revenues include: (i) payments of interest and principal made by
obligors of Financed Student Loans, (ii) Guarantee Payments made by the
Guarantee Agencies to or for the account of the Trustee as the holder of
defaulted Financed Student Loans, (iii) interest subsidy payments and Special
Allowance Payments made by the Department of Education to or for the account of
the Trustee as the holder of Financed Student Loans (excluding, except in the
case of the Eligible Loans to be Financed on the Date of Issuance, any Special
Allowance Payments and interest subsidy payments accrued prior to the date of
Financing the related Student Loan), (iv) income from investment of moneys in
the Pledged Funds and Accounts (except to the extent such income is required to
be deposited in the Rebate Fund), (v) payments from a Swap Counterparty under a
Swap Agreement, (vi) proceeds of any sale or assignment by the Corporation of
any Financed Student Loans, and (vii) available Note proceeds. In addition, the
Pledged Revenues with respect to one or more series of Notes may include
payments made by a Credit Facility Provider pursuant to a Credit Enhancement
Facility. No Credit Enhancement Facility or Swap Agreement is being delivered
in connection with the issuance of the Series 1997-1 Notes, and it is not
expected that any such revenues will be available to pay the Series 1997-1
Notes.
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The principal of, premium, if any, and interest on the Notes will be
secured by a pledge of and a security interest in all rights, title, interest
and privileges of the Corporation (1) with respect to Financed Student Loans,
in, to and under any Servicing Agreement, the Student Loan Purchase Agreements,
the Guarantee Agreements and the Federal Reimbursement Contracts; (2) in, to and
under all Financed Student Loans (including the evidences of indebtedness
thereof and related documentation), any Swap Agreement and (subject to the
limitations therein or in the Indenture limiting the benefits thereunder to the
Notes of one or more series) any Credit Enhancement Facility; and (3) in and to
the proceeds from the sale of the Notes (until expended for the purpose for
which issued) and the Pledged Revenues, moneys, evidences of indebtedness and
securities in the Pledged Funds and Accounts. The security interest in revenues,
moneys, evidences of indebtedness and, unless registered in the name of the
Trustee, securities payable into the various Funds and Accounts does not
constitute a perfected security interest until received by the Trustee. Certain
Pledged Revenues are subject to withdrawal from the Pledged Funds and Accounts,
to prior applications to pay Costs of Issuance, Administrative Expenses and Note
Fees, and to certain other applications as described under "Description of Flow
of Revenues in the Funds" below and "Summary of the Indenture -- Funds and
Accounts".
Additional Indenture Obligations
The Indenture provides that, upon the satisfaction of certain conditions,
the Corporation may issue one or more series of Additional Notes thereunder.
(Any Additional Notes will not be offered or sold pursuant to this Prospectus.)
Additional Notes may be issued as Senior Notes on a parity basis with the Series
1997-1 Senior Notes; as Subordinate Notes on a parity basis with the Series
1997-1 Subordinate Notes; or as Class C Notes on a subordinate basis to the
Senior Notes and the Subordinate Notes. In addition, the Corporation may enter
into Swap Agreements and may obtain Credit Enhancement Facilities from one or
more Credit Facility Providers. The Corporation's obligations under the Swap
Agreements, and its obligations to pay the premiums or fees of Credit Facility
Providers and, if applicable, to reimburse payments made under Credit
Enhancement Facilities, may be parity obligations with the Senior Notes (such
Other Senior Obligations, together with the Senior Notes, being referred to
herein as Senior Obligations) or parity obligations with the Subordinate Notes
(such Other Subordinate Obligations, together with the Subordinate Notes, being
referred to herein as Subordinate Obligations). The Senior Obligations, the
Subordinate Obligations, and any Class C Notes are referred to herein as
"Indenture Obligations". See "Summary of the Indenture -- Additional Notes" and
"-- Covenants -- Credit Enhancement Facilities and Swap Agreements".
Under the Indenture, the Corporation may not execute a Swap Agreement
unless the Swap Counterparty's obligations are rated by each Rating Agency not
lower than in its third highest Specific Rating Category. No Swap Agreement
shall be a Senior Obligation unless, as of the date the Corporation enters into
such Swap Agreement, the Senior Asset Requirement will be met and the Trustee
shall have received written confirmation from each Rating Agency that the
execution and delivery of the Swap Agreement will not cause the reduction or
withdrawal of any rating or ratings then applicable to any Outstanding Notes.
No Swap Agreement is being entered into in connection with the issuance of the
Series 1997-1 Notes.
No limitations are imposed by the Indenture on the ability of the
Corporation to obtain Credit Enhancement Facilities or to enter into agreements
with respect thereto, or as to the identity or creditworthiness of any Credit
Facility Provider. Any Credit Enhancement Facility may be obtained for the sole
benefit of the series of Notes designated therein, in which event payments under
such Credit Enhancement Facility would not be available for the payment of
principal of, premium, if any, or interest on any other series of Notes.
However, any payments required to be made to any Credit Facility Provider would
be parity obligations with the other Senior Obligations or Subordinate
Obligations, as the case may be, payable from any revenues available to pay such
Indenture Obligations. No Credit Enhancement Facility is being entered into in
connection with the issuance of the Series 1997-1 Notes and it is not expected
that any Credit Enhancement Facility which may be obtained would be for the
benefit of the Series 1997-1 Notes.
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The Indenture also permits the Corporation to issue Class C Notes from time
to time upon satisfaction of the conditions specified therein. See "Summary of
the Indenture -- Additional Notes".
Priorities
The Series 1997-1 Senior Notes (and any other Senior Obligations) are
entitled to payment and certain other priorities over the Series 1997-1
Subordinate Notes (and any other Subordinate Obligations). Current payments of
interest and principal due on the Subordinate Notes on an Interest Payment Date
or Principal Payment Date will be made (on a parity basis with any other
Subordinate Obligations) only to the extent there are sufficient moneys
available for such payment, after making all such payments due on such date with
respect to Senior Obligations. So long as any Senior Obligations remain
Outstanding under the Indenture, the failure to make interest or principal
payments with respect to Subordinate Notes (including the Series 1997-1
Subordinate Notes) will not constitute an Event of Default under the Indenture.
In the event of an acceleration of the Notes, the principal of and accrued
interest on the Subordinate Notes will be paid (on a parity basis with any other
Subordinate Obligations) only to the extent there are moneys available under the
Indenture after payment of the principal of, and accrued interest on, all Senior
Notes and the satisfaction of all other Senior Obligations. In addition,
holders of Senior Notes and Beneficiaries of other Senior Obligations are
entitled to direct certain actions to be taken by the Trustee prior to and upon
the occurrence of an Event of Default, including election of remedies. See
"Summary of the Indenture --Remedies".
Senior Obligations and Subordinate Obligations are entitled to payment and
certain other priorities over any Class C Notes. Principal of and interest on
the Class C Notes are not payable from moneys in the Note Fund or the Reserve
Fund, but are payable solely from amounts available therefor in the Surplus
Fund. See "Summary of the Indenture -- Funds and Accounts -- Surplus Fund".
Description of Flow of Revenues in the Funds
The Indenture establishes a Revenue Fund which is divided into a Repayment
Account and an Income Account. Except for certain amounts received with respect
to Financed Student Loans required to be credited to the Surplus Fund, the
Indenture requires the deposit into the Revenue Fund of (i) all amounts received
as principal and interest in repayment of Financed Student Loans, including all
federal interest subsidy payments, Guarantee Payments and Special Allowance
Payments received with respect to each Financed Student Loan (excluding, except
in the case of the Eligible Loans to be Financed on the Date of Issuance,
Special Allowance Payments and federal interest subsidy payments that accrued
prior to the date on which such Student Loans were Financed), (ii) except as
otherwise provided in a Supplemental Indenture, proceeds of the resale to a
Lender of any Financed Student Loans pursuant to the Lender's repurchase
obligation under the applicable Student Loan Purchase Agreement, (iii) all
amounts received as earnings on or income from Investment Securities in the
Revenue Fund, the Surplus Fund, the Reserve Fund, the Administration Fund and
the Note Fund, and (iv) any amounts permitted to be transferred to the Revenue
Fund from the Rebate Fund. The Trustee is required to credit all such revenues
received as payments of principal of Financed Student Loans to the Repayment
Account, and to credit all other such revenues and amounts (including revenues
received as payments of interest on or Special Allowance Payments with respect
to Financed Student Loans and income from Investment Securities) to the Income
Account. The Indenture requires the Trustee to transfer moneys on a monthly
basis (after taking into account any periodic rebate fee payment required to be
made in respect of Student Loans Financed under the Indenture), first from the
Repayment Account and then from the Income Account, to the following Funds and
Accounts in the following order: the Rebate Fund, the Interest Account for the
payment of Senior Obligations, the Principal Account for the payment of Senior
Obligations, the Retirement Account for the redemption of Senior Notes which are
called for redemption, the Interest Account for the payment of Subordinate
Obligations, the Principal Account for the payment of Subordinate Obligations,
the Retirement Account for the redemption of Subordinate Notes which are called
for redemption, the Administration Fund (but only from the Income Account), the
Reserve Fund, the Principal Account (relating to cumulative sinking fund
installments with respect to Subordinate Term Notes which are called for
redemption on
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a Sinking Fund Payment Date), the Special Redemption and Prepayment Account and
the Surplus Account. In addition, any amounts payable by a Swap Counterparty
pursuant to a Swap Agreement are required to be credited directly to the
Interest Account.
Moneys in the Administration Fund may be used, as provided in the
Indenture, to pay Costs of Issuance, Note Fees and Administrative Expenses.
Balances in the Surplus Fund shall be used first to make up deficiencies
in, or make required transfers to, the Rebate Fund, the Note Fund, the
Administration Fund and the Reserve Fund. Balances in the Surplus Fund may also
be applied, as determined by the Corporation from time to time, to the payment
of principal of or interest on Class C Notes when due or upon the call thereof
for redemption at the option of the Corporation; provided that the conditions
described under "Summary of the Indenture -- Funds and Accounts -- Surplus Fund"
are met.
If the Trustee shall have first certified that no deficiencies exist in any
of the Rebate Fund, the Note Fund, the Reserve Fund or the Special Redemption
and Prepayment Account, and shall have received certain certifications from the
Corporation, Balances in the Surplus Account may be used to redeem Notes which
are called for redemption (including Series 1997-1 Notes as described under
"Description of Series 1997-1 Notes -- Special Call for Redemption -- From
Moneys in the Surplus Account") or to purchase Notes or may be: (a) used to
acquire Student Loans meeting the requirements of clauses (A) (1) and (2) or
clause (B) of the definition of "Eligible Loans" (see "Glossary of Certain
Defined Terms"); or (b) released from the Indenture to be used for certain other
authorized purposes; provided, however, that the Indenture prohibits the use of
the Surplus Account to acquire Student Loans that are not Eligible Loans and for
the purposes specified in clause (b) above unless, after taking into account any
such application (i) the Senior Percentage will be not less than 112%, and (ii)
the Subordinate Percentage will be not less than 102%; provided that such
percentages may be lower upon receipt of certain approvals from each Rating
Agency and, under certain circumstances, consent of Other Beneficiaries.
The Indenture establishes a Rebate Fund into which the Trustee is required
to make annual deposits from Balances in the Revenue Fund, the Surplus Fund, the
Reserve Fund, the Administration Fund, the Bond Fund and the Acquisition Fund,
in that order, equal to the amount computed under Section 148(f) of the Code as
being subject to rebate to the United States (the "Rebate Amount") and certain
amounts constituting Excess Earnings on the Financed Student Loans. The Trustee
is required to pay to the United States Treasury, at least once every five
years, an amount which ensures that not less than 90% of the cumulative Rebate
Amount will have been paid to the United States Treasury. The Trustee is
required to consult with Bond Counsel and take such action as may be required
under the Code (which may include forgiveness of principal of Financed Student
Loans or payments to the United States Treasury) with respect to Excess
Earnings. Under certain circumstances, including delivery to the Trustee of a
favorable opinion of Bond Counsel, certain amounts determined not to be subject
to rebate or other disposition may be transferred from the Rebate Fund to the
Income Account.
Balances in the Reserve Fund shall be used and applied solely for the
purpose of paying Debt Service on the Senior Notes and the Subordinate Notes,
paying net amounts due with respect to other Senior Obligations or Subordinate
Obligations or for transfer to the Rebate Fund to the extent provided in the
Indenture.
For a more detailed description of the receipt and application of moneys in
the Revenue Fund, the Acquisition Fund, the Note Fund, the Rebate Fund, the
Reserve Fund, the Administration Fund and the Surplus Fund, see "Summary of the
Indenture -- Funds and Accounts".
THE ORIGINAL ISSUER
The Original Issuer is a South Dakota nonprofit corporation organized in
December 1978, at the request of the then Governor of the State, to provide a
statewide student loan acquisition program pursuant to the provisions
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of the Higher Education Act and Section 150(d) of the Code. Former Governor
Wollman designated the Original Issuer as the single nonprofit private agency in
the State acting as an eligible lender in connection with the student loan
program provided for by the Higher Education Act. The Original Issuer has
received an Internal Revenue Service determination that, based on its original
organization and purposes, it is a tax-exempt organization under Section
501(c)(3) of the Code.
As required by Section 150(d) of the Code, the Original Issuer's Articles
of Incorporation provide that the Original Issuer is organized exclusively for
the purpose of acquiring student loan notes incurred under the Higher Education
Act, and that income of the Original Issuer may be used only for: (i) the
payment of expenses and debt service on bonds or notes issued by the Original
Issuer or the creation of reserves for such purposes; (ii) the acquisition of
additional student loan notes; or (iii) payment to the United States. In
connection with an election under Section 150(d)(3) of the Code to terminate its
status as a corporation described in Section 150(d), the Original Issuer will
enter into an agreement with Student Loan Finance Corporation, a newly organized
South Dakota corporation and wholly-owned subsidiary of the Original Issuer
("SLFC"), pursuant to which the Original Issuer will transfer all of its student
loans (including its rights in Financed Student Loans), student loan acquisition
and servicing operations and physical facilities, together with certain other
assets (including the Original Issuer's interest in the other assets comprising
the Trust Estate), to SLFC and SLFC will assume all of the Original Issuer's
obligations with respect to the Notes, the Indenture, the Trust Estate and all
related contracts. See "The Servicer" herein. The Original Issuer will
transfer such assets without recourse, and will be released from all obligations
under the Indenture or otherwise with respect to the Notes. Concurrently with
such transfer, the Original Issuer will amend its articles of incorporation to
amend its corporate purpose and change its name to Great Plains Education
Foundation, Inc. Under Section 150(d)(3) of the Code, the Original Issuer must
continue to be an organization described in Section 501(c)(3) of the Code. No
determination has been received from the Internal Revenue Service as to the
Original Issuer's qualification as an organization described in Section
501(c)(3) of the Code after the amendment of its articles of incorporation.
Immediately upon such transfer, SLFC will transfer all its rights and
interest in the Financed Student Loans and other assets of the Trust Estate to
the Corporation, which is a newly organized, bankruptcy-remote, limited purpose
Delaware corporation and wholly-owned subsidiary of SLFC, and the Corporation
will assume all of SLFC's obligations under the Indenture and otherwise with
respect to the Notes, the Trust Estate and the related contracts. SLFC will
also transfer such assets without recourse, and will be released from all
obligations under the Indenture or otherwise with respect to the Notes (except
in its capacity as Servicer). Neither the Original Issuer nor SLFC (except in
its capacity as Servicer) will be obligated under the Indenture.
THE SERVICER
General
SLFC will be a newly organized South Dakota corporation. In connection
with the Original Issuer's election under Section 150(d)(3) of the Code, all of
the assets of the Original Issuer used in its business of acquiring,
originating, holding, servicing and collecting student loans, including its
physical facilities, computer hardware and software, and certain other assets
will be transferred to SLFC. At that time, all of the Original Issuer's
employees are expected to become employees of SLFC. Immediately after such
transfer, SLFC expects to operate the student loan business formerly operated by
the Original Issuer and service and collect the Financed Eligible Loans in
substantially the same manner (including using the same staff, offices and
computer hardware and software) in which the Original Issuer currently
administers its program and services and collects such loans.
The Original Issuer has operated as a secondary market for student loans
since 1979. As of September 30, 1997, the Original Issuer had a staff of 87
persons. The Original Issuer services the student loans which it owns and has
also from time to time serviced student loans owned by other lenders in
anticipation of sale to the Original
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Issuer. The Original Issuer utilizes its own computer hardware and software
systems designed specifically for student loan servicing. The Original Issuer
installed the original hardware in 1979 and since then has added additional
hardware or replaced hardware as needed. As of September 30, 1997, the Original
Issuer owned and was servicing student loans to approximately 91,200 borrowers
representing approximately $574 million outstanding principal amount of student
loans. As of such date, the Original Issuer was not servicing student loans
held by other lenders.
The Original Issuer has financed its acquisition of student loans through
the issuance of its student loan revenue bonds, student loan asset-backed notes
and other evidences of indebtedness. The Original Issuer has issued
approximately $2.25 billion aggregate principal amount of bonds and notes, of
which $912,425,000 principal amount were outstanding as of September 30, 1997.
All of such outstanding bonds and notes will be refunded with a portion of the
proceeds of the Series 1997-1 Notes. At the time of the transfer of the assets
described above to SLFC, the Original Issuer expects to cease its participation
in the student loan business.
The information included above concerning the Original Issuer has been
included solely to describe the expected future operations of SLFC. The
Original Issuer will not transfer all of its cash and investments to SLFC. None
of the assets retained by the Original Issuer will be available to SLFC or for
the payment of the Notes. The Original Issuer will have no obligation with
respect to (i) the Financed Eligible Loans or the servicing thereof, (ii) the
payment of the Series 1997-1 Notes, or (iii) the administration of the
Indenture. Moreover, the Original Issuer's transfer of assets to SLFC will be
without recourse or warranty. Thus, in the event of a failure of the Original
Issuer's hardware and software systems to adequately function, or any other
factor which adversely affects the value of the assets transferred to SLFC or
SLFC's ability to perform its obligations under the SLFC Servicing Agreement,
the Original Issuer would have no obligation or liability with respect thereto.
Delinquency and Loan Loss Experience
The following tables provide information regarding the delinquency status
of the student loan portfolio of the Original Issuer (which has been serviced by
the Original Issuer) as of June 30, 1997, 1996, 1995, 1994 and 1993. For each
delinquency status listed (based on number of days delinquent and claims filed),
the tables show the aggregate principal amount of Student Loans in each
delinquency status as of each date; the percent of the aggregate principal
amount of the Original Issuer's Student Loan portfolio in repayment, deferment,
forbearance and claims status as of each date represented by such principal
amounts; and the percent of the aggregate principal amount of the Original
Issuer's entire Student Loan portfolio as of each date represented by such
principal amounts. The Original Issuer's management believes that the
distribution of delinquent loans in the Original Issuer's Student Loan portfolio
has been consistent over the last five years and it is unaware of any current
trends that are expected to materially alter such distributions or materially
impact the future performance of the Financed Eligible Loans. Notwithstanding
the above, no assurance can be made that any such trends will continue or not
deteriorate.
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Distribution of Original Issuer's Student Loan Portfolio by Delinquency Status
As of June 30, 1997, 1996, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Principal Amount
Delinquency ---------------------------------------------------------------------------
Status June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993
- ----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
31 to 60 days $16,237,073 $17,765,179 $14,077,909 $13,639,924 $12,866,442
61 to 90 days 7,786,808 7,666,789 6,550,528 6,212,040 5,843,349
91 to 120 days 4,939,841 4,664,322 3,834,229 3,633,351 2,770,248
121 to 180 days 6,774,711 6,339,235 5,817,809 5,225,322 4,150,481
181 to 270 days 2,479,580 2,579,598 2,319,294 1,398,039 1,400,538
Over 270 days 9,061 3,532 0 147 4,227
Claims filed, not yet paid 1,736,799 1,193,954 1,200,925 1,460,674 2,096,725
---------------------------------------------------------------------------
Total $39,963,873 $40,212,609 $33,800,694 $31,569,497 $29,132,010
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Percent of Outstanding Principal - Repayment Deferment,
Forbearance and Claim Status Loans Only
Delinquency ----------------------------------------------------------------------------------
Status June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993
- ----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
31 to 60 days 3.2% 3.7% 3.5% 3.8% 3.9%
61 to 90 days 1.5 1.6 1.6 1.7 1.8
91 to 120 days 1.0 1.0 1.0 1.0 0.8
121 to 180 days 1.3 1.3 1.5 1.5 1.2
181 to 270 days 0.5 0.5 0.6 0.4 0.4
Over 270 days 0.0 0.0 0.0 0.0 0.0
Claims filed, not yet paid 0.3 0.2 0.3 0.4 0.6
----------------------------------------------------------------------------------
Total 7.8% 8.3% 8.5% 8.8% 8.7%
==================================================================================
</TABLE>
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<TABLE>
<CAPTION>
Percent of Outstanding Principal - Entire Portfolio
Delinquency -----------------------------------------------------------------------------
Status June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993
- ----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
31 to 60 days 2.9% 3.3% 3.2% 3.5% 3.6%
61 to 90 days 1.4 1.4 1.5 1.6 1.6
91 to 120 days 0.9 0.9 0.9 0.9 0.8
121 to 180 days 1.2 1.2 1.3 1.3 1.2
181 to 270 days 0.4 0.5 0.5 0.4 0.4
Over 270 days 0.0 0.0 0.0 0.0 0.0
Claims filed, not yet paid 0.3 0.2 0.3 0.4 0.6%
-----------------------------------------------------------------------------
Total 7.1% 7.5% 7.7% 8.1% 8.2%
=============================================================================
</TABLE>
The following tables provide information regarding principal losses
relating to the Original Issuer's Student Loan portfolio (which has been
serviced by the Original Issuer) for each of the years ended June 30, 1993
through 1997. The first table shows the aggregate principal amount of losses
during each period, and the breakdown of such losses between the amount
representing the two percent portion of default claims filed with a Guarantee
Agency which is not paid by the Guarantee Agency with respect to loans made
after September 30, 1993, and the amount representing other principal write-offs
(i.e., for loans that may have lost Guarantee eligibility) net of recoveries.
The second table shows the percent of the Original Issuer's entire Student Loan
portfolio end-of-period balances represented by the aggregate losses listed in
the first table during the relevant period.
Subject to compliance with Department of Education and Guarantee Agency
requirements, student loans made under the Federal Family Education Loan Program
prior to October 1, 1993 are entitled to 100% guarantee coverage for defaulted
loans while student loans made on or after that date are entitled to 98%
coverage. The Original Issuer's management expects that overall write-offs of
the portfolio related to this two percent difference will increase over time as
a greater percentage of the portfolio consists of loans made on or after October
1, 1993.
Other write-offs arise if a claim is rejected by the Guarantee Agency, and
the Original Issuer determines that the reason for the rejection cannot be
cured, that the Lender from which the loan was acquired cannot or should not be
required to repurchase the loan, and that the loan is otherwise not collectible.
The Original Issuer's management believes that the amount of other write-offs
during this period has been consistent and immaterial and it is unaware of any
current trends that are expected to materially alter the loss experience or
materially impact the future performance of the Financed Eligible Loans.
Notwithstanding the above, no assurance can be made that any such trends will
continue or not deteriorate.
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Original Issuer's Student Loan Portfolio Principal Losses
For Each of the Years Ended June 30, 1993 Through 1997
<TABLE>
<CAPTION>
Principal Amounts
-----------------------------------------------
2% Claim Other Principal Total
Losses on 98% Write-Offs, Net Principal
For the Fiscal Year Ended: Guaranteed Loans of Recoveries Losses
- ------------------------- ---------------- ------------- ------
<S> <C> <C> <C>
June 30, 1997 $88,367 $ 7,020 $95,387
June 30, 1996 56,730 20,484 77,214
June 30, 1995 10,266 9,211 19,477
June 30, 1994 0 3,778 3,778
June 30, 1993 0 55 55
Percentage (Annualized) of Principal Losses to
End-of-Period Portfolio Balances
-----------------------------------------------
2% Claim Other Principal Total
Losses on 98% Write-Offs, Net Principal
For the Fiscal Year Ended: Guaranteed Loans of Recoveries Losses
- ------------------------- ---------------- ------------- ------
June 30, 1997 0.016% 0.001% 0.017%
June 30, 1996 0.011% 0.004% 0.015%
June 30, 1995 0.002% 0.002% 0.004%
June 30, 1994 0.000% 0.001% 0.001%
June 30, 1993 0.000% 0.000% 0.000%
</TABLE>
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency and loss experience of the
Financed Student Loans will be similar to that set forth above.
THE CORPORATION
General
The Corporation is a newly organized, bankruptcy remote, limited purpose
Delaware corporation and a wholly owned subsidiary of SLFC. Immediately
following the issuance of the Series 1997-1 Notes, the Corporation will assume
all of SLFC's obligations under the Indenture and otherwise with respect to the
Notes, the Trust Estate and the related contracts.
As a bankruptcy-remote entity, the Corporation's operations will be
restricted so that (i) it does not engage in business with, or incur liabilities
to, any other entity (other than the Noteholders and Other Beneficiaries, and
beneficiaries under indentures similar to the Indenture) which may bring
bankruptcy proceedings against the Corporation, and (ii) the risk that it will
be consolidated into the bankruptcy proceedings of any other entity is
diminished. The Corporation has covenanted in the Indenture that it will not
engage in any business other
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than financing, originating, purchasing, owning, selling and managing Student
Loans in the manner contemplated by its certificate of incorporation and the
Indenture and the activities incidental thereto.
The Corporation will have no substantial assets other than those
transferred to it from SLFC and pledged under the Indenture. The Corporation
will have no full-time employees. Certain responsibilities of the Corporation
under the Indenture will be administered by SLFC. See "The SLFC Servicing
Agreement" and "Certain Relationships Among Financing Participants."
The Corporation's address is 105 First Avenue Southwest, Aberdeen, South
Dakota 57401 and its phone number is (605) 622-4400.
Financed Eligible Loan Program
The Corporation will, upon the Section 150(d)(3) Transfer and the
assumption of the Original Issuer's obligations under the Indenture, become
responsible for the acquisition or origination of Eligible Loans to be Financed
with proceeds of the Series 1997-1 Notes deposited to the credit of the
Acquisition Fund. In this regard, as of September 30, 1997, the Corporation has
entered into Student Loan Purchase Agreements with approximately 95 Lenders
providing for the purchase of approximately $198 million in principal amount of
Eligible Loans from moneys available therefor in the Series 1997-1 Tax Exempt
Acquisition Account and Student Loan Purchase Agreements (which do not provide
for the purchase of a stated principal amount of Eligible Loans) with
approximately 85 Lenders providing for the purchase of Eligible Loans from
moneys available therefor in the Series 1997-1 Taxable Acquisition Account. As
further described under "Description of Financed Eligible Loan Program --
Background of the Original Issuer's Program", the Original Issuer has
historically entered into comparable agreements with Lenders (including
substantially all of the Lenders with which the Corporation has current
agreements) pursuant to which the Original Issuer has purchased over $1.25
billion in Student Loans from proceeds of its bonds and notes in the same manner
as the Corporation intends to purchase Eligible Loans from proceeds of the
Series 1997-1 Notes. Thus, the Corporation anticipates that it will be able to
apply all, or substantially all, of the proceeds of the Series 1997-1 Notes to
the acquisition or origination of Eligible Loans. See "Description of Financed
Eligible Loan Program". However, there is no assurance that the Corporation
will be able to so apply such proceeds.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
As of the date of this Prospectus, the Corporation has had no operating
history. The proceeds of the sale of the Series 1997-1 Notes will be used
primarily to refinance a portfolio of Student Loans currently owned by the
Original Issuer and to purchase Eligible Loans from Lenders or to originate
Eligible Loans on or before April 15, 2002. See "Application of Series 1997-1
Note Proceeds." The Corporation is prohibited by its certificate of
incorporation from engaging in any business other than (i) receiving the assets
and assuming the liabilities transferred to it in connection with the Original
Issuer's election under Section 150(d)(3) of the Code; (ii) originating or
acquiring Student Loans; (iii) entering into certain agreements relating to
Student Loans; (iv) issuing bonds, notes, asset-backed certificates or other
securities payable solely from Student Loans and other assets pledged to the
payment thereof; and (v) engaging in acts incidental to and necessary, suitable
or convenient for the accomplishment of the foregoing purposes and permitted
under Delaware law. The Corporation's ability to incur, assume or guarantee
indebtedness for borrowed money is also restricted by its certificate of
incorporation.
Directors and Executive Officer
The following table identifies the directors and executive officer of the
Corporation and their ages and positions as of the date of this Prospectus.
Because the Corporation is organized as a special purpose entity and will be
largely passive, it is expected that the officers and directors in such capacity
will participate in the management of the Corporation only to a limited extent.
Most of the actions related to maintaining and servicing the assets will be
performed by SLFC.
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<TABLE>
<CAPTION>
Name Age Positions
- --------- --- ------------------------
<S> <C> <C>
A. Norgrin Sanderson 55 President, Treasurer and Chairman of the Board
V. G. Stoia 73 Director
Manley B. Feinstein 70 Director
Harvey C. Jewett 49 Director
</TABLE>
In order to comply with certain provisions of its certificate of incorporation
and the requirements of the Rating Agencies, the Board of Directors will
increase in size to six members and will appoint two additional independent
directors within 30 days after the closing of the offering of the Series 1997-1
Notes.
Mr. Sanderson has been President, Treasurer and Chairman of the
Corporation since its formation in May 1997. Mr. Sanderson is also the
President, Treasurer and Chairman of SLFC and has been President, Treasurer and
a Director of the Original Issuer since 1979. Prior to assuming his positions
with the Original Issuer, he was employed for 16 years by Norwest Corporation, a
bank holding company based in Minneapolis, Minnesota, where he held Vice
President and Branch Manager positions.
Mr. Stoia has been a Director of the Corporation since its formation in May
1997. Mr. Stoia is also a Director of SLFC and has been a Director of the
Original Issuer since its formation in 1978. Mr. Stoia is a Chartered Financial
Consultant with the firm of Stoia, Seiler and Associates in Aberdeen, South
Dakota. Currently, Mr. Stoia also serves on the Board of Trustees of St. Luke's
Hospital and as a member of the Board of Northern State University Foundation.
In the past, he served as a member of the Board of the South Dakota Foundation
of Private Colleges, Presentation College and South Dakota Crippled Children's
School. He served as President of the Aberdeen Development Corporation from 1972
to 1987.
Mr. Feinstein has been a Director of the Corporation since its formation in
May 1997. Mr. Feinstein is also a Director of SLFC and has been a Director of
the Original Issuer since its formation in 1978. He also is a Director of EAC.
Mr. Feinstein has been self-employed as a business consultant in Aberdeen, South
Dakota since 1990.
Mr. Jewett has been a Director of the Corporation since its formation in
May 1997. Mr. Jewett is also a Director of SLFC and has been a Director of the
Original Issuer since 1979. He also is a Director of EAC. Mr. Jewett has been
the President and Chief Operating Officer of The Rivett Group, L.L.C., a motel
management operation, since 1987, and has been an attorney in private practice
in Aberdeen, South Dakota since 1974. Mr. Jewett is a member of the Board of
Directors of Norwest South Dakota, N.A., a bank with branches throughout South
Dakota, which has sold a substantial number of Student Loans to the Original
Issuer in past years and is expected to continue selling Student Loans to the
Corporation in the future.
Except for Mr. Sanderson, none of the directors and officers listed above
will be compensated directly by the Corporation nor with any funds or assets of
the Corporation. Mr. Sanderson will be paid for serving as an executive officer
of the Corporation. Mr. Sanderson's compensation will be based upon the amount
of time he spends handling the Corporation's affairs. It is currently estimated
that he will receive approximately $35,000 per year for his service as an
executive officer of the Corporation.
It is anticipated that the independent directors of the Corporation to be
appointed as described above will receive compensation of approximately $2,500
per year.
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THE SLFC SERVICING AGREEMENT
In General
The Corporation and the Trustee will enter into a Servicing Agreement,
dated as of July 1, 1997 (the "SLFC Servicing Agreement"), with SLFC. A form of
the SLFC Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary describes
certain provisions of the SLFC Servicing Agreement. The summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the SLFC Servicing Agreement.
Pursuant to the SLFC Servicing Agreement, SLFC agrees to provide services
to the Corporation and the Trustee in connection with the origination and
acquisition of Student Loans to be Financed, to commence servicing the Financed
Student Loans as of the day they are Financed and to service the Financed
Student Loans, all in accordance with the SLFC Servicing Agreement. SLFC may
perform all or part of its origination, acquisition, and servicing activities
through a subcontractor. SLFC is required to perform or cause its subcontractor
to perform all services under the SLFC Servicing Agreement in compliance with
the Higher Education Act, applicable requirements of the Guarantee Agency and
all other applicable federal, state and local laws and regulations. SLFC will be
responsible for the performance of its obligations under the SLFC Servicing
Agreement, whether such obligations are performed by SLFC or by its
subcontractor, and SLFC will be responsible for any fees and payments required
by the subcontractor. The SLFC Servicing Agreement requires a subcontractor to
be subject to the same obligations relating to audits, examinations and
inspections as to which SLFC is subject. SLFC also agrees to perform various
duties of the Corporation under the Indenture.
Acquisition Process
Unless and until otherwise directed in writing by the Corporation, SLFC
agrees to provide to the Trustee all certificates and directions required to be
delivered by the Corporation to the Trustee under the Indenture in connection
with the Financing through acquisition of Eligible Loans and Student Loans
thereunder. SLFC also agrees to work with the Lenders to obtain from each Lender
loan documentation and information relating to each Student Loan to be Financed
and to establish and maintain all records delivered to SLFC with respect to each
Financed Student Loan, and complete records of SLFC's servicing of the Financed
Student Loan from the date SLFC's servicing commences. However, SLFC will not
conduct a complete file and note examination of each Student Loan to be
Financed.
Origination Process
Unless and until otherwise directed in writing by the Corporation, SLFC
agrees to provide to the Trustee all certificates and directions required to be
delivered by the Corporation to the Trustee under the Indenture in connection
with the Financing through origination of Eligible Loans and Student Loans
thereunder. SLFC also agrees to provide disbursement and origination services in
connection with the origination and disbursement of Eligible Loans under the
Indenture.
Servicing
SLFC agrees to perform all servicing obligations relating to the Financed
Student Loans required of the Corporation or the Trustee, or which the
Corporation or the Trustee is required to cause the Servicer to perform. The
SLFC Servicing Agreement specifies various activities and obligations to be
performed by SLFC in servicing the Financed Student Loans. These activities and
obligations include, without limitation, file maintenance; maintaining Guarantee
coverage on Financed Student Loans; handling borrower requests for forbearance
and deferments; exercising due diligence (within the meaning of the Higher
Education Act and the Guarantee Program regulations) in the servicing,
administration and collection of all Financed Student Loans; collecting payments
of
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principal and interest, Special Allowance Payments, and Guarantee Payments with
respect to Financed Student Loans and causing all such interest subsidy payments
and Special Allowance Payments to be forwarded by the Secretary of Education
directly to the Trustee for immediate deposit into the appropriate fund or
account under the Indenture and depositing all other such payments immediately
upon receipt into a lock-box account (which shall be part of the Revenue Fund)
to be established by the Trustee in the name of and for the account of the
Trustee; representing the interests of the Corporation and the Trustee in
handling discrepancies or disputes, if any, with the Secretary of Education;
preparing and maintaining all appropriate accounting records with respect to all
transactions related to each Financed Student Loan; for defaulted Financed
Student Loans, taking steps necessary to file and prove a claim for loss with
the Secretary of Education or the Guarantee Agency, as the case may be and as
required, and assuming responsibility for all necessary communications and
contacts with the Secretary of Education or the Guarantee Agency, as the case
may be and as required, to recover on such defaulted Financed Student Loans
within the time required by the Higher Education Act and the requirements of the
Guarantee Agency; if a claim is denied by the Secretary of Education or the
Guarantee Agency, as the case may be, under circumstances resulting in a Lender
being required by a Student Loan Purchase Agreement to repurchase a Financed
Student Loan, taking such action as shall be necessary to allow the Corporation
or the Trustee to cause such Lender to repurchase such Financed Student Loan or
to substitute a different Eligible Loan in accordance with the requirements of
the applicable Student Loan Purchase Agreement; preparing and filing various
reports with the Secretary of Education, the Guarantee Agency, the Corporation
and the Trustee; identifying on the servicing system the Notes as the source of
financing for each such Financed Student Loan; and maintaining duplicates or
copies of certain file documents.
Right of Inspection and Audits
The SLFC Servicing Agreement provides that, subject to any restrictions of
applicable law, the Corporation, the Trustee, the Guarantee Agency, the
Secretary of Education and/or any governmental agency having jurisdiction over
the Corporation or the Trustee (and, in each case, such entities'
representatives), will have the right, at any time and from time to time, during
normal business hours, and upon reasonable notice to SLFC, to examine and audit
any and all of the SLFC's records or accounts pertaining to any Financed Student
Loan. The Corporation and the Trustee also may require SLFC to furnish such
documents as they from time to time deem necessary to determine that SLFC has
complied with the provisions of the SLFC Servicing Agreement, the Student Loan
Purchase Agreements and the Indenture.
SLFC also agrees to have prepared and submitted to the Secretary of
Education and the Guarantee Agencies any third-party servicer compliance audits
and audited financial statements required under the Higher Education Act and the
Guarantee Program regulations relating to SLFC and its servicing of Financed
Student Loans, and any lender compliance audits required under the Higher
Education Act and the Guarantee Program regulations relating to the Trustee (as
the holder of the Financed Student Loans) and the Financed Student Loans. SLFC
agrees to provide to the Corporation and the Trustee these and various other
specified reports and audits.
Administration and Management
SLFC agrees to perform various administrative activities and obligations on
behalf of the Corporation under the SLFC Servicing Agreement. These include
providing all necessary personnel, facilities, equipment, forms and supplies for
operating the Program in accordance with the Indenture; disseminating
information on the Program to Lenders and to student financial aid officers and
to other persons as necessary; controlling and accounting for the receipt and
expenditure of the Corporation's funds in accordance with the resolutions of the
Corporation's board of directors and the Indenture and maintaining accurate and
complete records on all aspects of the Program; reviewing all statements and
reports to the Corporation required of the Trustee, the Servicer and the Lender
in accordance with the provisions of the Indenture, the SLFC Servicing Agreement
and the Student Loan Purchase Agreements; preparing and submitting to the
Trustee the Monthly Servicing Reports required to be delivered to the
Noteholders pursuant to the Indenture; and determining and notifying the Trustee
and Auction Agent of the Net Loan Rate. SLFC also agrees to prepare for filing,
and provide such other assistance as is required by the
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Corporation to file, any other reports required to be filed by the Corporation
under the Indenture or under any applicable law, including without limitation,
the Higher Education Act and any federal and state securities laws.
Servicer as Bailee
The SLFC Servicing Agreement provides that SLFC, in holding documents
relating to the Financed Student Loans, will hold such documents as bailee for
and on behalf of the Trustee.
Plan for Doing Business
In providing administrative services on behalf of the Corporation under the
SLFC Servicing Agreement, SLFC agrees to operate the Program in compliance with
the Plan for Doing Business of the Original Issuer, to advise the Original
Issuer if any amendments to the Plan for Doing Business are required from time
to time, and to assist the Original Issuer in preparing, obtaining approval of,
and filing any such amendments to the Plan for Doing Business.
Servicing Fees
The SLFC Servicing Agreement provides that SLFC shall be paid for the
performance of its functions under the SLFC Servicing Agreement (from funds
available for such purpose under the Indenture) a monthly fee in an amount each
month equal to 0.104167% of the outstanding principal balance of all Financed
Student Loans as of the last day of the immediately preceding month. Such fee
is required to be paid to SLFC on a monthly basis within fifteen (15) days of
receipt by the Trustee of a written monthly billing statement from SLFC. If SLFC
believes that it is necessary to increase the monthly fee payable under the SLFC
Servicing Agreement, it shall provide a written request to the Corporation and
the Trustee of its need for an increase in such fee, together with all
information required under the Indenture for the Trustee to approve an increase
in the fees payable thereunder. SLFC acknowledges in the SLFC Servicing
Agreement that such fee shall not be increased unless the conditions for
increasing such fees under the Indenture have been satisfied.
SLFC also acknowledges in the SLFC Servicing Agreement that the Corporation
and the Trustee contemplate paying all servicing fees payable under the SLFC
Servicing Agreement solely from funds available for such purpose in the
Administration Fund created under the Indenture, which funds are primarily
dependent upon collection by SLFC and receipt by the Trustee of payments with
respect to the Financed Student Loans. SLFC agrees to continue to be bound by
the terms and provisions of the SLFC Servicing Agreement relating to Financed
Student Loans in all respects, and to perform for a period of 120 days its
obligations thereunder, regardless of the receipt or non-receipt on a timely
basis by it of any payments in respect of servicing fees.
No Bankruptcy or Insolvency Petition
SLFC agrees that it will not at any time institute against the Corporation,
or join in any institution against the Corporation of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or state bankruptcy or similar law in connection
with any obligation relating to the SLFC Servicing Agreement.
Benefit of the Noteholders
The SLFC Servicing Agreement recites that it is made and entered into for
the benefit of all Noteholders, and its provisions may be enforced not only by
the parties thereto but also by the Noteholders in the manner and to the extent
to which Noteholders may enforce provisions of the Indenture.
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Amendment
The SLFC Servicing Agreement may be amended, supplemented or modified only
by written instrument duly executed by all parties thereto and only upon receipt
of a written certificate from the Corporation and the Trustee that such
amendment, supplement or modification will not deprive any Noteholder in any
material respect of the security afforded by the SLFC Servicing Agreement.
Term and Termination
The term of the SLFC Servicing Agreement continues for so long as any of
the Notes remain Outstanding, unless the SLFC Servicing Agreement is terminated
in accordance with its terms. The SLFC Servicing Agreement shall terminate:
A. If SLFC shall:
1. admit in writing its inability to pay its debts generally as they
become due;
2. consent to the appointment of a custodian (as that term is
defined in the federal Bankruptcy Code) for or assignment to a
custodian of the whole or any substantial part of SLFC's
property, or fail to stay, set aside or vacate within sixty (60)
days from the date of entry thereof any order or decree entered
by a court of competent jurisdiction ordering such appointment or
assignment;
3. commence any proceeding or file a petition under the provisions
of the federal Bankruptcy Code for liquidation, reorganization or
adjustment of debts, or under any insolvency law or other statute
or law providing for the modification or adjustment of the rights
of creditors, or fail to stay, set aside or vacate within sixty
(60) days from the date of entry thereof any order or decree
entered by a court of competent jurisdiction pursuant to an
involuntary proceeding, whether under federal or state law,
providing for liquidation or reorganization of SLFC or
modification or adjustment of the rights of creditors; or
4. contest in writing the validity or enforceability of the SLFC
Servicing Agreement as a whole or deny in writing that the SLFC
Servicing Agreement as a whole is binding upon SLFC;
B. upon written notice by the Corporation or the Trustee to SLFC, if SLFC
materially breaches its obligations, or any representation or
warranty, under the SLFC Servicing Agreement; or
C. upon written notice by the Corporation or the Trustee, if at any time
the Guarantee Agency or the Department of Education has issued a
notice of suspension or termination against SLFC, or has suspended or
terminated the payment of all claims with respect to Financed Student
Loans or, in the case of the Department of Education, all Special
Allowance Payments or interest benefit payments with respect to
Financed Student Loans as a result of actions or omissions of SLFC (it
being understood that the cessation of less than all such claims or
payments may constitute a breach under clause (B) above).
Notwithstanding the foregoing, any termination pursuant to clauses (B) or (C)
will be subject to the following conditions. If such breach under clause (B) or
suspension or termination under clause (C) is capable of being cured within 90
days without, in the judgment of the Trustee, adversely affecting the security
provided to the Noteholders by the Financed Student Loans and the related
Guarantee Payments, Special Allowance Payments and interest subsidy payments,
SLFC shall have the right to cure such breach, within 90 days of the date SLFC
learns of such
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breach or receives notice of such breach from the Corporation or the Trustee,
prior to such termination. If such breach is not capable of being cured in the
manner specified above, no termination pursuant to clause (B) or (C) shall occur
if, in the judgment of the Trustee, such breach or suspension or termination
will not adversely affect the security provided the Noteholders by the Financed
Student Loans and the related Guarantee Payments, Special Allowance Payments and
interest subsidy payments.
SLFC agrees to promptly notify the Trustee and the Corporation of any
occurrence or condition which constitutes (or which with the passage of time or
the giving of notice or both would constitute) an event permitting the
termination of the SLFC Servicing Agreement. SLFC also agrees to continue
performing its obligations under the Servicing Agreement until a successor
Servicer has been appointed.
DESCRIPTION OF FINANCED ELIGIBLE LOAN PROGRAM
Background of Original Issuer's Program
The Original Issuer was organized as a secondary market for student loans
for lenders throughout the State of South Dakota, including banks, savings and
loan associations and credit unions. The Original Issuer began operating a
secondary market program in 1979 and financed its initial acquisitions of
student loans through the issuance of its student loan revenue bonds. The
Original Issuer has ongoing contact with, and holds numerous workshop meetings
in various locations in the State and surrounding States which are attended by,
approximately 250 financial and educational institutions. SLFC will undertake
similar activities to make the financial and education communities aware of its
activities and objectives.
The following table lists the approximate aggregate outstanding principal
balances of all Student Loans acquired by the Original Issuer from the proceeds
of its tax exempt student loan revenue bond issues during each of the last six
fiscal years. These Student Loans have been made to Eligible Borrowers for the
post-secondary education of (a) residents of the State attending post-secondary
schools located within or without the State, or (b) residents of a state other
than the State attending post-secondary schools located within the State
(sometimes referred to herein as "In-State Loans"). The Code requires that
proceeds of tax exempt debt obligations issued by the Original Issuer generally
be used only to acquire In-State Loans.
<TABLE>
<CAPTION>
Year Ending Student Loans
June 30 Acquired
----------- -------------
<S> <C>
1992.................... $49,702,000
1993.................... 56,963,000
1994.................... 65,818,000
1995.................... 81,802,000
1996.................... 92,043,000
1997.................... 69,716,000
</TABLE>
In addition to the loans included in the table above, the Original Issuer
has acquired Student Loans from the proceeds of its taxable borrowings during
each year since 1988. In general, the Original Issuer has used the proceeds of
these financings to acquire Student Loans for which the borrower is neither a
resident of the State nor attending an eligible school located within the State.
The following table lists the approximate aggregate outstanding principal
balances of all Student Loans acquired by or on behalf of the Original Issuer
from the proceeds of its taxable borrowings for each of the last six fiscal
years.
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<TABLE>
<CAPTION>
Additional
Year Ending Student Loans
June 30 Acquired
------- --------
<S> <C>
1992.................... $27,798,000
1993.................... 35,113,000
1994.................... 40,655,000
1995.................... 60,665,000
1996.................... 87,864,000
1997.................... 42,856,000
</TABLE>
Description of Eligible Loans to be Financed
It is expected that a portion of the proceeds of the Series 1997-1 Notes
deposited in the Acquisition Fund will be used to refinance the Original
Issuer's portfolio of approximately $577,767,000 aggregate principal amount of
student loans. Certain characteristics of such portfolio as of September 30,
1997 are set forth below under "Characteristics of the Initial Financed Eligible
Loans." Based on outstanding principal amounts as of September 30, 1997,
approximately 48% of such Financed Eligible Loans have been acquired by the
Original Issuer from two Lenders (and affiliates thereof).
It is expected that the remaining proceeds of the Series 1997-1 Notes
deposited in (i) the Series 1997-1 Tax Exempt Acquisition Account will be used
to acquire or originate approximately $255,456,000 additional aggregate
principal amount of Eligible Loans that are In-State Loans on or before April
15, 2002 and (ii) the Series 1997-1 Taxable Acquisition Account will be used to
acquire or originate approximately $55,150,000 additional aggregate principal
amount of Eligible Loans that are not In-State Loans on or before November 1,
1998. See "Application of Series 1997-1 Note Proceeds."
Although the Higher Education Act contains certain provisions that may
decrease the principal amount of Eligible Loans made by Lenders, the Corporation
does not expect that such provisions will affect its ability to spend the
proceeds of the Series 1997-1 Notes initially deposited in the Acquisition Fund
to acquire Eligible Loans. There is no assurance, however, that relevant
federal laws, including the Higher Education Act, will not be amended in a
manner that may adversely affect the qualification of Student Loans as Eligible
Loans under the Indenture and thus prevent their acquisition by the Trustee or
that may decrease the aggregate principal amount of Eligible Loans made by
Lenders and available for purchase by the Trustee. Proposals by Congress and
the Administration to amend the Higher Education Act could affect the
qualification of Student Loans made under the Federal Family Education Loan
Program as Eligible Loans. If any such amendments are enacted, the Corporation
may seek any necessary Rating Agency approvals to allow it to finance such
Student Loans under the Indenture. If the Trustee does not acquire all the
Eligible Loans which it is expected to acquire, the Corporation may use the
unexpended portion of the Series 1997-1 Notes proceeds and Balances in the
Series 1997-1 Tax Exempt and Taxable Surplus Sub-Accounts to redeem Series 1997-
1 Notes which are called for redemption. See "Description of Series 1997-1
Notes -- Special Call for Redemption -- From Unused Proceeds".
The First Supplemental Indenture contains various limits on certain types
of Eligible Loans that may be Financed (originated or purchased) after the Date
of Issuance, with proceeds deposited in the Series 1997-1 Tax Exempt Acquisition
Account and the Series 1997-1 Taxable Acquisition Account without receiving
further approval from the Rating Agencies. The First Supplemental Indenture
limits the amount of additional Consolidation Loans that may be Financed after
the Date of Issuance from (i) the Series 1997-1 Tax Exempt Acquisition Account
(together with the Series 1997-1 Tax Exempt Surplus Sub-Account) to the greater
of (a) $52,000,000, or (b) 20% of the aggregate of the amounts applied from such
Accounts, after the Date of Issuance, to the acquisition or origination of all
Student Loans; and (ii) the Series 1997-1 Taxable Acquisition Account (together
with the Series
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1997-1 Taxable Surplus Sub-Account) to the greater of (a) $19,400,000, or (b)
40% of the aggregate of the amounts applied from such Accounts, after the Date
of Issuance, to the acquisition or origination of all Student Loans. The First
Supplemental Indenture also limits the aggregate amount of Financed Eligible
Loans that may be subject to certain forms of interest rate reduction features
to Borrowers. In either case, the Corporation could use Balances in such
Accounts or Sub-Accounts to originate or acquire additional amounts of such
Eligible Loans if it delivers to the Trustee a Corporation certificate
certifying that, based on a Cash Flow Projection, the Financing of such Eligible
Loans will not materially adversely affect the Corporation's ability to pay Debt
Service on the Outstanding Notes and on Outstanding Other Indenture Obligations,
to pay Carry-Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes or to make required deposits to the Rebate Fund. The
Corporation does not expect that these limitations will prevent the expenditure
of the proceeds of the Series 1997-1 Note proceeds deposited in the Acquisition
Fund.
For a more detailed description of student loans under the Higher Education
Act, see "Description of Federal Family Education Loan Program". For a
description of the Guarantee Agencies, see "Description of the Guarantee
Agencies".
The Indenture also permits the Financing of Student Loans from moneys in
the Surplus Account under certain circumstances. Such Student Loans are not
required to be Eligible Loans. See "Summary of the Indenture -- Funds and
Accounts -- Surplus Fund".
Summary of Student Loan Purchase Agreements
The Original Issuer entered into Student Loan Purchase Agreements with
approximately 500 Lenders for the purchase of Eligible Loans to be refinanced
with the proceeds of the Series 1997-1 Notes (the "Original Issuer Student Loan
Purchase Agreements"). The Original Issuer's right, title and interest in the
Original Issuer Student Loan Purchase Agreements will be pledged to the Trustee.
In addition, the Corporation has entered into Student Loan Purchase Agreements
with approximately 140 Lenders for the purchase of additional Eligible Loans by
the Trustee from the proceeds of the Series 1997-1 Notes and expects to enter
into additional Student Loan Purchase Agreements for the purchase of additional
Eligible Loans by the Trustee from Balances in the Series 1997-1 Tax Exempt and
Taxable Surplus Sub-Accounts (collectively, the "Corporation Student Loan
Purchase Agreements").
As of September 30, 1997, approximately $98 million outstanding principal
amount of the Eligible Loans to be Financed on the Date of Issuance represented
Consolidation Loans originated by the Original Issuer (and not acquired from
Lenders pursuant to Original Issuer Student Loan Purchase Agreements).
Consolidation Loans and other Eligible Loans Financed after the Date of Issuance
which are originated by the Trustee also will not be covered by Corporation
Student Loan Purchase Agreements.
The Corporation Student Loan Purchase Agreements will provide for the
purchase by the Trustee on behalf of the Corporation, of Eligible Loans at 100%
of their outstanding unpaid principal amount, plus accrued interest thereon
payable by the Borrower. The Corporation Student Loan Purchase Agreements
require the Lender to report and offset against its interest subsidy and Special
Allowance Payments all authorized origination fees. Under certain
circumstances, the Trustee will also pay to the Lender reasonable transfer,
origination or assignment fees and a premium to the extent permitted by the
Indenture. See "Summary of the Indenture -- Funds and Accounts -- Acquisition
Fund".
Each Lender, with respect to each Financed Eligible Loan purchased under a
Student Loan Purchase Agreement, has represented or will represent that at the
date of sale by the Lender to the Original Issuer or the Trustee, each Eligible
Loan was or will be Guaranteed. Each Lender makes additional representations as
to the validity, enforceability and transferability of each such Eligible Loan
and as to the legal authority of the Lender to engage in the transactions
contemplated by the respective Student Loan Purchase Agreement.
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The Student Loan Purchase Agreements provide that if any representation
furnished by a Lender with respect to an Eligible Loan sold to the Original
Issuer or the Trustee proves to have been materially incorrect, or if the
Guarantee Agency refuses to honor all or part of a Guarantee claim filed with
respect to any Financed Eligible Loan on account of any circumstance or event
occurring prior to the sale of such Eligible Loan to the Original Issuer or the
Trustee, or under certain other circumstances specified in the Student Loan
Purchase Agreement, the Lender shall repurchase such loan at a price equal to
the then outstanding principal balance, plus accrued interest and Special
Allowance Payments, plus any expenses incurred by the Corporation, the Original
Issuer or the Trustee in connection therewith and any other amounts paid to the
Lender by the Original Issuer or the Trustee in connection with the acquisition
of such loan.
Servicing and "Due Diligence"
The Servicer will service student loans originated or acquired by the
Trustee under the Indenture. The Corporation will covenant in the Indenture to
cause a Servicer to administer and collect all Financed Student Loans in a
competent, diligent and orderly fashion, and in accordance with all requirements
of the Higher Education Act, the Secretary of Education, the Indenture, the
Federal Reimbursement Contracts and the Guarantee Agreements.
The Higher Education Act requires that the Original Issuer, the Trustee (in
its capacity as "eligible lender"), a Lender and their agents (including the
Servicer) and employees exercise "due diligence" in the making, servicing and
collection of Financed Student Loans and that a Guarantee Agency exercise due
diligence in collecting loans which it holds. The Higher Education Act defines
"due diligence" as requiring the holder of a Student Loan to utilize servicing
and collection practices at least as extensive and forceful as those generally
practiced by financial institutions for the collection of consumer loans, and
requires that certain specified collection actions be taken within certain
specified time periods with respect to a delinquent loan or defaulted loan. The
Guarantee Agencies have established procedures and standards for due diligence
to be exercised by each Guarantee Agency and by Lenders (including the Original
Issuer and the Trustee) which hold loans that are guaranteed by the respective
Guarantee Agencies. The Original Issuer, the Trustee, a Lender, or a Guarantee
Agency may not relieve itself of its responsibility for meeting these standards
by delegation to any servicing agent. Accordingly, if the Original Issuer has
failed to meet such standards, or if a Lender or the Servicer fails to meet such
standards, the Trustee's ability to realize the benefits of Guarantee Payments,
and (with respect to Student Loans eligible for such payments) interest subsidy
payments and Special Allowance Payments may be adversely affected. If a
Guarantee Agency fails to meet such standards, that Guarantee Agency's ability
to realize the benefits of federal reinsurance payments may be adversely
affected.
CHARACTERISTICS OF THE INITIAL
FINANCED ELIGIBLE LOANS
This section sets forth tables describing certain characteristics, as of
September 30, 1997, of the Eligible Loans expected to be Financed on the Date of
Issuance of the Series 1997-1 Notes. The Corporation expects that the Eligible
Loans to be Financed on the Date of Issuance will also include approximately $11
million principal amount of Eligible Loans originated or purchased by or on
behalf of the Original Issuer between September 30, 1997 and the Date of
Issuance, and that the characteristics of the Eligible Loans reflected in such
tables will vary due to the continued amortization of such Eligible Loans
between such date and the Date of Issuance. Although the statistical
distribution of the characteristics of the Financed Eligible Loans as of the
Date of Issuance will vary somewhat from the statistical distribution of such
characteristics shown below, the Corporation does not believe that such
characteristics will differ materially.
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<PAGE>
Composition of the Student Loan Portfolio as of September 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Aggregate Outstanding Principal Balance............. $573,884,421
Number of Borrowers................................. 91,237
Average Outstanding Principal Balance Per Borrower.. $ 6,290
Number of Loans (Promissory Notes).................. 266,855
Average Outstanding Principal Balance Per Loan...... $ 2,151
Repayment Status Loans:
Weighted Average Remaining Term (Months)....... 102
Weighted Average Payments Received (Months).... 28
Weighted Average Interest Rate...................... 8.22%
</TABLE>
Distribution of the Financed Eligible Loans by Loan Type
as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent of Loans
Number of Principal by Outstanding
Loan Types Loans Balance Balance
---------- ----- ------- -------
<S> <C> <C> <C>
Stafford - Subsidized 213,194 $367,588,151 64.1%
Stafford - Unsubsidized/*/ 24,426 57,880,585 10.1
Stafford - Nonsubsidized/*/ 3,364 5,483,654 1.0
PLUS 11,178 26,115,903 4.5
SLS 7,420 19,051,499 3.3
Consolidation 7,273 97,764,629 17.0
------- ------------ -----
Total 266,855 $573,884,421 100.0%
======= ============ =====
</TABLE>
Distribution of the Financed Eligible Loans by Interest Rate
as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent of Loans
Number of Principal by Outstanding
Interest Rate Range/**/ Loans Balance Balance
----------------------- ----- ------- -------
<S> <C> <C> <C>
Less Than 7.00% 82 $ 367,433 0.1%
7.00% to 7.49% 10,996 15,747,062 2.7
7.50% to 7.99% 18,725 50,839,523 8.9
8.00% to 8.49% 202,368 390,850,985 68.1
8.50% to 8.99% 10,929 32,036,215 5.6
9.00% to 9.49% 23,617 82,759,125 14.4
9.50% or greater 138 1,284,078 0.2
------- ------------ -----
Total 266,855 $573,884,421 100.0%
======= ============ =====
</TABLE>
/*/Nonsubsidized Stafford loans are ineligible for interest subsidy payments and
Special Allowance Payment; Unsubsidized Stafford loans are eligible for Special
Allowance Payments but are ineligible for interest subsidy payments.
/**/Determined using the interest rates applicable to the Financed Student Loans
as of September 30, 1997. Because certain of the Financed Student Loans bear
interest at variable rates per annum, there can be no assurance that such rates
will remain applicable to the Financed Student Loans at any time after September
30, 1997. See "Description of the Federal Family Education Loan Program."
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Distribution of the Financed Eligible Loans by School Types
as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent of Loans
Number of Principal by Outstanding
School Type Loans Balance Balance
----------- ----- ------- -------
<S> <C> <C> <C>
Under 4 Year 43,308 $ 71,778,846 12.5%
4 and 5 Year 196,016 369,746,186 64.4
Proprietary 18,836 31,187,607 5.4
Consolidation 7,273 97,764,629 17.1
Other/Unknown 1,422 3,407,153 0.6
------- ------------ -----
Total 266,855 $573,884,421 100.0%
======= ============ =====
</TABLE>
Distribution of the Financed Eligible Loans by
Borrower Payment Status as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent of Loans
Number of Principal by Outstanding
Borrower Payment Status Loans Balance Balance
----------------------- ----- ------- -------
<S> <C> <C> <C>
School 14,997 $ 37,263,356 6.5%
Grace 13,240 37,104,303 6.5
Repayment:
First Year Repayment 40,363 118,247,481 20.6
Second Year Repayment 35,773 96,697,637 16.8
Third Year Repayment 31,226 76,445,732 13.3
Fourth Year Repayment and
thereafter 92,731 109,665,446 19.1
Deferment 26,106 65,877,977 11.5
Forbearance 10,289 28,261,904 4.9
Claims 2,130 4,320,585 0.8
------- ------------ -----
Total 266,855 $573,884,421 100.0%
======= ============ =====
</TABLE>
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Distribution of the Financed Eligible Loans by
Guarantee Status as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent of Loans
Number of Principal by Outstanding
Guarantee Status Loans Balance Balance
---------------- ----- ------- -------
<S> <C> <C> <C>
Guaranteed 100% 169,033 $268,092,316 46.7%
Guaranteed 98% 96,727 305,351,524 53.2
Non-Guaranteed 1,095 440,581 0.1
------- ------------ -----
Total 266,855 $573,884,421 100.0%
======= ============ =====
</TABLE>
Distribution of the Financed Eligible Loans by
Guarantee Agency as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Principal Percent of Loans
Number of Balance by Outstanding
Guarantee Agencies Loans ------- Balance
------------------ ----- -------
<S> <C> <C> <C>
EAC 141,153 $344,442,177 60.0%
PHEAA 107,205 196,660,582 34.3
Other Guarantee Agencies 17,402 32,341,081 5.6
Non-Guaranteed 1,095 440,581 0.1
------- ------------ -----
Total 266,855 $573,884,421 100.0%
======= ============ =====
</TABLE>
Distribution of the Financed Eligible Loans by
Range of Principal Balance as of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent of Loans by
Number of Principal Outstanding
Principal Balance Range Borrowers Balance Balance
----------------------- --------- ------- -------
<S> <C> <C> <C>
Less than $1,000 11,232 $ 5,899,295 1.0%
$1,000-$1,999 12,654 19,031,787 3.3
$2,000-$2,999 13,321 33,193,598 5.8
$3,000-$3,999 8,862 30,887,012 5.4
$4,000-$4,999 7,205 32,332,571 5.6
$5,000-$5,999 6,189 33,813,334 5.9
$6,000-$6,999 4,895 31,536,158 5.5
$7,000-$7,999 3,670 27,451,389 4.8
$8,000-$8,999 3,008 25,536,135 4.5
$9,000-$9,999 2,567 24,351,369 4.3
$10,000-$10,999 2,263 23,720,656 4.1
$11,000-$11,999 2,068 23,720,694 4.1
$12,000-$12,999 1,623 20,275,472 3.5
$13,000-$13,999 1,570 21,185,581 3.7
$14,000-$14,999 1,319 19,096,080 3.3
$15,000 or greater 8,791 201,853,290 35.2
------ ------------ -----
Total 91,237 $573,884,421 100.0%
====== ============ =====
</TABLE>
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<PAGE>
Distribution of Repayment Status Financed Eligible Loans by Remaining Term
As of September 30, 1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Remaining Term Of Loans Balance Balance
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1 to 12 Months 14,599 $ 3,676,461 0.9%
13 to 24 Months 16,237 8,842,474 2.2
25 to 36 Months 16,774 14,302,194 3.6
37 to 48 Months 17,534 19,642,284 4.9
49 to 60 Months 18,946 25,825,517 6.4
61 to 72 Months 18,685 29,619,520 7.4
73 to 84 Months 19,235 38,114,629 9.5
85 to 96 Months 23,688 55,198,550 13.8
97 to 108 Months 28,005 73,262,461 18.3
109 to 120 Months 22,143 63,038,372 15.7
121 to 180 Months 3,046 36,170,808 9.0
181 to 240 Months 1,037 25,878,113 6.4
241 to 300 Months 131 5,449,073 1.4
Over 300 Months 33 2,035,841 0.5
-------------------------------------------
Total 200,093 $401,056,297 100.0%
===========================================
</TABLE>
Distribution of Financed Eligible Loans by Borrowers' Address
As of September 30, 1997 (Based on Address as of October 1, 1997)
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
State of Borrowers' Address Of Loans Balance Balance
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
South Dakota 112,014 $236,844,474 41.3
Minnesota 51,410 108,584,139 18.9
North Dakota 24,117 49,437,251 8.6
Iowa 8,022 18,453,181 3.2
Nebraska 5,719 12,296,045 2.2
Colorado 5,207 11,131,282 1.9
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
State of Borrowers' Address Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington 5,026 10,313,994 1.8
Oregon 4,645 9,417,160 1.7
Texas 4,056 9,356,811 1.6
California 4,416 9,322,471 1.6
Wisconsin 3,097 7,490,908 1.3
Illinois 2,845 6,858,035 1.2
Arizona 3,260 6,630,207 1.2
Idaho 2,977 6,236,825 1.1
Alaska 2,148 5,946,863 1.0
Others Less Than 1% Each 27,896 65,564,775 11.4
-----------------------------------------
Total 266,855 $573,884,421 100.0%
=========================================
</TABLE>
DESCRIPTION OF FEDERAL FAMILY EDUCATION LOAN PROGRAM
General
The Higher Education Act sets forth provisions establishing the
Federal Family Education Loan Program, pursuant to which state agencies or
private nonprofit corporations administering student loan insurance programs
(referred to as "guarantee agencies") are reimbursed for losses sustained in the
operation of their programs, and holders of certain loans made under such
programs are paid subsidies for owning such loans.
The Higher Education Act currently authorizes certain student loans to
be covered under the Federal Family Education Loan Program if they are
contracted for and paid to the student prior to September 30, 2002, unless a
student has received a loan under the Federal Family Education Loan Program
prior to such date, in which case that student may receive a student loan
covered by the Federal Family Education Loan Program until September 30, 2006.
Congress has extended similar authorization dates in prior versions of the
Higher Education Act; however, there can be no assurance that the current
authorization dates will again be extended or that the other provisions of the
Higher Education Act will be continued in their present form.
Various amendments to the Higher Education Act have revised the
Federal Family Education Loan Program from time to time. These amendments
include, but are not limited to, the Balanced Budget Act of 1997 (the "1997
Amendments"), the Higher Education Technical Amendments Act of 1993 (the "1993
Technical Amendments"), the Omnibus Budget Reconciliation Act of 1993 (the "1993
Amendments"), the Higher Education Amendments of 1992 (the "1992 Amendments"),
which reauthorized the Federal Family Education Loan Program, the Omnibus Budget
Reconciliation Act of 1990, the Omnibus Budget Reconciliation Act of 1989 (the
"1989 Amendments"), the Omnibus Budget Reconciliation Act of 1987, the Higher
Education Technical Amendments Act of 1987 (the "1987 Amendments"), the Higher
Education Amendments of 1986 (the "1986 Amendments"), which reauthorized the
Federal Family Education Loan Program, the Consolidated Omnibus Budget
Reconciliation Act of 1985, the
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Postsecondary Student Assistance Amendments of 1981 (the "1981 Amendments") and
the Education Amendments of 1980 (the "1980 Amendments").
The 1993 Amendments made several changes to the terms of the Federal
Family Education Loan Program that are adverse to the Guarantee Agencies and
lenders under the Federal Family Education Loan Program. In addition, the 1993
Amendments authorized a program of student loans originated by schools on behalf
of the Secretary of Education to partially replace the Federal Family Education
Loan Program. See "Direct Loans" below. There can be no assurance that
relevant federal laws, including the Higher Education Act, will not be further
changed in a manner that may adversely impact the receipt of funds by the
Guarantee Agencies or by the Corporation or the Trustee with respect to Financed
Eligible Loans or the amount of loans made by Lenders and available for purchase
by the Trustee on behalf of the Corporation.
Proposals have been made by Congress and the Administration which, if
enacted into law, would amend the Higher Education Act and make various changes
to the Federal Family Education Loan Program, including changes that would
reduce various payments to Guarantee Agencies and restructure guarantee
agencies' operations and programs and revise terms of student loans and payments
to Lenders. There is no certainty that any of the proposals will be enacted
into law in their current form or at all, and the Corporation cannot predict at
this time how such legislation, if enacted, would affect SLFC's business or
operations, or the Corporation.
This is only a summary of certain provisions of the Higher Education
Act. Reference is made to the text of the Higher Education Act for full and
complete statements of its provisions.
Loan Terms
General
Four types of loans are currently available under the Federal Family
Education Loan Program: Stafford Loans, Unsubsidized Stafford Loans, Plus Loans
and Consolidation Loans. These loan types vary as to eligibility requirements,
interest rates, repayment periods, loan limits and eligibility for interest
subsidies and Special Allowance Payments. Some of these loan types have had
other names in the past. References herein to the various loan types include,
where appropriate, predecessors to such loan types.
The primary loan under the Federal Family Education Loan Program is
the Stafford Loan. Students who are not eligible for Stafford Loans based on
their economic circumstances may be able to obtain Unsubsidized Stafford Loans.
Parents of students may be able to obtain Plus Loans. Consolidation Loans are
available to borrowers with existing loans made under the Federal Family
Education Loan Program and certain other federal programs to consolidate
repayment of such existing loans. For periods of enrollment beginning prior to
July 1, 1994, SLS Loans were available to students with costs of education that
were not met by other sources and that exceeded the Stafford or Unsubsidized
Stafford Loan limits.
Eligibility
General. A student is eligible for loans made under the Federal
Family Education Loan Program only if he or she: (i) has been accepted for
enrollment or is enrolled in good standing at an eligible institution of higher
education (which term includes certain vocational schools), (ii) is carrying or
planning to carry at least one-half the normal full-time workload for the course
of study the student is pursuing as determined by the institution (which, in the
case of a loan to cover the cost of a period of enrollment beginning on or after
July 1, 1987, must either lead to a recognized educational credential or be
necessary for enrollment in a course of study that leads to such a credential),
(iii) has agreed to notify promptly the holder of the loan concerning any change
of address, (iv) (if presently enrolled) is maintaining satisfactory progress in
the course of study he or she is pursuing, (v) does not owe a refund on, and is
not (except as specifically permitted under the Higher Education Act) in default
under, any
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<PAGE>
loan or grant made under the Higher Education Act, (vi) has filed with the
eligible institution a statement of educational purpose, (vii) meets certain
citizenship requirements, and (viii) (except in the case of a graduate or
professional student) has received a preliminary determination of eligibility or
ineligibility for a Pell Grant.
Stafford Loans. Stafford Loans generally are made only to student
borrowers who meet certain needs tests. The educational institution must
provide the lender with a statement evidencing a determination of need for a
loan, and the amount of such need, calculated by subtracting from the estimated
cost of attendance the sum of the expected family contribution with respect to
the student plus the estimated financial assistance available to such student.
The amounts of the expected family contribution, estimated available financial
assistance, and estimated costs of attendance are to be computed in accordance
with standards set forth in the Higher Education Act.
Unsubsidized Stafford Loans. A student borrower meeting the
requirements set forth under "General" above is eligible for an Unsubsidized
Stafford Loan without regard to need. Unsubsidized Stafford Loans were not
available before October 1, 1992.
Plus Loans. Plus Loans are made only to borrowers who are parents
(and, under certain circumstances, spouses of remarried parents) of dependent
undergraduate students. For Plus Loans made on or after July 1, 1993, the
parent borrower must not have an adverse credit history (as determined pursuant
to criteria established by the Department of Education). Prior to the 1986
Amendments, the Higher Education Act did not distinguish between Plus Loans and
SLS Loans. Student borrowers were eligible for Plus Loans; however, parents of
graduate and professional students were ineligible.
SLS Loans. Eligible borrowers for SLS Loans were limited to (a)
graduate or professional students, (b) independent undergraduate students, and
(c) under certain circumstances, dependent undergraduate students, if such
students' parents were unable to obtain a Plus Loan and were also unable to
provide such students' expected family contribution. Prior to the 1987
Amendments, a dependent undergraduate student was not eligible under any
circumstances. Except as described in clause (c), eligibility was determined
without regard to need.
Consolidation Loans. To be eligible for a Consolidation Loan a
borrower must (a) have outstanding indebtedness on student loans made under the
Federal Family Education Loan Program and/or certain other federal student loan
programs, and (b) be in repayment status or in a Grace Period, or be a defaulted
borrower who has made arrangements to repay the defaulted loan(s) satisfactory
to the holder of the defaulted loan(s). A married couple who agree to be
jointly liable on a Consolidation Loan for which the application is received on
or after January 1, 1993 may be treated as an individual for purposes of
obtaining a Consolidation Loan. For Consolidation Loans disbursed prior to July
1, 1994 the Borrower was required to have outstanding student loan indebtedness
of at least $7,500. Prior to the adoption of the 1993 Technical Amendments,
Plus Loans could not be included in the Consolidation Loan. For Consolidation
Loans for which the applications were received prior to January 1, 1993, the
minimum student loan indebtedness was $5,000 and the borrower could not be
delinquent more than 90 days in the payment of such indebtedness.
Interest Rates
The Higher Education Act establishes maximum interest rates for each
of the various types of loans. These rates vary not only among loan types, but
also within loan types depending upon when the loan was made or when the
borrower first obtained a loan under the Federal Family Education Loan Program.
The Higher Education Act allows lesser rates of interest to be charged. Many
Lenders have offered repayment incentives or other programs that involve reduced
interest rates on certain loans made under the Federal Family Education Loan
Program.
Stafford Loans. For a Stafford Loan made prior to July 1, 1994, the
applicable interest rate for a borrower who, on the date the promissory note was
signed, did not have an outstanding balance on a previous loan which was made,
insured or guaranteed under the Federal Family Education Loan Program (a "New
Borrower"):
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<PAGE>
(a) is 7% per annum for a loan covering a period of instruction beginning
before January 1, 1981;
(b) is 9% per annum for a loan covering a period of instruction beginning
on or after January 1, 1981, but before September 13, 1983;
(c) is 8% per annum for a loan covering a period of instruction beginning
on or after September 13, 1983, but before July 1, 1988;
(d) for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, is 8% per annum for
the period from the disbursement of the loan to the date which is four
years after the loan enters repayment, and thereafter shall be
adjusted annually, and for any 12-month period commencing on a July 1
shall be equal to the bond equivalent rate of 91-day U.S. Treasury
bills auctioned at the final auction prior to the preceding June 1,
plus 3.25% per annum (but not to exceed 10% per annum); or
(e) for a loan made on or after October 1, 1992 shall be adjusted
annually, and for any 12-month period commencing on a July 1 shall be
equal to the bond equivalent rate of 91-day U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus
3.1% per annum (but not to exceed 9% per annum).
For a Stafford Loan made prior to July 1, 1994, the applicable interest rate for
a borrower who, on the date the promissory note evidencing the loan was signed,
had an outstanding balance on a previous loan made, insured or guaranteed under
the Federal Family Education Loan Program (a "Repeat Borrower"):
(f) for a loan made prior to July 23, 1992 is the applicable interest rate
on the previous loan or, if such previous loan is not a Stafford Loan,
8% per annum; or
(g) for a loan made on or after July 23, 1992 shall be adjusted annually,
and for any twelve month period commencing on a July 1 shall be equal
to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at
the final auction prior to the preceding June 1, plus 3.1% per annum
but not to exceed:
(i) 7% per annum in the case of a Stafford Loan made to a borrower
who has a loan described in clause (a) above;
(ii) 8% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clause (c) above, (B) a
Stafford Loan which has not been in repayment for four years
and which was made to a borrower who has a loan described in
clause (d) above or (C) a Stafford Loan for which the first
disbursement was made prior to December 20, 1993 to a borrower
whose previous loans do not include a Stafford Loan or an
Unsubsidized Stafford Loan;
(iii) 9% per annum in the case of a (A) Stafford Loan made to a
borrower who has a loan described in clauses (b) or (e) above
or (B) a Stafford Loan for which the first disbursement was
made on or after December 20, 1993 to a borrower whose previous
loans do not include a Stafford Loan or an Unsubsidized
Stafford Loan; and
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<PAGE>
(iv) 10% per annum in the case of a Stafford Loan which has been in
repayment for four years or more and which was made to a borrower
who has a loan described in clause (d) above.
The interest rate on all Stafford Loans made on or after July 1, 1994,
regardless of whether the borrower is a New Borrower or a Repeat Borrower, is
the rate described in clause (g) above, except that such rate shall not exceed
8.25% per annum. For any Stafford Loan made on or after July 1, 1995, the
interest rate is further reduced prior to the time the loan enters repayment and
during any Deferment Periods (as such term is defined below under "Repayment").
During such periods, the formula described in clause (g) above is applied,
except that 2.5% is substituted for 3.1%, and the rate shall not exceed 8.25%
per annum.
For loans made on or after July 1, 1998, the applicable rate will continue
to be adjusted annually, but for any 12-month period commencing on a July 1 will
be equal to the bond equivalent rate of securities with a comparable maturity
(as established by the Secretary of Education), plus 1% per annum, but not to
exceed 8.25% per annum. There can be no assurance that the interest rate
provisions for such loans will not be further amended, either before or after
the rate described herein becomes effective.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to
the same interest rate provisions as Stafford Loans.
Plus Loans. The applicable interest rate on a Plus Loan:
(a) made on or after January 1, 1981, but before October 1, 1981 is 9% per
annum;
(b) made on or after October 1, 1981, but before November 1, 1982 is 14%
per annum;
(c) made on or after November 1, 1982, but before July 1, 1987 is 12% per
annum;
(d) made on or after July 1, 1987 and before October 1, 1992 shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week U.S. Treasury
bills auctioned at the final auction prior to the preceding June 1,
plus 3.25% per annum (but not to exceed 12% per annum); or
(e) made on or after October 1, 1992 shall be adjusted annually, and for
any 12-month period beginning on July 1 shall be equal to the bond
equivalent rate of 52-week U.S. Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.1% per annum (but not to
exceed 10% per annum).
The applicable interest rate for Plus Loans made on or after July 1, 1994
is the same as that described in clause (e) above, except that such rate shall
not exceed 9% per annum. For Plus Loans made on or after July 1, 1998, the
applicable rate will continue to be adjusted annually, but for any 12-month
period commencing on a July 1 will be equal to the bond equivalent rate of
securities with a comparable maturity (as established by the Secretary of
Education), plus 2.1% per annum, but not to exceed 9% per annum.
If requested by the borrower, an eligible lender may consolidate SLS or
Plus Loans of the same borrower held by the lender under a single repayment
schedule. The repayment period for each included loan shall be based on the
commencement of repayment of the most recent loan. The consolidated loan shall
bear interest at a rate equal to the weighted average of the rates of the
included loans. Such a consolidation shall not be treated as the making of a new
loan. In addition, at the request of the borrower, a lender may refinance an
existing fixed rate SLS or Plus Loan (including an SLS or Plus Loan held by a
different lender who has refused so to refinance such loan) at a variable
interest rate. In such a case, proceeds of the new loan are used to discharge
the original loan.
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<PAGE>
SLS Loans. The applicable interest rates on SLS Loans made prior to
October 1, 1992 are identical to the applicable interest rates on Plus Loans
made at the same time. For SLS Loans made on or after October 1, 1992, the
applicable interest rate is the same as the applicable interest rate on Plus
Loans, except that the ceiling is 11% per annum instead of 10% per annum.
Consolidation Loans. A Consolidation Loan made prior to July 1, 1994 bears
interest at a rate equal to the weighted average of the interest rates on the
loans retired, rounded to the nearest whole percent, but not less than 9% per
annum. A Consolidation Loan made on or after July 1, 1994 bears interest at a
rate equal to the weighted average of the interest rates on the loans retired,
rounded upward to the nearest whole percent, but with no minimum rate. For a
discussion of required payments that reduce the return on Consolidation Loans,
see "Fees -- Rebate Fees on Consolidation Loans" below.
Loan Limits
Each type of loan (other than Consolidation Loans, which are limited only
by the amount of eligible loans to be consolidated) is subject to limits as to
the maximum principal amount, both with respect to a given year and in the
aggregate. All of the loans are limited to the difference between the cost of
attendance and the other aid available to the student. Stafford Loans are also
subject to limits based upon the needs analysis as described above under
"Eligibility -- Stafford Loans" above. In addition:
Stafford and Unsubsidized Stafford Loans. Except as described in the next
paragraph, Stafford and Unsubsidized Stafford Loans are generally treated as one
loan type for loan limit purposes. A student who has not successfully completed
the first year of a program of undergraduate education may borrow up to $2,625
in an academic year. A student who has successfully completed such first year,
but who has not successfully completed the second year may borrow up to $3,500
per academic year. An undergraduate student who has successfully completed the
first and second year, but who has not successfully completed the remainder of a
program of undergraduate education, may borrow up to $5,500 per academic year.
For students enrolled in programs of less than an academic year in length, the
limits are generally reduced in proportion to the amount by which such programs
are less than one year in length. A graduate or professional student may borrow
up to $8,500 in an academic year. The maximum aggregate amount of Stafford and
Unsubsidized Stafford Loans (including that portion of a Consolidation Loan used
to repay such loans) which an undergraduate student may have outstanding is
$23,000. The maximum aggregate amount for a graduate and professional student,
including loans for undergraduate education, is $65,500. The Secretary is
authorized to increase the limits applicable to graduate and professional
students who are pursuing programs which the Secretary determines to be
exceptionally expensive.
Under the 1993 Amendments, at the same time that SLS Loans were eliminated,
the loan limits for Unsubsidized Stafford Loans to independent students, or
dependent students whose parents cannot borrow a Plus Loan, were increased by
amounts equal to the prior SLS Loan limits (as described below under "SLS
Loans").
Prior to the enactment of the 1992 Amendments, an undergraduate student who
had not successfully completed the first and second year of a program of
undergraduate education could borrow Stafford Loans in amounts up to $2,625 in
an academic year. An undergraduate student who had successfully completed such
first and second year, but who had not successfully completed the remainder of a
program of undergraduate education could borrow up to $4,000 per academic year.
The maximum for graduate and professional students was $7,500 per academic year.
The maximum aggregate amount of Stafford Loans which a borrower could have
outstanding (including that portion of a Consolidation Loan used to repay such
loans) was $17,250. The maximum aggregate amount for a graduate or professional
student, including loans for undergraduate education, was $54,750. Prior to the
enactment of the 1986 Amendments, the annual limits were generally lower.
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Plus Loans. For Plus Loans made on or after July 1, 1993, the amounts of
Plus Loans are limited only by the student's unmet need. Prior to that time Plus
Loans were subject to limits similar to those to which SLS Loans were then
subject (see "SLS Loans" below), applied with respect to each student on behalf
of whom the parent borrowed.
SLS Loans. A student who had not successfully completed the first and
second year of a program of undergraduate education could borrow an SLS Loan in
an amount of up to $4,000. A student who had successfully completed such first
and second year, but who had not successfully completed the remainder of a
program of undergraduate education could borrow up to $5,000 per year. Graduate
and professional students could borrow up to $10,000 per year. SLS Loans were
subject to an aggregate maximum of $23,000 ($73,000 for graduate and
professional students). Prior to the 1992 Amendments, SLS Loans were available
in amounts of $4,000 per academic year, up to a $20,000 aggregate maximum. Prior
to the 1986 Amendments, a graduate or professional student could borrow $3,000
of SLS Loans per academic year, up to a $15,000 maximum, and an independent
undergraduate student could borrow $2,500 of SLS Loans per academic year minus
the amount of all other Federal Family Education Loan Program loans to such
student for such academic year, up to a maximum amount of all Federal Family
Education Loan Program loans to that student of $12,500. The 1989 Amendments
limited the amount of SLS Loans for students enrolled in programs of less than
an academic year in length (similar to the limits described above under
"Stafford Loans"), and such limits were continued by the 1992 Amendments.
Repayment
Loans made under the Federal Family Education Loan Program (other than
Consolidation Loans) must provide for repayment of principal in periodic
installments over a period of not less than five nor more than ten years. A
Consolidation Loan must be repaid during a period agreed to by the borrower and
lender, subject to maximum repayment periods which vary depending upon the
principal amount of the borrower's outstanding student loans (but no longer than
30 years). For Consolidation Loans for which the application was received prior
to January 1, 1993, the repayment period could not exceed 25 years. The
repayment period commences (a) not more than twelve months after the borrower
ceases to pursue at least a half-time course of study with respect to Stafford
Loans for which the applicable rate of interest is 7% per annum, (b) not more
than six months after the borrower ceases to pursue at least a half-time course
of study with respect to other Stafford Loans and Unsubsidized Stafford Loans
(the six month or twelve month periods are the "Grace Periods") and (c) on the
date of final disbursement of the loan in the case of SLS, Plus and
Consolidation Loans, except that the borrower of an SLS Loan who also has a
Stafford or Unsubsidized Stafford Loan may defer repayment of the SLS Loan to
coincide with the commencement of repayment of the Stafford or Unsubsidized
Stafford Loan. During periods in which repayment of principal is required,
payments of principal and interest must in general be made at a rate of not less
than the greater of $600 per year or the interest that accrues during the year,
except that a borrower and lender may agree at any time before or during the
repayment period that repayment may be at a lesser rate. A borrower may agree,
with concurrence of the lender, to repay the loan in less than five years with
the right subsequently to extend his minimum repayment period to five years.
Borrowers are entitled to accelerate, without penalty, the repayment of all or
any part of the loan.
In addition, the 1992 Amendments required lenders of Consolidation Loans to
establish graduated or income-sensitive repayment schedules and required lenders
of Stafford and SLS Loans to offer borrowers the option of repaying in
accordance with graduated or income-sensitive repayment schedules. The Original
Issuer has implemented (and SLFC will implement) graduated repayment schedules
and income-sensitive repayment schedules. Use of income-sensitive repayment
schedules may extend the ten-year maximum term for up to five years. In
addition, if the repayment schedule on a loan that has been converted to a
variable interest rate does not provide for adjustments to the amount of the
monthly installment payments, the ten-year maximum term may be extended for up
to three years.
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No principal repayments need be made during certain periods of deferment
prescribed by the Higher Education Act ("Deferment Periods"). For loans to a
borrower who first obtained a loan which was disbursed before July 1, 1993,
deferments are available (i) during a period not exceeding three years while the
borrower is a member of the Armed Forces, an officer in the Commissioned Corps
of the Public Health Service or, with respect to a borrower who first obtained a
student loan disbursed on or after July 1, 1987, or a student loan to cover the
cost of instruction for a period of enrollment beginning on or after July 1,
1987, an active duty member of the National Oceanic and Atmospheric
Administration Corps, (ii) during a period not in excess of three years while
the borrower is a volunteer under the Peace Corps Act, (iii) during a period not
in excess of three years while the borrower is a full-time volunteer under the
Domestic Volunteer Act of 1973, (iv) during a period not exceeding three years
while the borrower is in service, comparable to the service referred to in
clauses (ii) and (iii), as a full-time volunteer for an organization which is
exempt from taxation under Section 501(c)(3) of the Code, (v) during a period
not exceeding two years while the borrower is serving an internship, the
successful completion of which is required to receive professional recognition
required to begin professional practice or service, or a qualified internship or
residency program, (vi) during a period not exceeding three years while the
borrower is temporarily totally disabled, as established by sworn affidavit of a
qualified physician, or while the borrower is unable to secure employment by
reason of the care required by a dependent who is so disabled, (vii) during a
period not to exceed twenty-four months while the borrower is seeking and unable
to find full-time employment, (viii) during any period that the borrower is
pursuing a full-time course of study at an eligible institution (or, with
respect to a borrower who first obtained a student loan disbursed on or after
July 1, 1987, or a student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, is pursuing at least a half-time
course of study for which the borrower has obtained a loan under the Federal
Family Education Loan Program), or is pursuing a course of study pursuant to a
graduate fellowship program or a rehabilitation training program for disabled
individuals approved by the Secretary of Education, (ix) during a period, not in
excess of 6 months, while the borrower is on parental leave, and (x) only with
respect to a borrower who first obtained a student loan disbursed on or after
July 1, 1987, or a student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, (A) during a period not in excess
of three years while the borrower is a full-time teacher in a public or
nonprofit private elementary or secondary school in a "teacher shortage area"
(as prescribed by the Secretary of Education), and (B) during a period not in
excess of 12 months for mothers, with preschool age children, who are entering
or re-entering the work force and who are compensated at a rate not exceeding $1
per hour in excess of the federal minimum wage. For loans to a borrower who
first obtains a loan on or after July 1, 1993, deferments are available (a)
during any period that the borrower is pursuing at least a half-time course of
study at an eligible institution or a course of study pursuant to a graduate
fellowship program or rehabilitation training program approved by the Secretary,
(b) during a period not exceeding three years while the borrower is seeking and
unable to find full-time employment, and (c) during a period not in excess of
three years for any reason which the lender determines, in accordance with
regulations under the Higher Education Act, has caused or will cause the
borrower economic hardship. Economic hardship includes working full time and
earning an amount not in excess of the greater of the minimum wage or the
poverty line for a family of two. Additional categories of economic hardship are
based on the relationship between a borrower's educational debt burden and his
or her income. Prior to the 1992 Amendments, only the Deferment Periods
described above in clauses (vi) and (vii) (with respect to the parent borrower)
and the Deferment Period described in clause (viii) (with respect to the parent
borrower or a student on whose behalf the parent borrowed) were available to
Plus Loan borrowers, and only the Deferment Periods described above in clauses
(vi), (vii) and (viii) were available to Consolidation Loan borrowers. Prior to
the 1986 Amendments, Plus Loan borrowers were not entitled to Deferment Periods.
Deferment Periods extend the ten year maximum term.
The Higher Education Act also provides for periods of forbearance during
which the borrower, in case of temporary financial hardship, may defer any
payments. A borrower is entitled to forbearance for a period not to exceed three
years while the borrower's debt burden under Title IV of the Higher Education
Act (which includes the Federal Family Education Loan Program) equals or exceeds
20% of the borrower's gross income, and also is entitled to forbearance while he
or she is serving in a qualifying medical or dental internship program or in a
"national service position" under the National and Community Service Trust Act
of 1993. In addition, mandatory administrative forbearances are provided when
exceptional circumstances such as a local or national emergency or
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military mobilization exist; or when the geographical area in which the borrower
or endorser resides has been designated a disaster area by the President of the
United States or Mexico, the Prime Minister of Canada, or by the governor of a
state. In other circumstances, forbearance is at the lender's option. Such
forbearance also extends the ten year maximum term.
As described under "Contracts with Guarantee Agencies -- Federal Interest
Subsidy Payments" below, the Secretary of Education makes interest payments on
behalf of the borrower of certain eligible loans while the borrower is in school
and during Grace and Deferment Periods. Interest that accrues during periods of
forbearance and, if the loan is not eligible for interest subsidy payments,
while the borrower is in school and during the Grace and Deferment Periods, may
be paid monthly or quarterly or capitalized (added to the principal balance) not
more frequently than quarterly.
Disbursement
Loans made under the Federal Family Education Loan Program (except
Consolidation Loans) generally must be disbursed in two or more installments,
none of which may exceed 50% of the total principal amount of the loan.
Fees
Guarantee Fee. A Guarantee Agency is authorized to charge a premium, or
guarantee fee, of up to 1% of the principal amount of the loan, which must be
deducted proportionately from each installment payment of the proceeds of the
loan to the borrower. Guarantee fees may not currently be charged to borrowers
of Consolidation Loans. However, lenders may be charged an insurance fee to
cover the costs of increased or extended liability with respect to Consolidation
Loans. For loans made prior to July 1, 1994, the maximum guarantee fee was 3% of
the principal amount of the loan, but no such guarantee fee was authorized to be
charged with respect to Unsubsidized Stafford Loans.
Origination Fee. An eligible lender is authorized to charge the borrower
of a Stafford or Plus Loan an origination fee in an amount not to exceed 3% of
the principal amount of the loan, and is required to charge the borrower of an
Unsubsidized Stafford Loan an origination fee in the amount of 3% of the
principal amount of the loan. These fees must be deducted proportionately from
each installment payment of the loan proceeds prior to payment to the borrower
and are not retained by the eligible lender, but must be passed on to the
Secretary of Education. For loans made prior to July 1, 1994, the maximum
authorized fee for Stafford, Plus and SLS Loans was 5%, and the required fee for
Unsubsidized Stafford Loans was 6.5%, of the principal amount of the loan.
Lender Origination Fee. The lender of any loan under the Federal Family
Education Loan Program made on or after October 1, 1993 is required to pay to
the Secretary of Education a fee equal to 0.5% of the principal amount of such
loan.
Rebate Fee on Consolidation Loans. The holder of any Consolidation Loan
made on or after October 1, 1993 is required to pay to the Secretary of
Education a monthly fee equal to .0875% (1.05% per annum) of the principal
amount of, and accrued interest on, such Consolidation Loan.
Loan Guarantees
Under the Federal Family Education Loan Program, Guarantee Agencies are
required to guarantee the payment of not less than 100% of the principal amount
of loans made prior to October 1, 1993 and covered by their respective guarantee
programs. For a description of the requirements for loans to be covered by such
guarantees, see "Description of the Guarantee Agencies". The 1993 Amendments
reduced the minimum percentage of the principal amount of loans which a
Guarantee Agency must pay to 98%, effective with respect to loans made on or
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after October 1, 1993. The Department of Education has taken the position that a
Guarantee Agency may not pay more than 98% of the principal amount of and
accrued interest on such a loan. Under certain circumstances, guarantees may be
assumed by the Secretary of Education or another Guarantee Agency. See
"Contracts with Guarantee Agencies" below.
Contracts with Guarantee Agencies
Under the Federal Family Education Loan Program, the Secretary of Education
is authorized to enter into guaranty and interest subsidy agreements with
Guarantee Agencies. The Federal Family Education Loan Program provides for
reimbursements to Guarantee Agencies for default claims paid by Guarantee
Agencies, support payments to Guarantee Agencies for administrative and other
expenses, advances for a Guarantee Agency's reserve funds, and interest subsidy
payments and Special Allowance Payments to the holders of qualifying student
loans made pursuant to the Federal Family Education Loan Program.
The 1992 Amendments gave the Secretary of Education certain oversight
powers over Guarantee Agencies. Guarantee Agencies are required to maintain
their reserves at certain levels based on the amount of outstanding loans that
they have guaranteed. If a Guarantee Agency falls below the required level in
two consecutive years, or its claims rate exceeds 9% in any year, or if the
Secretary determines that the agency's administrative or financial condition
jeopardizes its ability to meet its obligations, the Secretary can require the
Guarantee Agency to submit and implement a plan by which it will correct such
problem(s). If a Guarantee Agency fails to timely submit an acceptable plan or
fails to improve its condition, or if the Secretary determines that the
Guarantee Agency is in danger of financial collapse, the Secretary may terminate
the Guarantee Agency's reimbursement contract. The 1993 Amendments broadened the
circumstances under which the Secretary may terminate such reimbursement
contracts, to include a determination that such action is necessary to protect
the federal fiscal interest or to ensure continued availability of student loans
or a smooth transition to direct lending (See "Direct Loans" below).
The 1992 Amendments also added provisions authorizing the Secretary of
Education to assume the guarantee obligations of a Guarantee Agency. The Higher
Education Act now provides that, if the Secretary terminates a Guarantee
Agency's agreements under the Federal Family Education Loan Program, the
Secretary shall assume responsibility for all functions of the Guarantee Agency
under its program. To that end, the Secretary is authorized to, among other
options, transfer the guarantees to another Guarantee Agency or assume the
guarantees. It also provides that in the event the Secretary has determined that
a Guarantee Agency is unable to meet its guarantee obligations, holders of loans
guaranteed by such Guarantee Agency may submit claims directly to the Secretary
for payment, unless the Secretary has provided for the assumption of such
guarantees by another Guarantee Agency.
Federal Reimbursement
A Guarantee Agency's right to receive federal reimbursements for various
guarantee claims paid by such Guarantee Agency is governed by the Higher
Education Act and various contracts entered into between Guarantee Agencies and
the Secretary of Education. See "Description of the Guarantee Agencies --Federal
Agreements". Under the Higher Education Act and the Federal Reimbursement
Contracts, the Secretary of Education currently agrees to reimburse a Guarantee
Agency for the amounts expended by the Guarantee Agency in the discharge of its
guarantee obligation (i.e., the unpaid principal balance of and accrued interest
on loans guaranteed by the Guarantee Agency, which loans are referred to herein
as "guaranteed loans") as a result of the default of the borrower. With respect
to loans made prior to October 1, 1993, the Secretary currently agrees to
reimburse the Guarantee Agency for up to 100% of the amounts so expended. The
1993 Amendments provide for reimbursement of a maximum of 98% of the amount
expended with respect to guaranteed loans made on or after October 1, 1993.
Depending on the claims rate experience of a Guarantee Agency, such 100% (or
98%) reimbursement may be reduced as discussed in the formula described below.
The Secretary of Education also agrees to repay 100% of the unpaid principal
plus applicable accrued interest expended by a Guarantee Agency in discharging
its guarantee
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obligation as a result of the bankruptcy, death, or total and permanent
disability of a borrower (or in the case of a Plus Loan, the death of the
student on behalf of whom the loan was borrowed), or in certain circumstances,
as a result of school closures, which reimbursements are not to be included in
the calculations of the Guarantee Agency's Claims Rate experience for the
purpose of federal reimbursement under the Federal Reimbursement Contracts.
The formula for computing the percentage of federal reimbursement under the
Federal Reimbursement Contracts is not accumulated over a period of years but is
measured by the amount of federal reimbursement payments in any one federal
fiscal year as a percentage of the original principal amount of loans under the
Federal Family Education Loan Program guaranteed by the Guarantee Agency and in
repayment at the end of the preceding fiscal year. Under the formula, federal
reimbursement payments to a Guarantee Agency in any one fiscal year not
exceeding 5% of the original principal amount of loans in repayment at the end
of the preceding fiscal year are to be paid by the Secretary of Education at
100% (or 98% for loans made on or after October 1, 1993). Beginning at any time
during any fiscal year that federal reimbursement payments exceed 5%, and until
such time as they may exceed 9%, of the original principal amount of loans in
repayment at the end of the preceding fiscal year, then reimbursement payments
on claims submitted during that period are to be paid at 90% (or 88% for loans
made on or after October 1, 1993). Beginning at any time during any fiscal year
that federal reimbursement payments exceed 9% of the original principal amount
of loans in repayment at the end of the preceding fiscal year, then such
payments for the balance of that fiscal year will be paid at 80% (or 78% for
loans made on or after October 1, 1993). The original principal amount of loans
in repayment for purposes of computing reimbursement payments to a Guarantee
Agency means the original principal amount of all loans guaranteed by such
Guarantee Agency less: (1) guarantee payments on such loans, (2) the original
principal amount of such loans that have been fully repaid, and (3) the original
principal amount of such loans for which the first principal installment payment
has not become due or such first installment need not be paid because of a
Deferment Period.
Under present practice, after the Secretary of Education reimburses a
Guarantee Agency for a default claim paid on guaranteed loan, the Guarantee
Agency continues to seek repayment from the borrower. The Guarantee Agency
returns to the Secretary of Education payments that it receives from a borrower
after deducting and retaining (i) a percentage amount equal to the complement of
the reimbursement percentage in effect at the time the loan was reimbursed, and
(ii) an amount equal to 27% (or 18 1/2% in the case of a payment from the
proceeds of a Consolidation Loan) of such payments for certain administrative
costs. The Secretary of Education may, however, require the assignment to the
Secretary of defaulted guaranteed loans, in which event no further collections
activity need be undertaken by the Guarantee Agency, and no amount of any
recoveries shall be paid to the Guarantee Agency. Prior to the 1993 Amendments,
the percentage of collections which Guarantee Agencies could retain (as
described in clause (ii) above) was 30%.
A Guarantee Agency may enter into an addendum to its Interest Subsidy
Agreement (as hereinafter defined), which addendum provides for the Guarantee
Agency to refer to the Secretary of Education certain defaulted guaranteed
loans. Such loans are then reported to the Internal Revenue Service to "offset"
any tax refunds which may be due any defaulted borrower. To the extent that the
Guarantee Agency has originally received less than 100% reimbursement from the
Secretary of Education with respect to such a referred loan, the Guarantee
Agency will not recover any amounts subsequently collected by the federal
government which are attributable to that portion of the defaulted loan for
which the Guarantee Agency has not been reimbursed.
Rehabilitation of Defaulted Loans
Under Section 428F of the Higher Education Act, the Secretary of Education
is authorized to enter into an agreement with a Guarantee Agency pursuant to
which the Guarantee Agency shall sell defaulted loans that are eligible for
rehabilitation to an eligible lender. The Guarantee Agency shall repay the
Secretary of Education an amount equal to 81.5% of the then current principal
balance of such loan, multiplied by the reimbursement percentage in effect at
the time the loan was reimbursed. The amount of such repayment shall be deducted
from
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the amount of federal reimbursement payments for the fiscal year in which such
repayment occurs, for purposes of determining the reimbursement rate for that
fiscal year.
For a loan to be eligible for rehabilitation, the Guarantee Agency must
have received consecutive payments for 12 months of amounts owed on such loan.
Upon rehabilitation, a loan is eligible for all the benefits under the Higher
Education Act for which it would have been eligible had no default occurred
(except that a borrower's loan may only be rehabilitated once).
Eligibility for Federal Reimbursement
To be eligible for federal reimbursement payments, guaranteed loans must be
made by an eligible lender under the applicable Guarantee Agency's Guarantee
Program, which must meet requirements prescribed by the rules and regulations
promulgated under the Higher Education Act, including the borrower eligibility,
loan amount, disbursement, interest rate, repayment period and guarantee fee
provisions described herein and the other requirements set forth in Section
428(b) of the Higher Education Act.
Under the Higher Education Act, a guaranteed loan must be delinquent for
180 days if it is repayable in monthly installments or 240 days if it is payable
in less frequent installments before a lender may obtain payment on a guarantee
from the Guarantee Agency. The Guarantee Agency must pay the lender for the
defaulted loan prior to submitting a claim to the Secretary of Education for
reimbursement. The Guarantee Agency must submit a reimbursement claim to the
Secretary of Education within 45 days after it has paid the lender's default
claim. As a prerequisite to entitlement to payment on the guarantee by the
Guarantee Agency, and in turn payment of reimbursement by the Secretary of
Education, the lender must have exercised reasonable care and diligence in
making, servicing and collecting the Guaranteed Loan.
Federal Interest Subsidy Payments
Interest subsidy payments are interest payments paid with respect to an
eligible loan during the period prior to the time that the loan enters repayment
and during Grace and Deferment Periods. The Secretary of Education and the
Guarantee Agencies entered into the Interest Subsidy Agreements as described in
"Description of the Guarantee Agencies -- Federal Agreements", whereby the
Secretary of Education agrees to pay interest subsidy payments to the holders of
eligible guaranteed loans for the benefit of students meeting certain
requirements, subject to the holders' compliance with all requirements of the
Higher Education Act. Only Stafford Loans, and Consolidation Loans for which the
application was received on or after January 1, 1993, are eligible for interest
subsidy payments. Consolidation Loans made after August 10, 1993 are eligible
for interest subsidy payments only if all loans consolidated thereby are
Stafford Loans. In addition, to be eligible for interest subsidy payments,
guaranteed loans must be made by an eligible lender under the applicable
Guarantee Agency's Guarantee Program, and must meet requirements prescribed by
the rules and regulations promulgated under the Higher Education Act, including
the borrower eligibility, loan amount, disbursement, interest rate, repayment
period and guarantee fee provisions described herein and the other requirements
set forth in Section 428(b) of the Higher Education Act.
The Secretary of Education makes interest subsidy payments quarterly on
behalf of the borrower to the holder of a guaranteed loan in a total amount
equal to the interest which accrues on the unpaid principal amount prior to the
commencement of the repayment period of the loan or during any Deferment Period.
A borrower may elect to forego interest subsidy payments, in which case the
borrower is required to make interest payments.
Federal Administrative Expense Allowances
Prior to the adoption of the 1993 Amendments, each Guarantee Agency was
entitled to receive from the Secretary of Education an administrative cost
allowance equal to 1% of the total principal amount of the loans (other than
Consolidation Loans) guaranteed by the Guarantee Agency in any fiscal year, for
the purposes of administrative
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costs of pre-claims assistance for default prevention and collection of
defaulted guaranteed loans, administrative costs of promoting commercial lender
participation, administrative costs of monitoring the enrollment and repayment
status of students, and for other such costs related to the Guarantee Agency's
Guarantee Program. The 1993 Amendments repealed such entitlement, effective
October 1, 1993. The 1993 Amendments, however, authorized payments for
transition support (including administrative costs) to Guarantee Agencies, in
connection with the transition to direct lending. See "Direct Loans" below.
Budget legislation adopted since that time has provided for the payment to
Guarantee Agencies of an administrative expense allowance equal to 0.85% of the
agency's annual new guarantee volume. The 1997 Amendments provide for payment of
such an administrative expense allowance through the fiscal year ending
September 30, 2002. However, after the fiscal year ending September 30, 1997,
such amounts are subject to decreasing aggregate limits. There are no assurances
as to the level of such payments that can be made within such aggregate limits,
or that Congress will require such payments or that the Secretary of Education
will determine to continue to make any such payments in future years.
Federal Advances
Pursuant to agreements entered into between the Guarantee Agencies and the
Secretary of Education under Sections 422 and 422(c) of the Higher Education
Act, the Secretary of Education was authorized to advance moneys from time to
time to the Guarantee Agencies for the purpose of establishing and strengthening
the Guarantee Agencies' reserves. Section 422(c) currently authorizes the
Secretary of Education to make advances to Guarantee Agencies in various
circumstances, on terms and conditions satisfactory to the Secretary, including
if the Secretary is seeking to terminate the Guarantee Agency's reimbursement
contract or assume the Guarantee Agency's functions, to assist the Guarantee
Agency in meeting its immediate cash needs or to ensure the uninterrupted
payment of claims.
Federal Special Allowance Payments
The Higher Education Act provides for the payment by the Secretary of
Education of additional subsidies, called Special Allowance Payments, to holders
of qualifying student loans. The amount of the Special Allowance Payments, which
are made on a quarterly basis, is computed by reference to the average of the
bond equivalent rates of the 91-day Treasury bills auctioned during the
preceding quarter (the "91-day T-Bill Rate"). The quarterly rate for Special
Allowance Payments for Student Loans made on or after October 1, 1981, and
generally before November 16, 1986 is computed by subtracting the applicable
interest rate on such loans from the 91-day T-Bill Rate, adding 3.5% to the
resulting per centum, and dividing the resulting per centum by four. For loans
disbursed on or after November 16, 1986, or loans to cover the costs of
instruction for periods of enrollment beginning on or after November 16, 1986,
the 1986 Amendments and 1987 Amendments substituted 3.25% for 3.5% in the
foregoing formula. For loans disbursed on or after October 1, 1992, the 1992
Amendments substituted 3.1% for 3.5% in such formula. For Stafford and
Unsubsidized Stafford Loans made on or after July 1, 1995, the 1993 Amendments
substitute 2.5% for 3.1% in such formula prior to the time such loans enter
repayment and during any Deferment Periods. For loans made on or after July 1,
1998, the special allowance formula is to be revised similarly to the manner in
which the applicable interest rate formula is revised, as described above under
"Loan Terms -- Interest Rates -- Stafford Loans".
For Plus and SLS Loans which bear interest at rates adjusted annually,
Special Allowance Payments are made only in years during which the interest rate
ceiling on such loans operates to reduce the rate that would otherwise apply
based upon the applicable formula. See "Loan Terms -- Interest Rates -- Plus
Loans" and "-- SLS Loans" above. Under the 1993 Amendments, Special Allowance
Payments are paid with respect to Plus Loans made on or after July 1, 1994 only
if the rate that would otherwise apply exceeds 10% per annum, notwithstanding
that the interest rate ceiling on such loans is 9% per annum.
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Section 438(b)(2) of the Higher Education Act provides that the quarterly
rate of Special Allowance Payments paid to holders of loans which were made or
purchased with funds obtained by the holder from the issuance of certain
obligations, the income from which is exempt from taxation under the Code (as
well as with funds obtained by the holder from certain earnings related thereto)
shall be one-half the quarterly rate of the special allowance established under
the formula described above (without giving effect to the changes in such
formula enacted by the 1986 Amendments, the 1987 Amendments, the 1992 Amendments
and the 1993 Amendments). Such reduced rate, however, shall not be less than:
(a) for loans disbursed before October 1, 1992, 2.5% per annum in the case of
loans for which the applicable interest rate is 7% per annum, 1.5% per annum in
the case of loans for which the applicable interest rate is 8% per annum, or
0.5% per annum in the case of loans for which the applicable rate is 9% per
annum; and (b) for loans disbursed on or after October 1, 1992, the difference
between 9.5% per annum and the applicable interest rate on the loan. The effect
of these provisions is to provide a minimum rate of return (i.e., combined
interest and Special Allowance Payments) of 9.5% per annum on 7%, 8% and 9%
Stafford Loans, on Consolidation Loans, and on Stafford and Unsubsidized
Stafford Loans that bear interest at a rate that is adjusted annually and that
were made on or after October 1, 1992 . However, Plus and SLS Loans do not have
such an assured rate of return because Special Allowance Payments are made on
such loans only if the interest rate ceiling on such loans operates to limit the
applicable interest rate. In addition, variable rate loans made before October
1, 1992 will not have such an assured minimum rate of return. The "rebate" fee
payable with respect to Consolidation Loans (as described above under "Loan
Terms -- Fees -- Rebate Fee on Consolidation Loans") also has the effect of
reducing the rate of return on Consolidation Loans made on or after October 1,
1993. The special provisions described above for holders of loans made or
purchased with funds obtained from the issuance of certain obligations, the
income from which is exempt from taxation, applies only to such obligations
issued on or before September 30, 1993, and obligations issued to refund such
obligations.
The Balanced Budget and Deficit Control Act of 1985, as amended (known as
the "Gramm-Rudman Law") requires the President to issue a sequester order for
any federal fiscal year in which the projected budget exceeds the target for
that year. A sequester order for any fiscal year would apply to loans made on
or after October 1 of that fiscal year. The sequester order would change the
formula for calculating Special Allowance Payments for the first four Special
Allowance Payment periods relating to loans originally disbursed during that
fiscal year. The special allowance formula would be reduced to the 91-day
T-Bill Rate plus 3.0% (for loans with a special allowance formula of the 91-day
T-Bill Rate plus 3.1%).
For the Trustee to be eligible to receive Special Allowance Payments with
respect to any loans which were made or purchased with funds obtained by the
issuance of obligations, the income from which is exempt from taxation under the
Code (such as the Tax Exempt Series 1997-1 Notes), the Original Issuer may not
engage in any pattern or practice which results in a denial of a borrower's
access to loans under the Higher Education Act because of the borrower's race,
sex, color, religion, national origin, age, handicap status, income, attendance
at a particular eligible institution within the area served by the Original
Issuer, length of the borrower's educational program, or the borrower's academic
year in school.
The Higher Education Act also provides that no special allowance may be
paid for such loans unless the Original Issuer submitted to the Governor of the
State a plan for doing business, for approval by the Governor after consultation
with EAC. Such plan is required to contain provisions designed to assure that:
(1) no eligible lender in the area served by the Original Issuer will
be excluded from participation in the program of the Original Issuer and
that all eligible lenders may participate in the program on the same terms
and conditions if eligible lenders are going to participate in the program;
(2) no director or staff member of the Original Issuer who receives
compensation from the Original Issuer may own stock in, or receive
compensation from any agency that would contract to service and collect the
loans of the Original Issuer;
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(3) the Original Issuer will not purchase student loans from
participating lenders at a premium amounting to more than 1% of the unpaid
principal amount borrowed plus accrued interest to the date of acquisition,
but the Original Issuer may pay reasonable loan transfer fees;
(4) the Original Issuer will, within the limit of funds available and
subject to applicable State and federal law, make loans to, or purchase
loans incurred by, all eligible students who are residents of or who attend
an eligible institution within the area served by the Original Issuer;
(5) the Original Issuer has a plan under which it will pursue the
development of new lender participation in a continuing program of benefits
to students together with assurances of existing lender commitments to the
program; and
(6) there will be an annual audit of the Original Issuer by a
certified public accounting firm which will include review of compliance by
the Original Issuer with the provisions of the plan.
The Governor of the State has approved the Original Issuer's most recent
Plan for Doing Business. Because the Original Issuer expects to terminate its
participation in the Federal Family Education Loan Program, the Original Issuer
will no longer be capable of carrying out certain provisions of such plan for
doing business. The Original Issuer, SLFC, and the Corporation will each
covenant to comply with the provisions of such plan for doing business that
apply to their respective operations.
The Department of Education's regulations impose various sanctions on
holders of such loans for failure to comply with the plan for doing business and
such regulations, including, without limitation, withholding or seeking
reimbursement of Special Allowance Payments.
The Higher Education Act provides that if Special Allowance Payments or
interest subsidy payments have not been made within 30 days after the Secretary
of Education receives an accurate, timely and complete request therefor, the
special allowance payable to such holder shall be increased by an amount equal
to the daily interest accruing on the special allowance and interest subsidy
payments due the holder.
Special Allowance Payments and interest subsidy payments are reduced by the
amount which the lender is authorized or required to charge as an origination
fee, as described above under "Loan Terms -- Fees --Origination Fee". In
addition, the amount of the lender origination fee described above under "Loan
Terms -- Fees -- Lender Origination Fees" is collected by offset to Special
Allowance Payments and interest subsidy payments.
Federal Student Loan Insurance Fund
The Higher Education Act authorizes the establishment of a Student Loan
Insurance Fund by the Federal government for making the federal insurance and
the federal reimbursement payments on defaulted student loans to Guarantee
Agencies. If moneys in the fund are insufficient to make the federal payments
on defaults of such loans, the Secretary of Education is authorized, to the
extent provided in advance by appropriation acts, to issue to the Secretary of
the Treasury obligations containing terms and conditions prescribed by the
Secretary of Education and approved by the Secretary of the Treasury, bearing
interest at a rate determined by the Secretary of the Treasury. The Secretary of
the Treasury is authorized and directed by the Higher Education Act to purchase
such obligations.
Direct Loans
The 1993 Amendments authorized a program of "direct loans", to be
originated by schools with funds provided by the Secretary of Education. Under
the direct loan program, the Secretary of Education is directed to enter into
agreements with schools, or origination agents in lieu of schools, to disburse
loans with funds provided by the Secretary. Participation in the program by
schools is voluntary. The goals set forth in the 1993
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Amendments call for the direct loan program to constitute 5% of the total volume
of loans made under the Federal Family Education Loan Program and the direct
loan program for academic year 1994-1995, 40% for academic year 1995-1996, 50%
for academic years 1996-1997 and 1997-1998 and 60% for academic year 1998-1999.
No provision is made for the size of the direct loan program thereafter. Based
upon information released by the General Accounting Office, participation by
schools in the direct loan program has not been sufficient to meet the goals for
the 1995-1996 or 1996-1997 academic years.
The loan terms are generally the same under the direct loan program as
under the Federal Family Education Loan Program, though more flexible repayment
provisions are available under the direct loan program. At the discretion of
the Secretary of Education, students attending schools that participate in the
direct loan program (and their parents) may still be eligible for participation
in the Federal Family Education Loan Program, though no borrower could obtain
loans under both programs.
It is difficult to predict the impact of the direct lending program. There
is no way to accurately predict the number of schools that will participate in
future years, or, if the Secretary authorizes students attending participating
schools to continue to be eligible for Federal Family Education Loan Program
loans, how many students will seek loans under the direct loan program instead
of the Federal Family Education Loan Program. In addition, it is impossible to
predict whether future legislation will eliminate, limit or expand the direct
loan program or the Federal Family Education Loan Program.
DESCRIPTION OF THE GUARANTEE AGENCIES
General
The Indenture permits the Financing of Eligible Loans guaranteed by various
Guarantee Agencies. The Corporation expects that of the Eligible Loans to be
Financed on the Date of Issuance with the proceeds of the Series 1997-1 Notes,
approximately 60.0% will be guaranteed by Education Assistance Corporation
("EAC"), approximately 34.3% will be guaranteed by Pennsylvania Higher Education
Assistance Agency ("PHEAA"), and the remainder will be guaranteed by one of the
following Guarantee Agencies: United Student Aid Funds, Inc., Northstar
Guarantee Inc., Great Lakes Higher Education Corporation, Student Loans of North
Dakota, Iowa College Aid Commission, Missouri Coordinating Board for Higher
Education, Illinois Student Aid Commission, or Educational Credit Management
Corporation (formerly known as Transitional Guaranty Agency, Inc.). The
Corporation expects that California Student Aid Commission also will be a
Guarantee Agency for Eligible Loans to be Financed following the Date of
Issuance. Any other state agency or private nonprofit institution or
organization which administers a Guarantee Program, may also be a Guarantee
Agency of Eligible Loans to be Financed, subject to confirmation of ratings on
any Outstanding Unenhanced Notes or, if no Unenhanced Notes are then Outstanding
but Other Indenture Obligations are Outstanding, consent of each Other
Beneficiary holding such Outstanding Other Indenture Obligations, as evidenced
in writing to the Trustee by each such Other Beneficiary.
The Corporation expects that the percentage of Financed Eligible Loans
guaranteed by EAC will increase over time, while the percentage guaranteed by
PHEAA will decrease. However, actual amounts guaranteed by these Guarantee
Agencies may vary from the Corporation's expectations. Proceeds of Additional
Notes issued on a parity basis under the Indenture, moreover, may be used to
finance Eligible Loans guaranteed by these or other Guarantee Agencies in
amounts unrelated to the expected amount of loans guaranteed by a particular
Guarantee Agency that is Financed with the proceeds of the Series 1997-1 Notes.
(Any Additional Notes will not be issued and sold under the Registration
Statement filed with respect to the Series 1997-1 Notes.)
A Guarantee Agency guarantees loans made to students or parents of students
by lending institutions such as banks, credit unions, savings and loan
associations, certain schools, pension funds and insurance companies. A
Guarantee Agency generally purchases defaulted student loans which it has
guaranteed from its cash and reserves
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(generally referred to herein as its "Guarantee Fund"). A lender may submit a
default claim to the Guarantee Agency after the student loan has been delinquent
for at least 180 days; however, lenders are strongly encouraged not to file a
claim until the loan is at least 210 days delinquent. The default claim package
must include all information and documentation required under the Federal Family
Education Loan Program regulations and the Guarantee Agency's policies and
procedures. Under the Guarantee Agencies' current procedures, assuming that the
default claim package complies with the Guarantee Agency's loan procedures
manual or regulations, the Guarantee Agency pays the lender for a default claim
within 90 days of the lender's filing the claim with the Guarantee Agency. The
Guarantee Agency will pay the lender interest accrued on the loan for up to 360
days after delinquency. The Guarantee Agency must file a reimbursement claim
with the Department of Education within 45 days after the Guarantee Agency has
paid the lender for the default claim.
In general, a Guarantee Agency's Guarantee Fund has been funded principally
by administrative cost allowances paid by the Secretary of Education, guarantee
fees paid by lenders (the cost of which may be passed on to borrowers),
investment income on moneys in the Guarantee Fund, and a portion of the moneys
collected from borrowers on Guaranteed Loans that have been reimbursed by the
Secretary of Education to cover the Guarantee Agency's administrative expenses.
Various changes to the Higher Education Act have adversely affected the
receipt of revenues by the Guarantee Agencies and their ability to maintain
their Guarantee Funds at previous levels, and may adversely affect their ability
to meet their guarantee obligations. These changes include the reduction in
reinsurance payments from the Secretary of Education because of reduced
reimbursement percentages; the reduction in maximum permitted guarantee fees
from 3% to 1% for loans made on or after July 1, 1994; the reduction and
possible elimination of administrative expense allowances from the Secretary of
Education; the reduction in supplemental preclaims assistance payments from the
Secretary of Education; and the reduction in retention by a Guarantee Agency of
collections on defaulted loans from 30% to 27%. Additionally, the adequacy of a
Guarantee Agency's Guarantee Fund to meet its guarantee obligations with respect
to existing student loans depends, in significant part, on its ability to
collect revenues generated by new loan guarantees. The Federal Direct Student
Loan Program may adversely affect the volume of new loan guarantees. Future
legislation may make additional changes to the Higher Education Act that would
significantly affect the revenues received by Guarantee Agencies and the
structure of the guarantee agency program. For a more complete description of
provisions of the Higher Education Act that relate to payments described in this
paragraph or affect the funding of a Guarantee Fund, see "Description of Federal
Family Education Loan Program".
The Higher Education Act gives the Secretary of Education various oversight
powers over Guarantee Agencies. These include requiring a Guarantee Agency to
maintain its Guarantee Fund at a certain required level and taking various
actions relating to a Guarantee Agency if its administrative and financial
condition jeopardizes its ability to meet its obligations. These actions
include, among others, providing advances to the Guarantee Agency, terminating
the Guarantee Agency's Federal Reimbursement Contracts, assuming responsibility
for all functions of the Guarantee Agency, and transferring the Guarantee
Agency's guarantees to another guarantee agency or assuming such guarantees.
The Higher Education Act provides that a Guarantee Agency's Guarantee Fund shall
be considered to be the property of the United States to be used in the
operation of the Federal Family Education Loan Program or the Federal Direct
Student Loan Program, and, under certain circumstances, the Secretary of
Education may demand payment of amounts in the Guarantee Fund. The 1997
Amendments direct the Secretary of Education to demand payment on September 1,
2002 of a total of one billion dollars from all of the guarantee agencies
participating in the Federal Family Education Loan Program. The amounts to be
demanded of each Guarantee Agency shall be determined in accordance with
formulas included in the Higher Education Act. Each Guarantee Agency will be
required to deposit funds in a restricted account in installments, beginning in
the federal fiscal year ending September 30, 1998, to provide for such payment.
The Secretary has not yet made any determination of the amounts required to be
so transferred by the Guarantee Agencies. There can be no assurance that
relevant federal laws, including the Higher Education Act, will not be further
changed in a manner that may adversely affect the ability of a Guarantee Agency
to meet its guarantee obligations. See "Description of Federal Family Education
Loan Program".
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There are no assurances as to the Secretary of Education's actions if a
Guarantee Agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a Guarantee Agency transfer
additional portions or all of its Guarantee Fund to the Secretary of Education.
Information relating to the particular Guarantee Agencies set forth in this
Prospectus has been provided by the respective Guarantee Agencies, and neither
such information nor information included in the reports referred to herein has
been verified by, or is guaranteed as to accuracy or completeness by, the
Original Issuer, the Corporation or the Underwriters. Such information should
not be construed as a representation by the Original Issuer, the Corporation or
the Underwriters. No representation is made by the Original Issuer, the
Corporation or the Underwriters as to the accuracy or adequacy of such
information or the absence of material adverse changes in such information
subsequent to the dates thereof.
Federal Agreements
Each Guarantee Agency and the Secretary of Education have entered into
Federal Reimbursement Contracts pursuant to Section 428(c) of the Higher
Education Act (which include, for older Guarantee Agencies, a supplemental
contract pursuant to former Section 428A of the Higher Education Act), which
provide for the Guarantee Agency to receive 80% to 100% reimbursement of
insurance payments that the Guarantee Agency makes to eligible lenders with
respect to loans guaranteed by the Guarantee Agency prior to the termination of
the Federal Reimbursement Contracts or the expiration of the authority of the
Higher Education Act. The 1993 Amendments reduced the reimbursement percentages
referred to above with respect to claims on most loans made on or after October
1, 1993. See "Effect of Annual Claims Rate" below. The Federal Reimbursement
Contracts provide for termination under certain circumstances and also provide
for certain actions short of termination by the Secretary of Education to
protect the federal interest. See "Description of Federal Family Education Loan
Program -- Contracts with Guarantee Agencies -- Federal Reimbursement".
In addition to guarantee benefits, qualified Student Loans acquired under
the Program benefit from certain federal subsidies. Each Guarantee Agency and
the Secretary of Education have entered into an interest subsidy agreement under
Section 428(b) of the Higher Education Act (an "Interest Subsidy Agreement"),
which entitles the holders of eligible loans guaranteed by the Guarantee Agency
to receive interest subsidy payments from the Secretary of Education on behalf
of certain students while the student is in school, during a six to twelve month
Grace Period after the student leaves school, and during certain Deferment
Periods, subject to the holders' compliance with all requirements of the Higher
Education Act. See "Description of Federal Family Education Loan Program --
Contracts with Guarantee Agencies -- Federal Interest Subsidy Payments" for a
more detailed description of the interest subsidy payments.
United States Courts of Appeals have held that the federal government,
through subsequent legislation, has the right unilaterally to amend the
contracts between the Secretary of Education and the Guarantee Agencies
described herein. Amendments to the Higher Education Act in 1986, 1987, 1992 and
1993, respectively (i) abrogated certain rights of guarantee agencies under
contracts with the Secretary of Education relating to the repayment of certain
advances from the Secretary of Education, (ii) authorized the Secretary of
Education to withhold reimbursement payments otherwise due to certain guarantee
agencies until specified amounts of such guarantee agencies' reserves had been
eliminated, (iii) added new reserve level requirements for guarantee agencies
and authorized the Secretary of Education to terminate the Federal Reimbursement
Contracts under circumstances that did not previously warrant such termination,
and (iv) expanded the Secretary of Education's authority to terminate such
contracts and to seize guarantee agencies' reserves. There can be no assurance
that future legislation will not further adversely affect the rights of the
Guarantee Agencies, or holders of loans guaranteed by a Guarantee Agency under
such contracts.
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Effect of Annual Claims Rate
A Guarantee Agency's ability to meet its obligation to pay default claims
on Financed Eligible Loans will depend on the adequacy of its Guarantee Fund
and, under the current federal reinsurance arrangement, the default experience
of all lenders under the Guarantee Agency's Guarantee Program. A high default
experience among lenders participating in a Guarantee Agency's Guarantee Program
may cause the Guarantee Agency's Claims Rate (as defined below) for its
Guarantee Program to exceed the 5% and 9% levels described below, and result in
the Secretary of Education reimbursing the Guarantee Agency at lower percentages
of default claims payments made by the Guarantee Agency.
Each Guarantee Agency is currently entitled to receive reimbursement
payments under the Federal Reimbursement Contracts in amounts that vary
depending on the Claims Rate experience of the Guarantee Agency. The "Claims
Rate" is computed by dividing total default claims since the previous September
30 by the total original principal amount of the Guarantee Agency's guaranteed
loans in repayment on such September 30. On October 1 of each year the Claims
Rate begins at zero, regardless of the experience in preceding years. For loans
made prior to October 1, 1993, if the Claims Rate remains equal to or below 5%
within a given federal fiscal year (October 1 through September 30), the
Secretary of Education is currently obligated to provide 100% reimbursement; if
and when the Claims Rate exceeds 5% and until such time, if any, as it exceeds
9% during the fiscal year, the reimbursement rate is at 90%; if and when the
Claims Rate exceeds 9% during the fiscal year, the reimbursement rate for the
remainder of the fiscal year is at 80%. For loans made prior to October 1,
1993, each Guarantee Agency is currently entitled to at least 80% reimbursement
from the Secretary of Education on default claims that it purchases, regardless
of its Claims Rate. The reimbursement percentages for loans made on or after
October 1, 1993 are reduced from 100%, 90% and 80% to 98%, 88% and 78%,
respectively. See "Description of Federal Family Education Loan Program".
The Claims Rates for EAC and PHEAA for each of the last five federal fiscal
years is set forth in the table under "Certain Historical Information for
Guarantee Agencies -- Claims Rate" below.
Education Assistance Corporation - EAC
EAC is a South Dakota nonprofit corporation organized in 1978 to administer
the guaranteed loan program in the State. Since 1983, EAC also has provided
student loan guarantees and other services to certain lenders, borrowers and
schools in other states. EAC has no members. Two of the present seven members
of the Board of Directors of EAC are presently members of the Boards of
Directors of the Original Issuer, the Corporation and SLFC. EAC presently
employs a staff of 54 persons, plus part time help employed on a periodic basis.
From January 16, 1979 through September 30, 1996, EAC had guaranteed
approximately $992,300,000 principal amount of loans under the Higher Education
Act, of which EAC estimates that approximately $480,293,000 aggregate unpaid
principal amount was outstanding as of September 30, 1996. As of September 30,
1996, EAC had total assets of approximately $22,368,000, total liabilities of
approximately $14,789,000, and a fund balance of approximately $7,579,000. On
May 21, 1997, EAC prepaid various long term borrowings in the aggregate
principal amount of $6,464,912, plus accrued interest in the amount of $122,745,
thus reducing its assets and liabilities as of such date by an aggregate amount
of $6,587,657. EAC will provide a copy of its most recent annual report upon
receipt of a written request directed to Education Assistance Corporation, 115
First Avenue, Southwest, Aberdeen, South Dakota 57401, Attention: President.
EAC ceased issuing new loan guarantees as of December 22, 1987 in
connection with the enactment of the Omnibus Budget Reconciliation Act of 1987
and EAC's related dispute with the Secretary of Education concerning EAC's right
to retain its reserves. In January 1988, EAC entered into an arrangement with
PHEAA, whereby EAC processed applications and guarantee claims and undertook
other administrative tasks with respect to loans made after December 21, 1987
that EAC would otherwise have guaranteed, and PHEAA guaranteed such loans. EAC
recommenced guaranteeing student loans in July 1991, around which time PHEAA
ceased guaranteeing South
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Dakota loans pursuant to this arrangement. In May 1997, EAC recommenced
guaranteeing loans to borrowers neither resident in South Dakota nor attending
school in South Dakota, and ceased its arrangement with PHEAA with respect to
such loans.
EAC has created Educational Assistance Service Company, Inc. ("EASCI"), a
wholly-owned subsidiary of EAC, the primary purpose of which is to furnish a
complete range of loan origination, processing, monitoring and related services
with respect to student loans made under the federal guaranteed student loan
program. EASCI commenced operations on March 6, 1985. As of September 30, 1996,
EASCI provided services to 136 lenders for a portfolio of approximately
$223,466,000 outstanding principal amount. The persons that presently constitute
EAC's Board of Directors also are the Directors of EASCI. EAC shares some
personnel, office space, overhead and computer time with EASCI.
Pennsylvania Higher Education Assistance Agency - PHEAA
PHEAA is a body corporate and politic constituting a public corporation and
government instrumentality of the Commonwealth of Pennsylvania (the
"Commonwealth") created pursuant to the Act of August 7, 1963, P.L. 549 (as
amended, the "PHEAA Act"). PHEAA's statutory purpose of improving higher
education opportunities by assisting students in meeting their expenses involves
a variety of activities, including administering numerous grant programs,
originating and purchasing student loans, servicing student loans made by PHEAA
and others and guaranteeing student loans.
PHEAA is designated by the Secretary of Education as the Guarantee Agency
for the Commonwealth and for the States of West Virginia and Delaware. PHEAA
has approximately 2,200 employees. Its principal office is located in
Harrisburg, Pennsylvania, with six regional offices located throughout
Pennsylvania and additional offices located in California, West Virginia and
Delaware.
PHEAA's activities are subject to audit by the Commonwealth's Department of
the Auditor General, and PHEAA is required to make an annual report to the
Governor of the Commonwealth and the legislature showing its condition at the
end of the Commonwealth's fiscal year.
PHEAA will provide a copy of its most recent annual report upon receipt of
a written request directed to Pennsylvania Higher Education Assistance Agency,
1200 North 7th Street, Harrisburg, Pennsylvania 17102-1444, Attention: Timothy
A. Guenther, Senior Vice President and Chief Financial Officer.
The PHEAA Act created an educational loan assistance fund within the State
Treasury (the "Educational Loan Assistance Fund"). The PHEAA Act provides that
this fund is a continuing fund in which may be deposited moneys received from
repayments of principal on loans from the fund and payments of interest and
other fees and charges with respect to loans made pursuant to the PHEAA Act,
insurance premiums and charges assessed and collected by PHEAA on loans made
from the fund, appropriations made to the fund by the legislature, proceeds of
the sale of notes, bonds or other indebtedness to the extent and in the manner
provided by resolution of PHEAA's Board of Directors, other moneys received from
any other source for the purpose of this fund, and moneys received from the
federal government for the purpose of this fund or the PHEAA Act. The PHEAA Act
further provides that, except as otherwise provided for in any contracts with
bondholders, all appropriations and payments made into the Educational Loan
Assistance Fund are appropriated to the Board of Directors and may be applied
and reapplied as the Board of Directors shall direct and shall not be subject to
lapsing.
PHEAA is authorized to issue bonds or notes, with the approval of the
Governor of the Commonwealth, for the purpose of purchasing, making or
guaranteeing loans to students or parents, or to lending institutions or
postsecondary institutions to make student or parent loans. The PHEAA Act
provides that all accrued and future earnings from funds invested by the Board
of Directors and such other accrued and future nonappropriated funds, including,
but not limited to, those funds obtained from the federal government, insurance
premiums, charges assessed by PHEAA, loan servicing revenues, and contributions
for the same purpose shall be available to PHEAA
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and shall be deposited in the State Treasury and may be utilized at the
discretion of the Board of Directors for carrying out any of the corporate
purposes of PHEAA. Upon the dissolution of PHEAA or the cession of its
activities, all the property and moneys of PHEAA in excess of its obligations
shall become the property of the Commonwealth.
PHEAA has no power to pledge the credit or taxing power of the Commonwealth
or to make PHEAA debts payable out of any moneys except those of PHEAA. Neither
the faith and credit nor the taxing power of the Commonwealth is pledged to the
payment of any of PHEAA's obligations.
For accounting purposes, PHEAA has divided the Educational Loan Assistance
Fund into a Higher Education Assistance Fund (the "Assistance Fund") and a
Revenue Bond Fund (the "PHEAA Bond Fund"). Appropriations, revenues and
expenditures allocable to all PHEAA's programs, other than assets and
expenditures relating to its tax-exempt revenue bond financings, are allocated
to the Assistance Fund. All assets included in the PHEAA Bond Fund are pledged
to particular bond and note issues of PHEAA and are not available to meet
guarantee or other obligations of PHEAA related to its other programs. As noted
below, several obligations of PHEAA under certain bond and note financings,
though secured and collateralized by specified assets in PHEAA's Bond Fund, are
obligations not limited to such assets. Under those financings, certain persons
may seek recourse against the Assistance Fund.
As of June 30, 1997, the Assistance Fund had total assets of approximately
$789 million, total liabilities of approximately $551 million, and retained
earnings of approximately $237 million. PHEAA estimates that the portion of its
retained earnings that would be treated as its Guarantee Fund under the Higher
Education Act would be approximately $196 million. The PHEAA Bond Fund had
total assets of approximately $1.65 billion, total liabilities of approximately
$1.55 billion and retained earnings of approximately $52 million as of June 30,
1997.
Substantially all of PHEAA's expenditures relating to the various grant
programs that it administers (other than administrative expenses) are derived
from appropriations from the Commonwealth. In recent years, PHEAA has not
received any appropriations to cover its administrative expenses. To meet
PHEAA's obligations under its servicing and guarantee programs, PHEAA has in the
past relied, and expects in the future to continue to rely, principally on
servicing fee revenues; income on various investments in the Assistance Fund
(including various types of student loans); and revenues generated by its
activity as a guarantee agency under the Higher Education Act, including federal
reimbursement payments, administrative cost allowances, student loan insurance
premiums, and retentions from collections on defaulted loans. The
implementation of the new direct loan program or other modifications to the
Higher Education Act may reduce certain servicing fee revenues or income
generated by PHEAA's activity as a guarantee agency.
PHEAA began guaranteeing student loans in 1964. As of June 30, 1997, PHEAA
had guaranteed a total of approximately $20.0 billion principal amount of
student loans under the Higher Education Act. Of that amount, PHEAA estimates
that approximately $13.3 billion original principal amount of such loans was
outstanding. PHEAA initially guaranteed loans only to residents of the
Commonwealth or persons who planned to attend or were attending eligible
educational institutions in the Commonwealth. In May 1986, PHEAA began
guaranteeing loans to borrowers that did not meet these residency requirements
pursuant to its national guarantee program. Under the PHEAA Act, guarantee
payments on loans under PHEAA's national guarantee program (including Financed
Eligible Loans Guaranteed by PHEAA) may not be paid from funds appropriated by
the Commonwealth. The annual amount of loans guaranteed by PHEAA pursuant to
its Guarantee Program has increased in each of the last three fiscal years.
PHEAA's claims rate for purposes of receiving federal reinsurance is described
above under "Effect of Annual Claims Rate".
In addition to guaranteeing loans under the Higher Education Act, PHEAA
also operates certain guarantee programs for which it receives no federal
reinsurance. PHEAA had outstanding guarantee obligations on such loans in the
amount of approximately $49 million as of June 30, 1997.
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PHEAA began servicing loans for lenders in 1973, under a contract with
Student Loan Marketing Association ("Sallie Mae") to service loans Sallie Mae
purchased from Pennsylvania banks and other lenders. In 1974, PHEAA was granted
legislative authority to market its servicing system to other states and
lenders. As a result, PHEAA now has contracts with Sallie Mae, state agencies
and commercial lenders throughout the United States. PHEAA's two principal
servicing products are its full-servicing operation and its remote servicing
operation. As of June 30, 1997, under PHEAA's full-servicing program, it
serviced over 1,145,000 accounts with a principal balance of approximately $11.3
billion for 320 customers; and under its remote servicing operation, it serviced
over 700,000 accounts in an aggregate principal amount of approximately $3.5
billion for four customers. Servicing revenue generated from PHEAA's servicing
of loans that it owns accounted for approximately 25% of servicing revenues for
the 12 months ended June 30, 1997. For the year then ended, one other customer
accounted for approximately 17% of servicing revenues. PHEAA's management
expects gross servicing revenues to continue to increase.
PHEAA's current servicing agreements have contractual terms at inception
ranging from three years to life of the loan. Under PHEAA's servicing
agreements, PHEAA generally has agreed to reimburse customers for any claims,
losses, liabilities or expenses which arise out of or relate to PHEAA's acts or
omissions with respect to services provided under such agreements where the
final determination of PHEAA's liability is established by an arbitrator, by a
court of law of competent jurisdiction, or by way of settlement. PHEAA must
rely on moneys in the Assistance Fund to cover expenditures necessary to meet
its contractual obligations under the servicing agreements, including any
potential liabilities. PHEAA has developed a new servicing system in
consultation with the consulting firm Deloitte & Touche, IBM and servicing
clients. Conversion to the new system began in the second quarter of 1995 and
is ongoing.
PHEAA acts as an originator and secondary market for various types of
student loans, including loans it has guaranteed under the Higher Education Act,
loans insured by the United States Department of Health and Human Services under
the Health Education Assistance Loan Program, and loans which are insured by
PHEAA without any form of federal reinsurance. PHEAA has financed most of its
acquisitions and originations of student loans through the issuance of student
loan revenue bonds. PHEAA has, however, used moneys in the Assistance Fund to
finance student loans. As of June 30, 1997, the Assistance Fund contained the
following approximate outstanding principal amounts of student loans which are
not otherwise pledged to secure PHEAA's financings: $20.0 million of student
loans which are not insured or reinsured; $33.0 million of student loans
guaranteed by PHEAA under the Higher Education Act which are reinsured
(approximately $22.5 million of which were Consolidation Loans); and $5.6
million of health education assistance loans which are federally insured. Of
those amounts, $1.3 million of student loans guaranteed by PHEAA under the
Higher Education Act which are federally reinsured, are not eligible for federal
interest subsidy payments or Special Allowance Payments. Other student loans
owned by PHEAA in the Assistance Fund and the PHEAA Bond Fund are pledged to
certain financings and unavailable to meet PHEAA's guarantee obligations. As of
such date, approximately $154.4 million of the Assistance Fund was deposited
with and invested by the State Treasurer.
PHEAA had outstanding debt and/or credit facilities (under which the entire
aggregate amount of funds available has not been drawn) in the amount of
approximately $1.9 billion as of June 30, 1997. Although most of PHEAA's debt
issues are limited obligations of PHEAA, under certain circumstances, PHEAA's
reimbursement obligations to certain credit facility providers are not limited
to the assets pledged to those debt issues. For instance, PHEAA is party to
several credit facilities relating to certain series of bonds requiring purchase
by PHEAA of specified student loans from the applicable trust estate when a
claim for insurance has been denied. Such covenants are sometimes general
obligations of PHEAA. Even if these financings are fully collateralized,
therefore, credit enhancement providers may be able to seek repayment from the
Assistance Fund. None of the above referenced indebtedness is general
obligation debt of, or is backed by the faith, credit and taxing power of, the
Commonwealth or any of its political subdivisions.
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PHEAA is also a party to various sublease agreements and lease purchase
agreements in connection with debt financings used to provide funds for the
acquisition of office buildings, parking facilities, and equipment for PHEAA.
PHEAA's financial obligations under such agreements are payable from the
Assistance Fund.
Certain Historical Information for Guarantee Agencies
Set forth below is certain historical information with respect to each
Guarantee Agency that is expected to guaranty 5% or more of the Financed
Eligible Loans as of the Date of Issuance (EAC and PHEAA) and with respect to
all guarantors of loans under the Federal Family Education Loan Program. Except
as otherwise indicated below, the information regarding each Guarantee Agency
has been obtained from the Department of Education's Federal Fiscal Year 1993
Loan Programs Data Book and FY94-FY96 Federal Student Loan Programs Data Book
(the "DOE Data Books"). No independent verification of such information has
been or will be made by the Corporation, the Original Issuer or the
Underwriters.
Guarantee Volume. The following table sets forth the approximate
aggregate principal amount of loans under the Federal Family Education Loan
Program that have first become committed to be guaranteed by EAC and PHEAA and
by all guarantors of such loans in each of the five federal fiscal years 1992
through 1996:*
<TABLE>
<CAPTION>
Stafford, Unsubsidized Stafford, SLS, PLUS and
Federal Consolidated Loans Guaranteed
Fiscal Dollars in Millions
Year EAC PHEAA All Guarantors
---- --- ----- --------------
<S> <C> <C> <C>
1992 $ 66.7 $1,410.4 $16,114.0
1993 85.7 1,857.1 19,356.6
1994 120.3 2,003.4 25,070.4
1995 142.8 2,221.5 24,213.0
1996 128.2 2,227.7 23,831.3
</TABLE>
__________
* The information set forth in the table above has been obtained from EAC,
PHEAA and, as to All Guarantors, the DOE Data Books.
Reserve Ratio. Each Guarantee Agency's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (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 Guarantee Agency minus (i) the original principal amount of loans
cancelled, claims paid, loans paid in full and loan guarantees transferred from
such Guarantee Agency to other guarantors, plus (ii) the original principal
amount of loan guarantees transferred to such Guarantee Agency from other
guarantors. The following table sets forth each EAC's and PHEAA's cumulative
cash reserves and their corresponding reserve ratios and the national average
reserve ratio for all guarantors for the five federal fiscal years 1992 through
1996.* As discussed above under "Education Assistance Corporation -- EAC," on
May 21, 1997, EAC prepaid various long term borrowings in the aggregate
principal amount of $6,464,912, plus accrued interest in the amount of $122,745,
thus reducing its assets and liabilities as of such date by an aggregate amount
of $6,587,657. This will result in EAC's cumulative cash reserve being reduced
by this amount and the Original Issuer's management expects that it will result
in a reduction of EAC's reserve ratio.
-102-
<PAGE>
<TABLE>
<CAPTION>
EAC PHEAA
-------------------- -------------------- National
Cumulative Cumulative Average
Federal Cash Reserve Cash Reserve Reserve
Fiscal Year Reserves** Ratio Reserves** Ratio Ratio
----------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
1992 $ 9.2 2.6% $ 85.9 1.1% 1.5%
1993 12.1 3.1 100.9 1.1 1.7
1994 14.2 3.1 133.6 1.3 1.4
1995 15.7 2.9 166.3 1.5 1.6
1996 17.0 2.8 210.6 1.6 1.8
</TABLE>
- -------
* The information set forth in the table above has been obtained from EAC,
PHEAA and, as to the national average, the DOE Data Books (with respect to
fiscal years 1992, 1993, 1994 and 1995) and from the Department of
Education (with respect to fiscal year 1996). According to the Department
of Education, available cash reserves may not always be an accurate
barometer of a guarantor's financial health.
** Dollars in millions.
Cumulative Recovery Rates. A Guarantee Agency's cumulative recovery
rate is determined by dividing the cumulative aggregate amount recovered from
borrowers by such Guarantee Agency by the cumulative aggregate amount of default
claims paid by such Guarantee Agency as of the end of the applicable federal
fiscal year. The table below sets forth the cumulative recovery rates for EAC
and PHEAA and the national average cumulative recovery rates for all guarantors
as of the end of the five federal fiscal years 1992 through 1996.* The Original
Issuer's management does not believe that cumulative recovery rates provide an
accurate indication of a guarantor's financial health.
<TABLE>
<CAPTION>
Cumulative Recovery Rate
Federal ---------------------------------
Fiscal Year EAC PHEAA National Average
- ------------- ------ ------ -----------------
<S> <C> <C> <C>
1992 29.86% 46.5% 35.09%
1993 34.94 48.2 37.96
1994 40.20 52.90 39.23
1995 41.26 53.29 40.68
1996 43.12 55.04 43.12**
</TABLE>
- -------
* The information set forth in the table above has been obtained from EAC,
PHEAA and, as to the national average, the Department of Education.
** 1996 National Average does not include all guarantor data, as not all
guarantors have been processed.
Loan Loss Reserve. The DOE Data Books do not disclose whether any
guarantor has established a segregated loan loss reserve with respect to its
student loan guarantee obligations. Accordingly, to the extent that a guarantor
has not established such a segregated loan loss reserve, if a guarantor receives
less than full reimbursement of its guarantee obligations from the Department of
Education, the guarantor would be forced to look to its existing assets to
satisfy any such guarantee obligations not so reimbursed.
-103-
<PAGE>
Claims Rate. The following table sets forth the Claims Rate of EAC and
PHEAA and the national average for all guarantors for the five federal fiscal
years 1992 through 1996:*
<TABLE>
<CAPTION>
Claims Rate
Federal -------------------------------
Fiscal Year EAC PHEAA National Average
- ------------- ----- ------ -----------------
<S> <C> <C> <C>
1992 1.25% 2.84% 4.15%
1993 1.28 2.32 3.83
1994 1.43 2.18 3.44
1995 1.56 1.97 3.21
1996 1.54 1.58 3.25
</TABLE>
- ----------
* The information set forth in the table above has been obtained from EAC,
PHEAA and, as to the national average, the Department of Education.
EAC's and PHEAA's Claims Rate have been lower than the national average
Claims Rate in each of the five federal fiscal years shown in the Claims Rate
table above. Management of EAC and PHEAA have indicated to the Corporation that
they are currently unaware of any trends or conditions which would cause their
respective Claims Rate to exceed 5% and thereby result in less than maximum
reimbursement for reinsurance claims to the Department of Education.
Notwithstanding the above, no assurance can be made that any such trends will
continue or not deteriorate, or that any Guarantee Agency will receive full
reimbursement for reinsurance claims (or the full 98% maximum reimbursement for
loans first disbursed on or after October 1, 1993).
TERMS OF THE TAX EXEMPT AUCTION RATE SERIES 1997-1 SENIOR NOTES
Generally
The Tax Exempt Auction Rate Series 1997-1 Senior Notes will be dated as of
the date of their initial issuance and, subject to call for redemption pursuant
to the provisions referred to below, will mature on June 1, 2020. The Tax
Exempt Auction Rate Series 1997-1 Senior Notes will bear interest, payable on
each June 1 and December 1, commencing December 1, 1997, at rates determined as
described below under "Interest Rate on the Tax Exempt Auction Rate Series 1997-
1 Senior Notes". The Tax Exempt Auction Rate Series 1997-1 Senior Notes will be
issued in fully registered form, without coupons, and when issued will be
registered in the name of Cede & Co., as nominee of DTC. DTC will act as
securities depository for the Tax Exempt Auction Rate Series 1997-1 Senior
Notes. Individual purchases of the Tax Exempt Auction Rate Series 1997-1 Senior
Notes will be made in book-entry form only in the principal amount of $100,000
or multiples thereof. Purchasers of the Tax Exempt Auction Rate Series 1997-1
Senior Notes will not receive certificates representing their interest in the
Tax Exempt Auction Rate Series 1997-1 Senior Notes purchased. See "Description
of Series 1997-1 Notes - Book-Entry-Only System".
Interest Rate on the Tax Exempt Auction Rate Series 1997-1 Senior Notes
The Initial Interest Rate Adjustment Dates for the Tax Exempt Auction Rate
Series 1997-1 Senior Notes will be as follows:
-104-
<PAGE>
<TABLE>
<CAPTION>
Initial Interest Rate
Series Adjustment Date
------ ---------------------
<S> <C>
1997-1A December 4, 1997
1997-1B December 11, 1997
1997-1C December 18, 1997
1997-1D December 30, 1997
1997-1E January 6, 1998
</TABLE>
During the Initial Interest Period, each series of the Tax Exempt Auction Rate
Series 1997-1 Senior Notes will bear interest at the Auction Rate Series 1997-1
Senior Note Initial Interest Rate for such series. Thereafter, the Tax Exempt
Auction Rate Series 1997-1 Senior Notes of each series will bear interest at an
Auction Rate Series 1997-1 Senior Note Interest Rate based on an Auction Period
generally consisting of 35 days, subject to adjustment as described in "Auction
of the Auction Rate Series 1997-1 Senior Notes-Changes in Auction Terms --
Changes in Auction Period or Periods". In no event will the Auction Rate Series
1997-1 Senior Note Interest Rate exceed the applicable Auction Rate Series
1997-1 Senior Note Interest Rate Limitation of 14% per annum.
For each series of the Tax Exempt Auction Rate Series 1997-1 Senior Notes
during the Initial Interest Period and each Auction Period thereafter, interest
at the Auction Rate Series 1997-1 Senior Note Interest Rate will accrue daily
and will be computed for the actual number of days elapsed on the basis of a
year consisting of 360 days. Interest due on the Tax Exempt Auction Rate Series
1997-1 Senior Notes on any Interest Payment Date will be calculated on a per
unit basis, based on a unit of $100,000.
The Auction Rate Series 1997-1 Senior Note Interest Rate to be borne by
each series of the Tax Exempt Auction Rate Series 1997-1 Senior Notes after the
Initial Interest Period for each Auction Period until an Auction Period
Adjustment, if any, will be determined as hereinafter described. Each such
Auction Period will commence on and include the Thursday following the
expiration of the immediately preceding Auction Period and terminate on and
include the Wednesday immediately preceding the Thursday of the fifth following
week; provided, however, that in the case of the Auction Period that immediately
follows the Initial Interest Period for a series of the Tax Exempt Auction Rate
Series 1997-1 Senior Notes, such Auction Period will commence on the Initial
Interest Rate Adjustment Date for such series. The Auction Rate Series 1997-1
Senior Note Interest Rate on each series of the Tax Exempt Auction Rate Series
1997-1 Senior Notes for each Auction Period will be the Auction Rate in effect
for such Auction Period as determined in accordance with the Auction Procedures
described in "Auction of the Series 1997-1 Senior Notes"; provided that if, on
any Interest Rate Determination Date, an Auction is not held with respect to a
series of Tax Exempt Auction Rate Series 1997-1 Senior Notes for any reason,
then the Auction Rate Series 1997-1 Senior Note Interest Rate on such series for
the next succeeding Auction Period will be the Maximum Auction Rate.
Notwithstanding the foregoing:
(A) if the ownership of a series of Tax Exempt Auction Rate Series
1997-1 Senior Notes is no longer maintained in book-entry form, the Auction
Rate Series 1997-1 Senior Note Interest Rate on the Tax Exempt Auction Rate
Series 1997-1 Senior Notes of such series for any Interest Period
commencing after the delivery of certificates representing the Tax Exempt
Auction Rate Series 1997-1 Senior Notes of such series will equal the
Maximum Auction Rate on the Business Day immediately preceding the first
day of such subsequent Interest Period; or
(B) if a Payment Default has occurred with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Senior Notes, the Auction Rate Series
1997-1 Senior Note Interest Rate on such series for the Interest Period for
such series commencing on or immediately after such Payment Default and for
each Interest Period thereafter, to and including the Interest Period, if
any, during which, or commencing less than two Business Days after, such
Payment Default is cured in accordance with the First Supplemental
Indenture, will equal the Non-Payment Rate on the first day of each such
Interest Period.
-105-
<PAGE>
In any event, no Auction will be held on any Auction Date under the First
Supplemental Indenture during the continuance of a Payment Default.
The Auction Agent is to promptly give written notice to the Trustee and the
Corporation of each Auction Rate Series 1997-1 Senior Note Interest Rate (unless
the Auction Rate Series 1997-1 Senior Note Interest Rate is the Non-Payment
Rate) applicable to each series of the Tax Exempt Auction Rate Series 1997-1
Senior Notes. The Trustee is to notify the Holders of Tax Exempt Auction Rate
Series 1997-1 Senior Notes of the Auction Rate Series 1997-1 Senior Note
Interest Rate applicable to each such series of Tax Exempt Auction Rate Series
1997-1 Senior Notes for each Auction Period on the second Business Day of such
Auction Period.
If the Auction Agent no longer determines, or fails to determine, when
required, the Auction Rate Series 1997-1 Senior Note Interest Rate with respect
to a series of Tax Exempt Auction Rate Series 1997-1 Senior Notes, or if, for
any reason, such manner of determination is held to be invalid or unenforceable,
the Auction Rate Series 1997-1 Senior Note Interest Rate for the next succeeding
Interest Period (which period will be an Auction Period for such series of the
Tax Exempt Auction Rate Series 1997-1 Senior Notes) will be the Maximum Auction
Rate as determined by the Auction Agent for such next succeeding Auction Period,
and if the Auction Agent fails or refuses to determine said Maximum Auction
Rate, the Maximum Auction Rate is to be determined by a securities dealer
appointed by the Corporation capable of making such a determination in
accordance with the provisions of the Indenture, and written notice of such
determination is to be given by such securities dealer to the Trustee.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on a
series of Tax Exempt Auction Rate Series 1997-1 Senior Notes exceed the amount
permitted by applicable law. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the Tax Exempt
Auction Rate Series 1997-1 Senior Notes of a series or related documents or
otherwise contracted for, charged, reserved, taken or received in connection
with the Tax Exempt Auction Rate Series 1997-1 Senior Notes of such series, or
if the call for redemption or acceleration of the maturity of the Tax Exempt
Auction Rate Series 1997-1 Senior Notes of such series results in payment to or
receipt by the Holder or any former Holder of the Tax Exempt Auction Rate Series
1997-1 Senior Notes of such series of any interest in excess of that permitted
by applicable law, then, notwithstanding any provision of the Tax Exempt Auction
Rate Series 1997-1 Senior Notes of such series or related documents to the
contrary, all excess amounts theretofore paid or received with respect to the
Tax Exempt Auction Rate Series 1997-1 Senior Notes of such series shall be
credited on the principal balance of the Tax Exempt Auction Rate Series 1997-1
Senior Notes of such series (or, if the Tax Exempt Auction Rate Series 1997-1
Senior Notes of such series have been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of the Tax Exempt Auction
Rate Series 1997-1 Senior Notes of such series and related documents shall
automatically and immediately be deemed reformed and the amounts thereafter
collectible thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for under the Tax Exempt Auction
Rate Series 1997-1 Senior Notes of such series and under the related documents.
Call for Redemption of Tax Exempt Auction Rate Series 1997-1 Senior Notes
The Tax Exempt Auction Rate Series 1997-1 Senior Notes will be subject to
call for redemption as described in this Prospectus under the captions
"Description of Series 1991-1 Notes -- Special Call for Redemption" and
"-- Optional Call for Redemption."
-106-
<PAGE>
TERMS OF THE TAX EXEMPT FIXED RATE
SERIES 1997-1 SENIOR NOTES
The Tax Exempt Fixed Rate Series 1997-1 Senior Notes will be dated as of
October 15, 1997 and, subject to call for redemption pursuant to the provisions
referred to below, will mature on the dates, and in the respective principal
amounts, and will bear interest from their date at the respective rates per
annum, set forth in the table below:
<TABLE>
<CAPTION>
Date Principal Amount Interest Rate
- ------------------- ---------------- --------------
<S> <C> <C>
June 1, 2010 $14,270,000 ____%
June 1, 2020 9,785,000 ____
</TABLE>
Interest on the Tax Exempt Series 1997-1 Senior Notes will be computed on
the assumption that each year contains 360 days and is composed of twelve 30-
day months and will be payable semiannually on each June 1 and December 1,
commencing December 1, 1997. The Tax Exempt Series 1997-1 Senior Notes will be
issued in fully registered form, without coupons, and when issued will be
registered in the name of Cede & Co., as nominee of DTC, New York, New York. DTC
will act as securities depository for the Tax Exempt Series 1997-1 Senior Notes.
Individual purchases of the Tax Exempt Series 1997-1 Senior Notes will be made
in book-entry form only in the principal amount of $5,000 or multiples thereof.
Purchasers of the Tax-Exempt Series 1997-1 Senior Notes will not receive
certificates representing their interest in the Tax-Exempt Series 1997-1 Senior
Notes purchased. See "Description of the Series 1997-1 Notes - Book- Entry-Only
System."
The Tax Exempt Fixed Rate Series 1997-1 Senior Notes will be subject to
call for redemption as described in this Prospectus under the captions
"Description of the Series 1997-1 Notes -- Special Call for Redemption" and
"-- Optional Call for Redemption."
TERMS OF THE TAXABLE AUCTION RATE SERIES 1997-1 SENIOR NOTES
Generally
The Taxable Auction Rate Series 1997-1 Senior Notes will be dated as of the
date of their initial issuance and, subject to the tender provisions set forth
below and to call for redemption pursuant to the provisions referred to below,
will mature on June 1, 2020. The Taxable Auction Rate Series 1997-1 Senior
Notes will bear interest, payable on the Business Day following the expiration
of each Auction Period, at rates determined as described below under "Interest
Rate on the Taxable Auction Rate Series 1997-1 Senior Notes." The Taxable
Auction Rate Series 1997-1 Senior Notes will be issued in fully registered form,
without coupons, and when issued will be registered in the name of Cede & Co.,
as nominee of DTC. DTC will act as securities depository for the Taxable
Auction Rate Series 1997-1 Senior Notes. Individual purchases of the Taxable
Auction Rate Series 1997-1 Senior Notes will be made in book-entry form only in
the principal amount of $100,000 or multiples thereof. Purchasers of the
Taxable Auction Rate Series 1997-1 Senior Notes will not receive certificates
representing their interest in the Taxable Auction Rate Series 1997-1 Senior
Notes purchased. See "Description of Series 1997-1 Notes -Book-Entry-Only
System".
-107-
<PAGE>
Interest Rate on the Taxable Auction Rate Series 1997-1 Senior Notes
The Initial Interest Rate Adjustment Date for the Taxable Auction Rate
Series 1997-1 Senior Notes will be as follows:
<TABLE>
<CAPTION>
Initial Interest Rate
Series Adjustment Date
------ ---------------
<S> <C>
1997-1G December 8, 1997
1997-1H December 15, 1997
</TABLE>
During the Initial Interest Period, each series of the Taxable Auction Rate
Series 1997-1 Senior Notes will bear interest at the Auction Rate Series 1997-1
Senior Note Initial Interest Rate for such series. Thereafter, except with
respect to an Auction Period Adjustment as described in "Auction of the Auction
Rate Series 1997-1 Senior Notes", the Taxable Auction Rate Series 1997-1 Senior
Notes will bear interest at an Auction Rate Series 1997-1 Senior Note Interest
Rate based on an Auction Period generally consisting of 28 days, subject to
adjustment as described in "Auction of the Auction Rate Series 1997-1 Senior
Notes - Changes in Auction Terms - Changes in Auction Period or Periods". In no
event will the Series 1997-1 Senior Note Interest Rate exceed the applicable
Auction Rate Series 1997-1 Senior Note Interest Rate Limitation of 18% per
annum.
Interest on each series of the Taxable Auction Rate Series 1997-1 Senior
Notes will be paid on the Business Day following each Auction Period for such
series. For each series of the Taxable Auction Rate Series 1997-1 Senior Notes
during the Initial Interest Period and each Auction Period thereafter, interest
at the Auction Rate Series 1997-1 Senior Note Interest Rate will accrue daily
and will be computed for the actual number of days elapsed on the basis of a
year consisting of 360 days.
The Auction Rate Series 1997-1 Senior Note Interest Rate to be borne by
each series of the Taxable Auction Rate Series 1997-1 Senior Notes after the
Initial Interest Period for each Auction Period until an Auction Period
Adjustment, if any, will be determined as hereinafter described. Each such
Auction Period will commence on and include the first day following the
expiration of the immediately preceding Auction Period and terminate on and
include the day immediately preceding the first Business Day of the fourth
following week; provided, however, that in the case of the Auction Period that
immediately follows the Initial Interest Period for a series of the Taxable
Auction Rate Series 1997-1 Senior Notes, such Auction Period will commence on
the Initial Interest Rate Adjustment Date for such series. The Auction Rate
Series 1997-1 Senior Note Interest Rate on each series of the Taxable Auction
Rate Series 1997-1 Senior Notes for each Auction Period will be the lesser of
(i) the Net Loan Rate in effect for such Auction Period and (ii) the Auction
Rate in effect for such Auction Period as determined in accordance with the
Auction Procedures described in "Auction of the Auction Rate Series 1997-1
Senior Notes"; provided that if, on any Interest Rate Determination Date, an
Auction is not held with respect to a series of the Taxable Auction Rate Series
1997-1 Senior Notes for any reason, then the Auction Rate Series 1997-1 Senior
Note Interest Rate on such series for the next succeeding Auction Period will be
the Net Loan Rate (subject to the applicable Auction Rate Series 1997-1 Senior
Note Interest Rate Limitation of 18%).
Notwithstanding the foregoing:
(A) if the ownership of a series of the Taxable Auction Rate Series
1997-1 Senior Notes is no longer maintained in book-entry form, the Auction
Rate Series 1997-1 Senior Note Interest Rate on the Taxable Auction Rate
Series 1997-1 Senior Notes of such series for any Interest Period
commencing after the delivery of certificates representing the Taxable
Auction Rate Series 1997-1 Senior Notes of such series will equal the
lesser of (i) the Maximum Auction Rate and (ii) the Net Loan Rate; or
-108-
<PAGE>
(B) if a Payment Default has occurred with respect to a series of the
Taxable Auction Rate Series 1997-1 Senior Notes, the Auction Rate Series
1997-1 Senior Note Interest Rate on such series for the Interest Period for
such series commencing on or immediately after such Payment Default and for
each Interest Period thereafter, to and including the Interest Period, if
any, during which, or commencing less than two Business Days after, such
Payment Default is cured in accordance with the First Supplemental
Indenture, will equal the Non-Payment Rate on the first day of each such
Interest Period.
In any event, no Auction will be held on any Auction Date under the First
Supplemental Indenture on which there are insufficient moneys in the Note Fund
to pay, or otherwise held by the Trustee under the Indenture and available to
pay, the principal, if any, of and interest due on the Taxable Auction Rate
Series 1997-1 Senior Notes on the Interest Payment Date immediately following
such Auction Date.
The Auction Agent is to promptly give written notice to the Trustee and the
Corporation of each Auction Rate Series 1997-1 Senior Note Interest Rate (unless
the Auction Rate Series 1997-1 Senior Note Interest Rate is the Non-Payment
Rate) and either the Auction Rate or the Net Loan Rate, as the case may be, when
such rate is not the Auction Rate Series 1997-1 Senior Note Interest Rate,
applicable to each series of the Taxable Auction Rate Series 1997-1 Senior
Notes. The Trustee is to notify the Holders of Taxable Auction Rate Series
1997-1 Senior Notes of the Auction Rate Series 1997-1 Senior Note Interest Rate
applicable to each such series of Taxable Auction Rate Series 1997-1 Senior
Notes for each Auction Period on the second Business Day of such Auction Period.
If the Auction Agent no longer determines, or fails to determine, when
required, the Auction Rate Series 1997-1 Senior Note Interest Rate with respect
to a series of Taxable Auction Rate Series 1997-1 Senior Notes, or, if for any
reason, such manner of determination is held to be invalid or unenforceable, the
Auction Rate Series 1997-1 Senior Note Interest Rate for the next succeeding
Interest Period (which period will be an Auction Period for such series of the
Taxable Auction Rate Series 1997-1 Senior Notes) will be the Net Loan Rate for
such next succeeding Auction Period. The Net Loan Rate with respect to each
Interest Period commencing in a given month shall be determined by or on behalf
of the Corporation and written notice thereof given to the Auction Agent at the
time the Monthly Servicing Report for the second preceding month is distributed.
If the Corporation fails or refuses to determine such Net Loan Rate, the Net
Loan Rate for any such Interest Period shall be the most recently determined Net
Loan Rate.
Carry-Over Amounts on the Taxable Auction Rate Series 1997-1 Senior Notes
If the Auction Rate for a series of the Taxable Auction Rate Series 1997-1
Senior Notes is greater than the Net Loan Rate, then the Auction Rate Series
1997-1 Senior Note Interest Rate applicable to such series for that Interest
Period will be the Net Loan Rate. If the Auction Rate Series 1997-1 Senior Note
Interest Rate for a series of Taxable Auction Rate Series 1997-1 Senior Notes
for any Interest Period is the Net Loan Rate, the Trustee shall determine the
Carry-Over Amount, if any, with respect to such series for such Interest Period.
Such determination of the Carry-Over Amount shall be made separately for each
series of Taxable Auction Rate Series 1997-1 Senior Notes. Each Carry-Over
Amount shall bear interest calculated at a rate equal to One-Month LIBOR (as
determined by the Auction Agent, provided the Trustee has received notice of
One-Month LIBOR from the Auction Agent, and, if the Trustee shall not have
received such notice from the Auction Agent, then as determined by the Trustee)
from the Interest Payment Date for the Interest Period with respect to which
such Carry-Over Amount was calculated, until paid. Any payment in respect of
Carry-Over Amount shall be applied, first, to any accrued interest payable
thereon and, thereafter, in reduction of such Carry-Over Amount. For purposes
of the Indenture and the Taxable Auction Rate Series 1997-1 Senior Notes, any
reference to "principal" or "interest" therein shall not include, within the
meaning of such words, Carry-Over Amount or any interest accrued on any such
Carry-Over Amount. Such Carry-Over Amount shall be separately calculated for
each Taxable Auction Rate Series 1997-1 Senior Note of such series by the
Trustee during such Interest Period in sufficient time for the Trustee to give
notice to each Holder of such Carry-Over Amount as required in the next
succeeding sentence. On the Interest Payment Date for an Interest Period with
respect to which such Carry-Over Amount has been calculated by the Trustee, the
Trustee shall give written notice to each Holder of the Carry-Over Amount
applicable to such Holder's Taxable Auction Rate Series
-109-
<PAGE>
1997-1 Senior Note, which written notice may accompany the payment of interest
by check made to each such Holder on such Interest Payment Date or otherwise
shall be mailed on such Interest Payment Date by first-class mail, postage
prepaid, to each such Holder at such Holder's address as it appears on the
registration books maintained by the Note Registrar. Such notice shall state,
in addition to such Carry-Over Amount, that, unless and until a Taxable Auction
Rate Series 1997-1 Senior Notes has been redeemed or has been deemed no longer
Outstanding under the Indenture (after which all accrued Carry-Over Amount with
respect to such Taxable Auction Rate Series 1997-1 Senior Note (and all accrued
interest thereon) that remains unpaid shall be cancelled and no Carry-Over
Amount (or interest accrued thereon) shall be paid with respect to such Taxable
Auction Rate Series 1997-1 Senior Note), (i) the Carry-Over Amount (and interest
accrued thereon) shall be paid by the Trustee on such Taxable Auction Rate
Series 1997-1 Senior Note on the first occurring Interest Payment Date for a
subsequent Interest Period if and to the extent that (l) the Eligible Carry-Over
Make-Up Amount with respect to such Interest Period is greater than zero, and
(2) moneys are available pursuant to the terms of the First Supplemental
Indenture to pay such Carry-Over Amount (and interest accrued thereon), and (ii)
interest shall accrue on the Carry-Over Amount at a per annum rate equal to One-
Month LIBOR until such Carry-Over Amount is paid in full or is cancelled.
The Carry-Over Amount (and interest accrued thereon) for a series of the
Taxable Auction Rate Series 1997-1 Senior Notes shall be paid by the Trustee on
Outstanding Taxable Auction Rate Series 1997-1 Senior Notes of such series on
the first occurring Interest Payment Date for a subsequent Interest Period if
and to the extent that (i) the Eligible Carry-Over Make-Up Amount with respect
to such Interest Period is greater than zero, and (ii) moneys in the Surplus
Account are available on such Interest Payment Date for transfer to the Interest
Account for such purpose in accordance with the priorities described in the
second paragraph under "Summary of the Indenture -- Funds and Accounts --
Surplus Fund", after taking into account all other amounts payable from the
Surplus Fund in accordance with such paragraph on such Interest Payment Date.
Any Carry-Over Amount (and any interest accrued thereon) with respect to any
Taxable Auction Rate Series 1997-1 Senior Note which is unpaid as of an Interest
Payment Date, which Taxable Auction Rate Series 1997-1 Senior Note is to be
called for redemption or deemed no longer Outstanding under the First
Supplemental Indenture on such Interest Payment Date, shall be paid to the
Holder thereof on such Interest Payment Date to the extent that moneys are
available therefor in accordance with the provisions of the preceding sentence;
provided, however, that any Carry-Over Amount (and any interest accrued thereon)
which is not so paid on such Interest Payment Date shall be cancelled with
respect to such Taxable Auction Rate Series 1997-1 Senior Note on such Interest
Payment Date and shall not be paid on any succeeding Interest Payment Date. To
the extent that any portion of the Carry-Over Amount (and any interest accrued
thereon) remains unpaid after payment of a portion thereof, such unpaid portion
shall be paid in whole or in part until fully paid by the Trustee on the next
occurring Interest Payment Date or Dates, as necessary, for a subsequent
Interest Period or Periods, if and to the extent that the conditions in the
first sentence of this paragraph are satisfied. On any Interest Payment Date on
which the Trustee pays less than all of the Carry-Over Amount (and any interest
accrued thereon) with respect to a Taxable Auction Rate Series 1997-1 Senior
Note, the Trustee shall give written notice in the manner set forth in the
immediately preceding paragraph to the Holder of such Taxable Auction Rate
Series 1997-1 Senior Note of the Carry-Over Amount remaining unpaid on such
Taxable Auction Rate Series 1997-1 Senior Note.
The Interest Payment Date on which any Carry-Over Amount for a series of
the Taxable Auction Rate Series 1997-1 Senior Notes will be paid is to be
determined by the Trustee as described in the immediately preceding paragraph,
and the Trustee is to make payment of the Carry-Over Amount in the same manner
as, and from the same Account from which, it pays interest on the Taxable
Auction Rate Series 1997-1 Senior Notes on an Interest Payment Date. ANY UNPAID
CARRY-OVER AMOUNT, INCLUDING ANY ACCRUED AND UNPAID INTEREST THEREON, ON A
TAXABLE AUCTION RATE SERIES 1997-1 SENIOR NOTE NOT PAYABLE ON ANY REDEMPTION
DATE WITH RESPECT TO SUCH TAXABLE AUCTION RATE SERIES 1997-1 SENIOR NOTE WILL BE
FORFEITED UPON THE REDEMPTION (WHETHER PURSUANT TO OPTIONAL CALL FOR REDEMPTION
OR SPECIAL CALL FOR REDEMPTION) OR AT MATURITY OF SUCH TAXABLE AUCTION RATE
SERIES 1997-1 SENIOR NOTE, OR ON SUCH EARLIER INTEREST PAYMENT DATE, IF ANY, ON
WHICH SUCH TAXABLE AUCTION RATE SERIES 1997-1 SENIOR NOTE
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CEASES TO BE OUTSTANDING UNDER THE FIRST SUPPLEMENTAL INDENTURE. FITCH'S RATING
ON THE TAXABLE AUCTION RATE SERIES 1997-1 SENIOR NOTES WILL NOT APPLY TO ANY
CARRY-OVER AMOUNT THAT MAY ACCRUE ON THE TAXABLE AUCTION RATE SERIES 1997-1
SENIOR NOTES.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on a
series of Taxable Auction Rate Series 1997-1 Senior Notes exceed the amount
permitted by applicable law. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the Taxable
Auction Rate Series 1997-1 Senior Notes of a series or related documents or
otherwise contracted for, charged, reserved, taken or received in connection
with the Taxable Auction Rate Series 1997-1 Senior Notes of such series, or if
the call for redemption or acceleration of the maturity of the Taxable Auction
Rate Series 1997-1 Senior Notes of such series results in payment to or receipt
by the Holder or any former Holder of the Taxable Auction Rate Series 1997-1
Senior Notes of such series of any interest in excess of that permitted by
applicable law, then, notwithstanding any provision of the Taxable Auction Rate
Series 1997-1 Senior Notes of such series or related documents to the contrary,
all excess amounts theretofore paid or received with respect to the Taxable
Auction Rate Series 1997-1 Senior Notes of such series shall be credited on the
principal balance of the Taxable Auction Rate Series 1997-1 Senior Notes of such
series (or, if the Taxable Auction Rate Series 1997-1 Senior Notes of such
series have been paid or would thereby be paid in full, refunded by the
recipient thereof), and the provisions of the Taxable Auction Rate Series 1997-1
Senior Notes of such series and related documents shall automatically and
immediately be deemed reformed and the amounts thereafter collectible thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for under the Taxable Auction Rate Series 1997-1 Senior
Notes of such series and under the related documents.
Call for Redemption of the Taxable Auction Rate Series 1997-1 Senior Notes
The Taxable Auction Rate Series 1997-1 Senior Notes will be subject to call
for redemption as described in this Prospectus under the captions "Description
of Series 1997-1 Notes -- Special Call for Redemption" and "--Optional Call for
Redemption."
TERMS OF THE TAXABLE LIBOR RATE SERIES 1997-1 SENIOR NOTES
Generally
The Taxable LIBOR Rate Series 1997-1 Senior Notes will be dated as of the
date of their initial issuance and, subject to call for redemption and
prepayment pursuant to the provisions referred below, will mature on the dates
set forth in the table below:
<TABLE>
<CAPTION>
Notes Date
- ---------------------- ------------
<S> <C>
Series 1997-1I Notes June 1, 2002
Series 1997-1J Notes June 1, 2020
</TABLE>
The Taxable LIBOR Rate Series 1997-1 Senior Notes will bear interest, payable on
the first day of each month, commencing December 1, 1997, at rates determined as
described below under "Interest Rate on the Taxable LIBOR Rate Series 1997-1
Senior Notes." The Taxable Series 1997-1 Senior Notes will be issued in fully
registered form, without coupons, and when issued will be registered in the name
of Cede & Co., as nominee of DTC, New York, New York. DTC will act as
securities depository for the Taxable LIBOR Rate Series 1997-1 Senior Notes.
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Individual purchases of the Taxable LIBOR Rate Series 1997-1 Senior Notes will
be made in book-entry form only in the principal amount of $5,000 or multiples
thereof. Purchasers of the Taxable LIBOR Rate Series 1997-1 Senior Notes will
not receive certificates representing their interest in the Taxable LIBOR Rate
Series 1997-1 Senior Notes purchased. See "Description of the Series 1997-1
Notes - Book-Entry-Only System."
Interest Rate on the Taxable LIBOR Rate Series 1997-1 Senior Notes
During the Initial Interest Period for the Taxable LIBOR Rate Series 1997-1
Senior Notes, being the period from the date of delivery through November 30,
1997, the Taxable LIBOR Rate Series 1997-1 Senior Notes of each series will bear
interest at the Initial Interest Rate for such series. The Taxable LIBOR Rate
Series 1997-1 Senior Note Interest Rate for each Interest Period after the
Initial Interest Period will be the Taxable LIBOR Rate Series 1997-1 Senior Note
LIBOR-Based Rate based upon One-Month LIBOR plus the Taxable LIBOR Rate Series
1997-1 Senior Note Spread, determined and subject to certain limitations as
hereinafter described.
Interest on the Taxable LIBOR Rate Series 1997-1 Senior Notes shall be
computed on the basis of actual days elapsed and accrue daily from the date
thereof (on the basis of a 360-day year), and shall be payable on each regularly
scheduled Interest Payment Date with respect thereto (which shall be the first
day, whether or not a Business Day, of each calendar month, commencing December
1, 1997) prior to the maturity thereof and at the maturity thereof. The
interest payable on each Interest Payment Date for the Taxable LIBOR Rate Series
1997-1 Senior Notes shall be that interest which has accrued through the last
day of the last complete Interest Period immediately preceding the Interest
Payment Date or, in the case of the maturity thereof, the last day preceding the
date of such maturity. Each such Interest Period (other than the Initial
Interest Period) will commence on and include the first day of a calendar month
and terminate on and include the last day preceding the next Interest Rate
Adjustment Date. Each Interest Rate Adjustment Date shall be the Interest
Payment Date for the preceding Interest Period. The Taxable LIBOR Rate Series
1997-1 Senior Note Interest Rate shall be effective as of and on the Interest
Rate Adjustment Date of the applicable Interest Period and be in effect
thereafter through the end of such Interest Period.
The interest rate to be borne by the Taxable LIBOR Rate Series 1997-1 Notes
during each Interest Period after the Initial Interest Period shall be
determined on the related Interest Rate Determination Date and shall be equal to
the lesser of (i) the sum of One-Month LIBOR determined with respect to such
Interest Rate Determination Date plus the applicable Taxable LIBOR Rate Series
1997-1 Senior Note Spread of ___% per annum (in the case of the Series 1997-1I
Notes or ___% per annum (in the case of the Series 1997-1J Notes), as the case
may be (which is herein referred to as the "Taxable LIBOR Rate Series 1997-1
Senior Note LIBOR-Based Rate"), and (ii) the Net Loan Rate determined with
respect to such Interest Period. The Trustee shall determine such interest rate
on each Interest Rate Determination Date and shall give the Corporation written
notice thereof prior to 2:00 p.m., New York City time, on such Interest Rate
Determination Date. The Net Loan Rate with respect to each Interest Period
shall be determined by or on behalf of the Corporation and written notice
thereof given to the Trustee together with the Monthly Servicing Report for the
second preceding calendar month. See "Carry-Over Amounts on the Taxable LIBOR
Rate Series 1997-1 Senior Notes" below.
In the event that the Trustee no longer determines, or fails to determine,
when required, the Taxable LIBOR Rate Series 1997-1 Senior Note LIBOR-Based Rate
with respect to an Interest Rate Determination Date, or if, for any reason, such
manner of determination shall be held to be invalid or unenforceable, the
Taxable LIBOR Rate Series 1997-1 Senior Note LIBOR-Based Rate for the related
Interest Period shall be the Net Loan Rate as determined with respect to such
Interest Period. If the Corporation shall fail or refuse to determine such Net
Loan Rate, the Net Loan Rate for such Interest Period shall be the most recently
determined Net Loan Rate.
Carry-Over Amounts on the Taxable LIBOR Rate Series 1997-1 Senior Notes
If the Taxable LIBOR Rate Series 1997-1 Senior Note LIBOR-Based Rate
determined with respect to a given Interest Period is greater than the Net Loan
Rate, then the Taxable LIBOR Rate Series 1997-1 Senior Note
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<PAGE>
Interest Rate for such Interest Period will be the Net Loan Rate. If the
Taxable LIBOR Rate Series 1997-1 Senior Note Interest Rate for any Interest
Period is the Net Loan Rate, the Trustee shall determine the Carry-Over Amount,
if any, with respect to the Taxable LIBOR Rate Series 1997-1 Senior Notes for
such Interest Period. Each such Carry-Over Amount shall bear interest
calculated at a rate equal to the Taxable LIBOR Rate Series 1997-1 Senior Note
LIBOR-Based Rate (as determined by the Trustee) from the Interest Payment Date
for the Interest Period with respect to which such Carry-Over Amount was
calculated, until paid. Any payment in respect of Carry-Over Amount shall be
applied, first, to any accrued interest payable thereon and, thereafter, in
reduction of such Carry-Over Amount. For purposes of the Indenture and the
Taxable LIBOR Rate Series 1997-1 Senior Notes, any reference to "principal" or
"interest" therein shall not include, within the meaning of such words, Carry-
Over Amount or any interest accrued on any such Carry-Over Amount. Such Carry-
Over Amount shall be separately calculated for each Taxable LIBOR Rate Series
1997-1 Senior Note by the Trustee during such Interest Period in sufficient time
for the Trustee to give notice to each Holder of such Carry-Over Amount as
required in the next succeeding sentence. On the Interest Payment Date for an
Interest Period with respect to which such Carry-Over Amount has been calculated
by the Trustee, the Trustee shall give written notice to each Holder of the
Carry-Over Amount applicable to such Holder's Taxable LIBOR Rate Series 1997-1
Senior Note, which written notice may accompany the payment of interest by check
made to each such Holder on such Interest Payment Date or otherwise shall be
mailed on such Interest Payment Date by first-class mail, postage prepaid, to
each such Holder at such Holder's address as it appears on the registration
books maintained by the Note Registrar. Such notice shall state, in addition to
such Carry-Over Amount, that, unless and until a Taxable LIBOR Rate Series 1997-
1 Senior Note has been redeemed or has been deemed no longer Outstanding under
the Indenture (after which all accrued Carry-Over Amount with respect to such
Taxable LIBOR Rate Series 1997-1 Senior Note (and all accrued interest thereon)
that remains unpaid shall be cancelled and no Carry-Over Amount (or interest
accrued thereon) shall be paid with respect to such Taxable LIBOR Rate Series
1997-1 Senior Note), (i) the Carry-Over Amount (and interest accrued thereon)
shall be paid by the Trustee on such Taxable LIBOR Rate Series 1997-1 Senior
Note on the first occurring Interest Payment Date for a subsequent Interest
Period if and to the extent that (a) the Eligible Carry-Over Make-Up Amount with
respect to such Interest Period is greater than zero, and (b) moneys are
available pursuant to the terms of the First Supplemental Indenture to pay such
Carry-Over Amount (and interest accrued thereon), and (ii) interest shall accrue
on the Carry-Over Amount at a per annum rate equal to the Taxable LIBOR Rate
Series 1997-1 Senior Note LIBOR-Based Rate until such Carry-Over Amount is paid
in full or is cancelled.
The Carry-Over Amount (and interest accrued thereon) for the Taxable LIBOR
Rate Series 1997-1 Senior Notes shall be paid by the Trustee on Outstanding
Taxable LIBOR Rate Series 1997-1 Senior Notes on the first occurring Interest
Payment Date for a subsequent Interest Period if and to the extent that (a) the
Eligible Carry-Over Make-Up Amount with respect to such Interest Period is
greater than zero, and (b) moneys in the Surplus Account are available on such
Interest Payment Date for transfer to the Interest Account for such purpose in
accordance with the second paragraph under "Summary of the Indenture -- Funds
and Accounts -- Surplus Account", after taking into account all other amounts
payable from the Surplus Fund in accordance with such paragraph on such Interest
Payment Date. Any Carry-Over Amount (and any interest accrued thereon) with
respect to any Taxable LIBOR Rate Series 1997-1 Senior Note which is unpaid as
of an Interest Payment Date, which Taxable LIBOR Rate Series 1997-1 Senior Note
is to be called for redemption or deemed no longer Outstanding under the First
Supplemental Indenture on such Interest Payment Date, shall be paid to the
Holder thereof on such Interest Payment Date to the extent that moneys are
available therefor in accordance with the provisions of the preceding clauses
(a) and (b); provided, however, that any Carry-Over Amount (and any interest
accrued thereon) which is not so paid on such Interest Payment Date shall be
cancelled with respect to such Taxable LIBOR Rate Series 1997-1 Senior Note on
such Interest Payment Date and shall not be paid on any succeeding Interest
Payment Date. To the extent that any portion of the Carry-Over Amount (and any
interest accrued thereon) remains unpaid after payment of a portion thereof,
such unpaid portion shall be paid in whole or in part until fully paid by the
Trustee on the next occurring Interest Payment Date or Dates, as necessary, for
a subsequent Interest Period or Periods, if and to the extent that the
conditions in the first sentence of this paragraph are satisfied. On any
Interest Payment Date on which the Trustee pays less than all of the Carry-Over
Amount (and any interest accrued thereon) with respect to a Taxable LIBOR Rate
Series 1997-1 Senior Note, the Trustee shall give written notice in the manner
set forth in the
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<PAGE>
immediately preceding paragraph to the Holder of such Taxable LIBOR Rate Series
1997-1 Senior Note of the Carry-Over Amount remaining unpaid on such Taxable
LIBOR Rate Series 1997-1 Senior Note.
The Interest Payment Date on which any Carry-Over Amount (or any interest
accrued thereon) for the Taxable LIBOR Rate Series 1997-1 Senior Notes shall be
paid shall be determined by the Trustee in accordance with the provisions of the
immediately preceding paragraph, and the Trustee shall make payment of the
Carry-Over Amount (and any interest accrued thereon) in the same manner as, and
from the same Account from which, it pays interest on the Taxable LIBOR Rate
Series 1997-1 Senior Notes on an Interest Payment Date. ANY UNPAID CARRY-OVER
AMOUNT, INCLUDING ANY ACCRUED AND UNPAID INTEREST THEREON, ON A TAXABLE LIBOR
RATE SERIES 1997-1 SENIOR NOTE NOT PAYABLE ON ANY REDEMPTION DATE WITH RESPECT
TO SUCH TAXABLE LIBOR RATE SERIES 1997-1 SENIOR NOTE WILL BE FORFEITED UPON THE
REDEMPTION OR AT MATURITY OF SUCH TAXABLE LIBOR RATE SERIES 1997-1 SENIOR NOTE,
OR ON SUCH EARLIER INTEREST PAYMENT DATE, IF ANY, ON WHICH SUCH TAXABLE LIBOR
RATE SERIES SENIOR NOTE CEASES TO BE OUTSTANDING UNDER THE FIRST SUPPLEMENTAL
INDENTURE. FITCH'S RATING ON THE TAXABLE LIBOR RATE SERIES 1997-1 SENIOR NOTES
WILL NOT APPLY TO ANY CARRY-OVER AMOUNT THAT MAY ACCRUE ON THE TAXABLE LIBOR
RATE SERIES 1997-1 SENIOR NOTES.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on the
Taxable LIBOR Rate Series 1997-1 Senior Notes exceed the amount permitted by
applicable law. If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under the Taxable LIBOR Rate Series 1997-1
Senior Notes or related documents or otherwise contracted for, charged,
reserved, taken or received in connection with the Taxable LIBOR Rate Series
1997-1 Senior Notes, or if the call for redemption or acceleration of the
maturity of the Taxable LIBOR Rate Series 1997-1 Senior Notes results in payment
to or receipt by the Holder or any former Holder of the Taxable LIBOR Rate
Series 1997-1 Senior Notes of any interest in excess of that permitted by
applicable law, then, notwithstanding any provision of the Taxable LIBOR Rate
Series 1997-1 Senior Notes or related documents to the contrary, all excess
amounts theretofore paid or received with respect to the Taxable LIBOR Rate
Series 1997-1 Senior Notes shall be credited on the principal balance of the
Taxable LIBOR Rate Series 1997-1 Senior Notes (or, if the Taxable LIBOR Rate
Series 1997-1 Senior Notes have been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of the Taxable LIBOR Rate
Series 1997-1 Senior Notes and related documents shall automatically and
immediately be deemed reformed and the amounts thereafter collectible thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for under the Taxable LIBOR Rate Series 1997-1 Senior
Notes and under the related documents.
Call for Redemption and Prepayment of Taxable Taxable LIBOR Rate Series 1997-1
Senior Notes
The Taxable Taxable LIBOR Rate Series 1997-1 Senior Notes will be subject
to call for redemption and prepayment as described in this Prospectus under the
caption "Description of Series 1997-1 Notes -- Prepayment of Taxable LIBOR Rate
Series 1997-1 Notes" and "-- Special Call for Redemption -- Call for Redemption
of Series 1997-1 Notes Upon Reduction of Portfolio Balance."
TERMS OF THE TAX EXEMPT FIXED RATE SERIES 1997-1 SUBORDINATE NOTES
The Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes will be dated as
of October 15, 1997 and, subject to call for redemption pursuant to provisions
referred to below, will mature on June 1, 2020, and will bear interest from
their date at the rate of __% per annum. Interest on the Tax Exempt Series
1997-1 Subordinate Notes will be computed on the assumption that each year
contains 360 days and is composed of twelve 30-day months and
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<PAGE>
will be payable semiannually on each June 1 and December 1, commencing December
1, 1997. The Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes will be
issued in fully registered form, without coupons, and when issued will be
registered in the name of Cede & Co., as nominee of DTC, New York, New York.
DTC will act as securities depository for the Tax Exempt Series 1997-1
Subordinate Notes. Individual purchases of the Tax Exempt Series 1997-1
Subordinate Notes will be made in book-entry form only in the principal amount
of $5,000 or multiples thereof. Purchasers of the Tax-Exempt Series 1997-1
Subordinate Notes will not receive certificates representing their interest in
the Tax-Exempt Series 1997-1 Subordinate Notes purchased. See "Description of
the Series 1997-1 Notes -- Book-Entry-Only System."
The Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes will be subject
to call for redemption as described in this Prospectus under the captions
"Description of the Series 1997-1 Notes -- Special Call for Redemption" and
"-- Optional Call for Redemption."
TERMS OF THE TAXABLE LIBOR RATE SERIES 1997-1 SUBORDINATE NOTES
Generally
The Taxable LIBOR Rate Series 1997-1 Subordinate Notes will be dated as of
the date of their initial issuance and, subject to call for redemption and
prepayment pursuant to the provisions referred below, will mature on June 1,
2020. The Taxable LIBOR Rate Series 1997-1 Subordinate Notes will bear
interest, payable on the first day of each month, commencing December 1, 1997,
at rates determined as described below under "Interest Rate on the Taxable LIBOR
Rate Series 1997-1 Subordinate Notes." The Taxable Series 1997-1 Subordinate
Notes will be issued in fully registered form, without coupons, and when issued
will be registered in the name of Cede & Co., as nominee of DTC, New York, New
York. DTC will act as securities depository for the Taxable LIBOR Rate Series
1997-1 Subordinate Notes. Individual purchases of the Taxable LIBOR Rate Series
1997-1 Subordinate Notes will be made in book-entry form only in the original
principal amount of $100,000 or multiples thereof. Purchasers of the Taxable
LIBOR Rate Series 1997-1 Subordinate Notes will not receive certificates
representing their interest in the Taxable LIBOR Rate Series 1997-1 Subordinate
Notes purchased. See "Description of the Series 1997-1 Notes - Book-Entry-Only
System."
Interest Rate on the Taxable LIBOR Rate Series 1997-1 Subordinate Notes
During the Initial Interest Period for the Taxable LIBOR Rate Series 1997-1
Subordinate Notes, being the period from the date of delivery through November
30, 1997, the Taxable LIBOR Rate Series 1997-1 Subordinate Notes will bear
interest at the Initial Interest Rate for such series. The Taxable LIBOR Rate
Series 1997-1 Subordinate Note Interest Rate for each Interest Period after the
Initial Interest Period for the Taxable LIBOR Rate Series 1997-1 Subordinate
Notes will be the Taxable LIBOR Rate Series 1997-1 Subordinate Note LIBOR-Based
Rate based upon One-Month LIBOR plus the Taxable LIBOR Rate Series 1997-1
Subordinate Note Spread, determined and subject to certain limitations as
hereinafter described.
Interest on the Taxable LIBOR Rate Series 1997-1 Subordinate Notes shall be
computed on the basis of actual days elapsed and accrue daily from the date
thereof (on the basis of a 360-day year), and shall be payable on each regularly
scheduled Interest Payment Date with respect thereto (which shall be the first
day, whether or not a Business Day, of each calendar month, commencing December
1, 1997) prior to the maturity thereof and at the maturity thereof. The
interest payable on each Interest Payment Date for the Taxable LIBOR Rate Series
1997-1 Subordinate Notes shall be that interest which has accrued through the
last day of the last complete Interest Period immediately preceding the Interest
Payment Date or, in the case of the maturity thereof, the last day preceding the
date of such maturity. Each such Interest Period (other than the Initial
Interest Period) will commence on and include the first day of a calendar month
and terminate on and include the last day preceding the next Interest Rate
Adjustment Date. Each Interest Rate Adjustment Date shall be the Interest
Payment Date for the preceding Interest Period. The Taxable LIBOR Rate Series
1997-1 Subordinate Note Interest Rate shall be effective as of and on the
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Interest Rate Adjustment Date of the applicable Interest Period and be in effect
thereafter through the end of such Interest Period.
The interest rate to be borne by the Taxable LIBOR Rate Series 1997-1
Subordinate Notes during each Interest Period after the Initial Interest Period
shall be determined on the related Interest Rate Determination Date and shall be
equal to the lesser of (i) the sum of One-Month LIBOR determined with respect to
such Interest Rate Determination Date plus the Taxable LIBOR Rate Series 1997-1
Subordinate Note Spread of ____% per annum (which is herein referred to as the
"Taxable LIBOR Rate Series 1997-1 Subordinate Note LIBOR-Based Rate"), and (ii)
the Net Loan Rate determined with respect to such Interest Period. The Trustee
shall determine such interest rate on each Interest Rate Determination Date and
shall give the Corporation written notice thereof prior to 2:00 p.m., New York
City time, on such Interest Rate Determination Date. The Net Loan Rate with
respect to each Interest Period shall be determined by or on behalf of the
Corporation and written notice thereof given to the Trustee together with the
Monthly Servicing Report for the second preceding calendar month. See "Carry-
Over Amounts on the Taxable LIBOR Rate Series 1997-1 Subordinate Notes" below.
In the event that the Trustee no longer determines, or fails to determine,
when required, the Taxable LIBOR Rate Series 1997-1 Subordinate Note LIBOR-Based
Rate with respect to an Interest Rate Determination Date, or if, for any reason,
such manner of determination shall be held to be invalid or unenforceable, the
Taxable LIBOR Rate Series 1997-1 Subordinate Note LIBOR-Based Rate for the
related Interest Period shall be the Net Loan Rate as determined with respect to
such Interest Period. If the Corporation shall fail or refuse to determine such
Net Loan Rate, the Net Loan Rate for such Interest Period shall be the most
recently determined Net Loan Rate.
Carry-Over Amounts on the Taxable LIBOR Rate Series 1997-1 Subordinate Notes
If the Taxable LIBOR Rate Series 1997-1 Subordinate Notes LIBOR-Based Rate
determined with respect to a given Interest Period is greater than the Net Loan
Rate, then the Taxable LIBOR Rate Series 1997-1 Subordinate Note Interest Rate
for such Interest Period will be the Net Loan Rate. If the Taxable LIBOR Rate
Series 1997-1 Subordinate Note Interest Rate for any Interest Period is the Net
Loan Rate, the Trustee shall determine the Carry-Over Amount, if any, with
respect to the Taxable LIBOR Rate Series 1997-1 Subordinate Notes for such
Interest Period. Each such Carry-Over Amount shall bear interest calculated at
a rate equal to the Taxable LIBOR Rate Series 1997-1 Subordinate Note LIBOR-
Based Rate (as determined by the Trustee) from the Interest Payment Date for the
Interest Period with respect to which such Carry-Over Amount was calculated,
until paid. Any payment in respect of Carry-Over Amount shall be applied,
first, to any accrued interest payable thereon and, thereafter, in reduction of
such Carry-Over Amount. For purposes of the Indenture and the Taxable LIBOR
Rate Series 1997-1 Subordinate Notes, any reference to "principal" or "interest"
therein shall not include, within the meaning of such words, Carry-Over Amount
or any interest accrued on any such Carry-Over Amount. Such Carry-Over Amount
shall be separately calculated for each Taxable LIBOR Rate Series 1997-1
Subordinate Note by the Trustee during such Interest Period in sufficient time
for the Trustee to give notice to each Holder of such Carry-Over Amount as
required in the next succeeding sentence. On the Interest Payment Date for an
Interest Period with respect to which such Carry-Over Amount has been calculated
by the Trustee, the Trustee shall give written notice to each Holder of the
Carry-Over Amount applicable to such Holder's Taxable LIBOR Rate Series 1997-1
Subordinate Note, which written notice may accompany the payment of interest by
check made to each such Holder on such Interest Payment Date or otherwise shall
be mailed on such Interest Payment Date by first-class mail, postage prepaid, to
each such Holder at such Holder's address as it appears on the registration
books maintained by the Note Registrar. Such notice shall state, in addition to
such Carry-Over Amount, that, unless and until a Taxable LIBOR Rate Series 1997-
1 Subordinate Note has been redeemed or has been deemed no longer Outstanding
under the Indenture (after which all accrued Carry-Over Amount with respect to
such Taxable LIBOR Rate Series 1997-1 Subordinate Note (and all accrued interest
thereon) that remains unpaid shall be cancelled and no Carry-Over Amount (or
interest accrued thereon) shall be paid with respect to such Taxable LIBOR Rate
Series 1997-1 Subordinate Note), (i) the Carry-Over Amount (and interest accrued
thereon) shall be paid by the Trustee on such Taxable LIBOR Rate Series 1997-1
Subordinate Note on the first occurring Interest Payment Date for a subsequent
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Interest Period if and to the extent that (a) the Eligible Carry-Over Make-Up
Amount with respect to such Interest Period is greater than zero, and (b) moneys
are available pursuant to the terms of the First Supplemental Indenture to pay
such Carry-Over Amount (and interest accrued thereon), and (ii) interest shall
accrue on the Carry-Over Amount at a per annum rate equal to the Taxable LIBOR
Rate Series 1997-1 Subordinate Note LIBOR-Based Rate until such Carry-Over
Amount is paid in full or is cancelled.
The Carry-Over Amount (and interest accrued thereon) for the Taxable LIBOR
Rate Series 1997-1 Subordinate Notes shall be paid by the Trustee on Outstanding
Taxable LIBOR Rate Series 1997-1 Subordinate Notes on the first occurring
Interest Payment Date for a subsequent Interest Period if and to the extent that
(a) the Eligible Carry-Over Make-Up Amount with respect to such Interest Period
is greater than zero, and (b) moneys in the Surplus Account are available on
such Interest Payment Date for transfer to the Interest Account for such purpose
in accordance with the second paragraph under "Summary of the Indenture -- Funds
and Accounts --Surplus Account", after taking into account all other amounts
payable from the Surplus Fund in accordance with such paragraph on such Interest
Payment Date. Any Carry-Over Amount (and any interest accrued thereon) with
respect to any Taxable LIBOR Rate Series 1997-1 Subordinate Note which is unpaid
as of an Interest Payment Date, which Taxable LIBOR Rate Series 1997-1
Subordinate Note is to be called for redemption or deemed no longer Outstanding
under the First Supplemental Indenture on such Interest Payment Date, shall be
paid to the Holder thereof on such Interest Payment Date to the extent that
moneys are available therefor in accordance with the provisions of the preceding
clauses (a) and (b); provided, however, that any Carry-Over Amount (and any
interest accrued thereon) which is not so paid on such Interest Payment Date
shall be cancelled with respect to such Taxable LIBOR Rate Series 1997-1
Subordinate Note on such Interest Payment Date and shall not be paid on any
succeeding Interest Payment Date. To the extent that any portion of the Carry-
Over Amount (and any interest accrued thereon) remains unpaid after payment of a
portion thereof, such unpaid portion shall be paid in whole or in part until
fully paid by the Trustee on the next occurring Interest Payment Date or Dates,
as necessary, for a subsequent Interest Period or Periods, if and to the extent
that the conditions in the first sentence of this paragraph are satisfied. On
any Interest Payment Date on which the Trustee pays less than all of the Carry-
Over Amount (and any interest accrued thereon) with respect to a Taxable LIBOR
Rate Series 1997-1 Subordinate Note, the Trustee shall give written notice in
the manner set forth in the immediately preceding paragraph to the Holder of
such Taxable LIBOR Rate Series 1997-1 Subordinate Note of the Carry-Over Amount
remaining unpaid on such Taxable LIBOR Rate Series 1997-1 Subordinate Note.
The Interest Payment Date on which any Carry-Over Amount (or any interest
accrued thereon) for the Taxable LIBOR Rate Series 1997-1 Subordinate Notes
shall be paid shall be determined by the Trustee in accordance with the
provisions of the immediately preceding paragraph, and the Trustee shall make
payment of the Carry-Over Amount (and any interest accrued thereon) in the same
manner as, and from the same Account from which, it pays interest on the Taxable
LIBOR Rate Series 1997-1 Subordinate Notes on an Interest Payment Date. ANY
UNPAID CARRY-OVER AMOUNT, INCLUDING ANY ACCRUED AND UNPAID INTEREST THEREON, ON
A TAXABLE LIBOR RATE SERIES 1997-1 SUBORDINATE NOTE NOT PAYABLE ON ANY
REDEMPTION DATE WITH RESPECT TO SUCH TAXABLE LIBOR RATE SERIES 1997-1
SUBORDINATE NOTE WILL BE FORFEITED UPON THE REDEMPTION OR AT MATURITY OF SUCH
TAXABLE LIBOR RATE SERIES 1997-1 SUBORDINATE NOTE, OR ON SUCH EARLIER INTEREST
PAYMENT DATE, IF ANY, ON WHICH SUCH TAXABLE LIBOR RATE SERIES 1997-1 SUBORDINATE
NOTE CEASES TO BE OUTSTANDING UNDER THE FIRST SUPPLEMENTAL INDENTURE. FITCH'S
RATING ON THE TAXABLE LIBOR RATE SERIES 1997-1 SUBORDINATE NOTES WILL NOT APPLY
TO ANY CARRY-OVER AMOUNT THAT MAY ACCRUE ON THE TAXABLE LIBOR RATE SERIES 1997-1
SUBORDINATE NOTES.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on the
Taxable LIBOR Rate Series 1997-1 Subordinate Notes exceed the amount permitted
by applicable law. If the applicable law is ever judicially interpreted so as
to render usurious any amount called for under the Taxable LIBOR Rate Series
1997-1 Subordinate
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Notes or related documents or otherwise contracted for, charged, reserved, taken
or received in connection with the Taxable LIBOR Rate Series 1997-1 Subordinate
Notes, or if the call for redemption or acceleration of the maturity of the
Taxable LIBOR Rate Series 1997-1 Subordinate Notes results in payment to or
receipt by the Holder or any former Holder of the Taxable LIBOR Rate Series
1997-1 Subordinate Notes of any interest in excess of that permitted by
applicable law, then, notwithstanding any provision of the Taxable LIBOR Rate
Series 1997-1 Subordinate Notes or related documents to the contrary, all excess
amounts theretofore paid or received with respect to the Taxable LIBOR Rate
Series 1997-1 Subordinate Notes shall be credited on the principal balance of
the Taxable LIBOR Rate Series 1997-1 Subordinate Notes (or, if the Taxable LIBOR
Rate Series 1997-1 Subordinate Notes have been paid or would thereby be paid in
full, refunded by the recipient thereof), and the provisions of the Taxable
LIBOR Rate Series 1997-1 Subordinate Notes and related documents shall
automatically and immediately be deemed reformed and the amounts thereafter
collectible thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for under the Taxable LIBOR Rate
Series 1997-1 Subordinate Notes and under the related documents.
Call for Redemption and Prepayment of the Taxable LIBOR Rate Series 1997-1
Subordinate Notes
The Taxable LIBOR Rate Series 1997-1 Subordinate Notes will be subject to
call for redemption and prepayment as described in this Prospectus under the
caption "Description of Series 1997-1 Notes -- Prepayment of Taxable LIBOR Rate
Series 1997-1 Notes" and "-- Special Call for Redemption -- Call for Redemption
of Series 1997-1 Notes Upon Reduction of Portfolio Balance."
WEIGHTED AVERAGE LIFE OF THE
TAXABLE LIBOR RATE SERIES 1997-1 NOTES
The following information is given solely to illustrate the effect of
prepayments on the Financed Student Loans held in the Series 1997-1 Taxable
Acquisition Account on the weighted average life of the Taxable LIBOR Rate
Series 1997-1 Notes under the assumptions stated below and is not a prediction
of the prepayment rate that might actually be experienced by the Financed
Student Loans held in the Series 1997-1 Taxable Acquisition Account.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Taxable LIBOR Rate
Series 1997-1 Notes will be primarily a function of the rate at which payments
are made on the Financed Student Loans held in the Series 1997-1 Taxable
Acquisition Account. Payments on such Financed Student Loans may be in the form
of scheduled amortization of principal or prepayments (including, for this
purpose, reimbursements on defaults).
The Constant Prepayment Rate prepayment model ("CPR") represents an assumed
constant rate of prepayment of Financed Student Loans held in the Series 1997-1
Taxable Acquisition Account outstanding as of the beginning of each month
expressed as a per annum percentage. There can be no assurance that such
Financed Student Loans will experience prepayments at a constant prepayment rate
or otherwise in the manner assumed by the prepayment model.
The weighted average lives in the following table were determined assuming
that (i) scheduled payments of principal on the Financed Student Loans held in
the Series 1997-1 Taxable Acquisition Account are received in a timely manner
and prepayments are made at the percentages of the prepayment model set forth in
the table; (ii) the initial principal balance of the Financed Student Loans held
in the Series 1997-1 Taxable Acquisition Account is $507,181,000; (iii) payments
are made on the Taxable LIBOR Rate Series 1997-1 Notes on the 1st day of each
month commencing December 1, 1997; and (iv) the Taxable LIBOR Rate Series 1997-1
Notes are issued on
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November 5, 1997. No representation is made that these assumptions will be
correct, including the assumption that the Financed Student Loans held in the
Series 1997-1 Taxable Acquisition Account will not experience delinquencies or
unanticipated losses. See "Risk Factors -- Changes in the Assets of the Trust
Estate, Including Future Funding of Student Loans, Changing Characteristics of
Financed Student Loans, Financed Eligible Loans That are Not Made Under the
Federal Family Education Loan Program and Financed Student Loans That are Not
Eligible Loans in the Surplus Account," "-- Reduction in Amounts Available to
Pay Notes Due to the Variability of Actual Cash Flows and Due to the Inability
of Guarantee Agencies to Make Guarantee Payments," "-- Holders of Series 1997-1
Notes Which are Prepaid or Called for Redemption Due to Accelerated Payments
with respect to Financed Student Loans May Have to Reinvest Amounts Received
From Prepayments or Calls for Redemption at a Lower Rate of Return," and "-- The
Average Life of the Series 1997-1 Notes May Be Lengthened As a Result of
Extension of Payments on the Financed Student Loans."
In making an investment decision with respect to the Taxable LIBOR Rate
Series 1997-1 Notes, investors should consider a variety of possible prepayment
scenarios, including the limited scenarios described in the table below.
Weighted Average Life of the Taxable LIBOR Rate Series 1997-1 Notes
at the Respective CPRs Set Forth Below:
<TABLE>
<CAPTION>
Weighted Average Life (years)
--------------------------------------
0% CPR 3% CPR 5% CPR 7% CPR 10%CPR
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Senior Series 1997-1I Notes.......
Senior Series 1997-1J Notes.......
Subordinate Series 1997-1L Notes..
</TABLE>
AUCTION OF THE AUCTION RATE SERIES 1997-1 SENIOR NOTES
If not otherwise defined below, capitalized terms used below will have the
meanings given such terms under "Glossary of Certain Defined Terms". Unless
otherwise noted or the context otherwise requires, the following description of
Auctions and related procedures is applicable separately to each series of the
Auction Rate Series 1997-1 Senior Notes.
Summary of Auction Procedures
The following summarizes certain procedures that will be used in
determining the interest rates on the Auction Rate Series 1997-1 Senior Notes.
Immediately following this summary is a more detailed description of these
procedures. Prospective investors in the Auction Rate Series 1997-1 Senior
Notes should read carefully the following summary, along with the more detailed
description.
The interest rate on each series of Auction Rate Series 1997-1 Senior Notes
will be determined periodically (generally, for periods ranging from 7 days to
one year, and initially 28 days, in the case of the Taxable Auction Rate Series
1997-1 Senior Notes, or 35 days, in the case of Tax Exempt Auction Rate Series
1997-1 Senior Notes) by means of a "Dutch auction." In this Dutch auction,
investors and potential investors submit orders through an eligible Broker-
Dealer as to the principal amount of Auction Rate Series 1997-1 Senior Notes
such investors wish to buy, hold or sell at various interest rates. The Broker-
Dealers submit their clients' orders to the Auction Agent, who processes all
orders submitted by all eligible Broker-Dealers and determines the interest rate
for the upcoming interest period. The Broker-Dealers are notified by the
Auction Agent of the interest rate for the upcoming interest
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period and are provided with settlement instructions relating to purchases and
sales of Auction Rate Series 1997-1 Senior Notes.
In the auction procedure, the following orders may be submitted:
(i) "Bid Orders" - the minimum interest rate that a current investor is
willing to accept in order to continue to hold some or all of its
Auction Rate Series 1997-1 Senior Notes for the upcoming interest
period;
(ii) "Sell Orders" - an order by a current investor to sell a specified
principal amount of Auction Rate Series 1997-1 Senior Notes,
regardless of the upcoming interest rate;
(iii) "Hold Order" - an order by a current investor to hold a specified
principal amount of Auction Rate Series 1997-1 Senior Notes,
regardless of the upcoming interest rate; and
(iv) "Potential Bid Orders" - the minimum interest rate that a potential
investor (or a current investor wishing to purchase additional Auction
Rate Series 1997-1 Senior Notes) is willing to accept in order to buy
a specified principal amount of Auction Rate Series 1997-1 Senior
Notes.
If an existing investor does not submit orders with respect to all its
Auction Rate Series 1997-1 Senior Notes of a particular series, the investor
will be deemed to have submitted a Hold Order at the new interest rate for that
portion of such series for which no order was received.
In connection with each Auction, Auction Rate Series 1997-1 Senior Notes
will be purchased and sold between investors and potential investors at a price
equal to their then-outstanding principal balance (i.e., par) plus any accrued
interest. The following example helps illustrate how the above-described
procedures are used in determining the interest rate on the Auction Rate Series
1997-1 Senior Notes.
<TABLE>
<CAPTION>
(a) Assumptions:
<S> <C> <C>
1. Denominations (Units) = $100,000
2. Interest Period = 28 days
3. Principal Amount Outstanding = $50 Million (500 Units)
</TABLE>
(b) Summary of All Orders Received for the Auction
<TABLE>
<CAPTION>
Bid Orders Sell Orders Potential Bid Orders
- -------------------- -------------- ---------------------
<S> <C> <C>
10 Units at 2.90% 50 Units Sell 20 Units of 2.95%
30 Units at 3.02% 50 Units Sell 30 Units of 3.00%
60 Units at 3.02% 100 Units Sell 50 Units of 3.05%
--------------
100 Units at 3.10% 200 Units 50 Units of 3.10%
100 Units at 3.12% 50 Units of 3.11%
- --------------------
300 Units 50 Units of 3.14%
100 Units of 3.15%
--------------------
350 Units
</TABLE>
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Total units under existing Bid Orders, Hold Orders and Sell Orders always
equal issue size (in this case 500 units).
(c) Auction Agent organizes Orders in Ascending Order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative
Number of Units Total (Units) Percent Number of Units Total (Units) Percent
- ------ ------------- ------------- -------- ------ ----------- ------------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
1. 10(W) 10 2.90% 7. 100(W) 300 3.10%
2. 20(W) 30 2.95 8. 50(W) 350 3.10
3. 30(W) 60 3.00 9. 50(W) 400 3.11
4. 30(W) 90 3.02 10. 100(W) 500 3.12
5. 50(W) 140 3.05 11. 50(L) 3.14
6. 60(W) 200 3.05 12. 100(L) 3.15
</TABLE>
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units. All
winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next Interest Period, when another Auction will be held.
Multiple orders at the winning rate are allocated units on a pro rata basis.
Notwithstanding the foregoing, in no event will the interest rate exceed (i) in
the case of the Tax Exempt Auction Rate Series 1997-1 Senior Notes, the Maximum
Auction Rate, or (ii) in the case of the Taxable Auction Rate Series 1997-1
Senior Notes, the lesser of the Net Loan Rate or the Maximum Auction Rate.
The above example assumes that a successful Auction has occurred (i.e., all
Sell Orders and all Bid Orders below the new interest rate were fulfilled). In
certain circumstances, there may be insufficient Potential Bid Orders to
purchase all the Auction Rate Series 1997-1 Senior Notes offered for sale. In
such circumstances, the interest rate for the upcoming Interest Period will
equal (i) in the case of the Tax Exempt Auction Rate Series 1997-1 Senior Notes,
the Maximum Auction Rate, or (ii) in the case of the Taxable Auction Rate Series
1997-1 Senior Notes, the lesser of the Net Loan Rate and the Maximum Auction
Rate. Also, if all the Auction Rate Series 1997-1 Senior Notes are subject to
Hold Orders (i.e., each Holder of Auction Rate Series 1997-1 Senior Notes wishes
to continue holding its Auction Rate Series 1997-1 Senior Notes, regardless of
the interest rate), the interest rate for the upcoming Interest Period will
equal (i) in the case of the Tax Exempt Auction Rate Series 1997-1 Senior Notes,
the lesser of the Maximum Auction Rate and the All Hold Rate, or (ii) in the
case of the Taxable Auction Rate Series 1997-1 Senior Notes, the least of the
Maximum Auction Rate, the Net Loan Rate and the All Hold Rate.
Neither the Original Issuer nor the Corporation will be involved in
directing the Auction Agent in conducting an Auction.
As stated above, the foregoing is only a summary of the Auction Procedures.
The remainder of this Section is a more detailed description of these
procedures.
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Auction Participants
Existing Holders and Potential Holders
Participants in each Auction will include: (1) "Existing Holders", which
shall mean any Person (including a Broker-Dealer) who is a holder of Auction
Rate Series 1997-1 Senior Notes in the records of the Auction Agent (described
below) at the close of business on the Business Day preceding each Auction Date;
and (ii) "Potential Holders", which shall mean any Person (including a Broker-
Dealer), including any Existing Holder, who may be interested in acquiring the
Auction Rate Series 1997-1 Senior Notes (or, in the case of an Existing Holder,
an additional principal amount of the Auction Rate Series 1997-1 Senior Notes).
See "Broker-Dealer" below.
By purchasing the Auction Rate Series 1997-1 Senior Notes, whether in an
Auction or otherwise, each prospective purchaser of the Auction Rate Series
1997-1 Senior Notes or its Broker-Dealer must agree and will be deemed to have
agreed: (i) to participate in Auctions on the terms described in the First
Supplemental Indenture; (ii) to have its beneficial ownership of the Auction
Rate Series 1997-1 Senior Notes maintained at all times in Book-Entry Form for
the account of its Participant, which in turn will maintain records of such
beneficial ownership, and to authorize such Participant to disclose to the
Auction Agent such information with respect to such beneficial ownership as the
Auction Agent may request; (iii) so long as the beneficial ownership of the
Auction Rate Series 1997-1 Senior Notes is maintained in Book-Entry Form, to
sell, transfer or otherwise dispose of the Auction Rate Series 1997-1 Senior
Notes only pursuant to a Bid (as defined below) or a Sell Order (as defined
below) in an Auction, or otherwise through a Broker-Dealer, provided that in the
case of all transfers other than those pursuant to an Auction, the Existing
Holder of the Auction Rate Series 1997-1 Senior Notes so transferred, its
Participant or Broker-Dealer advises the Auction Agent of such transfer; (iv)
that a Sell Order placed by an Existing Holder will constitute an irrevocable
offer to sell the principal amount of the Auction Rate Series 1997-1 Senior
Notes specified in such Sell Order; (v) that a Bid placed by an Existing Holder
will constitute an irrevocable offer to sell the principal amount, or a lesser
principal amount, of the Auction Rate Series 1997-1 Senior Notes specified in
such Bid if the rate specified in such Bid is greater than, or in some cases
equal to, the Auction Rate Series 1997-1 Senior Note Interest Rate, determined
as described herein; and (vi) that a Bid placed by a Potential Holder will
constitute an irrevocable offer to purchase the amount, or a lesser principal
amount, of the Auction Rate Series 1997-1 Senior Notes specified in such Bid if
the rate specified in such Bid is, respectively, less than or equal to the
Auction Rate Series 1997-1 Senior Note Interest Rate, determined as described
herein.
The principal amount of the Auction Rate Series 1997-1 Senior Notes
purchased or sold may be subject to proration procedures on the Auction Date.
Each purchase or sale of the Auction Rate Series 1997-1 Senior Notes on the
Auction Date will be made for settlement on the first day of the Interest Period
immediately following such Auction Date at a price equal to 100% of the
principal amount thereof plus, unless such day is an Interest Payment Date,
accrued interest thereon to but not including such day. The Auction Agent is
entitled to rely upon the terms of any Order submitted to it by a Broker-Dealer.
Auction Agent
Bankers Trust Company is appointed in the First Supplemental Indenture as
the initial Auction Agent to serve as agent for the Corporation in connection
with Auctions with respect to Tax Exempt Auction Rate Series 1997-1 Senior
Notes. The Trustee and the Corporation will enter into the initial Auction
Agent Agreement relating to Tax Exempt Auction Rate Series 1997-1 Senior Notes
with Bankers Trust Company, as the initial Auction Agent. Bankers Trust Company
also is appointed in the First Supplemental Indenture as the initial Auction
Agent to serve as agent for the Corporation in connection with Auctions with
respect to Taxable Auction Rate Series 1997-1 Senior Notes. The Trustee and the
Corporation will enter into the initial Auction Agent Agreement relating to
Taxable Auction Rate Series 1997-1 Senior Notes with Bankers Trust Company, as
the initial Auction Agent. Any substitute Auction Agent shall be (i) a bank,
national banking association or trust company duly organized under the laws of
the United States of America or any state or territory thereof having its
principal place of business in the Borough of Manhattan, New York, or such other
location as approved by the Trustee in writing and having a combined
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capital stock or surplus of at least $50,000,000, or (ii) a member of the
National Association of Securities Dealers, Inc., having a capitalization of at
least $50,000,000, and, in either case, authorized by law to perform all the
duties imposed upon it under the First Supplemental Indenture and the Auction
Agent Agreement. The Auction Agent may at any time resign and be discharged of
the duties and obligations created by the First Supplemental Indenture and the
Auction Agent Agreement by giving at least 90 days' notice to the Trustee and
the Corporation. The Auction Agent may be removed at any time by the Trustee
upon the written direction of an Authorized Officer of the Corporation or the
Holders of 66-2/3% of the aggregate principal amount of the Auction Rate Series
1997-1 Senior Notes of all series then Outstanding, and, if by such Holders, by
an instrument signed by such Holders or their attorneys and filed with the
Auction Agent, the Corporation and the Trustee upon at least 90 days' notice.
Neither resignation nor removal of the Auction Agent pursuant to the preceding
two sentences shall be effective unless and until a substitute Auction Agent has
been appointed and has accepted such appointment. If required by the
Corporation, a substitute Auction Agent Agreement shall be entered into with a
substitute Auction Agent. Notwithstanding the foregoing, the Auction Agent may
terminate the Auction Agent Agreement if, within 25 days after notifying the
Trustee and the Corporation in writing that it has not received payment of any
Auction Agent fee due it in accordance with the terms of the Auction Agent
Agreement, the Auction Agent does not receive such payment.
If the Auction Agent shall resign or be removed or be dissolved, or if the
property or affairs of the Auction Agent shall be taken under the control of any
state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Trustee, at the direction of an
Authorized Officer of the Corporation, shall use its best efforts to appoint a
substitute Auction Agent.
The Auction Agent is acting as agent for the Corporation in connection with
Auctions. In the absence of bad faith, negligent failure to act or negligence
on its part, the Auction Agent shall not be liable for any action taken,
suffered or omitted or any error of judgment made by it in the performance of
its duties under the Auction Agent Agreement and shall not be liable for any
error of judgment made in good faith unless the Auction Agent shall have been
negligent in ascertaining (or failing to ascertain) the pertinent facts.
The Corporation will pay the Auction Agent the Auction Agent fee on each
Interest Payment Date and will reimburse the Auction Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of the Auction Agent Agreement or
the Broker-Dealer Agreements (including the reasonable compensation and the
expenses and disbursements of its agents and counsel). Such amounts are payable
from the Administration Fund. The Corporation will indemnify and hold harmless
the Auction Agent for and against any loss, liability or expense incurred
without negligence or bad faith on the Auction Agent's part, arising out of or
in connection with the acceptance or administration of its agency under the
Auction Agent Agreement and the Broker-Dealer Agreements, including the
reasonable costs and expenses (including the reasonable fees and expenses of its
counsel) of defending itself against any such claim or liability in connection
with its exercise or performance of any of its respective duties thereunder and
of enforcing this indemnification provision; provided that the Corporation will
not indemnify the Auction Agent as described in this paragraph for any fees and
expenses incurred by the Auction Agent in the normal course of performing its
duties under the Auction Agent Agreement and under the Broker-Dealer Agreements,
such fees and expenses being payable as described above.
Broker-Dealer
Existing Holders and Potential Holders may participate in Auctions only by
submitting orders (in the manner described below) through a Broker-Dealer,
including Smith Barney Inc., which initially will be the only Broker-Dealer for
each of the Tax Exempt Auction Rate Series 1997-1 Senior Notes and the Taxable
Auction Rate Series 1997-1 Senior Notes, or any other broker or dealer (each as
defined in the Exchange Act), commercial bank or other entity permitted by law
to perform the functions required of a Broker-Dealer set forth below which (i)
is a Participant or an affiliate of a Participant, (ii) has been selected by the
Corporation and (iii) has entered into a Broker-Dealer Agreement with the
Auction Agent that remains effective, in which the Broker-Dealer agrees to
participate in Auctions as described in the Auction Procedures, as from time to
time amended or supplemented.
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The Broker-Dealers are entitled to a Broker-Dealer fee, which is payable by
the Auction Agent from monies received from the Corporation, on each Interest
Payment Date. Such Broker-Dealer fee is payable from the Administration Fund as
provided in the First Supplemental Indenture.
Market Agent
Although Smith Barney Inc. is acting as an Underwriter in connection with
the offering, in connection with the Auction Rate Series 1997-1 Senior Notes,
Smith Barney Inc. will initially be the Market Agent and will act solely as
agent of the Corporation when acting as the Market Agent and will not assume any
obligation or relationship of agency or trust for or with any of the Beneficial
Owners when so acting.
Auction Procedures
General
Pursuant to the First Supplemental Indenture, Auctions to establish the
Auction Rate for the Auction Rate Series 1997-1 Senior Notes will be held on
each Auction Date, except as described under Appendices Terms of the Tax Exempt
Auction Rate Series 1997-1 Senior Notes -- Interest Rate on the Tax Exempt
Auction Rate Series 1997-1 Senior Notes" and "Terms of the Taxable Auction Rate
Series 1997-1 Senior Notes -- Interest Rate on the Taxable Auction Rate Series
1997-1 Senior Notes", respectively, by application of the Auction Procedures
described herein. Such procedures are to be applicable separately to each
series of Auction Rate Series 1997-1 Senior Notes. "Auction Date" means,
initially, with respect to the Series 1997-1A Notes, December 3, 1997, with
respect to the Series 1997-1B Notes, December 10, 1997, with respect to the
Series 1997-1C Notes, December 17, 1997, with respect to the Series 1997-1D
Notes, December 29, 1997, with respect to the Series 1997-1E Notes, January 5,
1998, with respect to the Series 1997-1G Notes, December 5, 1997, and with
respect to the Series 1997-1H Notes, December 12, 1997, and, thereafter, with
respect to each such series of Auction Rate Series 1997-1 Senior Notes, the
Business Day immediately preceding the first day of each related Auction Period,
other than: (i) any Interest Period commencing after the ownership of such
series is no longer maintained in Book-Entry Form; (ii) any Interest Period
commencing after the occurrence and during the continuance of a Payment Default;
or (iii) any Auction Period commencing less than two Business Days after the
cure of a Payment Default. Notwithstanding the foregoing, the Auction Date for
one or more Auction Periods may be changed as described below under "Changes in
Auction Terms".
The Auction Agent will calculate the Maximum Auction Rate and the All Hold
Rate on each Auction Date. The Corporation (or the Servicer on behalf of the
Corporation) will calculate the Net Loan Rate monthly. If the ownership of the
Auction Rate Series 1997-1 Senior Notes is no longer maintained in Book-Entry
Form, the Trustee will calculate the Maximum Auction Rate on the Business Day
immediately preceding the first day of each Interest Period commencing after
delivery of the Auction Rate Series 1997-1 Senior Notes. If a Payment Default
has occurred, the Trustee will calculate the Non-Payment Rate on the Interest
Rate Determination Date for (i) each Interest Period commencing after the
occurrence and during the continuance of such Payment Default and (ii) any
Interest Period commencing less than two Business Days after the cure of any
Payment Default. The Auction Agent shall determine (i) with respect to the
Taxable Auction Rate Series 1997-1 Senior Notes, the One-Month LIBOR or the
Three-Month LIBOR, as applicable, and (ii) with respect to the Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the After-Tax Equivalent, the "AA"
Composite Commercial Paper Rate and the Applicable Percentage for each Interest
Period other than the Initial Interest Period. If the ownership of the Auction
Rate Series 1997-1 Senior Notes is no longer maintained in Book-Entry Form, or
if a Payment Default has occurred, then the Trustee shall determine the One-
Month LIBOR or the Three-Month LIBOR, as applicable, the After-Tax Equivalent,
the "AA" Composite Commercial Paper Rate and the Applicable Percentage for each
such Interest Period. The determination by the Trustee or the Auction Agent, as
the case may be, of the One-Month LIBOR or the Three-Month LIBOR, as applicable,
the After-Tax Equivalent, the "AA" Composite Commercial Paper Rate and the
Applicable Percentage shall (in the absence of manifest error) be final and
binding upon all parties. The Auction Agent shall promptly advise the Trustee
of the One-Month LIBOR or the Three-Month LIBOR, as applicable, the
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After-Tax Equivalent, the "AA" Composite Commercial Paper Rate and the
Applicable Percentage upon its determination thereof. The Market Agent shall
calculate the Index (if the Index is other than the PSA Index) with respect to
the Tax Exempt Auction Rate Series 1997-1 Senior Notes on each Interest Rate
Determination Date and shall notify the Trustee and the Auction Agent of the
Index on each Interest Rate Determination Date. The determination by the Market
Agent of the Index shall (in the absence of manifest error) be final and binding
upon all parties.
If the Federal Reserve Bank of New York does not make available its 30-day
commercial paper rate for purposes of determining the "AA" Composite Commercial
Paper Rate, the Auction Agent shall notify the Trustee of such fact and the
Trustee shall thereupon request that an Authorized Officer of the Corporation
promptly appoint at least two Commercial Paper Dealers (in addition to Smith
Barney Inc.) to provide commercial paper quotes for purposes of determining the
"AA" Composite Commercial Paper Rate. Pending appointment of both such
additional Commercial Paper Dealers, Smith Barney Inc. and any other Commercial
Paper Dealer appointed and serving as such shall provide the required quotations
and such quotations shall be used for purposes of the First Supplemental
Indenture. Smith Barney Inc. has been appointed as a Commercial Paper Dealer to
provide commercial paper quotes for purposes of determining the "AA" Composite
Commercial Paper Rate as aforesaid.
Submission of Orders
So long as the ownership of a series of Auction Rate Series 1997-1 Senior
Notes is maintained in Book-Entry Form, an Existing Holder may sell, transfer or
otherwise dispose of Auction Rate Series 1997-1 Senior Notes of such series only
pursuant to a Bid or Sell Order (as hereinafter defined) placed in an Auction or
otherwise sell, transfer or dispose of such series through a Broker-Dealer,
provided that, in the case of all transfers other than pursuant to Auctions,
such Existing Holder, its Broker-Dealer or its Participant advises the Auction
Agent of such transfer. Auctions shall be conducted on each Auction Date, if
there is an Auction Agent on such Auction Date, in the following manner:
Prior to the Submission Deadline (defined as 1:00 p.m., New York City time,
on any Auction Date or such other time on any Auction Date by which Broker-
Dealers are required to submit Orders to the Auction Agent as specified by the
Auction Agent from time to time) on each Auction Date:
(a) each Existing Holder of Auction Rate Series 1997-1 Senior Notes
may submit to a Broker-Dealer by telephone or otherwise information as to:
(i) the principal amount of Outstanding Auction Rate Series 1997-1 Senior
Notes, if any, held by such Existing Holder which such Existing Holder
desires to continue to hold without regard to the Auction Rate Series 1997-
1 Senior Note Interest Rate for the next succeeding Auction Period (a "Hold
Order"); (ii) the principal amount of Outstanding Auction Rate Series 1997-
1 Senior Notes, if any, which such Existing Holder offers to sell if the
Auction Rate Series 1997-1 Senior Note Interest Rate for the next
succeeding Auction Period will be less than the rate per annum specified by
such Existing Holder (a "Bid"); and/or (iii) the principal amount of
Outstanding Auction Rate Series 1997-1 Senior Notes, if any, held by such
Existing Holder which such Existing Holder offers to sell without regard to
the Auction Rate Series 1997-1 Senior Note Interest Rate for the next
succeeding Auction Period (a "Sell Order"); and
(b) one or more Broker-Dealers may contact Potential Holders to
determine the principal amount of Auction Rate Series 1997-1 Senior Notes
which each such Potential Holder offers to purchase, if the Auction Rate
Series 1997-1 Senior Note Interest Rate for the next succeeding Auction
Period will not be less than the rate per annum specified by such Potential
Holder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order". Each Existing
Holder and each Potential Holder placing an Order is referred to as a "Bidder".
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Subject to the provisions of the First Supplemental Indenture described
below under "Validity of Orders", a Bid by an Existing Holder will constitute an
irrevocable offer to sell: (i) the principal amount of Outstanding Auction Rate
Series 1997-1 Senior Notes specified in such Bid if the Auction Rate Series
1997-1 Senior Note Interest Rate will be less than the rate specified in such
Bid, (ii) such principal amount or a lesser principal amount of Outstanding
Auction Rate Series 1997-1 Senior Notes to be determined as described below in
"Acceptance and Rejection of Orders", if the Auction Rate Series 1997-1 Senior
Note Interest Rate will be equal to the rate specified in such Bid, or (iii)
such principal amount or a lesser principal amount of Outstanding Auction Rate
Series 1997-1 Senior Notes to be determined as described below under "Acceptance
and Rejection of Orders", if the rate specified therein will be higher than the
Auction Rate Series 1997-1 Senior Note Interest Rate and Sufficient Bids (as
defined below) have not been made.
Subject to the provisions of the First Supplemental Indenture described
below under "Validity of Orders", a Sell Order by an Existing Holder will
constitute an irrevocable offer to sell: (i) the principal amount of
Outstanding Auction Rate Series 1997-1 Senior Notes specified in such Sell Order
or (ii) such principal amount or a lesser principal amount of Outstanding
Auction Rate Series 1997-1 Senior Notes as described below under "Acceptance and
Rejection of Orders", if Sufficient Bids have not been made.
Subject to the provisions of the First Supplemental Indenture described
below under "Validity of Orders", a Bid by a Potential Holder will constitute an
irrevocable offer to purchase: (i) the principal amount of Outstanding Auction
Rate Series 1997-1 Senior Notes specified in such Bid if the Auction Rate Series
1997-1 Senior Note Interest Rate will be higher than the rate specified in such
Bid or (ii) such principal amount or a lesser principal amount of Outstanding
Auction Rate Series 1997-1 Senior Notes as described below in "Acceptance and
Rejection of Orders", if the Auction Rate Series 1997-1 Senior Note Interest
Rate is equal to the rate specified in such Bid.
Each Broker-Dealer will submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such Broker-
Dealer and will specify with respect to each such Order: (i) the name of the
Bidder placing such Order; (ii) the aggregate principal amount of Auction Rate
Series 1997-1 Senior Notes that are the subject of such Order; (iii) to the
extent that such Bidder is an Existing Holder: (a) the principal amount of
Auction Rate Series 1997-1 Senior Notes, if any, subject to any Hold Order
placed by such Existing Holder; (b) the principal amount of Auction Rate Series
1997-1 Senior Notes, if any, subject to any Bid placed by such Existing Holder
and the rate specified in such Bid; and (c) the principal amount of Auction Rate
Series 1997-1 Senior Notes, if any, subject to any Sell Order placed by such
Existing Holder; and (iv) to the extent such Bidder is a Potential Holder, the
rate specified in such Potential Holder's Bid.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent will round such rate up to the
next highest .001%.
If an Order or Orders covering all Outstanding Auction Rate Series 1997-1
Senior Notes held by any Existing Holder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent will deem a Hold Order to
have been submitted on behalf of such Existing Holder covering the principal
amount of Outstanding Auction Rate Series 1997-1 Senior Notes held by such
Existing Holder and not subject to an Order submitted to the Auction Agent.
Neither the Corporation, the Trustee nor the Auction Agent will be
responsible for any failure of a Broker-Dealer to submit an Order to the Auction
Agent on behalf of any Existing Holder or Potential Holder.
An Existing Holder may submit multiple Orders, of different types and
specifying different rates, in an Auction with respect to Auction Rate Series
1997-1 Senior Notes then held by such Existing Holder. An Existing Holder that
offers to purchase additional Auction Rate Series 1997-1 Senior Notes is, for
purposes of such offer, treated as a Potential Holder.
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Any Bid specifying a rate higher than the applicable Maximum Auction Rate
will (i) be treated as a Sell Order if submitted by an Existing Holder and (ii)
not be accepted if submitted by a Potential Holder.
Validity of Orders
If any Existing Holder submits through a Broker-Dealer to the Auction Agent
one or more Orders covering in the aggregate more than the principal amount of
Outstanding Auction Rate Series 1997-1 Senior Notes held by such Existing
Holder, such Orders will be considered valid as follows and in the order of
priority described below.
Hold Orders. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of Outstanding Auction Rate Series 1997-1
Senior Notes held by such Existing Holder, and if the aggregate principal
amount of Auction Rate Series 1997-1 Senior Notes subject to such Hold
Orders exceeds the aggregate principal amount of Auction Rate Series 1997-1
Senior Notes held by such Existing Holder, the aggregate principal amount
of Auction Rate Series 1997-1 Senior Notes subject to each such Hold Order
will be reduced pro rata so that the aggregate principal amount of Auction
Rate Series 1997-1 Senior Notes subject to all such Hold Orders equals the
aggregate principal amount of Outstanding Auction Rate Series 1997-1 Senior
Notes held by such Existing Holder.
Bids. Any Bid will be considered valid up to an amount equal to the
excess of the principal amount of Outstanding Auction Rate Series 1997-1
Senior Notes held by such Existing Holder over the aggregate principal
amount of Auction Rate Series 1997-1 Senior Notes subject to any Hold
Orders referred to above. Subject to the preceding sentence, if multiple
Bids with the same rate are submitted on behalf of such Existing Holder and
the aggregate principal amount of Outstanding Auction Rate Series 1997-1
Senior Notes subject to such Bids is greater than such excess, such Bids
will be considered valid up to an amount equal to such excess. Subject to
the two preceding sentences, if more than one Bid with different rates is
submitted on behalf of such Existing Holder, such Bids will be considered
valid first in the ascending order of their respective rates until the
highest rate is reached at which such excess exists and then at such rate
up to the amount of such excess. In any event, the aggregate principal
amount of Outstanding Auction Rate Series 1997-1 Senior Notes, if any,
subject to Bids not valid under the provisions described above will be
treated as the subject of a Bid by a Potential Holder at the rate therein
specified.
Sell Orders. All Sell Orders will be considered valid up to an amount
equal to the excess of the principal amount of Outstanding Auction Rate
Series 1997-1 Senior Notes held by such Existing Holder over the aggregate
principal amount of Auction Rate Series 1997-1 Senior Notes subject to
valid Hold Orders and valid Bids as referred to above.
If more than one Bid for Auction Rate Series 1997-1 Senior Notes is
submitted on behalf of any Potential Holder, each Bid submitted will be a
separate Bid with the rate and principal amount therein specified. Any Bid or
Sell Order submitted by an Existing Holder covering an aggregate principal
amount of Auction Rate Series 1997-1 Senior Notes not equal to an Authorized
Denomination will be rejected and will be deemed a Hold Order. Any Bid submitted
by a Potential Holder covering an aggregate principal amount of Auction Rate
Series 1997-1 Senior Notes not equal to an Authorized Denomination will be
rejected. Any Order submitted in an Auction by a Broker-Dealer to the Auction
Agent prior to the Submission Deadline on any Auction Date will be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid pursuant
to the procedures described above is referred to as a "Submitted Hold Order", a
"Submitted Bid" and a "Submitted Sell Order", respectively (collectively,
"Submitted Orders").
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Determination of Sufficient Bids and Bid Auction Rate
Not earlier than the Submission Deadline on each Auction Date, the Auction
Agent will assemble all valid Submitted Orders and will determine:
(a) the excess of the total principal amount of Outstanding Auction
Rate Series 1997-1 Senior Notes over the sum of the aggregate principal
amount of Outstanding Auction Rate Series 1997-1 Senior Notes subject to
Submitted Hold Orders (such excess being hereinafter referred to as the
"Available Auction Rate Series 1997-1 Senior Notes"); and
(b) from such Submitted Orders whether the aggregate principal amount
of Outstanding Auction Rate Series 1997-1 Senior Notes subject to Submitted
Bids by Potential Holders specifying one or more rates equal to or lower
than the Maximum Auction Rate exceeds or is equal to the sum of (i) the
aggregate principal amount of Outstanding Auction Rate Series 1997-1 Senior
Notes subject to Submitted Bids by Existing Holders specifying one or more
rates higher than the Maximum Auction Rate and (ii) the aggregate principal
amount of Outstanding Auction Rate Series 1997-1 Senior Notes subject to
Submitted Sell Orders (in the event such excess or such equality exists
other than because all of the Outstanding Auction Rate Series 1997-1 Senior
Notes are subject to Submitted Hold Orders, such Submitted Bids by
Potential Holders above will be hereinafter referred to collectively as
"Sufficient Bids"); and
(c) if Sufficient Bids exist, the "Bid Auction Rate", which will be
the lowest rate specified in such Submitted Bids such that if:
(i) each such Submitted Bid from Existing Holders specifying such
lowest rate and all other Submitted Bids from Existing Holders
specifying lower rates were rejected (thus entitling such Existing
Holders to continue to hold the principal amount of Auction Rate
Series 1997-1 Senior Notes subject to such Submitted Bids); and
(ii) each such Submitted Bid from Potential Holders specifying
such lowest rate and all other Submitted Bids from Potential Holders
specifying lower rates, were accepted,
the result would be that such Existing Holders described in subparagraph
(c)(i) above would continue to hold an aggregate principal amount of
Outstanding Auction Rate Series 1997-1 Senior Notes which, when added to
the aggregate principal amount of Outstanding Auction Rate Series 1997-1
Senior Notes to be purchased by such Potential Holders described in
subparagraph (c)(ii) above would equal not less than the Available Auction
Rate Series 1997-1, Senior Notes.
Determination of Auction Rate and Auction Rate Series 1997-1 Senior Note
Interest Rate; Notice
Promptly after the Auction Agent has made the determinations described
above, the Auction Agent is to advise the Trustee of the Maximum Auction Rate
and the All Hold Rate and the components thereof on the Auction Date and, based
on such determinations and the Net Loan Rate determined by the Corporation or
the Servicer, the Auction Rate for the next succeeding Interest Period as
follows:
(a) if Sufficient Bids exist, that the Auction Rate for the next
succeeding Interest Period will be equal to the Bid Auction Rate so
determined;
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(b) if Sufficient Bids do not exist (other than because all of the
Outstanding Auction Rate Series 1997-1 Senior Notes are subject to
Submitted Hold Orders), that the Auction Rate for the next succeeding
Interest Period will be equal to the Maximum Auction Rate; or
(c) if all Outstanding Auction Rate Series 1997-1 Senior Notes are
subject to Submitted Hold Orders, that the Auction Rate for the next
succeeding Interest Period will be equal to the All Hold Rate.
Promptly after the Auction Agent has determined the Auction Rate, the
Auction Agent will determine and advise the Trustee of the Auction Rate Series
1997-1 Senior Note Interest Rate, which rate will be (i) in the case of the
Taxable Auction Rate Series 1997-1 Senior Notes, the lesser of the Auction Rate
and the Net Loan Rate, and (ii) in the case of the Tax Exempt Auction Rate
Series 1997-1 Senior Notes, the Auction Rate. In no event shall the Auction Rate
Series 1997-1 Senior Note Interest Rate exceed the Auction Rate Series 1997-1
Senior Note Interest Rate Limitation, which, in the case of the Taxable Auction
Rate Series 1997-1 Senior Notes, will be 18% per annum, and, in the case of the
Tax Exempt Auction Rate Series 1997-1 Senior Notes, will be 14% per annum.
Acceptance and Rejection of Orders
Existing Holders will continue to hold the principal amount of Auction Rate
Series 1997-1 Senior Notes that are subject to Submitted Hold Orders. If
Sufficient Bids, as described above under "Determination of Sufficient Bids and
Bid Auction Rate", have been received by the Auction Agent (and if, in the case
of the Taxable Auction Rate Series 1997-1 Senior Notes, the Net Loan Rate is
equal to or greater than the Bid Auction Rate), the Bid Auction Rate will be the
Auction Rate Series 1997-1 Senior Note Interest Rate, and Submitted Bids and
Submitted Sell Orders will be accepted or rejected and the Auction Agent will
take such other action as provided in the First Supplemental Indenture and
described below under "Sufficient Bids".
If the Auction Rate is (or, in the case of the Taxable Auction Rate Series
1997-1 Senior Notes, if the Auction Rate and the Net Loan Rate are both) greater
than the Auction Rate Series 1997-1 Senior Note Interest Rate Limitation, the
Auction Rate Series 1997-1 Senior Note Interest Rate will be equal to the
Auction Rate Series 1997-1 Senior Note Interest Rate Limitation. If, in the case
of the Taxable Auction Rate Series 1997-1 Senior Notes, the Net Loan Rate is
less than the Auction Rate, the Auction Rate Series 1997-1 Senior Note Interest
Rate for such Notes will be the Net Loan Rate. If the Auction Agent has not
received Sufficient Bids as described above under "Determination of Sufficient
Bids and Bid Auction Rate" (other than because all of the Outstanding Auction
Rate Series 1997-1 Senior Notes are subject to Submitted Hold Orders), the
Auction Rate Series 1997-1 Senior Note Interest Rate will be (i) in the case of
the Taxable Auction Rate Series 1997-1 Senior Notes, the lesser of the Maximum
Auction Rate and the Net Loan Rate, and (ii) in the case of the Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the Maximum Auction Rate. In any of the
cases described above in this paragraph, Submitted Orders will be accepted or
rejected and the Auction Agent will take such other action as described below
under "Insufficient Bids".
Sufficient Bids. If Sufficient Bids have been made (and, in the case
of the Taxable Auction Rate Series 1997-1 Senior Notes, the Net Loan Rate
is equal to or greater than the Bid Auction Rate) (in which case the
Auction Rate Series 1997-1 Senior Note Interest Rate shall be the Bid
Auction Rate), all Submitted Sell Orders will be accepted and, subject to
the denomination requirements described below, Submitted Bids will be
accepted or rejected as follows in the following order of priority and all
other Submitted Bids will be rejected:
(a) Existing Holders' Submitted Bids specifying any rate that is
higher than the Auction Rate Series 1997-1 Senior Note Interest Rate
will be accepted, thus requiring each such Existing Holder to sell the
aggregate principal amount of Auction Rate Series 1997-1 Senior Notes
subject to such Submitted Bids;
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(b) Existing Holders' Submitted Bids specifying any rate that is
lower than the Auction Rate Series 1997-1 Senior Note Interest Rate
will be rejected, thus entitling each such Existing Holder to continue
to hold the aggregate principal amount of Auction Rate Series 1997-1
Senior Notes subject to such Submitted Bids;
(c) Potential Holders' Submitted Bids specifying any rate that is
lower than the Auction Rate Series 1997-1 Senior Note Interest Rate
will be accepted;
(d) Each Existing Holder's Submitted Bid specifying a rate that is
equal to the Auction Rate Series 1997-1 Senior Note Interest Rate will
be rejected, thus entitling such Existing Holder to continue to hold
the aggregate principal amount of Auction Rate Series 1997-1 Senior
Notes subject to such Submitted Bid, unless the aggregate principal
amount of Auction Rate Series 1997-1 Senior Notes subject to such
Submitted Bids will be greater than the principal amount of Auction
Rate Series 1997-1 Senior Notes (the "remaining principal amount")
equal to the excess of the Available Auction Rate Series 1997-1 Senior
Notes over the aggregate principal amount of Auction Rate Series 1997-
1 Senior Notes subject to Submitted Bids described in subparagraphs
(b) and (c) above, in which event such Submitted Bid of such Existing
Holder will be rejected in part and such Existing Holder will be
entitled to continue to hold the principal amount of Auction Rate
Series 1997-1 Senior Notes subject to such Submitted Bid, but only in
an amount equal to the aggregate principal amount of Auction Rate
Series 1997-1 Senior Notes obtained by multiplying the remaining
principal amount by a fraction, the numerator of which will be the
principal amount of Outstanding Auction Rate Series 1997-1 Senior
Notes held by such Existing Holder subject to such Submitted Bid and
the denominator of which will be the sum of the principal amount of
Outstanding Auction Rate Series 1997-1 Senior Notes subject to such
Submitted Bids made by all such Existing Holders that specified a rate
equal to the Auction Rate Series 1997-1 Senior Note Interest Rate; and
(e) Each Potential Holder's Submitted Bid specifying a rate that is
equal to the Auction Rate Series 1997-1 Senior Note Interest Rate will
be accepted, but only in an amount equal to the principal amount of
Auction Rate Series 1997-1 Senior Notes obtained by multiplying the
excess of the aggregate principal amount of Available Auction Rate
Series 1997-1 Senior Notes over the aggregate principal amount of
Auction Rate Series 1997-1 Senior Notes subject to Submitted Bids
described in subparagraphs (b), (c) and (d) above by a fraction, the
numerator of which will be the aggregate principal amount of
Outstanding Auction Rate Series 1997-1 Senior Notes subject to such
Submitted Bid and the denominator of which will be the sum of the
principal amount of Outstanding Auction Rate Series 1997-1 Senior
Notes subject to Submitted Bids made by all such Potential Holders
that specified a rate equal to the Auction Rate Series 1997-1 Senior
Note Interest Rate.
Insufficient Bids. If Sufficient Bids have not been made (other than
because all of the Outstanding Auction Rate Series 1997-1 Senior Notes are
subject to Submitted Hold Orders), or if the Auction Rate Series 1997-1
Senior Note Interest Rate Limitation applies (or if, in the case of the
Taxable Auction Rate Series 1997-1 Senior Notes, the Net Loan Rate is less
than the Bid Auction Rate, in which case the Auction Rate Series 1997-1
Senior Note Interest Rate for such Notes will be the Net Loan Rate),
subject to the denomination requirements described below,
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Submitted Orders will be accepted or rejected as follows in the following
order of priority and all other Submitted Bids will be rejected:
(a) Existing Holders' Submitted Bids specifying any rate that is
equal to or lower than the Auction Rate Series 1997-1 Senior Note
Interest Rate will be rejected, thus entitling such Existing Holders
to continue to hold the aggregate principal amount of Auction Rate
Series 1997-1 Senior Notes subject to such Submitted Bids;
(b) Potential Holders' Submitted Bids (i) specifying any rate that
is equal to or lower than the Auction Rate Series 1997-1 Senior Note
Interest Rate will be accepted, and (ii) specifying any rate that is
higher than the Auction Rate Series 1997-1 Senior Note Interest Rate
will be rejected; and
(c) each Existing Holder's Submitted Bid specifying any rate that is
higher than the Auction Rate Series 1997-1 Senior Note Interest Rate
and the Submitted Sell Order of each Existing Holder will be accepted,
thus entitling each Existing Holder that submitted any such Submitted
Bid or Submitted Sell Order to sell the Auction Rate Series 1997-1
Senior Notes subject to such Submitted Bid or Submitted Sell Order,
but in both cases only in an amount equal to the aggregate principal
amount of Auction Rate Series 1997-1 Senior Notes obtained by
multiplying the aggregate principal amount of Auction Rate Series
1997-1 Senior Notes subject to Submitted Bids described in
subparagraph (b) above by a fraction, the numerator of which will be
the aggregate principal amount of Outstanding Auction Rate Series
1997-1 Senior Notes held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the denominator of which
will be the aggregate principal amount of Outstanding Auction Rate
Series 1997-1 Senior Notes subject to all such Submitted Bids and
Submitted Sell Orders.
All Hold Orders. If all Outstanding Auction Rate Series 1997-1 Senior
Notes are subject to Submitted Hold Orders, all Submitted Bids will be
rejected.
Authorized Denominations Requirement. If, as a result of the
procedures described above regarding Sufficient Bids and Insufficient Bids,
any Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a principal amount of
Auction Rate Series 1997-1 Senior Notes that is not equal to an Authorized
Denomination, the Auction Agent will, in such manner as in its sole
discretion it may determine, round up or down the principal amount of
Auction Rate Series 1997-1 Senior Notes to be purchased or sold by any
Existing Holder or Potential Holder so that the principal amount of Auction
Rate Series 1997-1 Senior Notes purchased or sold by each Existing Holder
or Potential Holder will be equal to an Authorized Denomination. If, as a
result of the procedures described above regarding Sufficient Bids, any
Potential Holder would be entitled or required to purchase less than a
principal amount of Auction Rate Series 1997-1 Senior Notes equal to an
Authorized Denomination, the Auction Agent will, in such manner as in its
sole discretion it may determine, allocate Auction Rate Series 1997-1
Senior Notes for purchase among Potential Holders so that only Auction Rate
Series 1997-1 Senior Notes in an Authorized Denomination are purchased by
any Potential Holder, even if such allocation results in one or more of
such Potential Holders not purchasing any Auction Rate Series 1997-1 Senior
Notes.
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Based on the results of each Auction, the Auction Agent is to determine the
aggregate principal amount of Auction Rate Series 1997-1 Senior Notes to be
purchased and the aggregate principal amount of Auction Rate Series 1997-1
Senior Notes to be sold by Potential Holders and Existing Holders on whose
behalf each Broker-Dealer submitted Bids or Sell Orders and, with respect to
each Broker-Dealer, to the extent that such aggregate principal amount of
Auction Rate Series 1997-1 Senior Notes to be sold differs from such aggregate
principal amount of Auction Rate Series 1997-1 Senior Notes to be purchased,
determine to which other Broker-Dealer or Broker-Dealers acting for one or more
purchasers such Broker-Dealer will deliver, or from which Broker-Dealers acting
for one or more sellers such Broker-Dealer will receive, as the case may be,
Auction Rate Series 1997-1 Senior Notes.
Any calculation by the Auction Agent (or the Trustee, if applicable) of the
Auction Rate Series 1997-1 Senior Note Interest Rate, Maximum Auction Rate, One-
Month LIBOR, Three-Month LIBOR, All Hold Rate and Non-Payment Rate, and any
calculation by the Corporation or the Servicer of the Net Loan Rate, will, in
the absence of manifest error, be binding on all other parties.
Notwithstanding anything in the First Supplemental Indenture to the
contrary, no Auction is to be held on any Auction Date during the continuance of
a Payment Default.
Settlement Procedures
The Auction Agent is required to advise each Broker-Dealer that submitted
an Order in an Auction of the Auction Rate Series 1997-1 Senior Note Interest
Rate for the next Interest Period and, if such Order was a Bid or Sell Order,
whether such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., New York City time, on the Auction Date, if
the Auction Rate Series 1997-1 Senior Note Interest Rate is the Auction Rate;
provided that such notice is not required until 4:00 p.m., New York City time,
on the Auction Date, if the Auction Rate Series 1997-1 Senior Note Interest Rate
is the Maximum Auction Rate (or, in the case of the Taxable Auction Rate Series
1997-1 Senior Notes, the Net Loan Rate). Each Broker-Dealer that submitted an
Order on behalf of a Bidder is required to then advise such Bidder of the
Auction Rate Series 1997-1 Senior Note Interest Rate for the next Interest
Period and, if such Order was a Bid or a Sell Order, whether such Bid or Sell
Order was accepted or rejected, in whole or in part, confirm purchases and sales
with each Bidder purchasing or selling Auction Rate Series 1997-1 Senior Notes
as a result of the Auction and advise each Bidder purchasing or selling Auction
Rate Series 1997-1 Senior Notes as a result of the Auction to give instructions
to its Participant to pay the purchase price against delivery of such Auction
Rate Series 1997-1 Senior Notes or to deliver such Auction Rate Series 1997-1
Senior Notes against payment therefor, as appropriate. Pursuant to the Auction
Agent Agreement, the Auction Agent is to record each transfer of Auction Rate
Series 1997-1 Senior Notes on the Existing Holders Registry to be maintained by
the Auction Agent.
In accordance with DTC's normal procedures, on the Business Day after the
Auction Date, the transactions described above will be executed through DTC, so
long as DTC is the Securities Depository, and the accounts of the respective
Participants at DTC will be debited and credited and Auction Rate Series 1997-1
Senior Notes delivered as necessary to effect the purchases and sales of Auction
Rate Series 1997-1 Senior Notes as determined in the Auction. Purchasers are
required to make payment through their Participants in same-day funds to DTC
against delivery through their Participants. DTC will make payment in accordance
with its normal procedures, which now provide for payment against delivery by
its Participants in immediately available funds.
If any Existing Holder selling Auction Rate Series 1997-1 Senior Notes in
an Auction fails to deliver such Auction Rate Series 1997-1 Senior Notes, the
Broker-Dealer of any person that was to have purchased Auction Rate Series 1997-
1 Senior Notes in such Auction may deliver to such person a principal amount of
Auction Rate Series 1997-1 Senior Notes that is less than the principal amount
of Auction Rate Series 1997-1 Senior Notes that otherwise was to be purchased by
such person but in any event equal to an Authorized Denomination. In such event,
the principal amount of Auction Rate Series 1997-1 Senior Notes to be delivered
will be determined by such Broker-Dealer. Delivery of such lesser principal
amount of Auction Rate Series 1997-1 Senior Notes will constitute
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good delivery. Neither the Trustee nor the Auction Agent will have any
responsibility or liability with respect to the failure of a Potential Holder,
Existing Holder or their respective Broker-Dealer or Participant to deliver the
principal amount of Auction Rate Series 1997-1 Senior Notes or to pay for the
Auction Rate Series 1997-1 Senior Notes purchased or sold pursuant to an Auction
or otherwise. For a further description of the settlement procedures, see
"Settlement Procedures for Auction Rate Series 1997-1 Senior Notes."
Trustee Not Responsible for Auction Agent, Market Agent and Broker-Dealers
The Trustee shall not be liable or responsible for the actions of or
failure to act by the Auction Agent, the Market Agent or any Broker-Dealer under
the First Supplemental Indenture, the Auction Agent Agreement or any Broker-
Dealer Agreement. The Trustee may conclusively rely upon any information
required to be furnished by the Auction Agent, the Market Agent or any Broker-
Dealer without undertaking any independent review or investigation of the truth
or accuracy of such information.
Changes in Auction Terms
Changes in Auction Period or Periods
While any of the Auction Rate Series 1997-1 Senior Notes are Outstanding,
the Corporation may, from time to time, change the length of one or more Auction
Periods (an "Auction Period Adjustment") in order to conform with then-current
market practice with respect to similar securities or to accommodate economic
and financial factors that may affect or be relevant to the length of the
Auction Period and the interest rate borne by the Auction Rate Series 1997-1
Senior Notes. The Corporation will not initiate such change in the length of the
Auction Period unless it shall have received, not less than three days nor more
than 20 days prior to the Auction Period Adjustment, (i) in the case of the Tax
Exempt Auction Rate Series 1997-1 Senior Notes, a written opinion of Bond
Counsel to the effect that such Auction Period Adjustment will not adversely
affect the exclusion of interest on any of such Notes from income for federal
income tax purposes, (ii) the written consent of the Market Agent, which consent
shall not be unreasonably withheld, and (iii) written confirmation from each of
the Rating Agencies then rating the Auction Rate Series 1997-1 Senior Notes that
such Auction Period Adjustment will not adversely affect its ratings then
applicable to any of the Auction Rate Series 1997-1 Senior Notes. The
Corporation will initiate an Auction Period Adjustment by giving written notice
to the Trustee, the Auction Agent, the Market Agent and the Securities
Depository in substantially the form of, or containing substantially the
information contained in, the First Supplemental Indenture at least ten days
prior to the Auction Date for such Auction Period.
Any such Auction Period Adjustment shall not result in an Auction Period of
less than seven days nor more than 91 days. If any such Auction Period
Adjustment will result in an Auction Period of less than 35 days (in the case of
the Tax Exempt Auction Rate Series 1997-1 Senior Notes) or 28 days (in the case
of the Taxable Auction Rate Series 1997-1 Senior Notes), the notice described
above will be effective only if it is accompanied by a written statement of the
Trustee, the Auction Agent and the Securities Depository to the effect that they
are capable of performing their duties, if any, under the First Supplemental
Indenture, the Auction Agent Agreement and any Broker-Dealer Agreement with
respect to such changed Auction Period.
An Auction Period Adjustment will take effect only if (A) the Trustee and
the Auction Agent receive, by 11:00 a.m., New York City time, on the Business
Day before the Auction Date for the first such Auction Period, a certificate
from the Corporation authorizing an Auction Period Adjustment specified in such
certificate, the opinion of Bond Counsel (in the case of the Tax Exempt Auction
Rate Series 1997-1 Senior Notes), the written consent of the Market Agent and
the Rating Agency confirmations described above and, if applicable, the written
statement of the Trustee, the Auction Agent and the Securities Depository
described above, and (B) Sufficient Bids exist at the Auction on the Auction
Date for such first Auction Period. If the condition referred to in (A) is not
met, the Auction Rate Series 1997-1 Senior Note Interest Rate applicable for the
next Auction Period will be determined pursuant to the Auction Procedures and
the Auction Period will be the Auction Period determined without reference to
the proposed change. If the condition referred to in (A) is met, but the
condition referred to in (B) above is not
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met, the Auction Rate Series 1997-1 Senior Note Interest Rate applicable for the
next Auction Period will be (i) with respect to the Taxable Auction Rate Series
1997-1 Senior Notes, the lesser of the Maximum Auction Rate and the Net Loan
Rate, and (ii) with respect to the Tax Exempt Auction Rate Series 1997-1 Senior
Notes, the Maximum Auction Rate, and the Auction Period will be the Auction
Period determined without reference to the proposed change.
Changes in Percentages Used in Determining All Hold Rate, Maximum Auction
Rate and Non-Payment Rate with Respect to the Tax Exempt Auction Rate Series
1997-1 Senior Notes
The Market Agent may adjust the percentage used in determining the All Hold
Rate, the Applicable Percentage used in determining the Maximum Auction Rate and
the percentage of the Index used in determining the Non-Payment Rate, in each
case with respect to the Tax Exempt Auction Rate Series 1997-1 Senior Notes, if
any such adjustment is necessary, in the judgment of the Market Agent, to
reflect any Change of Tax Law such that a Tax Exempt Auction Rate Series 1997-1
Senior Note bearing interest at the All Hold Rate, a Tax Exempt Auction Rate
Series 1997-1 Senior Note bearing interest at the Maximum Auction Rate and a Tax
Exempt Auction Rate Series 1997-1 Senior Note bearing interest at the Non-
Payment Rate shall have substantially the same market values after such Change
of Tax Law as before such Change of Tax Law. In making any such adjustment, the
Market Agent shall take the following factors in existence both before and after
such Change of Tax Law into account: (i) short-term taxable and tax-exempt
market rates and indices of such short-term rates; (ii) the market supply and
demand for short-term tax-exempt securities; (iii) yield curves for short-term
and long-term tax-exempt securities or obligations having a credit rating that
is comparable to the Tax Exempt Auction Rate Series 1997-1 Senior Notes; (iv)
general economic conditions; and (v) economic and financial factors present in
the securities industry that may affect or that may be relevant to the Tax
Exempt Auction Rate Series 1997-1 Senior Notes.
The Market Agent shall communicate its determination to adjust the
percentage used in determining the All Hold Rate, the Applicable Percentage used
in determining the Maximum Auction Rate and the percentage of the Index used in
determining the Non-Payment Rate pursuant to the previous paragraph by means of
a written notice delivered in writing at least ten days prior to the Interest
Rate Determination Date on which the Market Agent desires to effect the change,
to the Corporation, the Trustee and the Auction Agent. Such notice shall not be
given unless the Market Agent has received a Corporation consent thereto and a
written opinion of Bond Counsel to the effect that such adjustment will not
adversely affect the exclusion of interest on any of the Tax Exempt Auction Rate
Series 1997-1 Senior Notes from income for federal income tax purposes.
Any such adjustment in the percentages used to determine the All Hold Rate,
the Maximum Auction Rate and the Non-Payment Rate with respect to the Tax Exempt
Auction Rate Series 1997-1 Senior Notes shall take effect on an Interest Rate
Determination Date only if (A) the Trustee, the Auction Agent and the
Corporation receive, by 11:00 a.m., New York City time, on the Business Day
immediately preceding such Interest Rate Determination Date, a Corporation
certificate authorizing the adjustment of such percentage, together with a copy
of the Corporation consent thereto and the opinion of Bond Counsel described
above; and (B) the Trustee and the Corporation have received written
confirmation from each of the Rating Agencies then rating the Tax Exempt Auction
Rate Series 1997-1 Senior Notes that such proposed adjustment will not adversely
affect its ratings then applicable to any of the Tax Exempt Auction Rate Series
1997-1 Senior Notes. If any of the conditions referred to in (A) and (B) above
are not met, the existing percentage used to determine the All Hold Rate,
Applicable Percentage used to determine the Maximum Auction Rate and percentage
of the Index used to determine the Non-Payment Rate shall remain in effect, and
the rate of interest on Tax Exempt Auction Rate Series 1997-1 Senior Notes for
the next succeeding Interest Period shall be determined in accordance with the
Auction Procedures.
Changes in the Auction Date
The Market Agent, with the written consent of an Authorized Officer of the
Corporation and, in the case of the Tax Exempt Auction Rate Series 1997-1 Senior
Notes, upon receipt of the opinion of Bond Counsel as hereinafter required, may
specify an earlier Auction Date (but in no event more than five Business Days
earlier)
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than the Auction Date that would otherwise be determined in accordance with the
definition of "Auction Date" set forth above under "Auction Procedures --
General", with respect to one or more specified Auction Periods in order to
conform with then-current market practice with respect to similar securities or
to accommodate economic and financial factors that may affect or be relevant to
the day of the week constituting an Auction Date and the interest rate on the
Auction Rate Series 1997-1 Senior Notes. No such change in the Auction Date
shall be effective with respect to the Auction Rate Series 1997-1 Senior Notes
unless the Corporation and the Trustee, prior to the proposed effective date of
such change, have received a written opinion of Bond Counsel to the effect that
such change will not adversely affect the exclusion of interest on any of such
Notes from income for federal income tax purposes. The Market Agent shall
deliver a written request for consent to such change in the Auction Date to the
Corporation not less than three days nor more than 20 days prior to the
effective date of such change. The Market Agent shall provide notice of its
determination to specify an earlier Auction Date for one or more Auction Periods
by means of a written notice delivered at least ten days prior to the proposed
changed Auction Date to the Trustee, the Auction Agent, the Corporation and the
Securities Depository. Such notice will be substantially in the form of, or
contain substantially the information contained in, the First Supplemental
Indenture.
Notice of Changes in Auction Terms
In connection with any change in Auction Terms described above, the Auction
Agent is to provide such further notice to such parties as is specified in the
Auction Agent Agreement.
SETTLEMENT PROCEDURES FOR AUCTION RATE
SERIES 1997-1 SENIOR NOTES
If not otherwise defined below, capitalized terms used below will have the
meanings given such terms under "Glossary of Certain Defined Terms" or "Auction
of the Auction Rate Series 1997-1 Senior Notes". These Settlement Procedures
apply separately to each series of Auction Rate Series 1997-1 Senior Notes.
(a) Not later than 3:00 p.m., New York City time, if the Auction Rate
Series 1997-1 Senior Note Interest Rate is the Auction Rate (provided that such
notice is not required until 4:00 p.m., New York City time, if the Auction Rate
Series 1997-1 Senior Note Interest Rate is the Maximum Auction Rate (or in the
case of the Taxable Auction Rate Series 1997-1 Senior Notes, the Net Loan
Rate)), the Auction Agent is to notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of an Existing Holder or Potential Holder of:
(i) the Auction Rate Series 1997-1 Senior Note Interest Rate fixed for
the next Interest Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted
Bids or Sell Orders on behalf of an Existing Holder, whether such Bid or
Sell Order was accepted or rejected, in whole or in part, and the principal
amount of Auction Rate Series 1997-1 Senior Notes, if any, to be sold by
such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid
on behalf of a Potential Holder, whether such Bid was accepted or rejected,
in whole or in part, and the principal amount of Auction Rate Series 1997-1
Senior Notes, if any, to be purchased by such Potential Holder;
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(v) if the aggregate principal amount of Auction Rate Series 1997-1
Senior Notes to be sold by all Existing Holders on whose behalf such
Seller's Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate
principal amount of Auction Rate Series 1997-1 Senior Notes to be purchased
by all Potential Holders on whose behalf such Buyer's Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers
(and the name of the Participant, if any, of each such Buyer's Broker-
Dealer) acting for one or more purchasers of such excess principal amount
of Auction Rate Series 1997-1 Senior Notes and the principal amount of
Auction Rate Series 1997-1 Senior Notes to be purchased from one or more
Existing Holders on whose behalf such Seller's Broker-Dealer acted by one
or more Potential Holders on whose behalf each of such Buyer's Broker-
Dealers acted;
(vi) if the aggregate principal amount of Auction Rate Series 1997-1
Senior Notes to be purchased by all Potential Holders on whose behalf such
Buyer's Broker-Dealer submitted a Bid exceeds the aggregate principal
amount of Auction Rate Series 1997-1 Senior Notes to be sold by all
Existing Holders on whose behalf such Seller's Broker-Dealer submitted a
Bid or a Sell Order, the name or names of one or more Seller's Broker-
Dealers (and the name of the Participant, if any, of each such Seller's
Broker-Dealer) acting for one or more sellers of such excess principal
amount of Auction Rate Series 1997-1 Senior Notes and the principal amount
of Auction Rate Series 1997-1 Senior Notes to be sold to one or more
Potential Holders on whose behalf such Buyer's Broker-Dealer acted by one
or more Existing Holders on whose behalf each of such Seller's Broker-
Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Existing Holder or Potential Holder is to:
(i) advise each Existing Holder and Potential Holder on whose behalf
such Broker-Dealer submitted a Bid or Sell Order in the Auction on such
Auction Date whether such Bid or Sell Order was accepted or rejected, in
whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
advise each Potential Holder on whose behalf such Buyer's Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct such
Potential Holder's Participant to pay to such Buyer's Broker-Dealer (or its
Participant) through the Securities Depository the amount necessary to
purchase the principal amount of the Auction Rate Series 1997-1 Senior
Notes to be purchased pursuant to such Bid (which amount, unless the date
of such purchase is an Interest Payment Date, will include an amount equal
to the interest accrued and unpaid on such principal amount of Auction Rate
Series 1997-1 Senior Notes) against receipt of such Auction Rate Series
1997-1 Senior Notes;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Holder on whose behalf such Seller's Broker-
Dealer submitted a Sell Order that was accepted, in whole or in part, or a
Bid that was accepted, in whole or in part, to instruct such Existing
Holder's Participant to deliver to such Seller's Broker-Dealer (or its
Participant) through the Securities Depository the principal amount of the
Auction Rate Series 1997-1 Senior Notes to be sold pursuant to such Order
against payment therefor;
(iv) advise each Existing Holder on whose behalf such Broker-Dealer
submitted an Order and each Potential Holder on whose behalf such Broker-
Dealer submitted a Bid of the Auction Rate Series 1997-1 Senior Note
Interest Rate for the next Interest Period;
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(v) advise each Existing Holder on whose behalf such Broker-Dealer
submitted an Order of the next Auction Date; and
(vi) advise each Potential Holder on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, of the next Auction
Date.
(c) On the basis of the information provided to it pursuant to paragraph
(a) above, each Broker-Dealer that submitted a Bid or Sell Order in an Auction
is required to allocate any funds received by it in connection with such Auction
pursuant to paragraph (b)(ii) above, and any Auction Rate Series 1997-1 Senior
Notes received by it in connection with such Auction pursuant to paragraph
(b)(iii) above, among the Potential Holders, if any, on whose behalf such
Broker-Dealer submitted Bids, the Existing Holders, if any on whose behalf such
Broker-Dealer submitted Bids or Sell Orders in such Auction, and any Broker-
Dealers identified to it by the Auction Agent following such Auction pursuant to
paragraph (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder with an Order in the
Auction on such Auction Date will instruct its Participant as provided in
paragraph (b)(ii) or (b)(iii) above, as the case may be;
(ii) each Seller's Broker-Dealer that is not a Participant of the
Securities Depository will instruct its Participant to deliver such Auction
Rate Series 1997-1 Senior Notes through the Securities Depository to a
Buyer's Broker-Dealer (or its Participant) identified to such Seller's
Broker-Dealer pursuant to paragraph (a)(v) above against payment therefor;
and
(iii) each Buyer's Broker-Dealer that is not a Participant of the
Securities Depository will instruct its Participant to pay through the
Securities Depository to Seller's Broker-Dealer (or its Participant)
identified to such Buyer's Broker-Dealer pursuant to paragraph (a)(vi)
above the amount necessary to purchase the Auction Rate Series 1997-1
Senior Notes to be purchased pursuant to paragraph (b)(ii) above against
receipt of such Auction Rate Series 1997-1 Senior Notes.
(e) On the Business Day following each Auction Date:
(i) each Participant for a Bidder in the Auction on such Auction Date
referred to in paragraph (d)(i) above will instruct the Securities
Depository to execute the transactions described under paragraph (b)(ii) or
(b)(iii) above for such Auction, and the Securities Depository will execute
such transactions;
(ii) each Seller's Broker-Dealer or its Participant will instruct the
Securities Depository to execute the transactions described in paragraph
(d)(ii) above for such Auction, and the Securities Depository will execute
such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will instruct the
Securities Depository to execute the transactions described in paragraph
(d)(iii) above for such Auction, and the Securities Depository will execute
such transactions.
(f) If an Existing Holder selling Auction Rate Series 1997-1 Senior Notes
in an Auction fails to deliver such Auction Rate Series 1997-1 Senior Notes (by
authorized book-entry), a Broker-Dear may deliver to the Potential Holder on
behalf of which it submitted a Bid that was accepted a principal amount of
Auction Rate Series 1997-1 Senior Notes that is less than the principal amount
of Auction Rate Series 1997-1 Senior Notes that otherwise was to be purchased by
such Potential Holder. In such event, the principal amount of Auction Rate
Series 1997-1
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Senior Notes to be so delivered will be determined solely by such Broker-Dealer.
Delivery of such lesser principal amount of Auction Rate Series 1997-1 Senior
Notes will constitute good delivery. Notwithstanding the foregoing terms of this
paragraph (f), any delivery or nondelivery of Auction Rate Series 1997-1 Senior
Notes which will represent any departure from the results of an Auction, as
determined by the Auction Agent, will be of no effect unless and until the
Auction Agent will have been notified of such delivery or nondelivery in
accordance with the provisions of the Auction Agent Agreement and the Broker-
Dealer Agreements. Neither the Trustee nor the Auction Agent will have any
responsibility or liability with respect to the failure of a Potential Holder,
Existing Holder or their respective Broker-Dealer or Participant to take
delivery of or deliver, as the case may be, the principal amount of the Auction
Rate Series 1997-1 Senior Notes purchased or sold pursuant to an Auction or
otherwise.
SUMMARY OF THE INDENTURE
The following is a summary of the material provisions of the Indenture and
the First Supplemental Indenture and is not to be considered as a full statement
of the provisions of the Indenture or the First Supplemental Indenture. The
summary is qualified by reference to and is subject to the complete Indenture
and the First Supplemental Indenture, which are incorporated by reference
herein. Copies thereof, in reasonable quantity, may be obtained during the
offering period upon request directed to Education Loans Incorporated,
Attention: President, 105 First Avenue Southwest, Aberdeen, South Dakota 57401.
Although the following summary refers to the "Corporation" only, the use of such
term should also be read to include the Original Issuer prior to the Section
150(d)(3) Transfer.
The Indenture establishes the general provisions of Notes issued by the
Corporation thereunder and sets forth various covenants and agreements of the
Corporation relating thereto, default and remedy provisions, responsibilities
and duties of the Trustee and establishes the various Funds into which the
Corporation's revenues related to the Notes are deposited and transferred for
various purposes. The First Supplemental Indenture provides for the specific
terms and details of the Series 1997-1 Notes, pledges the Financed Student Loans
and the revenues related thereto and establishes the various Accounts in the
Funds related to the Series 1997-1 Notes.
General Terms of Notes
Each series of Notes shall be created by and issued pursuant to a
Supplemental Indenture and such Supplemental Indenture shall designate Notes of
each series as Senior Notes, Subordinate Notes or Class C Notes. The Notes of
each series shall bear such date or dates, shall be payable at such place or
places, shall have such Principal Payment Dates, shall bear interest at such
rate or rates, from such date or dates, payable in such installments and on
Interest Payment Dates and at such place or places, and may be subject to
prepayment or call for redemption at such Redemption Price or Prices and upon
such terms, as shall be provided for in the Supplemental Indenture creating that
series.
The Stated Maturities and Sinking Fund Payment Dates of all Notes shall
occur on a June 1 or a December 1, unless otherwise specified with respect to
any series of Variable Rate Notes in the Supplemental Indenture providing for
the issuance thereof. All Corporation Swap Payments and other payments to be
made by the Corporation to Credit Facility Providers shall be payable on a
regularly scheduled Interest Payment Date.
Except as may be otherwise provided in a Supplemental Indenture, in any
case where the principal of, premium, if any, or interest on the Notes or
amounts due to any Other Beneficiary shall be due on a day other than a Business
Day, then payment of such principal, premium and interest or such amounts may be
made on the next succeeding Business Day with the same force and effect as if
made on the date due and no interest shall accrue for the intervening period.
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In the event a default occurs in the due and punctual payment of any
interest on any Note, interest shall be payable thereon to the extent permitted
by law on the overdue installment of interest, at the interest rate borne by the
Note in respect of which such interest is overdue.
The Notes, including the principal thereof, premium, if any, and interest
thereon and any Carry-Over Amounts (and accrued interest thereon) with respect
thereto, and Other Indenture Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture.
Additional Notes
Notes shall be issued under the Indenture only for the purposes of (a)
providing funds for the origination or purchase, or both, by the Trustee on
behalf of the Corporation or by the Corporation of Eligible Loans (including,
for this purpose, the acquisition under the Indenture of Eligible Loans
previously purchased or originated by the Corporation from other available
moneys of the Corporation), (b) refunding at or before their Stated Maturity any
or all Outstanding Notes issued for that purpose, and (c) paying Administrative
Costs, Note Fees, Costs of Issuance and capitalized interest on the Notes being
issued and making deposits to the Reserve Fund.
At any time, one or more series of Notes may be issued in such principal
amounts as may be determined by the Corporation for any of the purposes
hereinbefore specified upon compliance with certain conditions specified in the
Indenture (including the requirement that each Rating Agency shall have
confirmed that no outstanding ratings on any of the Outstanding Unenhanced Notes
will be reduced or withdrawn as a result of such issuance) and any additional
conditions specified in a Supplemental Indenture. Any Additional Notes will not
be offered or sold pursuant to this Prospectus.
Comparative Security of Noteholders and Other Beneficiaries
The Senior Notes (including the Series 1997-1 Senior Notes) are equally and
ratably secured under the Indenture with any Other Senior Obligations. The
Senior Obligations have payment and certain other priorities over the
Subordinate Notes, the Other Subordinate Obligations and the Class C Notes. The
Subordinate Notes (including the Series 1997-1 Subordinate Notes) are equally
and ratably secured under the Indenture with any Other Subordinate Obligations.
The Subordinate Obligations have payment and certain other priorities over the
Class C Notes. (See "Source of Payment and Security for the Notes --Priorities"
in this Prospectus.) The Senior Notes and the Subordinate Notes are each payable
from the Note Fund and are secured by the Reserve Fund. The Class C Notes are
payable solely from the Surplus Fund.
The Corporation may at any time issue a series of Notes as described under
"Additional Notes" above, either as Senior Notes, Subordinate Notes or Class C
Notes. (Any Additional Notes will not be offered or sold pursuant to this
Prospectus.) In connection with any such Senior Notes or Subordinate Notes, the
Corporation may enter into a Swap Agreement or Credit Enhancement Facility as it
deems in its best interest, subject to the provisions described in the next
succeeding paragraphs, and the Swap Counterparty or the Credit Enhancement
Provider may become a Senior Beneficiary or a Subordinate Beneficiary, as herein
described.
The Corporation may enter into a Swap Agreement only if the Swap
Counterparty has outstanding obligations rated by each Rating Agency not lower
that in its third highest Specific Rating Category (or each Rating Agency has a
comparable other rating with respect to such Swap Counterparty, such as a
comparable rating of claims paying ability or deposits). No Swap Agreement
shall be designated as a Senior Swap Agreement unless, as of the date the
Corporation enters into such Swap Agreement, the Senior Asset Requirement will
be met and the Trustee shall have received written confirmation from each Rating
Agency that the execution and delivery of the Swap Agreement will not cause the
reduction or withdrawal of any rating or ratings then applicable to any
Outstanding Unenhanced Notes.
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Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement
No call for redemption (other than mandatory sinking fund redemption of
Senior Term Notes), prepayment of principal or purchase (other than on a
Purchase Date or Mandatory Tender Date) of Notes by the Trustee shall be
effective under the Indenture unless, prior to the Trustee giving notice of call
for redemption, determining that such prepayment will be made or soliciting such
purchase, the Corporation furnishes the Trustee a Corporation certificate to the
effect that:
1. if Senior Notes are to be called for redemption prepaid or
purchased, either (A) after giving effect to such call for redemption,
prepayment or purchase, the Senior Asset Requirement will be met, or (B)
(i) prior to such call for redemption, prepayment or purchase, the Senior
Asset Requirement is not being met, (ii) no Subordinate Notes or Class C
Notes will be called for redemption on the Redemption Date, prepaid on the
Prepayment Date or purchased on the purchase date for the Senior Notes then
proposed to be called for redemption, prepaid or purchased, and (iii) after
giving effect to such call for redemption, prepayment or purchase, the
Senior Percentage will be greater than it would have been without such call
for redemption, prepayment or purchase;
2. if Subordinate Notes are to be called for redemption, prepaid or
purchased, after giving effect to such call for redemption, prepayment or
purchase, the Senior Asset Requirement will be met; and
3. if Class C Notes are to be called for redemption, prepaid or
purchased, after giving effect to such call for redemption, prepayment or
purchase, the Senior Asset Requirement will be met and there shall be no
deficiency then existing in the Note Fund, the Reserve Fund or the Rebate
Fund.
In general, compliance with the foregoing conditions is determined as of
the date of selection of Notes to be called for redemption or as of the date on
which moneys are transferred to the Retirement Account to make any prepayment
and any failure to satisfy such conditions as of the Redemption Date or
Prepayment Date, as applicable, will not affect such determination; provided
that, if Notes have been defeased and are to be called for redemption,
compliance with such conditions will be determined on the date of defeasance
instead of as of the date of selection. (See "Discharge of Notes and Indenture"
below.)
Any election to call Notes for redemption or to prepay Notes may also be
conditioned upon such additional requirements as may be set forth in the
Supplemental Indenture authorizing the issuance of such Notes.
Funds and Accounts
Acquisition Fund
The Indenture establishes an Acquisition Fund. With respect to each series
of Notes, the Trustee shall, upon delivery to the initial purchasers thereof and
from the proceeds thereof, credit to the Acquisition Fund the amount, if any,
specified in the Supplemental Indenture providing for the issuance of such
series of Notes. The Trustee shall also deposit in the Acquisition Fund: (i) any
funds to be transferred thereto from the Surplus Fund, and (ii) any other
amounts specified in a Supplemental Indenture. In addition, the Trustee shall
also credit to the Acquisition Fund any Eligible Loans transferred thereto from
the Surplus Account as described under "Surplus Fund" below (any such Eligible
Loans so transferred being thereafter deemed to have been Financed with moneys
in the Acquisition Fund).
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Balances in the Acquisition Fund shall be used only for (a) the purchase or
origination of Eligible Loans, (b) the redemption of Notes which are called for
redemption or the purchase of Notes as provided in a Supplemental Indenture
providing for the issuance of such series of Notes, (c) the payment of Debt
Service on the Senior Notes and Other Senior Obligations when due, (d) the
payment of the purchase price of any Senior Notes required to be purchased on a
Purchase Date or a Mandatory Tender Date, or (e) to cure deficiencies in the
Rebate Fund. The Trustee shall make, or authorize any Deposit Agent to make,
payments to Lenders from the Acquisition Fund for the acquisition of Eligible
Loans, such payments to be made from the Series 1997-1 Tax Exempt and Taxable
Acquisition Accounts at a purchase price not in excess of 100% of the remaining
unpaid principal amount of such Eligible Loan, plus accrued noncapitalized
borrower interest thereon, if any, to the date of purchase, reasonable transfer,
origination or assignment fees, if applicable, and a premium not to exceed
certain limitations set forth in the First Supplemental Indenture. The Trustee
shall also make, or authorize the Deposit Agent to make, payments from the
Acquisition Fund for the origination of Eligible Loans.
Balances in the Acquisition Fund (other than any portion of such Balances
consisting of Student Loans) shall be (i) transferred to the credit of the
Rebate Fund to the extent necessary, after transfers thereto from the Revenue
Fund, the Surplus Fund, the Reserve Fund, the Administration Fund and the Note
Fund, to make any deposit to the credit of the Rebate Fund as described under
"Rebate Fund" below, (ii) after such transfer, if any, to be made pursuant to
the preceding clause (i) has been taken into account, transferred to the credit
of the Note Fund on the last Business Day preceding any Interest Payment Date,
Principal Payment Date or Redemption Date to the extent required to pay the Debt
Service due on the Senior Notes and any Other Senior Obligations, as described
under "Note Fund" below, and (iii) after such transfers, if any, to be made
pursuant to the preceding clauses (i) and (ii) have been taken into account,
transferred to the credit of the Principal Account on any Purchase Date or
Mandatory Tender Date with respect to Senior Notes, to the extent described
under "Note Fund" below. In the event that, after transfers to the Rebate Fund
from all other Funds and Accounts, a deficiency exists in the Rebate Fund, the
Trustee shall use its best efforts to sell Student Loans included in the Balance
of the Acquisition Fund at the best price available to the extent of such
deficiency; and the proceeds of any such sale shall be credited to the Rebate
Fund, to the extent of any deficiency in the Rebate Fund, and otherwise to the
Revenue Fund. If any amounts have been transferred to either or both of the
Rebate Fund or the Note Fund pursuant to this paragraph, the Trustee shall, to
the extent necessary to cure the deficiency in the Acquisition Fund as a result
of such transfer or transfers, transfer to the Acquisition Fund amounts from the
Revenue Fund as described below under "Revenue Fund".
Pending application of moneys in the Acquisition Fund for one or more
authorized purposes, such moneys shall be invested in Investment Securities, as
described under "Investments" below, and any earnings on or income from said
investments shall be deposited in the Revenue Fund.
Revenue Fund
The Indenture establishes a Revenue Fund, which is comprised of two
Accounts: the Repayment Account and the Income Account. The Trustee and any
Deposit Agent shall credit to the Revenue Fund: (i) all amounts received as
interest, including federal interest subsidy payments, and principal payments
with respect to Financed Student Loans, including all Guarantee payments and all
Special Allowance Payments with respect to Financed Student Loans (excluding,
except in the case of the Eligible Loans to be Financed on the Date of Issuance
and as otherwise provided in a Supplemental Indenture, any federal interest
subsidy payments and Special Allowance Payments that accrued prior to the date
on which such Student Loans were Financed), (ii) unless otherwise provided in a
Supplemental Indenture, proceeds of the resale to a Lender of any Financed
Student Loans pursuant to such Lender's repurchase obligation under the
applicable Student Loan Purchase Agreement, (iii) all amounts received as
earnings on or income from Investment Securities in the Acquisition Fund, the
Reserve Fund, the Administration Fund, the Surplus Fund and the Note Fund, and
(iv) all amounts to be transferred to the Revenue Fund from the Rebate Fund. The
Trustee shall deposit and credit all such amounts received as payments of
principal of Financed Student Loans to the Repayment Account, and all other such
amounts to the Income Account.
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Pending transfers from the Revenue Fund, the moneys therein shall be
invested in Investment Securities as described under "Investments" below, and
any earnings on or income from said investments shall be retained therein.
Repayment Account. On each Monthly Payment Date and on any other date on
which the Balance in the Note Fund is not sufficient to pay all amounts payable
therefrom on such date, the Trustee shall, from the moneys received since the
preceding Monthly Payment Date in the Repayment Account, (1) make any periodic
rebate fee payments required to be made to the Secretary of Education in
connection with Financed Student Loans, and (2) transfer the remainder of such
moneys as follows:
First, to the credit of the Rebate Fund, to the extent necessary to
cure any deficiency therein as provided in the Indenture; second, to the
credit of the Interest Account, to the extent necessary to increase the
Balance thereof to the amount required on such Monthly Payment Date or such
other date pursuant to the Indenture for the payment of interest on Senior
Notes or Other Senior Obligations payable therefrom; third, to the credit
of the Principal Account, to the extent necessary to increase the Balance
thereof to the amount required on such Monthly Payment Date or such other
date pursuant to the Indenture for the call of Senior Notes for redemption
or payment of principal or the purchase price of Senior Notes or the
payment of Other Senior Obligations payable therefrom; fourth, to the
credit of the Retirement Account, to the extent and in the manner provided
in the Indenture with respect to the call of Senior Notes for redemption
from the Retirement Account or the payment of Other Senior Obligations
payable therefrom; fifth, to the credit of the Acquisition Fund, to the
extent described above under "Acquisition Fund"; sixth, to the credit of
the Interest Account, to the extent necessary to increase the Balance
thereof to the amount required on such Monthly Payment Date or such other
date pursuant to the Indenture for the payment of interest on Subordinate
Notes or Other Subordinate Obligations payable therefrom; seventh, to the
credit of the Principal Account, to the extent necessary to increase the
Balance thereof to the amount required on such Monthly Payment Date or such
other date pursuant to the Indenture for the payment of principal at Stated
Maturity or the purchase price of Subordinate Notes or the payment of Other
Subordinate Obligations payable therefrom; eighth, to the credit of the
Retirement Account, to the extent and in the manner provided in the
Indenture with respect to the call of Subordinate Notes for redemption from
the Retirement Account or payment of Other Subordinate Obligations payable
therefrom; ninth, to the credit of the Reserve Fund, to the extent
necessary to increase the Balance thereof to the Reserve Fund Requirement;
tenth, to the credit of the Principal Account, to the extent necessary to
increase the Balance thereof to the amount required to meet the sinking
fund installment with respect to the call of Subordinate Term Notes for
redemption on the next Sinking Fund Payment Date therefor; eleventh, to the
credit of the Special Redemption and Prepayment Account, to the extent
necessary to increase the Balance thereof to the Special Redemption and
Prepayment Account Requirement with respect to each series of Notes; and
twelfth, any remainder to the credit of the Surplus Account.
Income Account. On each Monthly Payment Date and on any other date on
which the Balance in the Note Fund is not sufficient to pay all amounts payable
therefrom on such date, the Trustee shall, after transferring all amounts
received in the Repayment Account pursuant to the preceding paragraph, from the
moneys received since the preceding Monthly Payment Date in the Income Account,
(1) to the extent amounts in the Repayment Account were not sufficient therefor,
make any periodic rebate fee payments required to be made to the Secretary of
Education in connection with Financed Student Loans, and (2) transfer the
remainder of such moneys as follows:
First, to the credit of the Rebate Fund, to the extent necessary to
cure any deficiency therein as provided in the Indenture; second, to the
credit of the Interest Account, to the extent necessary to increase the
Balance thereof to the amount required on such Monthly Payment Date or such
other date pursuant to the Indenture for the payment of interest on Senior
Notes or Other
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Senior Obligations payable therefrom; third, to the credit of the Principal
Account, to the extent necessary to increase the Balance thereof to the
amount required on such Monthly Payment Date or such other date pursuant to
the Indenture for the call of Senior Notes for redemption or payment of
principal or the purchase price of Senior Notes or the payment of Other
Senior Obligations payable therefrom; fourth, to the credit of the
Retirement Account, to the extent and in the manner provided in the
Indenture with respect to the call of Senior Notes for redemption from the
Retirement Account or payment of Other Senior Obligations payable
therefrom; fifth, to the credit of the Acquisition Fund, to the extent
described above under "Acquisition Fund"; sixth, to the credit of the
Interest Account, to the extent necessary to increase the Balance thereof
to the amount required on such Monthly Payment Date or such other date
pursuant to the Indenture for the payment of interest on Subordinate Notes
or Other Subordinate Obligations payable therefrom; seventh, to the credit
of the Principal Account, to the extent necessary to increase the Balance
thereof to the amount required on such Monthly Payment Date or such other
date pursuant to the Indenture for the payment of principal at Stated
Maturity or the purchase price of Subordinate Notes or the payment of Other
Subordinate Obligations payable therefrom; eighth, to the credit of the
Retirement Account, to the extent and in the manner provided in the
Indenture with respect to the call of Subordinate Notes for redemption from
the Retirement Account or payment of Other Subordinate Obligations payable
therefrom; ninth, to the credit of the Administration Fund, to extent
necessary to increase the Balance thereof to such amounts as an Authorized
Officer of the Corporation shall direct by Corporation order for certain
costs and expenses; tenth, to the credit of the Reserve Fund, to the extent
necessary to increase the Balance thereof to the Reserve Fund Requirement;
eleventh, to the credit of the Principal Account, to the extent necessary
to increase the Balance thereof to the amount required to meet the sinking
fund installment with respect to the call of Subordinate Term Notes for
redemption on the next Sinking Fund Payment Date therefor; twelfth, to the
credit of the Special Redemption and Prepayment Account, to the extent
necessary to increase the Balance thereof to the Special Redemption and
Prepayment Account Requirement with respect to each series of Notes; and
thirteenth, any remainder to the credit of the Surplus Account.
Note Fund
The Indenture establishes a Note Fund, which is comprised of three
Accounts: the Interest Account, the Principal Account and the Retirement
Account. The Note Fund shall be used only for the payment when due of principal
of, premium, if any, and interest on the Senior Notes and the Subordinate Notes,
the purchase price of Senior Notes and Subordinate Notes to be purchased on a
Purchase Date or Mandatory Tender Date in accordance with the Indenture, Other
Indenture Obligations and Carry-Over Amounts (including any accrued interest
thereon) and to make transfers to the credit of the Rebate Fund. The principal
of and interest on the Class C Notes are payable from the Surplus Fund.
Interest Account. The Trustee shall deposit in the Interest Account (i)
that portion of the proceeds from the sale of Financed Student Loans
representing accrued interest and Special Allowance Payments thereon, (ii) that
portion of the proceeds from the sale of the Corporation's bonds, notes or other
evidences of indebtedness, if any, to be used to pay interest on the Senior
Notes or the Subordinate Notes, (iii) all Counterparty Swap Payments, (iv) all
payments under any Credit Enhancement Facilities to be used to pay interest on
(or the interest portion of the purchase price of) the Notes and (v) all amounts
required to be transferred thereto from the Funds and Accounts specified in the
last sentence of the following paragraph. The moneys in the Interest Account
shall be invested in Investment Securities as described under "Investments"
below, and any earnings on or income from such investments shall be deposited in
the Revenue Fund.
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To provide for the payment of each installment of interest which falls due
upon Senior Notes or Subordinate Notes on each regularly scheduled Interest
Payment Date and all Corporation Swap Payments and fees to a Credit Facility
Provider payable on such Interest Payment Date, the Trustee shall make deposits
to the credit of the Interest Account on each Monthly Payment Date (less certain
credits against such payments). If, on any Interest Payment Date (including a
Redemption Date or a date that Notes are to be purchased that is not a regularly
scheduled Interest Payment Date), moneys in the Interest Account are
insufficient to pay the accrued interest due on the Senior Notes and Subordinate
Notes and all Corporation Swap Payments and fees to a Credit Enhancement
Facility Provider payable on such Interest Payment Date or constituting a
portion of the purchase price of Notes to be so purchased, the Trustee shall
deposit immediately to the credit of the Interest Account an amount equal to
such deficiency. Each deposit required by this paragraph shall be made by
transfer from the following Funds and Accounts, in the following order of
priority: the Revenue Fund, the Surplus Fund (other than that portion of the
Balance thereof consisting of Eligible Loans), the Reserve Fund, the
Administration Fund, the Surplus Fund (including any portion of the Balance
thereof consisting of Eligible Loans), the Retirement Account, the Principal
Account and, as to Senior Notes and Other Senior Obligations only, the
Acquisition Fund (other than that portion of the Balance thereof consisting of
Student Loans); provided that such transfers in respect of Subordinate Notes or
Other Subordinate Obligations shall be so made from the Principal Account or the
Retirement Account only if, and to the extent, any amounts to be so transferred
are in excess of the requirements of such Accounts with respect to Senior
Obligations payable therefrom.
If, as of any regularly scheduled Interest Payment Date, any Carry-Over
Amount (including any accrued interest thereon) is due and payable with respect
to a series of Notes, as provided in the related Supplemental Indenture, the
Trustee shall transfer to the Interest Account (to the extent amounts are
available therefor in the Surplus Account, after taking into account all other
amounts payable from the Surplus Fund on such Interest Payment Date) an amount
equal to such Carry-Over Amount (including any accrued interest thereon) so due
and payable.
Balances in the Interest Account shall be transferred to the credit of the
Rebate Fund to the extent necessary, after transfers thereto from the Revenue
Fund, the Surplus Fund, the Reserve Fund, the Administration Fund, the
Retirement Account and the Principal Account, to make any deposit to the credit
of the Rebate Fund required by the Indenture. (See "Rebate Fund" below.)
Apart from transfers to the Rebate Fund and transfers to the Principal
Account as described under "Principal Account" below, Balances in the Interest
Account shall be applied, first, to the payment of interest on all Senior Notes,
Corporation Swap Payments under Senior Swap Agreements and fees payable to
Senior Credit Enhancement Providers due on an Interest Payment Date, and if such
money (after the transfers hereinabove described, including all amounts, to the
extent necessary, in the Principal Account) is less than such interest and Other
Senior Obligations on such Interest Payment Date, such money shall be applied,
pro rata, among such indebtedness based upon such amounts then owing to Senior
Beneficiaries and to be paid from the Interest Account; second, to the payment
of interest on all Subordinate Notes, Corporation Swap Payments under
Subordinate Swap Agreements and fees payable to Subordinate Credit Enhancement
Providers due on an Interest Payment Date, and if such money (after the
transfers hereinabove described, including all amounts, to the extent necessary,
in the Principal Account over and above the amount on deposit therein to meet
any accrued obligations to pay principal of the Senior Notes or amounts, other
than fees, to Senior Credit Facility Providers) is less than such interest and
Other Subordinate Obligations on such Interest Payment Date, such money shall be
applied, pro rata, among such indebtedness based upon such amounts then owing to
Subordinate Beneficiaries and to be paid from the Interest Account; third, to
the payment of all Carry-Over Amounts (including any accrued interest thereon)
due and payable on all series of Senior Notes, and if such money is less than
such Carry-Over Amounts (including any accrued interest thereon) on an Interest
Payment Date, such money shall be applied, pro rata, among such Carry-Over
Amounts (including any accrued interest thereon) based upon such amounts then
otherwise due and payable to Senior Noteholders and to be paid from the Interest
Account; and fourth, to the payment of all Carry-Over Amounts (including any
accrued interest thereon) due and payable on all series of Subordinate Notes,
and if such money is less than such Carry-Over Amounts (including any accrued
interest thereon) on an Interest Payment Date, such
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money shall be applied, pro rata, among such Carry-Over Amounts (including any
accrued interest thereon) based upon such amounts then otherwise due and payable
to Subordinate Noteholders and to be paid from the Interest Account.
Other Indenture Obligations payable from the Interest Account will include
reimbursement to any Credit Facility Provider for interest paid on Senior Notes
or Subordinate Notes from amounts derived from the related Credit Enhancement
Facility, which reimbursement shall have the same priority of payment from the
Interest Account as the interest so paid.
Principal Account. The Trustee shall deposit to the credit of the
Principal Account: (i) that portion of the proceeds from the sale of Financed
Student Loans representing principal thereof, (ii) that portion of the proceeds
from the sale of the Corporation's bonds, notes or other evidences of
indebtedness, if any, to be used to pay principal of the Senior Notes and the
Subordinate Notes, (iii) all payments under any Credit Enhancement Facilities to
be used to pay principal of Senior Notes or Subordinate Notes or the purchase
price of Senior Notes or Subordinate Notes to be purchased on a Purchase Date or
Mandatory Tender Date, and (iv) all amounts required to be transferred thereto
from the following Funds, in the following order of priority: (1) in the case
of payment of principal of Notes at Stated Maturity, redemption of Senior Notes
called for redemption on a Sinking Fund Payment Date or the purchase of Notes on
a Purchase Date or Mandatory Tender Date, the Revenue Fund, the Surplus Fund
(other than that portion of the Balance thereof consisting of Eligible Loans),
the Reserve Fund, the Administration Fund and the Surplus Fund (including any
portion of the Balance thereof consisting of Eligible Loans), and (2) in the
case of redemption of Subordinate Notes called for redemption on a Sinking Fund
Payment Date, the Revenue Fund and the Surplus Fund (other than that portion of
the Balance thereof consisting of Eligible Loans); provided, however, that if
principal is payable on Senior Notes at the Stated Maturity thereof or upon a
Sinking Fund Payment Date therefor, or the purchase price is payable on Senior
Notes on a Purchase Date or Mandatory Tender Date, and money credited to the
Principal Account, after the foregoing transfers, is insufficient to pay such
principal or purchase price, funds shall be transferred, to the extent
necessary, to the Principal Account for this purpose, (i) from the Interest
Account, but only to the extent that the Balance in the Interest Account exceeds
any then accrued payments of interest on the Senior Notes, Corporation Swap
Payments under Senior Swap Agreements and fees owing to Senior Credit
Enhancement Providers and (ii) thereafter from the Acquisition Fund (other than
that portion of the Balance thereof consisting of Student Loans).
To provide for the payment of principal due on the Stated Maturity of
Senior or Subordinate Serial Notes or on a Sinking Fund Payment Date for Senior
or Subordinate Term Notes, the Trustee shall make deposits to the credit of the
Principal Account on each Monthly Payment Date from amounts available therefor
in the Revenue Fund and the other Funds referred to above. To the extent there
are not available moneys to make any monthly payment with respect to the
cumulative sinking fund redemption of Subordinate Term Notes, subsequent monthly
payments shall be increased to make up any such deficiency, and to the extent
that on any Sinking Fund Payment Date the aggregate of such payments actually
made as of the next-to-the-last Monthly Payment Date prior to such Sinking Fund
Payment Date is less than the amount of the sinking fund installment due on such
Sinking Fund Payment Date, the amount of such deficiency shall be added to the
amount of the sinking fund installment due on the next Sinking Fund Payment
Date, and the increased amount thereupon shall be deemed to be the amount due
for such next sinking fund installment. However, the requirement for payments of
cumulative sinking fund installments on Subordinate Term Notes shall not be
construed to create an Event of Default in the event of any such deficiency
(other than, under certain circumstances, in amounts due with respect to the
Stated Maturity of Subordinate Term Notes) unless a sinking fund installment of
such Subordinate Term Notes shall not only be due and not applied to the
redemption of Subordinate Term Notes which are called for redemption or the
purchase of Subordinate Term Notes, but also that all contingencies upon the
obligation so to apply it as of such time in fact have been satisfied.
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In the event that the Corporation is required to furnish moneys to the
Depositary to purchase Notes on a Purchase Date or Mandatory Tender Date, the
Trustee shall, subject to the applicable provisions of the related Supplemental
Indenture, immediately deposit to the credit of the Principal Account moneys
sufficient to pay the purchase price thereof.
Balances in the Principal Account shall be transferred to the credit of the
Rebate Fund to the extent necessary, after transfers thereto from the Revenue
Fund, the Surplus Fund, the Reserve Fund, the Administration Fund and the
Retirement Account, to make any required deposit to the credit of the Rebate
Fund. (See "Rebate Fund" below.)
Balances to the credit of the Principal Account shall be applied in the
following order of priority: first, to the extent required by the immediately
preceding paragraph, for transfer to the Rebate Fund; second, to the Interest
Account to the extent required (see "Interest Account" above) for the payment of
interest on Senior Notes and Other Senior Obligations payable therefrom; third,
to the payment of Senior Notes at their Stated Maturity or on their Sinking Fund
Payment Date and Other Senior Obligations payable therefrom; fourth, to the
payment of the purchase price of Senior Notes on a Purchase Date or Mandatory
Tender Date; fifth, to the Interest Account to the extent required (see
"Interest Account" above) for the payment of interest on Subordinate Notes and
Other Subordinate Obligations payable therefrom; sixth, to the payment of
Subordinate Notes at their Stated Maturity and Other Subordinate Obligations
payable therefrom; seventh, to the payment of the purchase price of Subordinate
Notes on a Purchase Date or Mandatory Tender Date; and eighth, to the payment of
Subordinate Term Notes on a Sinking Fund Payment Date.
Other Indenture Obligations payable from the Principal Account will include
reimbursement to any Credit Facility Provider for principal or the purchase
price paid on Senior Notes or Subordinate Notes from amounts derived from the
related Credit Enhancement Facility, which reimbursement shall have the same
priority of payment from the Principal Account as the principal so paid.
Subject to compliance with the provisions of the Indenture described under
"Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement"
above, Balances in the Principal Account may also be applied to the purchase of
Senior Notes or Subordinate Notes at a purchase price (including any brokerage
or other charges) not to exceed the Principal Amount thereof plus accrued
interest, as determined by the Corporation at such time, provided the Trustee
shall have first certified that no deficiencies exist at such time in the Note
Fund or the Rebate Fund. Any such purchase shall be limited to those Senior
Notes or Subordinate Notes whose Stated Maturity or Sinking Fund Payment Date is
the next succeeding Principal Payment Date.
The moneys in the Principal Account shall be invested in Investment
Securities as described under "Investments" below, and any earnings on or income
from such investments shall be deposited in the Revenue Fund.
Retirement Account. The Trustee shall deposit to the credit of the
Retirement Account (i) any amounts transferred thereto from the Reserve Fund and
the Surplus Fund, (ii) that portion of the proceeds from the sale of the
Corporation's bonds, notes or other evidences of indebtedness, if any, to be
used to pay the principal or Redemption Price of Senior Notes or Subordinate
Notes on a date other than the Stated Maturity thereof or a Sinking Fund Payment
Date therefor, and (iii) all payments under any Credit Enhancement Facilities to
be used to pay the Redemption Price of Notes payable from the Retirement
Account. All Senior Notes or Subordinate Notes which are to be retired, or the
principal of which is to be prepaid, other than with moneys in the Principal
Account shall be retired or prepaid with moneys deposited to the credit of the
Retirement Account.
Balances in the Retirement Account shall be transferred to the credit of
the Rebate Fund to the extent necessary, after transfers thereto from the
Revenue Fund, the Surplus Fund, the Reserve Fund and the Administration Fund, to
make any required deposit to the Rebate Fund. (See "Rebate Fund" below.) After
taking into account any such required transfers to the Rebate Fund, Balances in
the Retirement Account shall be transferred
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to the credit of the Interest Account to the extent required (see "Interest
Account" above) for the payment of interest on Notes and Other Indenture
Obligations payable therefrom.
Other Indenture Obligations payable from the Retirement Account will
include reimbursement to any Credit Facility Provider for the Redemption Price
paid on Senior Notes or Subordinate Notes from amounts derived from the related
Credit Enhancement Facility, which reimbursement shall have the same priority of
payment from the Retirement Account as the Redemption Price so paid.
Subject to compliance with the provisions of the Indenture described under
"Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement"
above, Balances in the Retirement Account (other than any portion thereof to be
applied to the mandatory prepayment of principal of any Notes) may also be
applied to the purchase of Senior Notes or Subordinate Notes at a purchase price
(including any brokerage or other charges) not to exceed the Principal Amount
thereof plus accrued interest plus any then applicable redemption premium, as
determined by the Corporation at such time; provided the Trustee shall have
first certified that no deficiencies exist at such time in the Note Fund or the
Rebate Fund.
The moneys in the Retirement Account shall be invested in Investment
Securities as described under "Investments" below, and any earnings on or income
from such investment shall be deposited in the Revenue Fund.
Administration Fund
With respect to each series of Notes, the Trustee shall, upon delivery
thereof and from the proceeds thereof, credit to the Administration Fund
established under the Indenture the amount, if any, specified in the
Supplemental Indenture providing for the issuance of such series of Notes. The
Trustee shall also credit to the Administration Fund all amounts transferred
thereto from the Revenue Fund and the Surplus Account. Amounts in the
Administration Fund shall be used to pay Costs of Issuance, Administrative
Expenses and Note Fees or to reimburse another fund, account or other source of
the Corporation for the previous payment of Costs of Issuance, Administrative
Expenses or Note Fees. Balances in the Administration Fund shall also be
applied to remedy deficiencies in the Rebate Fund and the Note Fund after
transfers thereto from the Revenue Fund, the Surplus Fund (other than that
portion of the Balance thereof consisting of Eligible Loans) and the Reserve
Fund.
The Trustee shall transfer and credit to the Administration Fund moneys
available under the Indenture for transfer thereto from the sources set forth in
the following paragraph and in such amounts and at such times as an Authorized
Officer of the Corporation shall direct by Corporation order; provided such
Corporation order shall certify that the amounts are required and have been or
will be expended within the next 90 days for a purpose for which the
Administration Fund may be used and applied.
Deposits to the credit of the Administration Fund shall be made from the
following sources in the following order of priority: the Income Account after
transfers therefrom to the Rebate Fund, the Interest Account, the Principal
Account (other than with respect to the payment of sinking fund installments for
Subordinate Notes), and the Retirement Account; and the Surplus Account after
transfers therefrom to the Rebate Fund, the Interest Account, the Principal
Account (other than with respect to the payment of sinking fund installments for
Subordinate Notes) and the Retirement Account, provided that any such deposit
from the Surplus Account shall only be made to the extent that portion of the
Balance thereof not consisting of Eligible Loans is sufficient therefor.
Pending transfers from the Administration Fund, the moneys therein shall be
invested in Investment Securities, as described under "Investments" below, and
any earnings on or income from such investments shall be deposited in the
Revenue Fund.
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Reserve Fund
The Reserve Fund is established under the Indenture only for the security
of the Senior Beneficiaries and the Subordinate Beneficiaries, and not for the
Holders of the Class C Notes (other than to provide funds for transfers to the
Rebate Fund for Tax Exempt Class C Notes as hereinafter described). Immediately
upon the delivery of any series of Senior Notes or Subordinate Notes, and from
the proceeds thereof or, at the option of the Corporation, from any amounts to
be transferred thereto from the Surplus Fund and from any other available moneys
of the Corporation not otherwise credited to or payable into any Fund or Account
under the Indenture or otherwise subject to the pledge and security interest
created by the Indenture, the Trustee shall credit to the Reserve Fund the
amount, if any, specified in the Supplemental Indenture providing for the
issuance of that series of Notes, such that, upon issuance of such Notes, the
Balance in the Reserve Fund shall not be less than the Reserve Fund Requirement.
If on any Monthly Payment Date the Balance in the Reserve Fund is less than
the Reserve Fund Requirement, the Trustee shall transfer and credit thereto an
amount equal to the deficiency from moneys available therefor in the following
Funds and Accounts in the following order of priority: the Repayment Account,
the Income Account and the Surplus Fund; provided that any such transfer from
the Surplus Fund shall only be made to the extent that portion of the Balance
thereof not consisting of Eligible Loans is sufficient therefor.
The Balance in the Reserve Fund shall be used and applied solely for (i)
transfers to the Rebate Fund to the extent necessary, after transfers thereto
from the Revenue Fund and the Surplus Fund (other than that portion of the
Balance thereof consisting of Eligible Loans), to make any required deposit to
the Rebate Fund (see "Rebate Fund" below), and (ii) after such transfer, if any,
to be made pursuant to the preceding clause (i) has been taken into account, the
payment when due of principal and interest on the Senior Notes and the
Subordinate Notes and any Other Indenture Obligations and the purchase price of
Senior Notes and Subordinate Notes on a Purchase Date or Mandatory Tender Date,
and the other purposes specified in the Indenture (see "Note Fund" above), and
shall be so used and applied by transfer by the Trustee to the credit of the
Note Fund, (a) at any time and to the extent that the Balance therein and the
Balances available for deposit to the credit thereof from the Revenue Fund and
the Surplus Fund (other than that portion of the Balance thereof consisting of
Eligible Loans) are insufficient to meet the requirements specified in the
Indenture for deposit to the credit of the Note Fund at such time (provided,
however, that such amounts shall be applied, first, to the payment of interest
on the Senior Notes and Other Senior Obligations payable from the Interest
Account, second, to the payment of principal and the purchase price of Senior
Notes and Other Senior Obligations payable from the Principal Account, third, to
the payment of interest on the Subordinate Notes and Other Subordinate
Obligations payable from the Interest Account, and, fourth, to the payment of
principal and the purchase price of Subordinate Notes and Other Subordinate
Obligations payable from the Principal Account) and (b) at any time when a
portion of the Balance therein is required to be transferred to the Retirement
Account to pay a portion of the Redemption Price of Senior Notes or Subordinate
Notes called for redemption as provided in a Supplemental Indenture relating
thereto. If on any Monthly Payment Date the Balance in the Reserve Fund exceeds
the Reserve Fund Requirement, such excess shall, upon Corporation order, be
transferred to the Principal Account, to the extent necessary to make the
deposits required to be made to the credit of the Principal Account on such
Monthly Payment Date, whether or not other moneys are available to make such
deposits.
Pending transfers from the Reserve Fund, the moneys therein shall be
invested in Investment Securities as described under "Investments" below and any
earnings on or income from such investments shall be deposited in the Revenue
Fund.
Rebate Fund
The Indenture establishes a Rebate Fund, which is comprised of two
Accounts: the Rebate Account and the Excess Earnings Account.
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Rebate Account. The Trustee shall deposit to the credit of the Rebate
Account amounts from the Balances in the Revenue Fund, the Surplus Fund (other
than that portion of the Balance thereof consisting of Eligible Loans), the
Reserve Fund, the Administration Fund, the Surplus Fund (including any portion
of the Balance thereof consisting of Eligible Loans), the Retirement Account,
the Principal Account, the Interest Account and the Acquisition Fund, in that
order of priority, upon receipt of a Corporation certificate (which the
Corporation is required to provide on an annual basis) that any amounts to be so
transferred equal amounts which are subject to rebate to the United States under
Section 148 of the Code with respect to each series of Tax-Exempt Notes. In
addition, the Trustee shall deposit to the credit of the Rebate Account all
investment earnings received on amounts in the Rebate Account. In determining
the rebate amount, the Corporation and the Trustee shall take into account all
amounts held under the Indenture and, pending the application of such amounts to
the purpose for which such amounts were removed, all amounts removed from under
the Indenture.
Moneys in the Rebate Account shall be paid by the Trustee to the United
States at such times and in such amounts as are necessary to comply with the
rebate provisions of Section 148 of the Code with respect to each series of Tax-
Exempt Notes. In addition, upon receipt by the Trustee of a certification of
the Corporation that certain amounts in the Rebate Account are not subject to
rebate and an opinion of Bond Counsel to the effect that failure to rebate such
amounts will not cause interest on any series of Tax-Exempt Notes to become
includable in gross income of the owners thereof for federal income tax purposes
under either existing laws, regulations, rulings and decisions or any then
pending federal legislation, the Trustee shall transfer any such amounts to the
credit of the Revenue Fund. Moneys in the Rebate Account are not available for
transfer to any Fund or Account under the Indenture, except the Revenue Fund
under the circumstances described above, and shall be applied solely to meet the
Corporation's rebate obligations.
Excess Earnings Account. On or prior to each date established under the
Indenture for the calculation of Excess Earnings with respect to each series of
Tax-Exempt Notes (each an "Excess Earnings Computation Date"), the Trustee and
the Corporation shall determine whether any Excess Earnings have resulted with
respect to such series of Notes. In this regard, a portion of the proceeds of
the Tax Exempt Series 1997-1 Notes will be applied to the purchase of certain
Eligible Loans previously financed with the proceeds of other bonds or notes of
the Original Issuer (the "Refunded Obligations"), thereby refunding such bonds
or notes. Excess Earnings on such Eligible Loans shall be the "Excess Earnings"
computed with respect to the related series of Refunded Obligations in
accordance with the requirements of the indenture relating to such series, all
deposits to the Series 1997-1 Excess Earnings Sub-Account in respect of Excess
Earnings for each such series of Refunded Obligations shall be applied to reduce
the yield on the applicable Eligible Loans in accordance with the requirements
of the related indenture, and amounts in respect of such Excess Earnings shall
be deposited in, and shall be applied from, the Series 1997-1 Excess Earnings
Sub-Account prior to any other deposits in, or applications from, the Excess
Earnings Account. The foregoing provisions shall apply to each series of
Refunded Obligations until such series has been retired, after which time Excess
Earnings on the applicable Eligible Loans will be computed with respect to the
Tax Exempt Series 1997-1 Notes. The Corporation shall, upon each such
calculation, furnish the Trustee with a Corporation certificate verifying such
calculation and with any supporting documentation required to calculate or
evidence the Excess Earnings in accordance with applicable Treasury Regulations.
In the event any Excess Earnings with respect to a series of Notes have
resulted, the Trustee shall, on or prior to such Excess Earnings Computation
Date, transfer to the Excess Earnings Account the amount, if any, which is
necessary to increase the balance in such Account to an amount equal to such
Excess Earnings. Any such transfer shall be made from the Balances in the
Revenue Fund, the Surplus Fund (other than that portion of the Balance thereof
consisting of Eligible Loans), the Reserve Fund, the Administration Fund, the
Surplus Fund (including any portion of the Balance thereof consisting of
Eligible Loans), the Retirement Account, the Principal Account, the Interest
Account and the Acquisition Fund, in that order of priority.
All amounts in the Excess Earnings Account, including all investment
earnings thereon, shall remain therein until transferred to the Revenue Fund or
paid by the Trustee to the United States Department of the Treasury or for such
other purpose as the Corporation may specify, upon receipt by the Trustee of (a)
a Corporation order
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directing the Trustee to so transfer or pay a specified amount, and (b) a
written opinion of Bond Counsel to the effect that any such transfer or payment,
upon satisfaction of any conditions set forth in such opinion (e.g., forgiveness
of indebtedness on all or a portion of the related Financed Student Loans),
would not cause interest on any series of Tax-Exempt Notes to be includable in
the gross income of any owners thereof for federal income tax purposes.
Amounts in the Excess Earnings Account shall be used only for the purposes
specified in the preceding paragraph, and shall not be available for any other
purpose, including, but not limited to, payment of Debt Service on or the
purchase price of the Notes or any Other Indenture Obligations.
Surplus Fund
The Indenture establishes a Surplus Fund, which is comprised of two
Accounts: the Special Redemption and Prepayment Account and the Surplus
Account. The Trustee shall deposit to the credit of the Surplus Fund Balances
in the Revenue Fund not required for deposit to any other Fund or Account.
Deposits to the Surplus Fund from the Revenue Fund shall be credited to the
Special Redemption and Prepayment Account to the extent the Balance thereof is
less than the Special Redemption and Prepayment Account Requirement for each
series of Notes, and otherwise to the Surplus Account.
Balances in the Surplus Fund shall be applied to the following purposes in
the following order of priority: first, to remedy deficiencies in the Rebate
Fund (after transfers thereto from the Revenue Fund); second, to remedy
deficiencies in the Interest Account (after transfers thereto from the Revenue
Fund) for the payment of interest on Senior Notes or Other Senior Obligations
payable therefrom; third, to remedy deficiencies in the Principal Account (after
transfers thereto from the Revenue Fund) for the call of Senior Notes for
redemption or the payment of principal or the purchase price of Senior Notes or
the payment of Other Senior Obligations payable therefrom; fourth, to remedy
deficiencies in the Retirement Account (after transfers thereto from the Revenue
Fund) for the call of Senior Notes for redemption or the payment of Other Senior
Obligations payable therefrom; fifth, to remedy deficiencies in the Interest
Account (after transfers thereto from the Revenue Fund) for the payment of
interest on Subordinate Notes or Other Subordinate Obligations payable
therefrom; sixth, to remedy deficiencies in the Principal Account (after
transfers thereto from the Revenue Fund) for the payment of the principal at
Stated Maturity or the purchase price of Subordinate Notes or the payment of
Other Subordinate Obligations payable therefrom; seventh, to remedy deficiencies
in the Retirement Account (after transfers thereto from the Revenue Fund) for
the call of Subordinate Notes for redemption or the payment of Other Subordinate
Obligations payable therefrom; eighth, to make deposits (but only from the
Surplus Account) to the credit of the Administration Fund (after transfers
thereto from the Revenue Fund) to the extent required pursuant to a Corporation
order for certain costs and expenses; ninth, to remedy deficiencies in the
Reserve Fund (to the extent that the Balance is less than the Reserve Fund
Requirement after transfers thereto from the Revenue Fund); tenth, to remedy
deficiencies in the Principal Account (after transfers thereto from the Revenue
Fund) to meet the sinking fund installment with respect to the call of
Subordinate Term Notes for redemption on a Sinking Fund Payment Date; eleventh,
to make transfers to the credit of the Retirement Account to redeem Senior Notes
or Subordinate Notes which are called for redemption or to prepay Senior or
Subordinate Notes as provided in a Supplemental Indenture relating thereto
(provided that any such transfers shall be made only from Balances in the
Special Redemption and Prepayment Account); and twelfth, to make deposits (but
only from the Surplus Account) to the credit of the Interest Account for the
payment of Carry-Over Amounts (and accrued interest thereon). Notwithstanding
the foregoing, Balances in the Surplus Fund consisting of Eligible Loans shall
not be required to be applied (1) pursuant to priorities first through seventh
above until after any transfers from the Reserve Fund have been taken into
account, and (2) in any event pursuant to priorities eighth through twelfth
above. If the Surplus Fund is to be used to make such transfers, transfers shall
be made, first, from any cash or Investment Securities included in the Surplus
Account or the Special Redemption and Prepayment Account, in that order, and,
second, from the proceeds of any sale of Student Loans included in the Surplus
Account.
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Balances in the Special Redemption and Prepayment Account may also be
transferred to the Acquisition Fund for the acquisition or origination of
Eligible Loans as provided in the Indenture and as further authorized or limited
in a Supplemental Indenture.
Subject to compliance with the provisions of the Indenture described under
"Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement"
above and satisfaction of certain other conditions set forth in the Indenture,
Balances in the Special Redemption and Prepayment Account (other than any
portion thereof to be applied to the mandatory prepayment of principal of any
Notes) may also be transferred to the Note Fund for the purchase of Notes.
Balances in the Surplus Account may, subject to satisfaction of certain
conditions set forth in the Indenture (including the requirement that, after
taking into account any such payments, the Senior Asset Requirement will be met)
also be applied, as determined by the Corporation from time to time, to the
payment of principal of or interest on Class C Notes when due or upon the call
for redemption thereof at the option of the Corporation.
Subject to compliance with the provisions of the Indenture described under
"Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement"
above, Balances in the Surplus Account may also be applied to any one or more of
the following purposes at any time as determined by the Corporation at such
time, provided the Trustee shall have first certified that no deficiencies exist
at such time in the Note Fund, the Rebate Fund, the Reserve Fund or the Special
Redemption and Prepayment Account:
(1) transfer to the Retirement Account for the redemption of Senior
Notes or Subordinate Notes called for redemption;
(2) transfer to the Principal Account or the Retirement Account for
the purchase of Senior Notes or Subordinate Notes; or
(3) upon satisfaction of certain conditions set forth in the
Indenture, (a) the acquisition of Student Loans meeting the requirements of
clauses (A) (1) and (2) or (B) of the definition of "Eligible Loan" (see
"Glossary of Certain Defined Terms"); (b) to reimburse another fund,
account or other source of the Corporation for the previous payment of
Costs of Issuance; and (c) for such other purposes as the Corporation shall
determine; provided, however, that Balances in the Surplus Account shall
not be applied to any of the purposes specified in the preceding clause
(3)(b) or (c) or to the purchase of Student Loans that are not Eligible
Loans unless, after taking into account any such application and excluding,
for these purposes only, from the calculation of Aggregate Value, any
Financed Student Loans which are not Eligible Loans and any moneys
reasonably expected to be needed for transfer to the Rebate Fund or to be
used to pay Costs of Issuance, Note Fees or Administrative Expenses, (i)
the Senior Percentage will not be less than 112% (or such lower percentage
specified in a Corporation certificate delivered to the Trustee which, if
Unenhanced Senior Notes are Outstanding, shall not result in the lowering
or withdrawal of the outstanding rating assigned by any Rating Agency to
any of the Unenhanced Senior Notes Outstanding, or, if no Unenhanced Senior
Notes are Outstanding but Other Senior Obligations are Outstanding, is
acceptable to the Other Senior Beneficiaries entitled to such Other Senior
Obligations), and (ii) the Subordinate Percentage will not be less than
102% (or such lower percentage specified in a Corporation certificate
delivered to the Trustee which, if Unenhanced Subordinate Notes are
Outstanding, shall not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Subordinate Notes Outstanding, or, if no Unenhanced Subordinate Notes are
Outstanding but Other Subordinate Obligations are Outstanding, is
acceptable to the Other Subordinate Beneficiaries entitled to such Other
Subordinate Obligations); and provided, further, that Balances in the
Surplus Account may be applied to the purchase of Eligible Loans as
specified in the preceding clause (3)(a) without satisfying any other
condition of this clause (3), to the extent provided in a Supplemental
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Indenture (in this regard, the First Supplemental Indenture does not so
provide with respect to the application of Balances in the Series 1997-1
Tax Exempt and Taxable Surplus Sub-Accounts).
The Trustee shall use its best efforts to sell Student Loans included in
the Balance of the Surplus Account at the best price available to the extent
necessary to make any transfer or payment therefrom described above. In
addition, the Corporation may, at any time, sell to any purchaser (A) one or
more Eligible Loans Financed with moneys in the Surplus Account at a price not
less than 100% of the Principal Balance thereof plus accrued noncapitalized
interest thereon payable by the Eligible Borrower, or (B) one or more Student
Loans Financed with moneys in the Surplus Account that are not Eligible Loans at
a price not less than the lesser of 100% of the Principal Balance thereof or the
percentage of the Principal Balance thereof paid to finance such Student Loan
plus, in either case, accrued noncapitalized interest thereon payable by the
Eligible Borrower. Student Loans from time to time held in the Surplus Account
may also be purchased at any time with the proceeds of the Corporation's bonds,
notes or other evidences of indebtedness, at a purchase price equal to 100% of
the Principal Balance of the Student Loans so purchased plus accrued
noncapitalized interest thereon payable by the Eligible Borrower. Any money
received by the Corporation in connection with a sale of Financed Student Loans
pursuant to this paragraph shall be deposited to the credit of the Surplus
Account.
Pending transfers from the Surplus Fund, the moneys therein shall be
invested in Investment Securities as described under "Investments" below, and
any earnings on or income from such investments shall be deposited in the
Revenue Fund.
Pledge; Encumbrances
The Notes and all Other Indenture Obligations are special, limited
obligations of the Corporation specifically secured by the pledge of the
proceeds of the sale of Notes (until expended for the purpose for which the
Notes were issued), the Financed Student Loans and the revenues, moneys and
securities in the Acquisition Fund, the Note Fund, the Revenue Fund, the
Administration Fund, the Reserve Fund and the Surplus Fund, in the manner and
subject to the prior applications provided in the Indenture. Financed Student
Loans purchased with the proceeds of the Corporation's bonds, notes or
obligations or sold to another purchaser, or resold to a Lender pursuant to its
repurchase obligation under a Student Loan Purchase Agreement, or sold or
exchanged for Eligible Loans in accordance with the provisions of the Indenture,
are, contemporaneously with receipt by the Trustee of the purchase price
thereof, including any Eligible Loans to be received in exchange therefor, no
longer pledged to nor serve as security for the payment of the principal of,
premium, if any, or interest on, or any Carry-Over Amounts (or accrued interest
thereon) with respect to the Notes or any Other Indenture Obligations. The
revenues, moneys and securities in the Rebate Fund and the proceeds thereof are
not pledged to, and do not serve as security for, the payment of the principal
of, premium, if any, or interest on, any Carry-Over Amounts (or accrued interest
thereon) with respect to, or the purchase price of, the Notes or any Other
Indenture Obligations.
The Corporation agrees that it will not create, or permit the creation of,
any pledge, lien, charge or encumbrance upon the Financed Student Loans or the
revenues and other moneys, securities, properties, rights, interests and
evidences of indebtedness pledged under the Indenture, except only as to a lien
subordinate to the lien of the Indenture created by any other indenture
authorizing the issuance of bonds, notes or other evidences of indebtedness of
the Corporation, the proceeds of which have been or will be used to refund or
otherwise retire all or a portion of the Outstanding Notes or as otherwise
provided in or permitted by the Indenture. The Corporation agrees that it will
not issue any bonds or other evidences of indebtedness, other than the Notes as
permitted by the Indenture and other than Swap Agreements and Credit Enhancement
Facilities relating to Notes as permitted by the Indenture, secured by a pledge
of the revenues and other moneys, securities, properties, rights, interests and
evidences of indebtedness pledged under the Indenture or held aside by the
Corporation or by a fiduciary under the Indenture, creating a lien or charge on
such revenues and other moneys, securities, properties, rights, interests and
evidences of indebtedness equal or superior to the lien of the Indenture;
provided that nothing in the Indenture is intended to prevent the Corporation
from issuing obligations secured by assets and revenues of the Corporation other
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than the revenues and other moneys, securities, properties, rights, interests
and evidences of indebtedness pledged in the Indenture.
Covenants
Certain covenants with the Holders of the Notes and Other Beneficiaries
contained in the Indenture are summarized as follows:
Trustee to Hold Financed Student Loans. The Corporation shall cause all
Financed Student Loans to be endorsed and otherwise conveyed to the Trustee on
behalf of the Corporation in accordance with the provisions of the applicable
Student Loan Purchase Agreement or, in the case of any origination of Financed
Student Loans, shall cause such Student Loans to be originated in the name of
the Trustee. The Trustee shall be the legal owner of all Financed Student Loans
for all purposes of the Higher Education Act and each Guarantee Program. The
Trustee shall so hold such Financed Student Loans in its capacity as trustee
pursuant to the Indenture and, in such capacity, shall be acting on behalf of
the Corporation, as the beneficial owner of such Student Loans, as well as the
Holders of the Notes and all Other Beneficiaries, as their interests may appear.
Enforcement and Amendment of Guarantee Agreements. So long as any Notes or
Other Indenture Obligations are Outstanding and Financed Eligible Loans are
Guaranteed by a Guarantee Agency, the Corporation agrees that it (1) will, from
and after the date on which the Trustee on its behalf shall have entered into
the Guarantee Agreement, cause the Trustee to maintain the same and diligently
enforce the Trustee's rights thereunder, (2) will cause the Trustee to enter
into such other similar or supplemental agreements as shall be required to
maintain benefits for all Financed Student Loans covered thereby, and (3) will
not consent to or permit any rescission of or consent to any amendment to or
otherwise take any action under or in connection with the same which in any
manner will materially adversely affect the rights of the Noteholders or Other
Beneficiaries under the Indenture.
Acquisition, Collection and Assignment of Student Loans. The Corporation
agrees that it will, except as provided with regard to the Surplus Fund (see
"Funds and Accounts -- Surplus Fund" above), cause the Trustee to originate or
acquire only Eligible Loans with moneys in any of the Funds and (subject to any
adjustments referred to in the following paragraph) shall diligently cause to be
collected all principal and interest payments on all the Financed Student Loans
and other sums to which the Corporation is entitled pursuant to any Student Loan
Purchase Agreement, and all grants, subsidies, donations, insurance payments,
Special Allowance Payments and all defaulted payments Guaranteed by any
Guarantee Agency which relate to such Financed Student Loans. The Corporation
shall also make, or cause to be made by Lenders or Servicers, every effort to
perfect the Corporation's, the Trustee's or such Lender's or Servicer's claims
for payment from the Secretary of Education or a Guarantee Agency, as soon as
possible, of all payments related to such Financed Student Loans. The
Corporation will cause the Trustee to assign such Financed Student Loans for
payment of guarantee or insurance benefits within the time required under
applicable law and regulations. The Corporation will cause all United States
and State statutes, rules and regulations which apply to the Program and to
Financed Student Loans to be complied with.
Enforcement of Financed Student Loans. The Corporation agrees that it
shall cause to be diligently enforced, and cause to be taken all steps, actions
and proceedings reasonably necessary for the enforcement of, all terms,
covenants and conditions of all Financed Student Loans and agreements in
connection therewith, including the prompt payment of all principal and interest
payments (as such payments may be adjusted to take into account (i) any discount
the Corporation may cause to be made available to borrowers who make payments on
Financed Student Loans through automatic withdrawals, and (ii) any reduction in
the interest payable on Financed Student Loans provided for in any special
program under which such loans were originated) and all other amounts due the
Corporation or the Trustee thereunder. Nothing in the provisions of the
Indenture described in this paragraph, however, shall be construed to prevent
the Corporation from settling a default or curing a delinquency on any Financed
Student Loan on such terms as shall be required by law. In addition, (1) the
Corporation may cause the
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Trustee to forgive the indebtedness on all or a portion of the Financed Student
Loans or take such other action as may be provided in the written opinion of
Bond Counsel, as provided in the Indenture, to the extent necessary to prevent
interest on any series of Tax-Exempt Notes from being includable in the gross
income of the owners thereof for federal income tax purposes, and may cause the
Trustee to forgive the remaining indebtedness on any Financed Student Loan
having a principal balance not in excess of $100 if, in the reasonable judgment
of the Corporation, the cost of collection of the remaining indebtedness of such
Financed Student Loan would exceed such remaining indebtedness, and (2) the
Corporation may cause the Trustee to amend the terms of a Financed Student Loan
to provide for a different rate of interest thereon to the extent required by
law or, if such Financed Student Loan is a Plus or SLS Loan, to effect a
reissuance of such Plus or SLS Loan at a variable rate.
Servicing and Other Agreements. The Corporation may contract with other
Persons to assist it in performing its duties under the Indenture, and any
performance of such duties by a Person so identified to the Trustee shall be
deemed to be action taken by the Corporation. The Corporation may, and prior to
or contemporaneously with the Section 150(d)(3) Transfer shall, enter into a
Servicing Agreement providing for the servicing of the Financed Student Loans
and performance of certain of its other obligations under the Indenture.
Administration and Collection of Financed Student Loans. The Corporation
agrees that all Financed Student Loans shall be administered and collected
either by the Corporation or by a Servicer selected by the Corporation (and,
after the Section 150(d)(3) Transfer, shall be so administered and collected by
a Servicer) in a competent, diligent and orderly fashion and in accordance with
all requirements of the Higher Education Act, the Secretary of Education, the
Indenture, the Contract of Insurance, the Federal Reimbursement Contracts, each
Guarantee Program and each Guarantee Agreement.
Books of Account, Annual Audit. The Corporation agrees that it will cause
to be kept and maintained proper books of account relating to the Program in
which full, true and correct entries will be made, in accordance with generally
accepted accounting principles, of all dealings or transactions of or in
relation to the business and affairs of the Corporation, and within 120 days
after the end of each Fiscal Year will cause such books of account to be audited
by an Accountant. A copy of each audit report, annual balance sheet and income
and expense statement showing in reasonable detail the financial condition of
the Corporation as at the close of each Fiscal Year, and summarizing in
reasonable detail the income and expenses for such year, including the
transactions relating to the Funds and Accounts, shall be filed promptly with
the Trustee and be available for inspection by any Noteholder or Other
Beneficiary.
Punctual Payments. The Corporation agrees that it will duly and punctually
pay, or cause to be paid, the principal of, premium, if any, and interest on and
any Carry-Over Amount (and accrued interest thereon) with respect to each and
every Note and each Other Indenture Obligation from the revenues and other
assets pledged under the Indenture on the dates and at the places, and in the
manner provided, in the Notes and with respect to each Other Indenture
Obligation according to the true intent and meaning thereof, and the Corporation
will faithfully do and perform and at all times fully observe and keep any and
all of its covenants, undertakings, stipulations and provisions contained in the
Notes, the Other Indenture Obligations and the Indenture.
Monthly Servicing Reports. The Corporation shall prepare, or cause a
Servicer to prepare, a Monthly Servicing Report for each calendar month and
shall furnish, or cause to be furnished, to the Trustee a copy of each such
report by the 25th day of the next calendar month (or the next succeeding
Business Day if such 25th day is not a Business Day).
Tax Covenant. The Corporation covenants that (a) it will not take or omit
to take any action which may render the interest on any Tax-Exempt Notes
includable in gross income for purposes of federal income taxation, (b) it will
use the proceeds of the Notes and any other funds of the Corporation in such a
manner that the use thereof would not cause the Tax-Exempt Notes to be
"arbitrage bonds" under Section 148 of the Code, and (c) it will not permit at
any time any proceeds of the Notes or any other funds of the Corporation to be
used, directly or
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indirectly, in a manner which would result in the inclusion of the interest on
any Tax-Exempt Note in gross income for purposes of federal income taxation
otherwise afforded by the Code.
The First Supplemental Indenture prohibits any obligor on a Student Loan
Financed, in whole or in part, with proceeds of the Tax Exempt Series 1997-1
Notes, or any related party to such obligor, from purchasing any Tax Exempt
Series 1997-1 Notes in an amount related to the amount of such Student Loan.
Limitation on Administrative Expenses and Note Fees. The Corporation
covenants and agrees that the Administrative Expenses and Note Fees will not, in
any Fiscal Year, exceed those that are reasonable and necessary in light of all
circumstances then existing and will not, in any event, be in such amounts as
will materially adversely affect the ability of the Corporation to pay or
perform, as the case may be, any of its obligations under the Indenture or the
security for any Beneficiaries. The Corporation further covenants in the First
Supplemental Indenture that the Costs of Issuance, Administrative Expenses and
Note Fees to be paid, or reimbursed to the Corporation, from the Administration
Fund will not exceed the aggregate amount thereof specified in the Closing Cash
Flow Projection, unless the Corporation satisfies certain conditions, including
confirmation from each of the Rating Agencies then rating the Series 1997-1
Notes that payment or reimbursement of such additional Costs of Issuance,
Administrative Expenses or Note Fees will not result in a reduction or
withdrawal of the rating of the Series 1997-1 Notes.
Amendment of Student Loan Purchase Agreements. The Corporation shall
notify the Trustee in writing of any proposed amendments to the Student Loan
Purchase Agreements. No such amendment shall become effective unless and until
the Trustee consents in writing thereto, which consent shall not be given unless
the Trustee receives an opinion of Counsel that such amendment is required by
the Higher Education Act or is not to the prejudice of the Holders of the Notes
or Other Beneficiaries.
Amendment of Remarketing Agreements and Depositary Agreements. The
Corporation shall notify the Trustee and any related Credit Facility Provider in
writing of any proposed amendments to any Remarketing Agreement or Depositary
Agreement. No such amendment shall become effective unless and until (1) the
Trustee consents in writing thereto, which consent shall not be given unless the
Trustee receives an opinion of Counsel that such amendment is required by a
Credit Enhancement Facility or the Indenture or is not to the material prejudice
of the Holders of the Notes, and (2) any related Credit Facility Provider
consents in writing thereto, which consent shall not be unreasonably withheld,
provided that no consent of the Credit Facility Provider shall be required if
the Credit Facility Provider receives an opinion of Counsel that such amendment
is required by the Indenture.
Credit Enhancement Facilities and Swap Agreements. The Corporation may
from time to time enter into or obtain the benefit of any Credit Enhancement
Facilities or Swap Agreements with respect to any Notes of any series; provided
that a Supplemental Indenture is entered into authorizing the execution and
delivery of such agreement. (See "Supplemental Indentures" below.)
No Supplemental Indenture shall authorize the execution of a Swap Agreement
unless, as of the date the Corporation enters into such Swap Agreement, the Swap
Counterparty has outstanding obligations rated by each Rating Agency not lower
than in its third highest Specific Rating Category (or each Rating Agency has a
comparable other rating with respect to such Swap Counterparty, such as a
comparable rating of claims paying ability or deposits). No such Swap Agreement
shall be designated as a Senior Swap Agreement unless, as of the date the
Corporation enters into such Swap Agreement, the Senior Asset Requirement will
be met and the Trustee shall have received written confirmation from each Rating
Agency that the execution and delivery of the Swap Agreement will not cause the
reduction or withdrawal of any rating or ratings then applicable to any
Outstanding Unenhanced Notes.
Any Supplemental Indenture authorizing the execution by the Corporation of
a Swap Agreement or Credit Enhancement Facility may include provisions with
respect to the application and use of all amounts to be paid thereunder. No
amounts paid under any such Credit Enhancement Facility will be part of the
Trust Estate except
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to the extent, if any, specifically provided in such Supplemental Indenture and
no Beneficiary shall have any rights with respect to any such amounts so paid
except as may be specifically provided in such Supplemental Indenture.
No Petition
The Trustee, by entering into the Indenture, and each Noteholder, by
accepting a Note, covenants and agrees that it will not at any time institute
against the Corporation, or join in any institution against the Corporation of,
any bankruptcy, reorganization, arrangement, insolvency 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 or the Indenture.
Investments
"Investment Securities" shall mean any of the following:
1. Government Obligations;
2. Interest-bearing time or demand deposits, certificates of deposit
or other similar banking arrangements with any bank, trust company,
national banking association or other depositary institution (including the
Trustee or any of its affiliates), provided that, at the time of deposit or
purchase, if the investment is for a period exceeding one year, such
depository institution shall have long-term unsecured debt rated by each
Rating Agency not lower than in its highest applicable Specific Rating
Category or if the investment is for a period of less than one year, such
depository institution shall have short-term unsecured debt rated by each
Rating Agency not lower than its highest applicable Specific Rating
Category;
3. Obligations issued or guaranteed as to principal and interest by
any of the following: (a) the Government National Mortgage Association;
(b) the Federal National Mortgage Association; or (c) the Federal Farm
Credit Banks, the Federal Intermediate Credit Banks, the Export-Import Bank
of the United States, the Federal Land Banks, the Student Loan Marketing
Association, the Federal Financing Bank, the Federal Home Loan Banks, the
Federal Home Loan Mortgage Corporation or the Farmers Home Administration,
or any agency or instrumentality of the United States of America which
shall be established for the purpose of acquiring the obligations of any of
the foregoing or otherwise providing financing therefor, provided that any
such obligation described in this clause (c) shall either be rated by Fitch
or, if not rated by Fitch, rated by Moody's, (i) if such obligation has a
term of less than one year, not lower than in its highest applicable
Specific Rating Category, or (ii) if such obligation has a term of one year
or longer, not lower than in its highest applicable Specific Rating
Category;
4. Repurchase agreements or reverse repurchase agreements with banks
(which may include the Trustee or any of its affiliates) which are members
of the Federal Deposit Insurance Corporation or with government bond
dealers insured by the Securities Investor Protection Corporation, which
such agreements are secured by Government Obligations to a level sufficient
to obtain a rating by each Rating Agency in its highest applicable Specific
Rating Category, or with brokers or dealers whose unsecured long-term debt
is rated by each Rating Agency in its highest applicable Specific Rating
Category;
5. Any money market fund, including a qualified regulated investment
company described in I.R.S. Notice 87-22, rated by each Rating Agency not
lower than its highest applicable Specific Rating Category;
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6. Any debt instrument; provided that if such instrument has a term
of less than one year, it is rated by each Rating Agency not lower than in
its highest applicable Specific Rating Category, and if such instrument has
a term of one year or longer, it is rated by each Rating Agency not lower
than in its highest applicable Specific Rating Category;
7. Any investment agreement which constitutes a general obligation of
an entity whose debt, unsecured securities, deposits or claims paying
ability is rated by each Rating Agency, (a) if such investment agreement
has a term of less than one year, not lower than in its highest applicable
Specific Rating Category, or (b) if such investment agreement has a term of
one year or longer, not lower than in its highest applicable Specific
Rating Category; and
8. Any other investment if the Trustee shall have received written
evidence from each Rating Agency that treating such investment as an
Investment Security will not cause any rating then applicable to any
Outstanding Unenhanced Notes to be lowered or withdrawn or, if no
Unenhanced Notes are then Outstanding but Other Indenture Obligations are
Outstanding, is acceptable to the Other Beneficiaries entitled to such
Other Indenture Obligations, as evidenced in writing to the trustee by each
such Other Beneficiary.
Reports to Noteholders
The Trustee, in accordance with the Indenture, is required to mail a copy
of each Monthly Servicing Report to each Noteholder of record as of the most
recent Record Date. In addition, beneficial owners of the Notes may receive
such reports, upon written request to the Trustee together with a certification
that they are beneficial owners of the Notes. In the case of the Series 1997-1
Notes, the Servicer will file a copy of each such report with the Commission on
Form 8-K. However, in accordance with the Exchange Act and the rules and
regulations of the Commission thereunder, the Corporation expects that it's
obligation to file such reports will be terminated after June 30, 1998.
Events of Default
If any of the following events occur, it is an "Event of Default" under the
Indenture:
(A) default in the due and punctual payment of any interest on any
Senior Note; or
(B) default in the due and punctual payment of the principal of, or
premium, if any, on, any Senior Note, whether at the Stated Maturity
thereof, at the date fixed for redemption thereof (including, but not
limited to, Sinking Fund Payment Dates) or otherwise upon the maturity
thereof; or
(C) default by the Corporation in its obligation to purchase any
Senior Note on a Purchase Date or Mandatory Tender Date therefor; or
(D) default in the due and punctual payment of any amount owed by the
Corporation to any Other Senior Beneficiary under a Senior Swap Agreement
or Senior Credit Enhancement Facility; or
(E) if no Senior Obligations are Outstanding, default in the due and
punctual payment of any interest on any Subordinate Note; or
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(F) if no Senior Obligations are Outstanding, default in the due and
punctual payment of the principal of, or premium, if any, on, any
Subordinate Note, whether at the Stated Maturity thereof, at the date fixed
for redemption thereof (including, but not limited to, Sinking Fund Payment
Dates) or otherwise upon the maturity thereof; or
(G) if no Senior Obligations are Outstanding, default by the
Corporation in its obligation to purchase any Subordinate Note on a
Purchase Date or Mandatory Tender Date therefor; or
(H) if no Senior Obligations are Outstanding, default in the due and
punctual payment of any amount owed by the Corporation to any Other
Subordinate Beneficiary under a Subordinate Swap Agreement or a Subordinate
Credit Enhancement Facility; or
(I) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of any interest on any
Class C Note; or
(J) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of the principal of,
or premium, if any, on, any Class C Note, whether at the Stated Maturity
thereof, at the date fixed for redemption thereof (including, but not
limited to, Sinking Fund Payment Dates) or otherwise upon the maturity
thereof; or
(K) default in the performance of any of the Corporation's obligations
with respect to the transmittal of moneys to be credited to the Revenue
Fund, the Rebate Fund, the Acquisition Fund or the Note Fund under the
provisions of the Indenture and such default shall have continued for a
period of 30 days; or
(L) default in the performance or observance of any other of the
covenants, agreements or conditions on the part of the Corporation in the
Indenture or in the Notes contained, and such default shall have continued
for a period of 30 days after written notice thereof, specifying such
default, shall have been given by the Trustee to the Corporation, which may
give such notice in its discretion and shall give such notice at the
written request of the Acting Beneficiaries Upon Default, or by the Holders
of not less than 10% in aggregate Principal Amount of the Outstanding Notes
to the Corporation and the Trustee, provided that, except with respect to
the Corporation's covenants relating to the tax exemption of interest on
any Tax-Exempt Notes, if the default is such that it can be corrected, but
not within such 30 days, it shall not constitute an Event of Default if
corrective action is instituted by the Corporation within such 30 days and
is diligently pursued until the default is corrected; or
(M) certain events of bankruptcy or insolvency of the Corporation.
Remedies
Whenever any Event of Default other than that described in paragraph (L)
under "Events of Default" above shall have occurred and be continuing, the
Trustee may (and, upon the written request of the Acting Beneficiaries Upon
Default, the Trustee shall), by notice in writing delivered to the Corporation,
declare the principal of and interest accrued on all Notes then Outstanding due
and payable.
Whenever any Event of Default described in paragraph (L) under "Events of
Default" above shall have occurred and be continuing, (1) the Trustee may, by
notice in writing delivered to the Corporation, declare the principal of and
interest on all Notes then Outstanding due and payable; and (2) the Trustee
shall, upon the written request of the Acting Beneficiaries Upon Default, by
notice in writing delivered to the Corporation, declare the principal of and
interest on all Notes then Outstanding due and payable.
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At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Acting Beneficiaries Upon Default, by written notice to the
Corporation and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) There has been paid to or deposited with the Trustee by or for the
account of the Corporation, or provision satisfactory to the Trustee has been
made for the payment of, a sum sufficient to pay:
(A) if Senior Notes or Other Senior Obligations are Outstanding:
(i) all overdue installments of interest on all Senior Notes; (ii) the
principal of (and premium, if any, on) any Senior Notes which have become
due other than by such declaration of acceleration, together with interest
thereon at the rate or rates borne by such Senior Notes; (iii) to the
extent that payment of such interest is lawful, interest upon overdue
installments of interest on the Senior Notes at the rate or rates borne by
such Senior Notes; (iv) all Other Senior Obligations which have become due
other than as a direct result of such declaration of acceleration; (v) all
other sums required to be paid to satisfy the Corporation's obligations
with respect to the transmittal of moneys to be credited to the Revenue
Fund, the Rebate Fund, the Acquisition Fund and the Interest Account under
the provisions of the Indenture; and (vi) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and any
Paying Agents, Deposit Agents, Remarketing Agents, Depositaries, Auction
Agents and Broker-Dealers; or
(B) if no Senior Obligations are Outstanding, but Subordinate
Notes or Other Subordinate Obligations are Outstanding: (i) all overdue
installments of interest on all Subordinate Notes; (ii) the principal of
(and premium, if any, on) any Subordinate Notes which have become due other
than by such declaration of acceleration, together with interest thereon at
the rate or rates borne by such Subordinate Notes; (iii) to the extent that
payment of such interest is lawful, interest upon overdue installments of
interest on the Subordinate Notes at the rate or rates borne by such
Subordinate Notes; (iv) all Other Subordinate Obligations which have become
due other than as a direct result of such declaration of acceleration; (v)
all other sums required to be paid to satisfy the Corporation's obligations
with respect to the transmittal of moneys to be credited to the Revenue
Fund, the Rebate Fund, the Acquisition Fund and the Interest Account under
the provisions of the Indenture; and (vi) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and any
Paying Agents, Deposit Agents, Remarketing Agents, Depositaries, Auction
Agents and Broker-Dealers; or
(C) if no Senior Obligations or Subordinate Obligations are
Outstanding: (i) all overdue installments of interest on all Class C Notes
and all overdue sinking fund installments for the retirement of Class C
Notes; (ii) the principal of (and premium, if any, on) any Class C Notes
which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate or rates borne by such Class C Notes;
(iii) to the extent that payment of such interest is lawful, interest upon
overdue installments of interest on the Class C Notes at the rate or rates
borne by such Class C Notes; (iv) all other sums required to be paid to
satisfy the Corporation's obligations with respect to the transmittal of
moneys to be credited to the Revenue Fund, the Rebate Fund and the
Acquisition Fund under the provisions of the Indenture; and (v) all sums
paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel and any Paying Agents, Deposit Agents, Remarketing
Agents, Depositaries, Auction Agents and Broker-Dealers; and
(2) All Events of Default, other than the nonpayment of the principal
of and interest on Notes or amounts owing to Other Beneficiaries which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in the Indenture.
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If an Event of Default has occurred and is continuing, the Trustee may,
subject to applicable law, pursue any available remedy by suit at law or in
equity to enforce the covenants of the Corporation in the Indenture and may
pursue such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce, or aid in the protection and enforcement of,
the covenants and agreements in the Indenture. The Trustee is also authorized to
file proofs of claims in any equity, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization or other similar proceedings.
Notwithstanding any other provisions of the Indenture, if an "Event of
Default" (as defined therein) occurs under a Swap Agreement or a Credit
Enhancement Facility and, as a result, the Other Beneficiary that is a party
thereto is entitled to exercise one or more remedies thereunder, such Other
Beneficiary may exercise such remedies, including, without limitation, the
termination of such agreement, as provided therein, in its own discretion;
provided that the exercise of any such remedy does not adversely affect the
legal ability of the Trustee or Acting Beneficiaries Upon Default to exercise
any remedy available under the Indenture.
If an Event of Default has occurred and is continuing, and if it shall have
been requested so to do by the Holders of not less than 25% in aggregate
Principal Amount of all Notes then Outstanding or any Other Beneficiary and
shall have been indemnified as provided in the Indenture, the Trustee is obliged
to exercise such one or more of the rights and powers conferred by the Indenture
as the Trustee, being advised by its counsel, shall deem most expedient in the
interests of the Beneficiaries; provided, however, that the Trustee has the
right to decline to comply with any such request if the Trustee shall be advised
by Counsel that the action so requested may not lawfully be taken or if the
Trustee receives, before exercising such right or power, contrary instructions
from the Holders of not less than a majority in aggregate Principal Amount of
the Notes then Outstanding or from any Other Beneficiary.
The Acting Beneficiaries Upon Default have the right, at any time, by an
instrument or instruments in writing executed and delivered to the Trustee, to
direct the method and place of conducting all proceedings to be taken in
connection with the enforcement of the terms and conditions of the Indenture;
provided that (a) such direction shall not be otherwise than in accordance with
the provisions of law and of the Indenture; (b) the Trustee shall not determine
that the action so directed would be unjustly prejudicial to the Holders of
Notes or Other Beneficiaries not taking part in such direction, other than by
effect of the subordination of any of their interests thereunder; and (c) the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Except as may be permitted in a Supplemental Indenture with respect to an
Other Beneficiary, no Holder of any Note or Other Beneficiary shall have any
right to institute any suit, action or proceeding in equity or at law for the
enforcement of the Indenture or for the execution of any trust under the
Indenture or for the appointment of a receiver or any other remedy under the
Indenture unless (1) an Event of Default shall have occurred and be continuing,
(2) the Holders of not less than 25% in aggregate Principal Amount of Notes then
Outstanding or any Other Beneficiary shall have made written request to the
Trustee, (3) such Beneficiary or Beneficiaries shall have offered to the Trustee
indemnity, (4) the Trustee shall have thereafter failed for a period of 60 days
after the receipt of the request and indemnification or refused to exercise the
powers granted in the Indenture or to institute such action, suit or proceeding
in its own name and (5) no direction inconsistent with such written request
shall have been given to the Trustee during such 60-day period by the Holders of
not less than a majority in aggregate Principal Amount of the Notes then
Outstanding or by any Other Beneficiary; provided, however, that,
notwithstanding the foregoing provisions of the Indenture, the Acting
Beneficiaries Upon Default may institute any such suit, action or proceeding in
their own names for the benefit of the Holders of all Outstanding Notes and
Other Beneficiaries under the Indenture.
The Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of, premium, if any, and
interest on such Note in accordance with the terms thereof and of the Indenture
and, upon the occurrence of an Event of Default with respect thereto, to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
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The Trustee, unless it has declared the principal of and interest on all
Outstanding Notes immediately due and payable and a judgment or decree for
payment of the money due has been obtained by the Trustee, must waive any Event
of Default and its consequences upon written request of the Acting Beneficiaries
Upon Default; provided, however, that there shall not be waived (a) any Event of
Default arising from the acceleration of the maturity of the Notes, except upon
the rescission and annulment of such declaration as described in the third
paragraph under this caption "Remedies"; (b) any Event of Default in the payment
when due of any amount owed to any Beneficiary (including payment of principal
of or interest on any Note) except with the consent of such Beneficiary or
unless, prior to such waiver, the Corporation has paid or deposited (or caused
to be paid or deposited) with the Trustee a sum sufficient to pay all amounts
owed to such Beneficiary (including to the extent permitted by law, interest
upon overdue installments of interest); (c) any Event of Default arising from
the failure of the Corporation to pay unpaid expenses of the Trustee, its agents
and counsel, and any Authenticating Agent, Paying Agents, Note Registrars,
Deposit Agents, Remarketing Agents, Depositaries, Auction Agents and Broker-
Dealers as required by the Indenture, unless, prior to such waiver, the
Corporation has paid or deposited (or caused to be paid or deposited) with the
Trustee sums required to satisfy such obligations of the Corporation under the
provisions of the Indenture.
Application of Proceeds
All moneys received by the Trustee pursuant to any remedy shall, after
payment of the cost and expenses of the proceedings resulting in the collection
of such moneys and of the expenses, liabilities and advances incurred or made by
the Trustee with respect thereto, be applied as follows:
(A) Unless the principal of all the Outstanding Notes shall have
become or shall have been declared due and payable, all such moneys shall
be applied as follows:
FIRST, to the payment to the Senior Beneficiaries of all
installments of principal and interest then due on the Senior Notes
and all Other Senior Obligations, and if the amount available shall
not be sufficient to pay all such amounts in full, then to the payment
ratably, in proportion to the amounts due, to the Senior Noteholders
and to each Other Senior Beneficiary, without any discrimination or
preference, and the Trustee shall apply the amount so apportioned to
the Senior Noteholders first to the payment of interest and thereafter
to the payment of principal;
SECOND, to the payment to the Subordinate Beneficiaries of all
installments of principal and interest then due on the Subordinate
Notes and all Other Subordinate Obligations, and if the amount
available shall not be sufficient to pay all such amounts in full,
then to the payment ratably, in proportion to the amounts due, without
regard to due date, to the Subordinate Noteholders and to each Other
Subordinate Beneficiary, without any discrimination or preference, and
the Trustee shall apply the amount so apportioned to the Subordinate
Noteholders first to the payment of interest and thereafter to the
payment of principal; and
THIRD, to the payment of the Holders of the Class C Notes of all
installments of principal and interest (other than interest on overdue
principal) then due and payable.
(B) If the principal of all Outstanding Notes shall have become due
or shall have been declared due and payable and such declaration has not
been annulled and rescinded under the provisions of the Indenture, all such
moneys shall be applied as follows:
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SECOND, to the payment to the Subordinate Beneficiaries of the
principal and interest then due on the Subordinate Notes and all Other
Subordinate Obligations, without preference or priority of principal
over interest or of interest over principal, or of any installment of
interest over any other installment of interest, or of any Subordinate
Beneficiary over any other Subordinate Beneficiary, ratably, according
to the amounts due, to the Persons entitled thereto without any
discrimination or preference, and
THIRD, to the payment of the principal and premium, if any, and
interest then due and unpaid upon the Class C Notes, without
preference or priority of principal over interest or of interest over
principal, or of any installment of interest over any other
installment of interest, or of any Class C Note over any other Class C
Note, ratably, according to the amounts due respectively for principal
and interest, and other amounts owing, to the Persons entitled thereto
without any discrimination or preference.
(C) If the principal of all Outstanding Notes shall have been declared
due and payable and if such declaration shall thereafter have been
rescinded and annulled, then (subject to the provisions described in
paragraph (B) above, in the event that the principal of all the Outstanding
Notes shall later become or be declared due and payable) the money held by
the Trustee under the Indenture shall be applied in accordance with the
provisions described in paragraph (A) above.
Trustee
Prior to the occurrence of an Event of Default which has not been cured,
the Trustee is required to perform such duties and only such duties as are
specifically set forth in the Indenture. Upon the occurrence and continuation
of an Event of Default, the Trustee shall exercise the rights and powers vested
in it by Indenture, and use the same degree of care and skill in their exercise,
as a prudent man would exercise or use under the circumstances in his own
affairs.
Before taking any action under the Indenture, the Trustee may require that
satisfactory indemnity be furnished to it for the reimbursement of all expenses
to which it may be put and to protect it against all liability by reason of any
action so taken, except liability which is adjudicated to have resulted from its
negligence or willful misconduct.
The Trustee may at any time resign upon 60 days' notice to the Corporation
and to the Beneficiaries, such resignation to take effect upon the appointment
of a successor Trustee. The Trustee may be removed at any time by the
Corporation at the request of the Holders of a majority in Principal Amount of
Notes Outstanding, except during the existence of an Event of Default. No such
removal shall be effective until the appointment of a successor Trustee.
Deposit Agents
The Corporation may, in a Supplemental Indenture, appoint one or more
Deposit Agents to hold any part or all of the Revenue Fund, the Acquisition Fund
and/or the Administration Fund. Pursuant to the First Supplemental Indenture,
Norwest Bank of South Dakota, N.A., Sioux Falls, South Dakota, has been
appointed a Deposit Agent for the Revenue Fund. Any Deposit Agent may be
removed at any time by the Corporation by Board Resolution and by instrument
signed by an Authorized Officer of the Corporation filed with such Deposit
Agent.
Each Deposit Agent appointed by the Corporation shall be an incorporated
bank having trust powers or trust company organized under the laws of the State,
or a national banking association having trust powers, having its principal
office in the State and having a combined capital and surplus of at least
$5,000,000.
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Supplemental Indentures
Supplemental Indentures Not Requiring Consent of Beneficiaries
The Corporation and the Trustee may, from time to time and at any time,
without the consent of, or notice to, any of the Noteholders or any Other
Beneficiary (except to the extent, if any, required pursuant to a Supplemental
Indenture authorizing the issuance of a series of Notes), enter into an
indenture or indentures supplemental to the Indenture as shall not be
inconsistent with the terms and provisions of the Indenture, so as to thereby,
among other things:
(a) cure any ambiguity or formal defect or omission in the Indenture
or in any Supplemental Indenture,
(b) grant to or confer upon the Trustee for the benefit of the
Beneficiaries any additional rights, remedies, powers, authority or
security that may lawfully be granted to or conferred upon the
Beneficiaries or the Trustee,
(c) describe or identify more precisely any part of the Trust Estate
or subject additional revenues, properties or collateral to the lien and
pledge of the Indenture,
(d) authorize the issuance of a series of Notes, subject to the
requirements of the Indenture (see "Additional Notes" above),
(e) amend the assumptions contained in the definition of "Cash Flow
Projection",
(f) modify the Indenture as required by any Credit Facility Provider
or Swap Counterparty, or otherwise necessary to give effect to any Credit
Enhancement Facility or Swap Agreement, at the time of issuance of a series
of Notes to which such agreements relate; provided that no such
modifications shall be effective (1) if the consent of any Noteholders
would be required therefor under the proviso described in the next
succeeding paragraph and such consent has not been obtained, or (2) the
Trustee shall determine that such modifications are to the prejudice of any
Class C Noteholder, or
(g) make any other change in the Indenture which, in the judgment of
the Trustee, is not to the prejudice of the Trustee or any Beneficiary.
Supplemental Indentures Requiring Consent of Noteholders
Exclusive of Supplemental Indentures described in the preceding paragraph,
the Trustee, upon receipt of an instrument evidencing the consent to the below-
mentioned Supplemental Indenture by: (i) if they are affected thereby, the
Holders of not less than two-thirds of the aggregate Principal Amount of the
Outstanding Senior Notes not held by the Corporation or a related person, (ii)
if they are affected thereby, the Holders of not less than two-thirds of the
aggregate Principal Amount of the Outstanding Subordinate Notes not held by the
Corporation or a related person, and (iii) each other Person which must consent
to such Supplemental Indenture as provided in any then outstanding Supplemental
Indenture authorizing the issuance of a series of Notes, shall join with the
Corporation in the execution of such other Supplemental Indenture as shall be
deemed necessary and desirable for the purpose of modifying, altering, amending,
adding to or rescinding, in any particular, any of the terms or provisions
contained in the Indenture; provided, however, that no such Supplemental
Indenture shall permit without the consent of each Beneficiary which would be
affected thereby: (a) an extension of the maturity of the principal of or the
interest on any Note, (b) a reduction in the Principal Amount, Redemption Price
or purchase price of any Note or the rate of interest thereon, (c) a privilege
or priority of any Senior Obligation over any other Senior Obligation, (d) a
privilege or priority of any Subordinate Obligation over any other Subordinate
Obligation, (e) a
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privilege or priority of any Class C Note over any other Class C Note, (f) a
privilege of any Senior Notes over any Subordinate Notes or Class C Notes, or of
any Subordinate Notes over any Class C Notes, other than as theretofore provided
in the Indenture, (g) the surrendering of a privilege or a priority granted by
the Indenture if, in the judgment of the Trustee, to the detriment of another
Beneficiary under the Indenture, (h) a reduction or an increase in the aggregate
Principal Amount of the Notes required for consent to such Supplemental
Indenture, (i) the creation of any lien ranking prior to or on a parity with the
lien of the Indenture on the Trust Estate or any part thereof, except as
expressly permitted in the Indenture, (j) any Beneficiary to be deprived of the
lien created on the rights, title, interest, privileges, revenues, moneys and
securities pledged under the Indenture, (k) the modification of any of the
provisions of the Indenture described in this paragraph, or (l) the modification
of any provision of a Supplemental Indenture which states that it may not be
modified without the consent of the Holders of Notes issued pursuant thereto or
any Notes of the same class or any Beneficiary that has provided a Credit
Enhancement Facility or Swap Agreement of such class.
Rights of Trustee
If, in the opinion of the Trustee, any Supplemental Indenture adversely
affects the rights, duties or immunities of the Trustee under the Indenture or
otherwise, the Trustee may, in its discretion, decline to execute such
Supplemental Indenture. The Trustee is entitled to receive, and shall be fully
protected in relying upon, an opinion of its Counsel as conclusive evidence that
any such Supplemental Indenture conforms to the requirements of the Indenture.
Consent of Depositaries, Remarketing Agents, Auction Agents and Broker-
Dealers
So long as any Depositary Agreement, Remarketing Agreement, Auction Agent
Agreement or Broker-Dealer Agreement is in effect, no Supplemental Indenture
which materially adversely affects the rights, duties or immunities of the
Depositary, the Remarketing Agent, the Auction Agent or the Broker-Dealer, as
the case may be, created by the Indenture or the Depositary Agreement,
Remarketing Agreement, Auction Agent Agreement or Broker-Dealer Agreement, as
appropriate, shall become effective unless and until delivery to the Trustee of
a written consent of the Depositary, the Remarketing Agent, the Auction Agent or
the Broker-Dealer, as the case may be, to such Supplemental Indenture.
Opinion and Rating Agency Approval Required Prior to Execution of
Supplemental Indenture
No Supplemental Indenture shall be executed unless, prior to the execution
thereof: (1) if any Tax-Exempt Notes are Outstanding, the Corporation shall have
provided to the Trustee an opinion of Bond Counsel to the effect that the
execution and delivery of such Supplemental Indenture will not adversely affect
the exclusion from the gross income of the owners thereof for federal income tax
purposes of interest on any such Tax-Exempt Notes; and (2) the Trustee shall
have received written evidence from each Rating Agency that execution and
delivery of such Supplemental Indenture will not adversely affect any rating or
ratings then applicable to any of the Outstanding Notes.
Discharge of Notes and Indenture
The obligations of the Corporation under the Indenture, and the liens,
pledges, charges, trusts, covenants and agreements of the Corporation therein
made or provided for, shall be fully discharged and satisfied as to any Note and
such Note shall no longer be deemed to be Outstanding thereunder:
(i) when such Note shall have been canceled, or shall have been
purchased by the Trustee from moneys held by it under the Indenture; or
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(ii) as to any Note not canceled or so purchased, when payment of the
principal of and the applicable redemption premium, if any, on such Note,
plus interest on such principal to the due date thereof, either (a) shall
have been made or caused to be made in accordance with the terms of the
Indenture, or (b) shall have been provided for by irrevocably depositing
with the Trustee exclusively for such payment, (1) moneys sufficient to
make such payment or (2) Government Obligations maturing as to principal
and interest in such amount and at such times as will ensure the
availability of sufficient moneys to make such payment and, if payment of
all then Outstanding Notes is to be so provided for, all payments required
to be made to the United States Treasury or otherwise with respect to
Rebate Amounts and Excess Earnings, as well as the fees and expenses of the
Trustee and any other fiduciaries under the Indenture.
Notwithstanding the provisions of the Indenture just described, no Notes
shall be defeased unless, after giving effect to the defeasance, the
requirements in the Indenture described under "Call for Redemption, Prepayment
or Purchase of Notes; Senior Asset Requirement" above are met as if such Notes
were to be called for redemption on the date such Notes are to be defeased.
Notices to Noteholders
Except as is otherwise provided in the Indenture, any provision in the
Indenture for the mailing of notice or other instrument to Holders of Notes will
be fully complied with if it is mailed by first-class mail, postage prepaid, to
each Holder of Notes outstanding at the address appearing on the Note Register.
In addition, whenever notice is to be mailed under the Indenture to the Holders
of Notes, the Trustee is also, upon request, to mail a copy of such notice to
(1) any Holder of at least $1,000,000 in aggregate Principal Amount of the Notes
(or, in the event less than $1,000,000 in aggregate Principal Amount of Notes is
outstanding, the Holder of all outstanding Notes), in addition to the copy
mailed to such Holder's address appearing on the Note Register, at such other
address as such Holder shall specify in writing to the Trustee, and (2) any
Person that is the beneficial owner of a Note, as evidenced to the satisfaction
of the Trustee, at such address as such beneficial owner shall specify in
writing to the Trustee; provided that any defect in or failure to mail any such
notice prescribed by this sentence shall not affect the validity of any
proceedings to be taken (including, without limitation, for the call of Notes
for redemption) pursuant to such notice.
Rights of Other Beneficiaries
All rights of any Other Beneficiary under the Indenture to consent to or
direct certain remedies, waivers, actions and amendments thereunder shall cease
for so long as such Other Beneficiary is in default of any of its obligations or
agreements under the Swap Agreement or the Credit Enhancement Facility by reason
of which such Person is an Other Beneficiary.
TAX MATTERS
Tax Exempt Series 1997-1 Notes
In the opinion of Dorsey & Whitney LLP, as Bond Counsel, under laws,
regulations, rulings and decisions in effect on the Date of Issuance of the
Series 1997-1 Notes, interest on the Tax Exempt Series 1997-1 Notes is not
includable in gross income of the owners thereof for federal income tax
purposes. In rendering this opinion, Dorsey & Whitney LLP will rely upon
certifications by officers of the Original Issuer, SLFC and the Corporation and
certain covenants of the Original Issuer, SLFC and the Corporation contained in
the Indenture with respect to certain matters material to the exemption of
interest on the Tax Exempt Series 1997-1 Notes from federal income taxation,
including, without limitation, certifications and covenants as to the use of the
proceeds of the Tax Exempt Series 1997-1 Notes, and will assume that the
Original Issuer, SLFC and the Corporation will comply with applicable
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requirements of the Code. In the opinion of Dorsey & Whitney LLP, interest on
the Tax Exempt Series 1997-1 Notes is an item of tax preference which is
included in "alternative minimum taxable income" for purposes of the federal
alternative minimum tax under Section 55 of the Code.
Provisions of the Code impose continuing requirements that must be met
after the issuance of the Tax Exempt Series 1997-1 Notes for interest thereon to
be and remain excludable from gross income for federal income tax purposes.
Noncompliance with such requirements may cause the interest on the Tax Exempt
Series 1997-1 Notes to be includable in gross income for such purposes, either
prospectively or retroactively to the date of issuance of the Tax Exempt Series
1997-1 Notes. These requirements include, but are not limited to, provisions
that prescribe that the proceeds of the Tax Exempt Series 1997-1 Notes and
certain other amounts are subject to yield and other investment limits and
provisions that require that certain investment earnings be rebated on a
periodic basis to the Treasury Department of the United States.
The Code contains numerous provisions which could affect the federal tax
consequences of owning Tax Exempt Series 1997-1 Notes and receiving interest
thereon. The following is a brief summary of some of the significant provisions
applicable to particular Tax Exempt Series 1997-1 Noteholders, but is not
intended to be an exhaustive discussion of collateral tax consequences arising
from ownership of the Tax Exempt Series 1997-1 Notes. Prospective Tax Exempt
Series 1997-1 Noteholders should consult their own tax advisers with respect to
the impact of such provisions on their own tax situations.
Interest on the Tax Exempt Series 1997-1 Notes is includable in "net
investment income" of foreign insurance companies for purposes of Section 842(b)
of the Code, and may be included in the income of a foreign corporation for
purposes of the branch profits tax imposed by Section 884 of the Code.
Additionally, interest on the Tax Exempt Series 1997-1 Notes constitutes
"passive investment income" for purposes of the tax imposed by Section 1375 of
the Code on such income of certain S corporations.
Section 265 of the Code denies a deduction for interest on indebtedness
incurred or continued to purchase or carry the Tax Exempt Series 1997-1 Notes.
Indebtedness may be allocated to the Tax Exempt Series 1997-1 Notes for this
purpose even though not directly traceable to the purchase of the Tax Exempt
Series 1997-1 Notes. The Code also restricts the deductibility of other
expenses allocable to the Tax Exempt Series 1997-1 Notes. In the case of a
financial institution described in Section 265(b)(5) of the Code, no deduction
is allowed under the Code for that portion of the taxpayer's interest expense
which is allocable to interest on the Tax Exempt Series 1997-1 Notes within the
meaning of Section 265(b). In the case of an insurance company subject to the
tax imposed by Section 831 of the Code, the amount which otherwise would be
taken into account as "losses incurred" under Section 832(b)(5) is reduced by an
amount equal to 15% of the interest on the Tax Exempt Series 1997-1 Notes that
is received or accrued during the taxable year.
Interest on the Tax Exempt Series 1997-1 Notes will be included in
calculating "modified adjusted gross income" under Section 86 of the Code for
purposes of determining whether, and the extent to which, a portion of a
taxpayer's "social security benefits" or "tier 1 railroad retirement benefits"
will be included in gross income for federal income tax.
Federal Income Tax Consequences
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of Notes for the investors described
below and is based on the opinions of Dorsey & Whitney LLP, as tax counsel to
the Original Issuer and the Corporation. The Original Issuer and the
Corporation, as successor to the Original Issuer in respect of the Notes, are
hereinafter referred to collectively as the "Issuer." This summary is based
upon the Code and other laws, regulations, rulings and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Series 1997-1 Notes as "capital assets"
(generally, property held for investment) within the meaning of
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Section 1221 of the Code. Investors should consult their own tax advisors to
determine the federal, state, local and other tax consequences of the purchase,
ownership and disposition of the Series 1997-1 Notes of any series. Prospective
investors should note that no rulings have been or will be sought from the
Internal Revenue Service (the "Service") with respect to any of the federal
income tax consequences discussed below, and since there are no cases or rulings
concerning similar transactions, there can be no assurance that the Service will
not take contrary positions.
Characterization of the Trust Estate
In the opinion of Dorsey & Whitney LLP, based upon certain assumptions and
certain representations of the Issuer, the Series 1997-1 Notes will be treated
as debt of the Issuer, rather than as an interest in the Financed Eligible Loans
and other assets of the Trust Estate, for federal income tax purposes. Such
opinion will not be binding on the courts or the Service. It is possible that
the Service could assert that, for purposes of the Code, the transaction
contemplated by this Prospectus constitutes a sale of the assets comprising the
Trust Estate (or an interest therein) to the Holders or that the relationship
which will result from this transaction is that of a partnership, or an
association taxable as a corporation.
If, instead of treating the transaction as creating secured debt in the
form of the Series 1997-1 Notes issued by the Issuer as a corporate entity, the
transaction were treated as creating a partnership among the Noteholders, the
Servicer and the Issuer, which has purchased the underlying Trust Estate assets,
the resulting partnership would not be subject to federal income tax. Rather,
the Servicer, the Issuer and each Noteholder would be taxed individually on
their respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deduction
of the Noteholder may differ if the Series 1997-1 Notes were held to constitute
partnership interests, rather than indebtedness.
If, alternatively, it were determined that this transaction created an
entity other than the Issuer which was classified as a corporation or a publicly
traded partnership taxable as a corporation and was treated as having sold the
assets comprising the Trust Estate, the Trust Estate would be subject to federal
income tax at corporate income tax rates on the income it derives from the
Financed Eligible Loans and other assets, which would reduce the amounts
available for payment to the Noteholders. Cash payments to the Noteholders
generally would be treated as dividends for tax purposes to the extent of such
corporation's earnings and profits. A similar result would apply if the
Noteholders were deemed to have acquired stock or other equity interests in the
Issuer. However, as noted above, the Issuer has been advised that the Series
1997-1 Notes will be treated as debt of the Issuer for federal income tax
purposes.
Characterization of the Series 1997-1 Notes as Indebtedness
The Issuer and the Noteholders express in the Indenture their intent that,
for applicable tax purposes, the Series 1997-1 Notes will be indebtedness of the
Issuer secured by the Trust Estate. The Issuer and the Noteholders, by
accepting the Series 1997-1 Notes, have agreed to treat the Series 1997-1 Notes
as indebtedness of the Issuer for federal income tax purposes. The Issuer
intends to treat this transaction as a financing reflecting the Series 1997-1
Notes as its indebtedness for tax and financial accounting purposes.
In general, the characterization of a transaction as a sale of property or
a secured loan, for federal income tax purposes, is a question of fact, the
resolution of which is based upon the economic substance of the transaction,
rather than its form or the manner in which it is characterized. While the
Service and the courts have set forth several factors to be taken into account
in determining whether the substance of a transaction is a sale of property or a
secured indebtedness, the primary factor in making this determination is whether
the transferee has assumed the risk of loss or other economic burdens relating
to the property and has obtained the benefits of ownership thereof.
Notwithstanding the foregoing, in some instances, courts have held that a
taxpayer is bound by the particular form it has chosen for a transaction, even
if the substance of the transaction does not accord with its form.
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The Issuer believes that it has retained the preponderance of the primary
benefits and burdens associated with Financed Eligible Loans and other assets
comprising the Trust Estate and should, thus, be treated as the owner of such
assets for federal income tax purposes. If, however, the Service were to
successfully assert that this transaction should be treated as a sale of the
Trust Estate assets, the Service could further assert that the entity created
pursuant to the Indenture, as the owner of the Trust Estate for federal income
tax purposes, should be deemed engaged in a business and, therefore,
characterized as an association taxable as a corporation.
Taxation of Interest Income of Noteholders
In the opinion of Dorsey & Whitney LLP, payments of interest with regard to
the Taxable Series 1997-1 Notes will be includable as ordinary income when
received or accrued by the Holders thereof in accordance with their respective
methods of tax accounting and applicable provisions of the Code. It is
anticipated that the Taxable Series 1997-1 Notes will not be issued with
"original issue discount". There can be no assurance, however, that the Service
would not assert that the interest payable with respect to the Series 1997-1
Subordinate Notes may not be qualified stated interest because such payments are
not unconditional and that the Series 1997-1 Subordinate Notes are issued with
original issue discount.
Payments of interest received with respect to the Taxable Series 1997-1
Notes may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense. Potential Holders should consult their own tax advisors concerning the
treatment of interest payments with regard to the Taxable Series 1997-1 Notes.
A purchaser who buys a Series 1997-1 Note at a discount from its principal
amount or its adjusted issue price if issued with original issue discount
greater than a specified de minimis amount will be subject to the market
discount rules of the Code. In general, the market discount rules of the Code
treat principal payments and gain on disposition of a debt instrument as
ordinary income to the extent of accrued market discount. Although the accrued
market discount on debt instruments such as the Series 1997-1 Notes which are
subject to prepayment based on the prepayment of other debt instruments is to be
determined under regulations yet to be issued, the legislative history of these
provisions of the Code indicate that the same prepayment assumption used to
calculate original issue discount should be utilized. Each potential investor
should consult his tax advisor concerning the application of the market discount
rules to the Series 1997-1 Notes.
The annual statement regularly furnished to Holders for federal income tax
purposes will include information regarding payments of interest with respect to
the Series 1997-1 Notes. As noted above, the Issuer believes, based on the
advice of counsel, that it will retain ownership of the Trust Estate assets for
federal income tax purposes. In the event the Indenture is deemed to create a
pass-through entity as the owner of the Trust Estate assets for federal income
tax purposes instead of the Issuer (assuming such entity is not, as a result,
taxed as an association), the owners of the Series 1997-1 Notes could be
required to accrue payments of interest more rapidly than otherwise would be
required.
Backup Withholding
Certain purchasers may be subject to backup withholding at the rate of 31%
with respect to interest paid with respect to the Taxable Series 1997-1 Notes if
the purchasers, upon issuance, fail to supply the Trustee or their brokers with
their taxpayer identification numbers, furnish incorrect taxpayer identification
numbers, fail to report interest, dividends or other "reportable payments" (as
deemed in the Code) properly, or, under certain circumstances, fail to provide
the Trustee with a certified statement, under penalty of perjury, that they are
not subject to backup withholding. Information returns will be sent annually to
the Service and to each purchaser setting forth the amount of interest paid with
respect to the Taxable Series 1997-1 Notes and the amount of tax withheld
thereon.
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The Issuer makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Series 1997-1 Notes under the tax laws
of any state, locality or foreign jurisdiction. Investors considering an
investment in the Series 1997-1 Notes should consult their own tax advisors
regarding such tax consequences.
Certain U.S. Federal Income Tax Documentation Requirements
A Beneficial Owner of Series 1997-1 Notes holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the United
States) will be subject to the 30% U.S. withholding tax (or, in certain cases,
the 31% backup withholding tax) that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons
(as defined below), unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such Beneficial Owner and the
United States entity required to withhold tax complies with applicable
certification requirements and (ii) such Beneficial Owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial Owners of Series
1997-1 Notes that are non-U.S. Persons can obtain a complete exemption from the
United States withholding tax and the backup withholding tax by filing a signed
Form W-8 (Certificate of Foreign Status). If the information shown in Form W-8
changes, a new form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-United States corporation or bank
with a United States branch, for which the interest income in effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the United States withholding tax and the backup
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Beneficial Owners of Series 1997-1 Notes
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) with respect to
United States withholding tax and an exemption from the backup withholding tax
by filing Form 1001 (Ownership, Exemption or Reduced Rate Note). If the treaty
provides only for a reduced rate, the United States withholding tax will be
imposed at that rate unless the filer alternatively files Form W-8. Form 1001
may be filed by the Beneficial Owner of the Series 1997-1 Note or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons generally are not
subject to the United States withholding and can obtain a complete exemption
from the backup withholding tax by filing Form W-9 (Payer's Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of a
Series 1997-1 Note (or in the case of a Form 1001 or a Form 4224 filer, its
agent) files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includable in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a court within the United States is
able to exercise primary jurisdiction over the administration of the trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of the trust.
New Withholding Rules in 1999. Effective January 1, 1999, any foreign
investor that seeks the protection of an income tax treaty with respect to the
imposition of United States withholding tax will generally be required to obtain
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a taxpayer identification number ("TIN") from the Service in advance and provide
verification that such investor is entitled to the protection of the relevant
income tax treaty. Foreign tax-exempt investors will generally be required to
provide verification of their tax-exempt status. Foreign investors are urged to
consult with their tax advisors with respect to these new withholding rules.
This summary does not deal with all aspects of United States federal income
tax withholding that may be relevant to foreign holders of the globally offered
Series 1997-1 Notes. Investors are advised to consult their own tax advisers for
specific tax advice concerning their holding and disposing of the globally
offered Series 1997-1 Notes.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section
4975 of the Code imposes essentially the same prohibited transaction
restrictions on tax-qualified retirement plans described in Section 401(a) of
the Code ("Qualified Retirement Plans") and on Individual Retirement Accounts
("IRAs") described in Section 408(b) of the Code (collectively, "Tax-Favored
Plans"). Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in Series 1997-1 Notes without regard to the ERISA considerations described
below, subject to the provisions of applicable federal and state law. Any such
plan which is a Qualified Retirement Plan and exempt from taxation under
Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in the Code.
In addition to the imposition of general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
plan's investment be made in accordance with the documents governing the plan,
Section 406 of ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving assets of ERISA Plans and Tax-Favored Plans and entities
whose underlying assets include plan assets by reason of ERISA Plans or Tax-
Favored Plans investing in such entities (collectively, "Benefit Plans") and
persons who have certain specified relationships to the Benefit Plans ("Parties
in Interest" or "Disqualified Persons"), unless a statutory or administrative
exemption is available. Certain Parties in Interest (or Disqualified Persons)
that participate in a prohibited transaction may be subject to a penalty (or an
excise tax) imposed pursuant to Section 502(i) of ERISA (or Section 4975 of the
Code) unless a statutory or administrative exemption is available.
Certain transactions involving the purchase, holding or transfer of the
Series 1997-1 Notes might be deemed to constitute prohibited transactions under
ERISA and the Code if assets of the Original Issuer or the Corporation 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
Original Issuer or the Corporation 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 Original Issuer or the Corporation 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 in an entity
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. Although there can be no
assurances in this regard, it appears that the Series 1997-1 Notes should be
treated as debt without substantial equity features for purposes of the Plan
Assets Regulation. However, without regard to whether the Series 1997-1 Notes
are treated as an equity interest for such purposes, the acquisition or holding
of Series 1997-1 Notes by or on behalf of a Benefit Plan could be considered to
give rise to a prohibited transaction if the Original Issuer, the Corporation or
the Trustee, 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
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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") 96-23,
regarding transactions effected by "in-house asset managers"; PTCE 90-1,
regarding investments by insurance company pooled separate accounts; PTCE 95-60,
regarding transactions effected by "insurance company general account"; PTCE 91-
38, regarding investments by bank collective investment funds; and PTCE 84-14,
regarding transactions effected by "qualified professional assets managers."
Any ERISA Plan fiduciary considering whether to purchase Series 1997-1
Notes on behalf of an ERISA Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment and the availability of any
of the exemptions referred to above. Persons responsible for investing the
assets of Tax-Favored Plans that are not ERISA Plans should seek similar counsel
with respect to the prohibited transaction provisions of the Code.
CERTAIN RELATIONSHIPS AMONG FINANCING PARTICIPANTS
As described under "The Original Issuer", "The Servicer" and "The
Corporation", the Corporation will be a wholly-owned subsidiary of SLFC, which
in turn will initially be a wholly-owned subsidiary of the Original Issuer.
There is no assurance that the Original Issuer will continue to own all or any
of the stock of SLFC. The Original Issuer will have no obligations with respect
to the Notes or the Indenture after the transfers described under "The Original
Issuer" and "The Corporation." Except for its obligations under the SLFC
Servicing Agreement, SLFC will have no obligations with respect to the Notes or
the Indenture. The Corporation will have no full-time employees, but will
initially contract with SLFC to perform the Corporation's obligations under the
Indenture.
The boards of directors of the Original Issuer, the Corporation and SLFC
presently consist of the same four persons, and two of those persons also are
members of the boards of directors of EAC and EASCI.
The Trustee is also the trustee for the Original Issuer's outstanding
student loan revenue bond and student loan asset-backed note issues, which will
be refunded by the Series 1997-1 Notes. The Trustee and its affiliates have in
the past entered into student loan purchase agreements with the Original Issuer,
including Student Loan Purchase Agreements pursuant to which the Original Issuer
acquired as of September 30, 1997, approximately $140 million outstanding
principal amount of Eligible Loans which will be Financed under the Indenture.
The Corporation expects that the Trustee will enter into Student Loan Purchase
Agreements providing for the sale of a substantial amount of additional Eligible
Loans. The Original Issuer also has obtained (and the Corporation may in the
future obtain) financial services from the Trustee and related entities.
Foley & Lardner, counsel to the Underwriters, has from time to time
represented, and is currently representing, the Original Issuer in connection
with various matters (including matters relating to its transfer of assets to
SLFC). In addition, Foley & Lardner has from time to time represented, and is
currently representing, EAC in connection with various matters.
For a discussion of certain relationships between Underwriters or
affiliates of Underwriters and the Original Issuer or the Corporation, see "Plan
of Distribution".
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
for the sale of the Series 1997-1 Notes, dated October __, 1997 (the
"Underwriting Agreement"), the Original Issuer has agreed to sell and the
Underwriters have jointly and severally (subject to the limitations discussed
below) agreed to purchase all (but not less than all) of the Series 1997-1
Notes. The obligation of FBS Investment Services, Inc., an operating division of
U.S. Bancorp Investments, Inc. to purchase the Series
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1997-1 Notes is limited to such principal amount of the Series 1997-1 Notes as
does not exceed 10% of the capital stock actually paid in and unimpaired and 10%
of the unimpaired surplus funds of First Bank National Association, which is the
commercial bank which owns FBS Investment Services, Inc. as described below.
The Original Issuer has been advised by the Underwriters that the
Underwriters propose initially to offer the Series 1997-1 Notes to the public at
the public offering price with respect to each series set forth on the cover
page of this Prospectus, and to certain dealers at such price less a concession
not in excess of ____% of the principal amount of the Series 1997-1 Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of ____% of such principal amount to certain other dealers. After the initial
public offering, the public offering price, the concession and discount may be
changed.
The Original Issuer and SLFC have agreed to indemnify the Underwriters
against certain liabilities including liabilities under the Securities Act of
1933, as amended, and the Original Issuer has agreed to reimburse the
Underwriters for the fees and expenses of counsel to the Underwriters.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with the
Regulation M under the Exchange Act. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the Series 1997-1 Notes in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling concession
from a syndicate member when the Series 1997-1 Notes originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Series 1997-1 Notes to
be higher than it would otherwise be in the absence of such transactions.
Each Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell Series 1997-1 Notes to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted, and will not result in an offer to the public in the United Kingdom
within the meaning of the U.K. Regulations.
FBS Investment Services, Inc. is an operating division of U.S. Bancorp
Investment Inc., which is a wholly-owned subsidiary of First Bank National
Association, which is the Trustee. Norwest Investment Services, Inc. is an
affiliate of Norwest Bank of South Dakota, N.A., which will act as a deposit
agent for the receipt of certain funds credited to the Revenue Fund. Smith
Barney Inc. and FBS Investment Services, Inc. have provided to the Original
Issuer from time to time, and may provide to the Corporation in the future,
investment or commercial banking services, for which such Underwriters have
received or will receive customary fees and commissions. First Bank National
Association and banks that are affiliates of Norwest Investment Services, Inc.
have in the past entered into student loan purchase agreements with the Original
Issuer. The Corporation expects that such banks will enter into Student Loan
Purchase Agreements providing for the sale of a substantial amount of additional
Eligible Loans.
LEGAL MATTERS
Certain legal matters will be passed upon for the Original Issuer and the
Corporation by Dorsey & Whitney LLP, Minneapolis, Minnesota, Bond Counsel and
special counsel for the Original Issuer and the Corporation. Certain legal
matters will be passed upon for the Underwriters by Foley & Lardner, Milwaukee,
Wisconsin.
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EXPERTS
The balance sheet of the Corporation as of August 31, 1997, has been
included herein and in the registration statement in reliance upon the report of
Eide Helmeke PLLP, Aberdeen, South Dakota, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
RATINGS
It is a condition to the issuance of the Series 1997-1 Notes that the
Series 1997-1 Senior Notes each be rated "AAA" by Fitch Investors Service, L.P.
and "Aaa" by Moody's Investors Services, Inc., and that the Series 1997-1
Subordinate Notes be rated no less than "A" by Fitch Investors Service, L.P. and
"A3" by Moody's Investors Services, Inc. The Original Issuer has applied for
ratings of the Series 1997-1 Notes from Moody's Investors Services, Inc.and
Fitch Investors Service, L.P. No application was made to any other rating
agency for the purpose of obtaining additional ratings of the Series 1997-1
Notes.
Any ratings, if assigned, reflect only the view of the Rating Agency. Any
explanation of the significance of the ratings may be obtained only from the
Rating Agency. The Original Issuer and the Corporation furnished to the Rating
Agencies certain information and materials, some of which may not have been
included in this Prospectus, relating to the Series 1997-1 Notes, the Original
Issuer and the Corporation. Generally, rating agencies base their ratings on
such information and materials and on investigation, studies and assumptions
made by the rating agencies. There can be no assurance that ratings when
assigned will continue for any given period of time or that they will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances so warrant. If ratings are assigned, any such downward change in
or withdrawal of a rating may have an adverse effect on the marketability or
market price of the Series 1997-1 Notes.
Fitch Investors Service, L.P. has stated that its ratings on Series 1997-1
Notes do not address: (a) the market liquidity of the Series 1997-1 Notes or
(b) any Carry-Over Amount that may accrue with respect to the Taxable Series
1997-1 Notes.
The Corporation expects to furnish to each Rating Agency information and
materials that it may request. However, the Corporation assumes no obligation to
furnish requested information and materials, and may issue additional
obligations for which a rating is not requested. Failure to furnish requested
information and materials, or the issuance of debt for which a rating is not
requested, may result in the suspension or withdrawal of a Rating Agency's
ratings on the Series 1997-1 Notes.
A securities rating addresses the likelihood of the receipt by Holders of
the Series 1997-1 Notes of payments of principal and interest from assets in the
Trust Estate. The rating takes into consideration the characteristics of the
Financed Eligible Loans, and the structural, legal and tax aspects associated
with the Series 1997-1 Notes. A securities rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at any
time by the assigning rating agency. Each securities rating should be evaluated
independently of similar ratings on different securities.
GLOSSARY OF CERTAIN DEFINED TERMS
In addition to the terms defined elsewhere in this Prospectus, the
following terms shall have the following respective meanings. Any term used
with an initial capital letter but not defined herein shall have the meaning
given such term in the Indenture.
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"'AA' Composite Commercial Paper Rate" shall mean, with respect to a
series of Tax Exempt Series 1997-1 Senior Notes, (i) the interest equivalent of
the 30-day rate on commercial paper placed on behalf of issuers whose corporate
bonds are rated "AA" by S&P, or the equivalent of such rating by S&P, as such
30-day rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date of
determination, or (ii) if the Federal Reserve Bank of New York does not make
available any such rate, then the arithmetic average of the interest equivalent
of the 30-day rate on commercial paper placed on behalf of such issuers, as
quoted to the Auction Agent on a discount basis or otherwise by the Commercial
Paper Dealers, as of the close of business on the Business Day immediately
preceding the date of determination. If, at the time quotations are required,
any Commercial Paper Dealer does not quote a commercial paper rate required to
determine the "`AA' Composite Commercial Paper Rate," or if less than three
Commercial Paper Dealers are then serving as such for any reason, the "`AA'
Composite Commercial Paper Rate" shall be determined on the basis of such
quotation or quotations furnished by the Commercial Paper Dealer or Commercial
Paper Dealers then serving as such and providing a quotation. For purposes of
this definition, the "interest equivalent" of a rate stated on a discount basis
(a "discount rate") for commercial paper of a given day's maturity shall be
equal to the product of (a) 100, times (b) the quotient (rounded upward to the
next higher .00001) of (1) the discount rate (expressed in decimals) divided by
(2) the difference between (A) 1.00, and (B) a fraction, the numerator of which
shall be the product of the discount rate (expressed in decimals) times the
number of days from (and including) the date of determination to, but excluding,
the date on which such commercial paper matures, and the denominator of which
shall be 360.
"Account" shall mean any of the accounts created within the Funds
established by the Indenture.
"Accountant" shall mean Eide Helmeke PLLP, Certified Public Accountants,
Aberdeen, South Dakota, or any other registered or certified public accountant
or firm of such accountants selected and paid by the Corporation, who is
Independent and not under the domination of the Corporation, but who may be
regularly retained to make annual or similar audits of the books or records of
the Corporation.
"Acting Beneficiaries Upon Default" shall mean:
(a) at any time that any Senior Obligations are Outstanding:
(i) with respect to directing the Trustee to accelerate the
maturity of Outstanding Notes as a result of an Event of Default
(other than an Event of Default described in paragraph (L) under
"Summary of the Indenture -- Events of Default"): (x) the Holders of
a majority in aggregate Principal Amount of Senior Notes Outstanding;
or (y) (unless the Trustee shall, in its sole discretion, determine
that acceleration of the maturity of the Outstanding Notes is not in
the overall interest of the Senior Beneficiaries) any Other Senior
Beneficiary;
(ii) with respect to directing the Trustee to accelerate the
maturity of the Outstanding Notes as a result of an Event of Default
described in paragraph (L) under "Summary of the Indenture -- Events
of Default": (x) the Holders of 100% in aggregate Principal Amount of
Senior Notes Outstanding; or (y) (unless the Trustee shall, in its
sole discretion, determine that acceleration of the maturity of the
Outstanding Notes is not in the overall interest of the Senior
Beneficiaries) all Other Senior Beneficiaries;
(iii) with respect to requesting the Trustee to exercise one
or more of the rights and powers conferred by the Indenture, directing
the method and place of conducting proceedings to be taken in
connection with the enforcement of the terms and conditions of the
Indenture and requiring the Trustee to waive
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Events of Default: (x) the Holders of a majority in aggregate
Principal Amount of the Senior Notes Outstanding, unless the Trustee
shall have received or shall thereafter receive conflicting requests
or directions from one or more Other Senior Beneficiaries; or (y) any
Other Senior Beneficiary, unless the Trustee shall, in its sole
discretion, determine that the requested action is not in the overall
interest of the Senior Beneficiaries or shall have received or shall
thereafter receive conflicting requests or directions from one or more
Other Senior Beneficiaries or the Holders of a majority in aggregate
Principal Amount of the Senior Notes Outstanding; and
(iv) with respect to all other matters under the Indenture,
the Holders of a majority in aggregate Principal Amount of Senior
Notes Outstanding or any Other Senior Beneficiary;
(b) at any time that no Senior Obligations are Outstanding but
Subordinate Obligations are Outstanding:
(i) with respect to directing the Trustee to accelerate the
maturity of Outstanding Notes as a result of an Event of Default
(other than an Event of Default described in paragraph (L) under
"Summary of the Indenture -- Events of Default" below): (x) the
Holders of a majority in aggregate Principal Amount of Subordinate
Notes Outstanding; or (y) (unless the Trustee shall, in its sole
discretion, determine that acceleration of the maturity of the
Outstanding Notes is not in the overall interest of the Subordinate
Beneficiaries) any Other Subordinate Beneficiary;
(ii) with respect to directing the Trustee to accelerate the
maturity of the Outstanding Notes as a result of an Event of Default
described in paragraph (L) under "Summary of the Indenture -- Events
of Default": (x) the Holders of 100% in aggregate Principal Amount of
Subordinate Notes Outstanding; or (y) (unless the Trustee shall, in
its sole discretion, determine that acceleration of the maturity of
the Outstanding Notes is not in the overall interest of the
Subordinate Beneficiaries) all Other Subordinate Beneficiaries;
(iii) with respect to requesting the Trustee to exercise one
or more of the rights and powers conferred by the Indenture, directing
the method and place of conducting proceedings to be taken in
connection with the enforcement of the terms and conditions of the
Indenture and requiring the Trustee to waive Events of Default, (x)
the Holders of a majority in aggregate Principal Amount of the
Subordinate Notes Outstanding, unless the Trustee shall have received
or shall thereafter receive conflicting requests or directions from
one or more Other Subordinate Beneficiaries; or (y) any Other
Subordinate Beneficiary, unless the Trustee shall, in its sole
discretion, determine that the requested action is not in the overall
interest of the Subordinate Beneficiaries or shall have received or
shall thereafter receive conflicting requests or directions from one
or more Other Subordinate Beneficiaries or the Holders of a majority
in aggregate Principal Amount of the Subordinate Notes Outstanding;
and
(iv) with respect to all other matters under the Indenture,
the Holders of a majority in aggregate Principal Amount of Subordinate
Notes Outstanding or any Other Subordinate Beneficiary; and
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(c) at any time that no Senior Obligations are Outstanding and no
Subordinate Obligations are Outstanding, the Holders of a majority in
aggregate Principal Amount of Class C Notes Outstanding.
"Additional Notes" shall have the meaning assigned thereto on page 4 of
this Prospectus.
"Administrative Cost and Note Fee Rate" shall mean a rate per annum equal
to the sum of (i) 1.275%, (ii) the Auction Agent fee rate (initially 0.025%, but
subject to change in accordance with the provisions of the Auction Agent
Agreement), and (iii) the Broker-Dealer fee rate (initially 0.25%, but subject
to change in accordance with the provisions of the Auction Agent
Agreement).
"Administrative Expenses" shall mean the Corporation's actual expenses,
excluding Note Fees but including Servicing Fees and any other expenses of the
Corporation incurred in connection with the servicing of Financed Student Loans,
of carrying out and administering its powers, duties and functions under (1) its
articles of incorporation, its bylaws, the Student Loan Purchase Agreements, any
Servicing Agreement, the Contract of Insurance, the Guarantee Agreements, the
Program, the Higher Education Act or any requirement of the laws of the United
States or the Statutes with respect to the Program, as such powers, duties and
functions relate to Financed Student Loans, (2) any Swap Agreements and any
Credit Enhancement Facilities (other than any amounts payable thereunder which
constitute Other Indenture Obligations), (3) any Remarketing Agreement,
Depositary Agreement, Auction Agent Agreement or Broker-Dealer Agreement, and
(4) the Indenture. Such expenses may include, without limiting the generality
of the foregoing, salaries, supplies, utilities, mailing, labor, materials,
office rent, maintenance, furnishings, equipment, machinery, telephones, travel
expenses, insurance premiums, and legal, accounting, management, consulting and
banking services and expenses, and payments for pension, retirement, health and
hospitalization and life and disability insurance benefits; but shall not
include (i) debt service on the Notes or any other bonds, notes or other
evidences of indebtedness of the Corporation, (ii) amounts payable under any
Other Indenture Obligations or (iii) Costs of Issuance or the fees, costs or
expenses of the Corporation with respect to any other bonds, notes or
indebtedness of the Corporation.
"After-Tax Equivalent" shall mean, with respect to a series of Tax Exempt
Series 1997-1 Senior Notes, the interest rate per annum equal to the product of
(i) 1.00 minus the Statutory Corporate Tax Rate and (ii) the "AA" Composite
Commercial Paper Rate.
"Aggregate Value" shall mean on any calculation date the sum of the Values
of all assets of the Trust Estate, less moneys in any Fund or Account which the
Corporation is then entitled to receive for deposit into the Rebate Fund but has
not yet removed from the Trust Estate, and less any funds to be used to pay
Costs of Issuance unless, under the provisions of a Supplemental Indenture, such
funds are not to be applied to the payment of Costs of Issuance to the extent
the Senior Asset Requirement would not be met after such payment.
"All Hold Rate" shall mean (i) with respect to a series of Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the interest rate per annum equal to
85% (as such percentage may be adjusted pursuant to the provisions of the First
Supplemental Indenture described under "Auction of the Auction Rate Series 1997-
1 Senior Notes -- Changes in Auction Terms -- Changes in Percentages Used in
Determining All Hold Rate, Maximum Auction Rate and Non-Payment Rate with
respect to the Tax Exempt Auction Rate Series 1997-1 Senior Notes") of the
lesser of (a) the After-Tax Equivalent and (b) the Index; provided that in no
event shall the All Hold Rate be greater than the Maximum Auction Rate, and (ii)
with respect to a series of Taxable Auction Rate Series 1997-1 Senior Notes,
One-Month LIBOR less .20%.
"Applicable Percentage" shall mean, with respect to a series of Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the percentage determined (as such
percentage may be adjusted pursuant to the provisions of the First Supplemental
Indenture described under "Auction of the Auction Rate Series 1997-1 Senior
Notes -- Changes in Auction Terms -- Changes in Percentages Used in Determining
All Hold Rate, Maximum Auction Rate and
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Non-Payment Rate with respect to the Tax Exempt Auction Rate Series 1997-1
Senior Notes") based on the ratings of Moody's and Fitch of the Series 1997-1
Senior Notes as set forth below:
<TABLE>
<CAPTION>
Moody's Fitch's
Credit Rating Credit Rating Applicable Percentage
- ---------------------- ------------- ----------------------
<S> <C> <C>
"Aaa" "AAA" 175%
"Aa" "AA" 175%
"A" "A" 175%
"Baa" "BBB" 200%
Below "Baa" Below "BBB" 265%
</TABLE>
provided that if the Tax Exempt Auction Rate Series 1997-1 Senior Notes are not
then rated by both Moody's and Fitch, the "Applicable Percentage" shall be 265%.
In the event that one such Rating Agency has assigned a lower credit rating to
the Tax Exempt Auction Rate Series 1997-1 Senior Notes than the other Rating
Agency, the "Applicable Percentage" shall be based upon such lower credit
rating. All ratings referred to above shall be without regard to the gradations
within each rating category. For purposes of the Auction Agent and the Auction
Procedures, the ratings referred to in this definition shall be the last ratings
of which the Auction Agent shall have been given notice pursuant to the Auction
Agent Agreement.
"Assistance Fund" shall have the meaning assigned thereto on page 100 of
this Prospectus.
"Auction" shall mean the implementation of the Auction Procedures on an
Auction Date.
"Auction Agent" shall mean (i) with respect to the Auction Rate Series
1997-1 Senior Notes, Bankers Trust Company, as the initial Auction Agent under
the initial Auction Agent Agreement, unless and until a substitute Auction Agent
Agreement becomes effective, after which "Auction Agent" shall mean the
substitute Auction Agent, and (ii) with respect to any other series of Notes,
any bank, national banking association or trust company designated as such with
respect to such Notes pursuant to the provisions of a Supplemental Indenture,
and its successor or successors, and any bank, national banking association or
trust company at any time substituted in its place pursuant to such Supplemental
Indenture.
"Auction Agent Agreement" shall mean (i) with respect to the Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the Auction Agent Agreement (Tax Exempt
Auction Rate Series 1997-1 Notes), dated as of July 1, 1997, among the
Corporation, the Trustee and Bankers Trust Company, unless and until a
substitute Auction Agent Agreement is entered into, after which "Auction Agent
Agreement" shall mean such substitute Auction Agent Agreement, including any
supplement thereto or amendment thereof entered into in accordance with the
provisions thereof, (ii) with respect to the Taxable Auction Rate Series 1997-1
Senior Notes, the Auction Agent Agreement (Taxable Auction Rate Series 1997-1
Notes), dated as of July 1, 1997, among the Corporation, the Trustee and Bankers
Trust Company, unless and until a substitute Auction Agent Agreement is entered
into, after which "Auction Agent Agreement" shall mean such substitute Auction
Agent Agreement, including any supplement thereto or amendment thereof entered
into in accordance with the provisions thereof, and (iii) with respect to any
other series of Notes, an agreement among an Auction Agent, the Trustee and the
Corporation setting forth the rights and obligations of the Auction Agent acting
in such capacity with respect to such Notes under the Indenture and the related
Supplemental Indenture, including any supplement thereto or amendment thereof
entered into in accordance with the provisions thereof.
"Auction Date" shall have the meaning assigned thereto on page 124 of this
Prospectus.
"Auction Period" shall mean the Interest Period applicable to the Auction
Rate Series 1997-1 Senior Notes, which Auction Period (after the Initial
Interest Period for each such series) initially shall consist generally of 35
days
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(in the case of Tax Exempt Auction Rate Series 1997-1 Senior Notes) or 28 days
(in the case of Taxable Auction Rate Series 1997-1 Senior Notes), as the same
may be adjusted pursuant to the provisions of the First Supplemental Indenture
described under "Auction of the Auction Rate Series 1997-1 Senior Notes --
Changes in Auction Terms -- Changes in Auction Period or Periods".
"Auction Period Adjustment" shall have the meaning assigned thereto on page
133 of this Prospectus.
"Auction Procedures" shall mean the procedures described under "Auction of
the Auction Rate Series 1997-1 Senior Notes" by which the Auction Rate is
determined with respect to the Auction Rate Series 1997-1 Senior Notes.
"Auction Rate" shall mean the rate of interest per annum that results from
implementation of the Auction Procedures and is determined with respect to each
series of Auction Rate Series 1997-1 Senior Notes as described under "Auction of
the Auction Rate Series 1997-1 Senior Notes".
"Auction Rate Series 1997-1 Senior Note Interest Rate" shall mean the rate
of interest per annum borne by a series of Auction Rate Series 1997-1 Senior
Notes during the Initial Interest Period for such series and each Interest
Period thereafter, including, without limitation, the Auction Rate Series 1997-1
Senior Note Initial Interest Rate and the interest rate for such series for each
Auction Period determined in accordance with the Auction Procedures and other
provisions of the First Supplemental Indenture; provided, however, that in the
event of a Payment Default with respect to a series, the Auction Rate Series
1997-1 Senior Note Interest Rate for such series shall equal the Non-Payment
Rate; and provided, further, that such Auction Rate Series 1997-1 Senior Note
Interest Rate shall in no event exceed the Auction Rate Series 1997-1 Senior
Note Interest Rate Limitation.
"Auction Rate Series 1997-1 Senior Note Initial Interest Rate" shall mean
the interest rate to be borne by a series of Auction Rate Series 1997-1 Senior
Notes for the Initial Interest Period therefor, as set forth in the First
Supplemental Indenture.
"Auction Rate Series 1997-1 Senior Note Interest Rate Limitation" shall
mean a rate per annum equal to 14%, in the case of the Tax Exempt Auction Rate
Series 1997-1 Senior Notes, or 18%, in the case of the Taxable Auction Rate
Series 1997-1 Senior Notes, or, if less than such rate, the highest rate the
Corporation may legally pay, from time to time, as interest on such Auction Rate
Series 1997-1 Senior Notes.
"Auction Rate Series 1997-1 Senior Notes" shall mean, collectively, the Tax
Exempt Auction Rate Series 1997-1 Senior Notes and the Taxable Auction Rate
Series 1997-1 Senior Notes.
"Authenticating Agent," when used with respect to a series of Notes, shall
mean any bank or trust company appointed for the purpose of receiving,
authenticating and delivering Notes of that series in connection with transfers,
exchanges and registrations as provided in the Indenture.
"Authorized Denominations" shall mean (i) with respect to the Auction Rate
Series 1997-1 Notes and the Taxable LIBOR Rate Series 1997-1 Notes, $100,000 and
any multiple thereof, and (ii) with respect to the Tax Exempt Fixed Rate Series
1997-1 Senior Notes and the Tax Exempt Fixed Rate Series 1997-1 Subordinate
Notes, $5,000 and any multiple thereof.
"Authorized Officer", when used with reference to the Corporation, shall
mean the Chairman of the Board, the president, any vice president, the secretary
or other person designated in writing to the Trustee from time to time by the
Board of Directors.
"Available Auction Rate Series 1997-1 Senior Notes" shall have the meaning
assigned thereto on page 128 of this Prospectus.
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"Balance", when used with reference to any Account or Fund, shall mean the
aggregate sum of all assets standing to the credit of such Account or Fund,
including, without limitation, Investment Securities computed at the Value of
Investment Securities; Notes purchased with moneys standing to the credit of
such Fund or Account computed at the Principal Amount of such Notes; Financed
Student Loans computed at the Principal Balance thereof; and lawful money of the
United States; provided, however, that (1) the Balance of the Interest Account
shall not include amounts standing to the credit thereof which are being held
therein for (A) the payment of past due and unpaid interest on Notes, or (B) the
payment of interest on Notes that are deemed no longer Outstanding as a result
of the defeasance thereof, and (2) the Balances of the Principal Account and the
Retirement Account shall not include amounts standing to the credit thereof
which are being held therein for the payment of principal of or premium, if any,
on Notes which are deemed no longer Outstanding in accordance with the
provisions of the Indenture.
"Beneficial Owner" shall have the meaning assigned thereto on page 47 of
this Prospectus.
"Beneficiaries" shall mean, collectively, all Senior Beneficiaries, all
Subordinate Beneficiaries and all Holders of any Outstanding Class C Notes.
"Benefit Plans" shall have the meaning assigned thereto on page 170 of this
Prospectus.
"Bid" shall have the meaning assigned thereto on page 125 of this
Prospectus.
"Bid Auction Rate" shall have the meaning assigned thereto on page 128 of
this Prospectus.
"Bid Orders" shall have the meaning assigned thereto on page 120 of this
Prospectus.
"Bidder" shall have the meaning assigned thereto on page 125 of this
Prospectus.
"Board Resolution" shall mean a copy of a resolution certified by the
secretary or an assistant secretary of the Corporation to have been duly adopted
by the Board of Directors of the Corporation and to be in full force and effect
on the date of such certification, and delivered to the Trustee.
"Bond Counsel" shall mean any Counsel of nationally recognized standing in
the field of law relating to municipal bonds.
"Book-Entry Form" or "Book-Entry System" shall mean a form or system under
which (i) the beneficial right to principal and interest may be transferred only
through a book entry, (ii) physical securities in registered form are issued
only to a Securities Depository or its nominee as registered holder, with the
securities "immobilized" to the custody of the Securities Depository, and (iii)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"Broker-Dealer" shall mean (i) with respect to the Auction Rate Series
1997-1 Senior Notes, Smith Barney Inc. or any other broker or dealer (each as
defined in the Exchange Act), commercial bank or other entity permitted by law
to perform the functions required of a Broker-Dealer set forth in the Auction
Procedures with respect to the Auction Rate Series 1997-1 Senior Notes that (a)
is a Participant (or an affiliate of a Participant), (b) has been appointed as
such by the Corporation pursuant to the provisions of the First Supplemental
Indenture and (c) has entered into a Broker-Dealer Agreement that is in effect
on the date of reference, and (ii) with respect to any other series of Notes,
any broker or dealer (each as defined in the Exchange Act), commercial bank or
other entity permitted by law to perform the functions required of a broker-
dealer set forth in the auction procedures relating to such Notes, designated as
such with respect to such Notes pursuant to the provisions of a Supplemental
Indenture, and its successor or successors, and any broker or dealer, commercial
bank or other entity at any time substituted in its place pursuant to such
Supplemental Indenture.
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"Broker-Dealer Agreement" shall mean (i) with respect to the Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the Broker-Dealer Agreement (Tax Exempt
Auction Rate Series 1997-1 Notes), dated as of July 1, 1997, between Smith
Barney Inc., as Broker-Dealer, and Bankers Trust Company, as Auction Agent, and
each other agreement between the Auction Agent and a Broker-Dealer, and approved
by the Corporation, pursuant to which the Broker-Dealer agrees to participate in
Auctions as set forth in the Auction Procedures with respect to the Tax Exempt
Auction Rate Series 1997-1 Senior Notes, including any supplement thereto or
amendment thereof entered into in accordance with the provisions thereof, (ii)
with respect to the Taxable Auction Rate Series 1997-1 Senior Notes, the Broker-
Dealer Agreement (Taxable Auction Rate Series 1997-1 Notes), dated as of July 1,
1997, between Smith Barney Inc., as Broker-Dealer, and Bankers Trust Company, as
Auction Agent, and each other agreement between the Auction Agent and a Broker-
Dealer, and approved by the Corporation, pursuant to which the Broker-Dealer
agrees to participate in Auctions as set forth in the Auction Procedures with
respect to the Taxable Auction Rate Series 1997-1 Senior Notes, including any
supplement thereto or amendment thereof entered into in accordance with the
provisions thereof, and (iii) with respect to any other series of Notes, an
agreement between an Auction Agent and a Broker-Dealer, and approved by the
Corporation, setting forth the rights and obligations of the Broker-Dealer
acting in such capacity with respect to such Notes under the Indenture and the
related Supplemental Indenture, including any supplement thereto or amendment
thereof entered into in accordance with the provisions thereof.
"Budgeted Administrative Expenses" shall mean, with respect to each Fiscal
Year, subject to the provisions of the Indenture (see "Summary of the Indenture
- -- Covenants -- Limitations on Administrative Expenses and Note Fees"), an
amount of Administrative Expenses budgeted by the Corporation for such Fiscal
Year, as evidenced by a Board Resolution adopted prior to the commencement of
such Fiscal Year; provided that such Budgeted Administrative Expenses shall not
exceed (and, in the absence of a Board Resolution with respect thereto, shall be
assumed to be equal to) the amount of Administrative Expenses permitted to be
paid, or reimbursed to the Corporation, from the Administration Fund pursuant to
any Supplemental Indenture providing for the issuance of a series of Notes.
"Business Day" shall mean, except as otherwise provided in a Supplemental
Indenture, a day of the year other than a Saturday, a Sunday or a day on which
banks located in the city in which the Principal Office of the Trustee is
located, in the city in which the Principal Office of any Authenticating Agent
is located, in the city in which the Principal Office of any Paying Agent (other
than the Trustee) is located, in the city in which the Principal Office of any
Auction Agent is located, or the city in which the Principal Office of any
Depositary is located, are required or authorized by law to remain closed, or on
which The New York Stock Exchange is closed.
"Buyer's Broker-Dealer" shall have the meaning assigned thereto on page 135
of this Prospectus.
"Carry-Over Amount" shall mean (i) with respect to a Taxable Auction Rate
Series 1997-1 Senior Note, the excess, if any, of (a) the amount of interest on
such Note that would have accrued with respect to the related Interest Period at
the Auction Rate over (b) the amount of interest on such Note actually accrued
with respect to such Interest Period based on the Net Loan Rate, together with
the unpaid portion of any such excess from prior Interest Periods, (ii) with
respect to a Taxable LIBOR Rate Series 1997-1 Note, the excess, if any, of (a)
the amount of interest on such Note that would have accrued with respect to the
related Interest Period at the Taxable LIBOR Rate Series 1997-1 Note Interest
Rate over (b) the amount of interest on such Note actually accrued with respect
to such Interest Period based on the Net Loan Rate, together with the unpaid
portion of any such excess from prior Interest Periods, and (iii) if and to the
extent specifically provided for as such in a Supplemental Indenture with
respect any other series of Variable Rate Notes, the amount, if any, by which
(a) the interest payable on such series with respect to a given interest period
is exceeded by (b) the interest that otherwise would have been payable with
respect to such interest period but for a limitation on the interest rate for
such interest period based upon the anticipated return on Financed Student
Loans, together with the unpaid portion of any such excess from prior interest
periods. To the extent required by a Supplemental Indenture providing for any
Carry-Over Amount (including, in the case of the Taxable Auction Rate Series
1997-1 Senior Notes and the Taxable LIBOR Rate Series
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1997-1 Notes, the First Supplemental Indenture), interest will accrue on such
Carry-Over Amount until paid. Any reference to "principal" or "interest" in the
Indenture and in the related Notes shall not include, within the meanings of
such words, any Carry-Over Amount or any interest accrued on any Carry-Over
Amount.
"Cash Flow Projection" shall mean a projection as to future revenues and
cash flow through the final Stated Maturity of the Outstanding Notes based upon
existing facts and, to the extent not so based, upon assumptions accepted by
each Rating Agency (including, without limitation, assumptions relating to
variable rates of interest under Swap Agreements and any Notes) and the
following assumptions: (1) a thirty-day lag in receipt of borrower payments,
and a sixty-day lag in receipt of federal payments, with respect to Financed
Student Loans; (2) no prepayments of principal of Financed Student Loans; (3)
bond-equivalent rates of 91-day or 52-week U.S. Treasury bills (for purposes of
determining returns on Financed Student Loans that are based upon such rates or
averages thereof) equal to known rates (or averages) for such time as they are
known, and thereafter equal to ___% per annum; and (4) a reinvestment rate of
___% per annum. The foregoing assumptions may, pursuant to a Supplemental
Indenture (see "Supplemental Indentures" below), be replaced with or
supplemented by such other reasonable assumptions as will not result in the
withdrawal or reduction of the then-current rating of any of the Outstanding
Unenhanced Notes, as evidenced by written confirmation to that effect from each
Rating Agency or, if no Unenhanced Notes are then Outstanding but Other
Indenture Obligations are Outstanding, such other assumptions as are acceptable
to the Other Beneficiaries entitled to such Other Indenture Obligations, as
evidenced in writing to the Trustee by each such Other Beneficiary.
"Cede & Co." shall have the meaning assigned thereto on page 6 of this
Prospectus.
"Cedel" shall have the meaning assigned thereto on page 48 of this
Prospectus.
"Cedel Participants" shall have the meaning assigned thereto on page 48 of
this Prospectus.
"Change of Tax Law" shall mean, with respect to the Tax Exempt Auction Rate
Series 1997-1 Senior Notes, any amendment to the Code or other statute enacted
by the Congress of the United States, or any temporary, proposed or final
regulation promulgated by the United States Treasury, after the date of issuance
of the Tax Exempt Auction Rate Series 1997-1 Senior Notes, which (i) changes or
would change any deduction, credit or other allowance allowable in computing
liability for any federal tax with respect to, or (ii) imposes or would impose
or reduces or would reduce or increases or would increase any federal tax
(including, but not limited to, preference or excise taxes) upon, any interest
earned by the owner of a Tax Exempt Series 1997-1 Senior Note the interest on
which is excludable from gross income for federal income tax purposes under
Section 103 of the Code.
"Claims Rate" shall have the meaning assigned thereto on page 98 of this
Prospectus.
"Class C Notes" shall mean any Notes designated in a Supplemental Indenture
as Class C Notes, which are secured under the Indenture on a basis subordinate
to any Senior Obligations and any Subordinate Obligations.
"Closing Cash Flow Projection" shall mean the Cash Flow Projection
delivered in conjunction with the issuance of the Series 1997-1 Notes.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealer" shall mean Smith Barney Inc., its successors and
assigns, and any other commercial paper dealer appointed pursuant to the
provisions of the First Supplemental Indenture described under "Auction of the
Auction Rate Series 1997-1 Senior Notes -- Auction Procedures -- General".
"Commission" shall have the meaning assigned thereto on page 6 of this
Prospectus.
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"Commonwealth" shall have the meaning assigned thereto on page 99 of this
Prospectus.
"Consolidation Loan" shall mean a Student Loan made pursuant to Section
428C of the Higher Education Act.
"Contract of Insurance" shall mean the Contract of Federal Loan Insurance,
dated January 28, 1981, entered into between the Trustee and the Secretary of
Education, and any other document evidencing the eligibility of the Trustee to
receive payments of principal and interest from the Secretary of Education with
respect to Insured Loans Financed hereunder (or, in the event a co-trustee has
been appointed pursuant to the Indenture, such Contract of Federal Loan
Insurance and other documentation relating to such co-trustee), and any
amendment thereof which is hereafter entered into.
"Cooperative" shall have the meaning assigned thereto on page 49 of this
Prospectus.
"Corporation" shall have the meaning assigned thereto on page 7 of this
Prospectus.
"Corporation Student Loan Purchase Agreements" shall have the meaning
assigned thereto on page 74 of this Prospectus.
"Corporation Swap Payment" shall mean a payment due to a Swap Counterparty
from the Corporation pursuant to the applicable Swap Agreement (including, but
not limited to, payments in respect of any early termination of such Swap
Agreement).
"Corporation Trusts" shall have the meaning assigned thereto on page 39 of
this Prospectus.
"Costs of Issuance" shall mean all items of expense directly or indirectly
payable by or reimbursable to the Corporation and related to the authorization,
sale and issuance of a series of Notes, including, but not limited to, printing
costs, costs of preparation and reproduction of documents, filing fees, initial
fees and charges of the Trustee, any Authenticating Agent, any Deposit Agent,
any Remarketing Agent, any Depositary, any Auction Agent or any Broker-Dealer,
legal fees and charges, fees and disbursements of underwriters, consultants and
professionals, underwriters' discount, costs of credit ratings, fees and charges
for preparation, execution, transportation and safekeeping of such Notes, other
costs incurred by the Corporation in anticipation of the issuance of such Notes
and any other cost, charge or fee in connection with the issuance of such Notes.
"Counsel" shall mean a person, or firm of which such a person is a member,
authorized in any state to practice law.
"Counterparty Swap Payment" shall mean a payment due to or received by the
Corporation from a Swap Counterparty pursuant to a Swap Agreement (including,
but not limited to, payments in respect of any early termination of such Swap
Agreement).
"Credit Enhancement Facility" shall mean, if and to the extent provided for
in a Supplemental Indenture (see "Summary of the Indenture -- Supplemental
Indentures"), with respect to Notes of one or more series, an insurance policy
insuring, or a letter of credit or surety bond providing a direct or indirect
source of funds for, the timely payment of principal of and interest on such
Notes (but not necessarily principal due upon acceleration thereof), or any or
all of the credit facilities, reimbursement agreements, standby purchase
agreements and the like pertaining to Notes issued with a tender right granted
to or tender obligation imposed on the Holder thereof.
"Credit Facility Provider" shall mean, if and to the extent provided for in
a Supplemental Indenture (see "Summary of the Indenture -- Supplemental
Indentures"), any institution or institutions engaged by the Corporation
pursuant to a Credit Enhancement Facility to provide credit enhancement or
liquidity for the payment of the
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principal of and interest on, or for the Corporation's obligation to repurchase
or redeem, Notes of one or more series.
"Date of Issuance" shall have the meaning assigned thereto on page 16 of
this Prospectus.
"Debt Service" shall mean, as of any particular date and with respect to
any particular period, the aggregate of the moneys to be paid or set aside on
such date or during such period for the payment (or retirement) of the principal
of, premium, if any, and interest on Notes, after giving effect to any
Corporation Swap Payments and Counterparty Swap Payments.
"Deemed Tendered" shall mean, with respect to any Note, a Note deemed
tendered in accordance with the provisions of the Supplemental Indenture
providing for the issuance thereof.
"Defaulted Interest" shall have the meaning assigned thereto on page 50 of
this Prospectus.
"Deferment Periods" shall have the meaning assigned thereto on page 87 of
this Prospectus.
"Demand Note" shall mean a Note required to be purchased by or on behalf of
the Corporation, at the option of the Holder thereof, upon receipt of a purchase
demand.
"Department of Education" shall have the meaning assigned thereto on page
19 of this Prospectus.
"Deposit Agent" shall mean any bank or banking association having trust
powers or trust company designated as such pursuant to the Indenture and its
successor or successors and any other bank or banking association having trust
powers or trust company at any time substituted in its place pursuant to the
Indenture.
"Depositary" shall mean, with respect to any series of Notes, any
commercial bank or banking association having trust powers or trust company
designated as such with respect to such Notes pursuant to the provisions of the
Indenture and its successor or successors and any other commercial bank or
banking association having trust powers or trust company at any time substituted
in its place pursuant to the Indenture.
"Depositary Agreement" shall mean an agreement among a Depositary, the
Trustee, the Corporation, any Remarketing Agent and/or any related Credit
Facility Provider setting forth the rights and obligations of the Depositary
acting in such capacity under the Indenture, including any supplement thereto or
amendment thereof entered into in accordance with the provisions thereof.
"Depositories" shall have the meaning assigned thereto on page 46 of this
Prospectus.
"Disqualified Person" shall have the meaning assigned thereto on page 170
of this Prospectus.
"DOE Data Books" shall have the meaning assigned thereto on page 102 of
this Prospectus.
"DTC" shall have the meaning assigned thereto on page 6 of this Prospectus.
"DTC Participant" shall have the meaning assigned thereto on page 46 of
this Prospectus.
"EAC" shall have the meaning assigned thereto on pages 17 and 95 of this
Prospectus.
"EASCI" shall have the meaning assigned thereto on page 99 of this
Prospectus.
"Educational Loan Assistance Fund" shall have the meaning assigned thereto
on page 99 of this Prospectus.
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"Effective Interest Rate" shall mean, with respect to any Financed Student
Loan, the interest rate per annum borne by such Financed Student Loan after
giving effect to all applicable interest subsidy payments, Special Allowance
Payments, rebate fees on Consolidation Loans and reductions pursuant to borrower
incentives. For this purpose, the Special Allowance Payment rate shall be
computed based upon the average of the bond equivalent rates of 91-day United
States Treasury Bills auctioned during that portion of the then current calendar
quarter which ends on the date as of which the Effective Interest Rate is
determined.
"Eligible Borrower" shall mean a borrower who is eligible under the Higher
Education Act to be the obligor of a loan for financing a program of post-
secondary education, including a borrower who is eligible under the Higher
Education Act to be an obligor of a Plus Loan.
"Eligible Carry-Over Make-Up Amount" shall mean, (i) with respect to each
Interest Period relating to a series of Taxable Auction Rate Series 1997-1
Senior Notes as to which, as of the first day of such Interest Period, there is
any unpaid Carry-Over Amount, an amount equal to the lesser of (a) interest
computed on the principal balance of such series in respect of such Interest
Period at a per annum rate equal to the excess, if any, of the Net Loan Rate
over the applicable Auction Rate Series 1997-1 Senior Note Interest Rate, and
(b) the aggregate Carry-Over Amount remaining unpaid as of the first day of such
Interest Period together with interest accrued and unpaid thereon through the
end of such Interest Period, and (ii) with respect to each Interest Period
relating to a series of Taxable LIBOR Rate Series 1997-1 Notes as to which, as
of the first day of such Interest Period, there is any unpaid Carry-Over Amount,
an amount equal to the lesser of (a) interest computed on the principal balance
of such series in respect of such Interest Period at a per annum rate equal to
the excess, if any, of the Net Loan Rate over the Series 1997-1 Note LIBOR-Based
Rate, and (b) the aggregate Carry-Over Amount remaining unpaid as of the first
day of such Interest Period together with interest accrued and unpaid thereon
through the end of such Interest Period. The Eligible Carry-Over Make-Up Amount
shall be $0.00 for any Interest Period with respect to which the Net Loan Rate
equals or exceeds (1) the Auction Rate Series 1997-1 Senior Note Interest Rate,
in the case of a series of Taxable Auction Rate Series 1997-1 Senior Notes, or
(2) the Taxable LIBOR Rate Series 1997-1 Interest Rate, in the case of a series
of Taxable LIBOR Rate Series 1997-1 Notes.
"Eligible Loan" shall mean: (A) a Student Loan which: (1) has been or will
be made to an Eligible Borrower for post-secondary education; (2) is Guaranteed
by a Guarantee Agency to the extent of not less than ninety-eight percent (98%)
of the principal thereof and all accrued interest thereon; (3) is an "eligible
loan" as defined in Section 438 of the Higher Education Act for purposes of
receiving Special Allowance Payments (other than Nonsubsidized Stafford Loans
originally financed by the Original Issuer); and (4) bears interest at a rate
per annum not less than or in excess of the applicable rate of interest provided
by the Higher Education Act, or such lesser rates as may be approved by each
Rating Agency; or (B) any other Student Loan if the Corporation shall have
caused to be provided to the Trustee: (1) written advice from each Rating Agency
that treating such type of loan as an Eligible Loan will not adversely affect
any rating or ratings then applicable to any of the Unenhanced Notes or, if no
Unenhanced Notes are then Outstanding but Other Indenture Obligations are
Outstanding, the Other Beneficiaries entitled to such Other Indenture
Obligations consent to the treatment of such type of loan as an Eligible Loan,
as evidenced in writing to the Trustee by each such Other Beneficiary, and (2) a
written opinion of Bond Counsel to the effect that treating such type of loan as
an Eligible Loan will not, under then existing law, affect the exclusion from
gross income for federal income tax purposes of interest on any Tax-Exempt Notes
then outstanding.
"Euroclear" shall have the meaning assigned thereto on page 49 of this
Prospectus.
"Euroclear Operator" shall have the meaning assigned thereto on page 49 of
this Prospectus.
"Euroclear Participants" shall have the meaning assigned thereto on page 48
of this Prospectus.
"Event of Default" shall have the meaning assigned thereto on page 157 of
this Prospectus.
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"Excess Earnings" shall mean, with respect to the Tax Exempt Series 1997-1
Notes and any other series of Tax-Exempt Notes, the amount, if any, which, if
applied to reduce the yield on all Student Loans Financed, in whole or in part,
with amounts allocated to such Notes, would be necessary to reduce such yield to
the yield on such Notes plus such additional spread as would not cause such
Notes to be "arbitrage bonds" under Section 148 of the Code.
"ERISA" shall have the meaning assigned thereto on page 170 of this
Prospectus.
"ERISA Plans" shall have the meaning assigned thereto on page 170 of this
Prospectus.
"Exchange Act" shall have the meaning assigned thereto on page 6 of this
Prospectus.
"Existing Holders" shall have the meaning assigned thereto on page 122 of
this Prospectus.
"FDIC" shall have the meaning assigned thereto on page 40 of this
Prospectus.
"Federal Direct Student Loan Program" means the program for providing
Student Loans established under Title IV, Part C of the Higher Education Act.
"Federal Family Education Loan Program" means the program for providing
Student Loans established under Title IV, Part B of the Higher Education Act.
"Federal Reimbursement Contracts" shall mean any agreement between a
Guarantee Agency and the Secretary of Education, providing for the payment by
the Secretary of Education of amounts authorized to be paid pursuant to the
Higher Education Act, including (but not necessarily limited to) reimbursement
of amounts paid or payable upon defaulted Financed Student Loans and other
student loans guaranteed or insured by the Guarantee Agency and interest subsidy
payments to Holders of qualifying student loans guaranteed or insured by the
Guarantee Agency.
"Financed", when used with respect to Student Loans or Eligible Loans,
shall mean Student Loans or Eligible Loans, as the case may be, acquired by the
Corporation with moneys in the Acquisition Fund or the Surplus Account, any
Eligible Loans received in exchange for Financed Student Loans upon the sale
thereof or substitution therefor in accordance with the Indenture and any other
Student Loans deemed to be "Financed" with moneys in the Acquisition Fund and
the Surplus Account pursuant to the Indenture, but does not include Student
Loans released from the lien of the Indenture and sold, as permitted in the
Indenture, to any purchaser, including a trustee for the holders of the
Corporation's bonds, notes or other evidences of indebtedness.
"First Supplemental Indenture" shall mean the First Supplemental Indenture
of Trust, dated as of July 1, 1997, between the Corporation and the Trustee,
setting forth the terms of the Series 1997-1 Notes.
"Fiscal Year" shall mean the fiscal year of the Corporation as established
from time to time.
"Fitch" shall mean Fitch Investors Service, L.P., its successors and their
assigns, and, if such partnership shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency, "Fitch" shall be
deemed to refer to any other nationally recognized securities rating agency
designated by the Trustee, at the written direction of the Corporation.
"Government Obligations" shall mean direct obligations of, or obligations
the full and timely payment of the principal of and interest on which are
unconditionally guaranteed by, the United States of America.
"Grace Periods" shall have the meaning assigned thereto on page 86 of this
Prospectus.
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"Gramm-Rudman Law" shall have the meaning assigned thereto on page 93 of
this Prospectus.
"Guarantee" or "Guaranteed" shall mean, with respect to a Student Loan, the
insurance or guarantee by a Guarantee Agency, to the extent provided in the
Higher Education Act, of the principal of and accrued interest on such Student
Loan, and the coverage of such Student Loan by one or more Federal Reimbursement
Contracts providing, among other things, for reimbursement to the Guarantee
Agency for losses incurred by it on defaulted Financed Student Loans insured or
guaranteed by the Guarantee Agency to the extent provided in the Higher
Education Act.
"Guarantee Agency" shall mean (1) Education Assistance Corporation, and its
successors and assigns, including, without limitation, the Secretary of
Education, (2) Pennsylvania Higher Education Assistance Agency, and its
successors and assigns, including, without limitation, the Secretary of
Education, (3) United Student Aid Funds, Inc., and its successors and assigns,
including, without limitation, the Secretary of Education, (4) Student Loans of
North Dakota and its successors and assigns, including, without limitation, the
Secretary of Education, (5) Northstar Guarantee Inc., and its successors and
assigns, including, without limitation, the Secretary of Education, (6) Great
Lakes Higher Education Corporation, and its successors and assigns, including,
without limitation, the Secretary of Education, (7) Educational Credit
Management Corporation (formerly known as Transitional Guaranty Agency, Inc.),
and its successors and assigns, including, without limitation, the Secretary of
Education, (8) Iowa College Aid Commission, and its successors and assigns,
including, without limitation, the Secretary of Education, (9) Missouri
Coordinating Board for Higher Education, and its successors and assigns,
including, without limitation, the Secretary of Education, (10) Illinois Student
Aid Commission, and its successors and assigns, including, without limitation,
the Secretary of Education, (11) California Student Aid Commission, and its
successors and assigns, including, without limitation, the Secretary of
Education, or (12) any other state agency or private nonprofit institution or
organization which administers a Guarantee Program, subject to confirmation of
ratings on any Outstanding Unenhanced Notes or, if no Unenhanced Notes are then
Outstanding but Other Indenture Obligations are Outstanding, consent of each
Other Beneficiary holding such Outstanding Other Indenture Obligations, as
evidenced in writing to the Trustee by each such Other Beneficiary.
"Guarantee Agreements" shall mean (1) that certain Lender Agreement for
Guarantee of Student Loans With Federal Reinsurance, dated July 3, 1997, and
that certain Certificate of Comprehensive Insurance, dated September 12, 1997,
between the Trustee and Education Assistance Corporation, (2) that Lender
Agreement for Guarantee of Student Loans With Federal Reinsurance, dated
February 28, 1994, between the Trustee and Pennsylvania Higher Education
Assistance Agency, (3) that certain Agreement to Guarantee Loans, dated July 11,
1997, between the Trustee and United Student Aid Funds, Inc., (4) that certain
Lender Participation Agreement for Insurance, dated July 8, 1997, between the
Trustee and Student Loans of North Dakota, (5) that certain Lender Agreement for
Guarantee of Student Loans With Federal Reinsurance, dated July 15, 1997,
between the Trustee and Northstar Guarantee Inc., (6) that certain Student Loan
Guaranty, dated July 15, 1997, between the Trustee and Great Lakes Higher
Education Corporation, (7) that certain Agreement for Payment on Guarantee of
Student Loans With Federal Reinsurance, dated December 15, 1994, between the
Trustee and Educational Credit Management Corporation (formerly known as
Transitional Guaranty Agency, Inc.), (8) that certain Holder Agreement, dated
July 16, 1997, between the Trustee and Illinois Student Assistance Commission,
(9) that certain Agreement to Guarantee Loans, dated July 15, 1997, and that
certain Agreement to Guarantee PLUS/SLS Loans, dated July 15, 1997, between the
Trustee and Iowa College Aid Commission, (10) that certain Agreement to
Guarantee Loans made by a Commercial Lender, dated July 10, 1997, that certain
Agreement to Guarantee CLAS Program Loans made by a Commercial Lender, dated
July 10, 1997, and that certain Consolidation Loan Program Lender Participation
Agreement, dated July 6, 1997, Addendum to Consolidation Loan Program Lender
Participation Agreement, dated as of June 30, 1997, and Certificate of
Comprehensive Insurance, dated July 17, 1997, between the Trustee and California
Student Aid Commission, (11) that certain Agreement to Guarantee Stafford Loans
Federal PLUS Loans Federal SLS Loans, dated July 15, 1997 between the Trustee
and Missouri Coordinating Board for Higher Education, and (13) any other
agreement between a Guarantee Agency and the Trustee providing for the insurance
or guarantee by such Guarantee Agency, to the extent provided in the Higher
Education Act, of the principal of and
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accrued interest on Student Loans originated or acquired by the Trustee from
time to time, including any supplement thereto or amendment thereof entered into
in accordance with the provisions thereof and of the Indenture.
"Guarantee Fund" shall have the meaning assigned thereto on page 96 of this
Prospectus.
"Guarantee Payments" shall have the meaning assigned thereto on page 33 of
this Prospectus.
"Guarantee Program" shall mean a Guarantee Agency's student loan insurance
program pursuant to which such Guarantee Agency guarantees or insures Student
Loans.
"Guaranteed Loan" shall mean a Student Loan which is Guaranteed.
"Higher Education Act" shall mean the Higher Education Act of 1965, as
amended or supplemented from time to time, and all regulations promulgated
thereunder.
"Hold Order" shall have the meaning assigned thereto on pages 120 and 125
of this Prospectus.
"Holder", when used with respect to a Note, shall mean the Person in whose
name such Note is registered in the Note Register maintained by the Trustee.
"Independent", when used with respect to any specified Person, shall mean
such a Person who (i) is in fact independent; (ii) does not have any direct
financial interest or any material indirect financial interest in the
Corporation, other than the payment to be received under a contract for services
to be performed by such Person; and (iii) is not connected with the Corporation
as an official, officer, employee, promoter, underwriter, trustee, partner,
affiliate, subsidiary, director or Person performing similar functions.
"Indenture" shall have the meaning assigned thereto on page 2 of this
Prospectus.
"Indenture Obligations" shall have the meaning assigned thereto on page 58
of this Prospectus.
"Index" shall mean, with respect to a series of Tax Exempt Auction Rate
Series 1997-1 Senior Notes on any Interest Rate Determination Date, (i) for
Auction Periods of 60 days or less, the PSA Index, or, if such rate is not
published by PSA, the Index so determined by the Market Agent, which shall equal
the prevailing rate for bonds rated in the highest short-term rating category by
Moody's and Fitch in respect of issuers most closely resembling the "high grade"
component issuers selected by PSA that are subject to tender by the holders
thereof for purchase on not more than seven days' notice and the interest on
which is (a) variable on a weekly basis, (b) excludable from gross income for
federal income tax purposes, and (c) not subject to an "alternative minimum tax"
or similar tax under the Code, unless all tax-exempt bonds are subject to such
tax, and (ii) for Auction Periods of more than 60 days, the Index so determined
by the Market Agent, which shall equal the average yield on no less than three
publicly offered securities selected by the Market Agent which are offered at
par, have substantially the same underlying security, bear interest determined
for approximately the same period as the relevant Interest Period on the Tax
Exempt Auction Rate Series 1997-1 Senior Notes, bear interest not subject to the
alternative minimum tax, and are rated no lower than "Aa" by Moody's or "AA" by
Fitch. If the Index cannot be determined as provided above, a comparable
substitute index selected by the Market Agent with the approval of an Authorized
Officer of the Corporation may be used.
"Indirect Participants" shall have the meaning assigned thereto on page 46
of this Prospectus.
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"Insolvency Laws" shall have the meaning assigned thereto on page 37 of
this Prospectus.
"Initial Interest Period" shall mean, as to a series of Auction Rate Series
1997-1 Senior Notes or Taxable LIBOR Rate Series 1997-1 Notes, the period
commencing on the date of issuance thereof and continuing through the day
immediately preceding the Initial Interest Rate Adjustment Date for such series.
"Initial Interest Rate Adjustment Date" shall mean (i) with respect to the
Series 1997-1A Notes, December 4, 1997, (ii) with respect to the Series 1997-1B
Notes, December 11, 1997, (iii) with respect to the Series 1997-1C Notes,
December 18, 1997, (iv) with respect to the Series 1997-1D Notes, December 30,
1997, (v) with respect to the Series 1997-1E Notes, January 6, 1998, (vi) with
respect to the Series 1997-1G Notes, December 8, 1997, (vii) with respect to the
Series 1997-1H Notes, December 15, 1997 and (viii) with respect to the Taxable
LIBOR Rate Series 1997-1 Notes, December 1, 1997.
"In-State Loans" shall have the meaning assigned thereto on page 72 of this
Prospectus.
"Interest Payment Date" shall mean each regularly scheduled interest
payment date on the Notes which, except in the case of any series of Variable
Rate Notes (as to which such dates shall be specified in the Supplemental
Indenture providing for the issuance thereof), shall be each June 1 and December
1 or, with respect to the payment of interest upon call for redemption or
acceleration of a Note, purchase of a Note by the Trustee on a Mandatory Tender
Date (to the extent such Mandatory Tender Date is designated as an Interest
Payment Date in the related Supplemental Indenture) or the payment of Defaulted
Interest, such dates on which such interest is payable under the Indenture. The
regularly scheduled interest payment dates on the Series 1997-1 Notes shall be
(i) with respect to a series of Taxable Auction Rate Series 1997-1 Senior Notes,
the Business Day immediately following the expiration of the Initial Interest
Period for such series and each related Auction Period thereafter, (ii) with
respect to a series of Taxable LIBOR Rate Series 1997-1 Notes, the first day of
each calendar month, commencing December 1, 1997, and (iii) with respect to the
Tax Exempt Series 1997-1 Notes, each June 1 and December 1, commencing December
1, 1997.
"Interest Period" shall mean, with respect to a series of Auction Rate
Series 1997-1 Senior Notes or Taxable LIBOR Rate Series 1997-1 Notes, the
Initial Interest Period and each period commencing on an Interest Rate
Adjustment Date for such series and ending on the last day before (i) the next
Interest Rate Adjustment Date for such series or (ii) the Stated Maturity of
such series, as applicable.
"Interest Rate Adjustment Date" shall mean the date on which the interest
rate on a series of Auction Rate Series 1997-1 Senior Notes or Taxable LIBOR
Rate Series 1997-1 Notes is effective, which (i) with respect to a series of
Auction Rate Series 1997-1 Senior Notes, shall be the date of commencement of
each Auction Period, and (ii) with respect to a series of Taxable LIBOR Rate
Series 1997-1 Notes, shall be each Interest Payment Date.
"Interest Rate Determination Date" shall mean (i) with respect to a series
of Auction Rate Series 1997-1 Senior Notes, the Auction Date, or, if no Auction
Date is applicable to such series, the Business Day immediately preceding the
date of commencement of an Auction Period, and (ii) with respect to a series of
Taxable LIBOR Rate Series 1997-1 Notes, the second Business Day immediately
preceding the date of commencement of an Interest Period (other than the Initial
Interest Period).
"Interest Subsidy Agreement" shall have the meaning assigned thereto on
page 97 of this Prospectus.
"Interest Subsidy Payments" shall mean interest payments on certain student
loans authorized to be made by the Secretary of Education by Section 428(a) of
the Higher Education Act.
"Investment Provider" shall have the meaning assigned thereto on page 19 of
this Prospectus.
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"Investment Securities" shall have the meaning assigned thereto on page 156
of this Prospectus.
"IRAs" shall have the meaning assigned thereto on page 170 of this
Prospectus.
"Issuer" shall have the meaning assigned thereto on page 166 of this
Prospectus.
"Lender" shall mean any "eligible lender" (as defined in the Higher
Education Act) permitted to participate as a seller of Student Loans to the
Corporation under the Program and which has received an eligible lender
designation from a Guarantee Agency.
"Loan Rates" shall have the meaning assigned thereto on page 34 of this
Prospectus.
"Mandatory Tender Date" shall mean, with respect to any Note, a date on
which such Note is required to be tendered for purchase by or on behalf of the
Corporation in accordance with the provisions in the Supplemental Indenture
providing for the issuance thereof.
"Market Agent" shall mean Smith Barney Inc., New York, New York, in such
capacity under the First Supplemental Indenture, or any successor to it in such
capacity.
"Maximum Auction Rate" shall mean (i) with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Senior Notes, the interest rate per annum
equal to the lesser of (a) the product of the Applicable Percentage and the
greater of (1) the After-Tax Equivalent and (2) the Index, and (b) 14%, (ii)
with respect to a series of Taxable Auction Rate Series 1997-1 Senior Notes:
(a) for Auction Periods of 35 days or less, either (1) One-Month LIBOR plus
1.50% (if the ratings assigned by Moody's and Fitch to the Taxable Auction Rate
Series 1997-1 Senior Notes are at least "Aa3" and "AA-", respectively), (2) One-
Month LIBOR plus 2.50% (if any one of the ratings assigned by Moody's and Fitch
to the Taxable Auction Rate Series 1997-1 Senior Notes is less than "Aa3" or
"AA-", respectively, but is at least "A") or (3) One-Month LIBOR plus 3.50% (if
any one of the ratings assigned by Moody's and Fitch to the Taxable Auction Rate
Series 1997-1 Senior Notes is less than "A"); or (b) for Auction Periods of
greater than 35 days, either (1) the greater of One-Month LIBOR or Three-Month
LIBOR, plus, in either case, 1.50% (if the ratings assigned by Moody's and Fitch
to the Taxable Auction Rate Series 1997-1 Senior Notes are at least "Aa3", and
"AA-", respectively), (2) the greater of One-Month LIBOR or Three-Month LIBOR,
plus, in either case, 2.50% (if any one of the ratings assigned by Moody's and
Fitch to the Taxable Auction Rate Series 1997-1 Senior Notes is less than "Aa3"
or "AA-", respectively, but is at least "A") or (3) the greater of One-Month
LIBOR or Three-Month LIBOR, plus, in either case, 3.50% (if any one of the
ratings assigned by Moody's and Fitch to the Taxable Auction Rate Series 1997-1
Senior Notes is less than "A"). For purposes of the Auction Agent and the
Auction Procedures, the ratings referred to in this definition shall be the last
ratings of which the Auction Agent shall have been given notice pursuant to the
Auction Agent Agreement.
"Monthly Payment Date" shall mean the 12th day of each calendar month (or,
if such 12th day is not a Business Day, the next preceding Business Day);
provided that any transfers to be made from the Revenue Fund on a Monthly
Payment Date shall, as to amounts therein constituting payments in respect of
Financed Student Loans, include only such payments as have been deposited in the
Revenue Fund as of the last day of the preceding calendar month.
"Monthly Servicing Report" shall mean the monthly report prepared by the
Corporation or the Servicer in accordance with the Indenture.
"Moody's" shall mean Moody's Investors Service, Inc., its successors and
their assigns, and, if such corporation shall no longer perform the functions of
a securities rating agency, a successor designated by the Trustee at the
direction of the Corporation.
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"Net Loan Rate" shall mean, with respect to any Interest Period for a
series of Taxable Auction Rate Series 1997-1 Senior Notes or Taxable LIBOR Rate
Series 1997-1 Notes commencing during a given month, the rate of interest per
annum (rounded to the next highest .01%) equal to (i) the weighted average
Effective Interest Rate of Student Loans in the Series 1997-1 Taxable
Acquisition Account, determined as of the last day of the second preceding
month, less (ii) the Administrative Cost and Note Fee Rate.
"New Borrower" shall have the meaning assigned thereto on page 82 of this
Prospectus.
"1933 Act" shall have the meaning assigned thereto on page 6 of this
Prospectus.
"1980 Amendments" shall have the meaning assigned thereto on page 81 of
this Prospectus.
"1981 Amendments" shall have the meaning assigned thereto on page 81 of
this Prospectus.
"1986 Amendments" shall have the meaning assigned thereto on page 80 of
this Prospectus.
"1987 Amendments" shall have the meaning assigned thereto on page 80 of
this Prospectus.
"1989 Amendments" shall have the meaning assigned thereto on page 80 of
this Prospectus.
"1992 Amendments" shall have the meaning assigned thereto on page 80 of
this Prospectus.
"1993 Amendments" shall have the meaning assigned thereto on page 80 of
this Prospectus.
"1993 Technical Amendments" shall have the meaning assigned thereto on page
80 of this Prospectus.
"1997 Amendments" shall have the meaning assigned thereto on page 80 of
this Prospectus.
"91-day T-Bill Rate" shall have the meaning assigned thereto on page 92 of
this Prospectus.
"Non-Payment Rate" shall mean (i) with respect to a series of Tax Exempt
Auction Rate Series 1997-1 Senior Notes, the interest rate per annum equal to
the lesser of (a) 265% (as such percentage may be adjusted pursuant to the
provisions of the First Supplemental Indenture described under "Auction of the
Auction Rate Series 1997-1 Senior Notes -- Changes in Auction Terms -- Changes
in Percentages Used in Determining All Hold Rate, Maximum Auction Rate and Non-
Payment Rate with respect to the Tax Exempt Auction Rate Series 1997-1 Senior
Notes") of the Index and (b) 14%, and (ii) with respect to a series of Taxable
Auction Rate Series 1997-1 Senior Notes, the lesser of (a) One-Month LIBOR plus
1.50% and (b) 18%.
"Note Fees" shall mean the fees, costs and expenses, excluding Costs of
Issuance, of the Trustee and any Paying Agents, Authenticating Agent,
Remarketing Agents, Depositaries, Auction Agents, Broker-Dealers, Deposit
Agents, Bond Counsel, Note Registrar or Accountants incurred by the Corporation
in carrying out and administering its powers, duties and functions under (1) its
articles of incorporation, its bylaws, the Student Loan Purchase Agreements, any
Servicing Agreement, the Contract of Insurance, the Guarantee Agreements, the
Program, the Higher Education Act or any requirement of the laws of the United
States or the State with respect to the Program, as such powers, duties and
functions relate to Financed Student Loans, (2) any Swap Agreements and any
Credit Enhancement Facilities (other than any amounts payable thereunder which
constitute Other Indenture Obligations), (3) any Remarketing Agreement,
Depositary Agreement, Auction Agent Agreement or Broker-Dealer Agreement and (4)
the Indenture.
"Noteholder" shall mean the Holder of a Note.
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"Notes" shall mean the Series 1997-1 Notes and any additional notes
hereafter issued under the Indenture.
"One-Month LIBOR" shall mean, with respect to a series of Taxable Auction
Rate Series 1997-1 Senior Notes or Taxable LIBOR Rate Series 1997-1 Notes and
any Interest Rate Determination Date, the rate of interest per annum equal to
the London interbank offered rate for deposits in United States dollars having a
maturity of one month (commencing on such Interest Rate Determination Date)
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such
Interest Rate Determination Date. If such rate does not appear on Telerate Page
3750, One-Month LIBOR for such Interest Rate Determination Date will be
determined on the basis of the rates at which deposits in United States dollars
having a maturity of one month 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
Interest Rate Determination Date to prime banks in the London interbank market
by the Reference Banks. The Auction Agent or the Trustee, as applicable, will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, One-Month
LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the nearest
.01%) of such offered rates. If fewer than two such quotations are provided,
One-Month LIBOR will be the arithmetic mean (rounded upwards, if necessary, to
the nearest .01%) of the rates quoted at approximately 11:00 a.m., New York City
time, on such Interest Rate Determination Date by three major banks in New York,
New York, selected by the Auction Agent after consultation with the Trustee, or
by the Trustee, as applicable, for loans in United States dollars to leading
European banks having a maturity of one month and in a principal amount of not
less than U.S. $1,000,000; provided, however, that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, One-Month LIBOR will be
the One-Month LIBOR in effect for the immediately preceding Interest Period.
"Original Issuer" shall have the meaning assigned thereto on page 7 of this
Prospectus.
"Original Issuer Student Loan Purchase Agreements" shall have the meaning
assigned thereto on page 74 of this Prospectus.
"Order" shall have the meaning assigned thereto on page 125 of this
Prospectus.
"Other Beneficiary" shall mean an Other Senior Beneficiary or an Other
Subordinate Beneficiary.
"Other Indenture Obligations" shall mean, collectively, the Other Senior
Obligations and Other Subordinate Obligations.
"Other Senior Beneficiary" shall mean a Person who is a Senior Beneficiary
other than as a result of ownership of Senior Notes.
"Other Senior Obligations" shall mean the Corporation's obligations to pay
any amounts under any Senior Swap Agreements and any Senior Credit Enhancement
Facilities.
"Other Subordinate Beneficiary" shall mean a Person who is a Subordinate
Beneficiary other than as a result of ownership of Subordinate Notes.
"Other Subordinate Obligations" shall mean the Corporation's obligations to
pay any amounts under any Subordinate Swap Agreements and any Subordinate Credit
Enhancement Facilities.
"Outstanding" shall mean (i) when used with respect to Notes, all Notes
other than (a) any Notes deemed no longer Outstanding as a result of the
purchase, payment or defeasance thereof as described under "Summary of the
Indenture -- Discharge of Notes and the Indenture", (b) any Notes surrendered
for transfer or exchange for which another Note has been issued under the
Indenture, (c) with respect to any request, demand, authorization, direction,
notice, consent or waiver under the Indenture, Notes owned by the Corporation to
the extent the Trustee
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knows that such Notes are so owned, or (d) any Notes Deemed Tendered, and (ii)
when used with respect to Other Indenture Obligations, all Other Indenture
Obligations which have become, or may in the future become, due and payable and
which have not been paid or otherwise satisfied.
"Participant" shall mean a member of, or participant in, the Securities
Depository.
"Parties in Interest" shall have the meaning assigned thereto on page 170
of this Prospectus.
"Paying Agent" shall mean the Trustee and any other commercial bank
designated pursuant to the Indenture as a place at which principal of, premium,
if any, or interest on any Note is payable.
"Payment Default" shall mean, with respect to a series of Auction Rate
Series 1997-1 Senior Notes, (i) a default in the due and punctual payment of any
installment of interest on such series, or (ii) a default in the due and
punctual payment of any interest on and principal of such series at maturity.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, incorporated organization or
government or any agency or political subdivision thereof.
"PHEAA" shall have the meaning assigned thereto on pages 17 and 95 of this
Prospectus.
"PHEAA Act" shall have the meaning assigned thereto on page 99 of this
Prospectus.
"PHEAA Bond Fund" shall have the meaning assigned thereto on page 100 of
this Prospectus.
"Plan Assets Regulation" shall have the meaning assigned thereto on page
170 of this Prospectus.
"Plan for Doing Business" shall mean the plan adopted by the Original
Issuer as required by Section 438(e) of the Higher Education Act.
"Pledged Funds and Accounts" shall have the meaning assigned thereto on
page 57 of this Prospectus.
"Pledged Revenues" shall have the meaning assigned thereto on page 57 of
this Prospectus.
"Plus Loan" shall mean a Student Loan made pursuant to Section 428B of the
Higher Education Act.
"Potential Bid Orders" shall have the meaning assigned thereto on page 120
of this Prospectus.
"Potential Holders" shall have the meaning assigned thereto on page 122 of
this Prospectus.
"Prepayment Date", when used with respect to any Note, a portion of the
Principal Amount of which is to be paid prior to its Stated Maturity, shall mean
the date fixed for such prepayment by or pursuant to the Indenture.
"Principal Amount", when used with respect to a Note, shall mean the
original principal amount of such Note less all payments previously made to the
Holder thereof in respect of principal.
"Principal Balance", when used with respect to a Student Loan, shall mean
the unpaid principal amount thereof (including any unpaid capitalized interest
thereon that is authorized to be capitalized under the Higher Education Act for
purposes of Special Allowance Payments, federal interest subsidy payments, a
borrower's liability to a lender and the amount of the lender's loss on a
guarantee or insurance claim) as of a given date.
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"Principal Office" shall mean (i) when used with respect to the Trustee,
the principal corporate trust office of the Trustee, and (ii) when used with
respect to a Paying Agent (other than the Trustee), an Authenticating Agent, the
Note Registrar, a Depositary, a Remarketing Agent, an Auction Agent or a Broker-
Dealer, such office designated in writing to the Trustee and the Corporation as
the location of its principal office for the performance of its duties as Paying
Agent, Authenticating Agent, Note Registrar, Depositary, Remarketing Agent,
Auction Agent or Broker-Dealer, as the case may be, under the Indenture.
"Principal Payment Date" shall mean the Stated Maturity of principal of any
Serial Note and the Sinking Fund Payment Date for any Term Note, which, unless
otherwise specified with respect to any series of Variable Rate Notes in the
Supplemental Indenture providing for the issuance thereof, shall occur on a June
1 or a December 1.
"Program" shall mean the program to be administered by the Original Issuer
(or, after the Section 150(d)(3) Transfer, the Servicer) for the purchase of
Student Loans from Lenders or origination of Student Loans in order to increase
the supply of moneys available for new Student Loans, thereby assisting students
in obtaining a post-secondary school education.
"PSA" shall mean the Public Securities Association, its successors and
assigns.
"PSA Index" shall mean, with respect to a series of the Tax Exempt Auction
Rate Series 1997-1 Senior Notes, a rate determined on the basis of the seven-day
high grade market index of tax-exempt variable rate demand obligations, as
produced by Municipal Market Data and published or made available by the PSA or
any Person acting in cooperation with or under the sponsorship of PSA and
acceptable to the Market Agent.
"PTCE" shall have the meaning assigned thereto on page 171 of this
Prospectus.
"Purchase Date" shall mean, with respect to a Demand Note, the date
specified in a purchase demand (provided that such date is prior to any
applicable conversion date and is not less than the required number of calendar
days after receipt of such purchase demand by the Depositary) as the date on
which the Holder of the Demand Note identified in such purchase demand is
demanding purchase of such Note, or a specified portion thereof, in accordance
with the applicable provisions of the related Supplemental Indenture, or the
next preceding or succeeding Business Day, as provided for in such Supplemental
Indenture, if such date is not a Business Day.
"Qualified Retirement Plans" shall have the meaning assigned thereto on
page 170 of this Prospectus.
"Rating Agency" shall mean any rating agency that shall have an outstanding
rating on any of the Notes pursuant to request by the Corporation.
"Rating Category" shall mean one of the general rating categories of a
Rating Agency, without regard to any refinement or gradation of such rating
category by a numerical modifier or otherwise.
"Rebate Amount" shall have the meaning assigned thereto on pages 27 and 60
of this Prospectus.
"Redemption Date," when used with respect to any Note called for
redemption, shall mean the date fixed for such redemption by or pursuant to the
Indenture.
"Redemption Price," when used with respect to any Note called for
redemption, means the price at which it is to be redeemed pursuant to the
Indenture.
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"Reference Banks" shall mean four leading banks, selected by the Auction
Agent, after consultation with the Trustee, or by the Trustee, as applicable,
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market and having an established place of business in London.
"Regular Record Date" shall mean, with respect to an Interest Payment Date
for any series of Notes, the record date for the payment of interest established
by the Indenture and the Supplemental Indenture pursuant to which such series of
Notes was issued .
"Refunded Obligations" shall have the meaning assigned thereto on page 149
of this Prospectus.
"Remarketing Agent" shall mean, with respect to any series of Notes, any
securities dealer designated as such with respect to such Notes pursuant to the
provisions of the Indenture and its successor or successors and any securities
dealer at any time substituted in its place pursuant to the Indenture.
"Remarketing Agreement" shall mean an agreement between a Remarketing Agent
and the Corporation setting forth the rights and obligations of the Remarketing
Agent acting in such capacity under the Indenture, including any supplement
thereto or amendment thereof entered into in accordance with the provisions
thereof.
"Repeat Borrower" shall have the meaning assigned thereto on page 83 of
this Prospectus.
"Reserve Fund Requirement" shall mean, at any time, an amount equal to the
greater of (1) 2.00% of the aggregate Principal Amount of Senior Notes and
Subordinate Notes then Outstanding, and (2) $500,000; or, as determined upon the
issuance of any Senior Notes or any Subordinate Notes, such lesser or greater
amount as will not cause any Rating Agency to lower or withdraw any rating on
any Outstanding Unenhanced Notes, as confirmed in writing to the Trustee by each
Rating Agency, or, if no Unenhanced Notes are then Outstanding but Other
Indenture Obligations are Outstanding and the Reserve Fund Requirement is to be
reduced, such lesser amount as is acceptable to the Other Beneficiaries entitled
to such Other Indenture Obligations, as evidenced in writing to the Trustee by
each such Other Beneficiary. In calculating the Reserve Fund Requirement, all
Notes to be defeased by a series of refunding Notes shall be deemed not
Outstanding as of the date of calculation.
"Sallie Mae" shall have the meaning assigned thereto on page 101 of this
Prospectus.
"S&P" shall mean Standard & Poor's, a division of McGraw-Hill Inc., its
successors and assigns.
"Secretary of Education" shall mean the Commissioner of Education,
Department of Health, Education and Welfare of the United States, and the
Secretary of the United States Department of Education (who succeeded to the
functions of the Commissioner of Education pursuant to the Department of
Education Organization Act), or any other officer, board, body, commission or
agency succeeding to the functions thereof under the Higher Education Act.
"Section 150(d)(3) Transfer" shall mean the transfer of all of the right,
title and interest in and to the Trust Estate from the Original Issuer to SLFC,
and from SLFC to the Corporation, together with the assumption by the
Corporation of all of the obligations and liabilities of the Original Issuer
under the Indenture and under the Notes and any Other Indenture Obligations, all
in accordance with Section 150(d)(3) of the Code.
"Securities Depository" shall mean The Depository Trust Company, New York,
New York, as depository of the Series 1997-1 Notes, and its successors and
assigns, or, if (i) the then-existing Securities Depository resigns from its
functions as depository of the Series 1997-1 Notes or (ii) the Corporation
discontinues use of the Securities Depository pursuant to the provisions of the
First Supplemental Indenture, then any other securities depository which agrees
to follow the procedures required to be followed by a securities depository in
connection with the Series 1997-1 Notes and which is selected by the Corporation
with the consent of the Trustee.
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"Sell Order" shall have the meaning assigned thereto on page 125 of this
Prospectus.
"Seller's Broker-Dealer" shall have the meaning assigned thereto on page
135 of this Prospectus.
"Senior Asset Requirement" shall mean, as of the date of determination,
that:
(a) the Senior Percentage is at least equal to 110% (or such lower
percentage specified in a Corporation certificate delivered to the Trustee
which, if Unenhanced Senior Notes are Outstanding, shall not result in the
lowering or withdrawal of the outstanding rating assigned by any Rating
Agency to any of the Unenhanced Senior Notes Outstanding, as evidenced in
writing to the Trustee by each such Rating Agency, or, if no Unenhanced
Senior Notes are Outstanding but Other Senior Obligations are Outstanding,
is acceptable to the Other Senior Beneficiaries entitled to such Other
Senior Obligations, as evidenced in writing to the Trustee by each such
Other Senior Beneficiary), and
(b) the Subordinate Percentage is at least equal to 100% (or such
lower percentage specified in a Corporation certificate delivered to the
Trustee which, if Unenhanced Subordinate Notes are Outstanding, shall not
result in the lowering or withdrawal of the outstanding rating assigned by
any Rating Agency to any of the Unenhanced Subordinate Notes Outstanding,
as evidenced in writing to the Trustee by each such Rating Agency, or, if
no Unenhanced Subordinate Notes are Outstanding but Other Subordinate
Obligations are Outstanding, is acceptable to the Other Subordinate
Beneficiaries entitled to such Other Subordinate Obligations, as evidenced
in writing to the Trustee by each such Other Subordinate Beneficiary).
"Senior Beneficiaries" shall mean (i) the Holders of any Outstanding Senior
Notes, and (ii) any Senior Credit Facility Provider and any Senior Swap
Counterparty entitled to Other Senior Obligations then Outstanding.
"Senior Credit Enhancement Facility" shall mean a Credit Enhancement
Facility designated as a Senior Credit Enhancement Facility in the Supplemental
Indenture pursuant to which such Credit Enhancement Facility is furnished by the
Corporation.
"Senior Credit Facility Provider" shall mean any Person who provides a
Senior Credit Enhancement Facility.
"Senior Notes" shall mean the Series 1997-1 Senior Notes and any other
Notes designated in a Supplemental Indenture as Senior Notes, which are secured
under the Indenture on a basis senior to any Subordinate Obligations and any
Class C Notes, and on a parity with other Senior Obligations.
"Senior Obligations" shall mean, collectively, the Senior Notes and the
Other Senior Obligations.
"Senior Percentage" shall mean, as of the date of determination, the
percentage resulting by dividing the Aggregate Value by the sum of (i) the
aggregate Principal Amount of Outstanding Senior Notes plus accrued interest
thereon, (ii) accrued Corporation Swap Payments under Senior Swap Agreements and
(iii) other payments accrued and owing by the Corporation on Other Senior
Obligations.
"Senior Swap Agreement" shall mean a Swap Agreement designated as a Senior
Swap Agreement in the Supplemental Indenture pursuant to which such Swap
Agreement is furnished by the Corporation.
"Senior Swap Counterparty" shall mean any Person who provides a Senior Swap
Agreement.
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"Series 1997-1 Excess Earnings Sub-Account" means the Sub-Account of that
name created within the Excess Earnings Account under the Indenture.
"Series 1997-1 Notes" shall mean, collectively, the Series 1997-1 Senior
Notes and the Series 1997-1 Subordinate Notes.
"Series 1997-1 Senior Notes" shall mean, collectively, the Series 1997-1A
Notes, the Series 1997-1B Notes, the Series 1997-1C Notes, the Series 1997-1D
Notes, the Series 1997-1E Notes, the Series 1997-1F Notes, the Series 1997-1G
Notes, the Series 1997-1H Notes, the Series 1997-1I Notes and the Series 1997-1J
Notes.
"Series 1997-1 Subordinate Notes" shall mean, collectively, the Series
1997-1K Notes and the Series 1997-1L Notes.
"Series 1997-1A Notes" shall mean the Corporation's Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1A, issued under
the Indenture.
"Series 1997-1B Notes" shall mean the Corporation's Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1B, issued under
the Indenture.
"Series 1997-1C Notes" shall mean the Corporation's Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1C, issued under
the Indenture.
"Series 1997-1D Notes" shall mean the Corporation's Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1D, issued under
the Indenture.
"Series 1997-1E Notes" shall mean the Corporation's Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1E, issued under
the Indenture.
"Series 1997-1F Notes" shall mean the Corporation's Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1F, issued under
the Indenture.
"Series 1997-1G Notes" shall mean the Corporation's Taxable Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1G, issued under
the Indenture.
"Series 1997-1H Notes" shall mean the Corporation's Taxable Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1H, issued under
the Indenture.
"Series 1997-1I Notes" shall mean the Corporation's Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1I, issued under
the Indenture.
"Series 1997-1J Notes" shall mean the Corporation's Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1J, issued under
the Indenture.
"Series 1997-1K Notes" shall mean the Corporation's Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1K, issued
under the Indenture.
"Series 1997-1L Notes" shall mean the Corporation's Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1L, issued
under the Indenture.
"Series 1997-1 Tax Exempt Acquisition Account" means the Account of that
name created within the Acquisition Fund under the Indenture.
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"Series 1997-1 Tax Exempt Reserve Account" means the Account of that name
created within the Reserve Fund under the Indenture.
"Series 1997-1 Tax Exempt Retirement Sub-Account" means the Sub-Account of
that name created within the Retirement Account under the Indenture.
"Series 1997-1 Tax Exempt Surplus Sub-Account" means the Sub-Account of
that name created within the Surplus Account under the Indenture.
"Series 1997-1 Taxable Acquisition Account" means the Account of that name
created within the Acquisition Fund under the Indenture.
"Series 1997-1 Taxable Reserve Account" means the Account of that name
created within the Reserve Fund under the Indenture.
"Series 1997-1 Taxable Retirement Sub-Account" means the Sub-Account of
that name created within the Retirement Account under the Indenture.
"Series 1997-1 Taxable Surplus Sub-Account" means the Sub-Account of that
name created within the Surplus Account under the Indenture.
"Service" shall have the meaning assigned thereto on page 167 of this
Prospectus.
"Servicer" shall mean SLFC and any other organization with which the
Corporation and the Trustee have entered into a Servicing Agreement, subject to
confirmation of ratings on any Outstanding Unenhanced Notes or, if no Unenhanced
Notes are then Outstanding but Other Indenture Obligations are Outstanding,
consent of each Other Beneficiary entitled to such Other Indenture Obligations.
"Servicing Agreement" shall mean the SLFC Servicing Agreement, and any
other agreement among the Corporation, the Trustee and a Servicer under which
the Servicer agrees to act as the Corporation's and/or the Trustee's agent or
provides services or facilities (including, without limitation, computer
hardware or software) in connection with the administration and collection of
Financed Student Loans in accordance with the Indenture.
"Servicing Fees" shall mean any fees payable by the Corporation to a
Servicer in respect of Financed Student Loans pursuant to the provisions of a
Servicing Agreement.
"Sinking Fund Payment Date" shall mean the date on which any Term Note is
to be called for redemption pursuant to the sinking fund redemption provisions
of the Supplemental Indenture providing for the issuance thereof, or, if not so
called for redemption, the Stated Maturity thereof.
"SLFC" shall have the meaning assigned thereto on pages 2 and 7 of this
Prospectus.
"SLFC Servicing Agreement" shall have the meaning assigned thereto on pages
20 and 68 of this Prospectus.
"SLS Loan" shall mean a Student Loan made pursuant to former Section 428A
of the Higher Education Act.
"Special Allowance Payments" shall mean special allowance payments
authorized to be made by the Secretary of Education by Section 438 of the Higher
Education Act, or similar allowances authorized from time to time by federal law
or regulation.
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"Special Prepayment Amount" shall have the meaning assigned thereto on page
51 of this Prospectus.
"Special Redemption and Prepayment Account Requirement" (i) with respect to
the Taxable LIBOR Rate Series 1997-1 Notes, shall mean an amount equal to the
Special Prepayment Amount, and (ii) with respect to any other series of Notes,
shall mean the amount described in the Supplemental Indenture providing for the
issuance thereof.
"Specific Rating Category" shall mean a specific rating category of a
Rating Agency, taking into account any refinement or gradation of a Rating
Category by a numerical or other qualifier. For so long as any of the Notes are
rated by Moody's: (a) references to the highest applicable Specific Rating
Category shall be, with respect to obligations or investments having a term of
less than one year, to a rating of "P-1" (or such rating as Moody's shall advise
the Trustee is comparable to "P-1" under any revised rating schedule), and with
respect to obligations or investments having a term of one year or longer, to a
rating of "Aaa" (or such rating as Moody's shall advise the Trustee is
comparable to "Aaa" under any revised rating schedule); and (b) references to
the third highest applicable Specific Rating Category shall be, with respect to
obligations or investments having a term of one year or longer, to a rating of
"Aa2" (or such rating as Moody's shall advise the Trustee is comparable to "Aa2"
under any revised rating schedule). For so long as any of the Notes are rated
by Fitch: (a) references to the highest applicable Specific Rating Category
shall be, with respect to obligations or investments having a term of less than
one year, to a rating of "F-1+" (or, if Fitch revises its rating schedule from
time to time, such rating as Fitch shall advise the Trustee in writing is
comparable to "F-1+" under such revised rating schedule), and with respect to
obligations or investments having a term of one year or longer, to a rating of
"AAA" (or, if Fitch revises its rating schedule from time to time, such rating
as Fitch shall advise the Trustee in writing is comparable to "AAA" under such
revised rating schedule); and (b) references to the third highest applicable
Specific Rating Category shall be, with respect to obligations or investments
having a term of one year or longer, to a rating of "AA" (or, if Fitch revises
its rating schedule from time to time, such rating as Fitch shall advise the
Trustee in writing is comparable to "AA" under such revised rating schedule).
"Stafford Loan" shall mean a Student Loan made pursuant to Section 428 of
the Higher Education Act.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, shall mean the date specified in such Note as the fixed date
on which principal of such Note or such installment of interest is due and
payable.
"Statutory Corporate Tax Rate" shall mean, with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Senior Notes, the highest tax bracket
(expressed in decimals) applicable at the time of determination of the After-Tax
Equivalent on the income tax of any corporation, as set forth in Section 11 of
the Code or any successor section, without regard to any minimum additional tax
provision. The "Statutory Corporate Tax Rate", as of October 1, 1997, is .35.
"Student Loan" shall mean a loan to a borrower for post-secondary
education.
"Student Loan Portfolio" shall have the meaning assigned thereto on page 19
of this Prospectus.
"Student Loan Purchase Agreements" shall mean all agreements between the
Original Issuer or the Corporation and a Lender providing for the sale by such
Lender to the Corporation or the Trustee on behalf of the Corporation (or to the
Original Issuer prior to the Date of Issuance) of Student Loans Financed or to
be Financed under the Indenture and substantially in the forms which are on file
with the Trustee, including amendments thereto made in accordance with the
Indenture.
"Sub-Account" shall mean any subaccount of an Account created by a
Supplemental Indenture.
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"Submission Deadline" shall have the meaning assigned thereto on page 125
of this Prospectus.
"Submitted Bid" shall have the meaning assigned thereto on page 127 of this
Prospectus.
"Submitted Hold Order" shall have the meaning assigned thereto on page 127
of this Prospectus.
"Submitted Orders" shall have the meaning assigned thereto on page 127 of
this Prospectus.
"Submitted Sell Order" shall have the meaning assigned thereto on page 127
of this Prospectus.
"Subordinate Beneficiaries" shall mean (i) the Holders of any Outstanding
Subordinate Notes, and (ii) any Subordinate Credit Facility Provider and any
Subordinate Swap Counterparty entitled to any Other Subordinate Obligations then
Outstanding.
"Subordinate Credit Enhancement Facility" shall mean a Credit Enhancement
Facility designated as a Subordinate Credit Enhancement Facility in the
Supplemental Indenture pursuant to which such Credit Enhancement Facility is
furnished by the Corporation.
"Subordinate Credit Facility Provider" shall mean any Person who provides a
Subordinate Credit Enhancement Facility.
"Subordinate Notes" shall mean the Series 1997-1 Subordinate Notes and any
other Notes designated in a Supplemental Indenture as Subordinate Notes, which
are secured under the Indenture on a basis subordinate to any Senior
Obligations, on a parity with other Subordinate Obligations and on a basis
senior to any Class C Notes.
"Subordinate Obligations" shall mean, collectively, the Subordinate Notes
and the Other Subordinate Obligations.
"Subordinate Percentage" shall mean, as of the date of determination, the
percentage resulting by dividing the Aggregate Value by the sum of (i) the
aggregate Principal Amount of Outstanding Senior Notes and Subordinate Notes
plus accrued interest thereon, (ii) accrued Corporation Swap Payments and (iii)
other payments accrued and owing by the Corporation on Other Indenture
Obligations.
"Subordinate Swap Agreement" shall mean a Swap Agreement designated as a
Subordinate Swap Agreement in the Supplemental Indenture pursuant to which such
Swap Agreement is furnished by the Corporation.
"Subordinate Swap Counterparty" shall mean any Person who provides a
Subordinate Swap Agreement.
"Sufficient Bids" shall have the meaning assigned thereto on page 128 of
this Prospectus.
"Supplemental Indenture" shall mean any amendment of or supplement to the
Indenture made in accordance with the provisions thereof. (See "Summary of the
Indenture -- Supplemental Indentures".)
"Swap Agreement" shall mean, collectively, (a) an interest rate exchange
agreement between the Corporation and a Swap Counterparty, as originally
executed and as amended or supplemented, or other interest rate hedge agreement
between the Corporation and a Swap Counterparty, as originally executed and as
amended or supplemented, in each case approved by each Rating Agency, for the
purpose of converting, in whole or in part, (i) the Corporation's fixed interest
rate liability on all or a portion of any Notes to a variable rate liability,
(ii) the Corporation's variable rate liability on all or a portion of the Notes
to a fixed rate liability, or (iii) the Corporation's variable rate liability on
all or a portion of the Notes to a different variable rate liability, and (b)
any guarantee of the Swap Counterparty's obligations under such interest rate
exchange agreement.
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"Swap Counterparty" shall mean any Person with whom the Corporation shall,
from time to time, enter into a Swap Agreement.
"Tax-Exempt Notes" shall mean the Tax Exempt Series 1997-1 Notes and each
other series of Notes that is issued with the intent that interest thereon be
excludable from gross income for purposes of federal income taxation, as
evidenced by an opinion of Bond Counsel to that effect delivered upon issuance
of such series of Notes.
"Tax Exempt Auction Rate Series 1997-1 Senior Notes" shall mean,
collectively, the Series 1997-1A Notes, the Series 1997-1B Notes, the Series
1997-1C Notes, the Series 1997-D Notes and the Series 1997-E Notes.
"Tax Exempt Fixed Rate Series 1997-1 Notes" shall mean, collectively, the
Tax Exempt Fixed Rate Series 1997-1 Senior Notes and the Tax Exempt Fixed Rate
Series 1997-1 Subordinate Notes.
"Tax Exempt Fixed Rate Series 1997-1 Senior Notes" shall mean the Series
1997-1F Notes.
"Tax Exempt Fixed Rate Series 1997-1 Subordinate Notes" shall mean the
Series 1997-1K Notes.
"Tax-Favored Plans" shall have the meaning assigned thereto on page 170 of
this Prospectus.
"Tax Matters Certificate" shall mean, with respect to a series of Tax-
Exempt Notes, the applicable Original Issuer or Corporation certificate or
certificates relating to arbitrage and other tax matters delivered in connection
with the issuance of such series of Notes, as the same may be amended or
supplemented in accordance with its or their terms.
"Taxable Auction Rate Series 1997-1 Senior Notes" shall mean, collectively,
the Series 1997-1G Notes and the Series 1997-1H Notes.
"Taxable LIBOR Rate Series 1997-1 Notes" shall mean, collectively, the
Taxable LIBOR Rate Series 1997-1 Senior Notes and the Taxable LIBOR Rate Series
1997-1 Subordinate Notes.
"Taxable LIBOR Rate Series 1997-1 Senior Note Initial Interest Rate" shall
mean the interest rate to be borne by a series of Taxable LIBOR Rate Series
1997-1 Senior Notes for the Initial Interest Period therefor, as set forth in
the First Supplemental Indenture.
"Taxable LIBOR Rate Series 1997-1 Senior Note Interest Rate" shall mean the
rate of interest per annum borne by a series of Taxable LIBOR Rate Series 1997-1
Senior Notes, which, during the Initial Interest Period for such series, shall
be the Taxable LIBOR Rate Series 1997-1 Senior Note Initial Interest Rate, and
during each Interest Period thereafter, shall be the lesser of (i) One-Month
LIBOR plus the Taxable LIBOR Rate Series 1997-1 Senior Note Spread, or (ii) the
Net Loan Rate.
"Taxable LIBOR Rate Series 1997-1 Senior Note LIBOR-Based Rate" shall have
the meaning assigned thereto on page 112 of this Prospectus.
"Taxable LIBOR Rate Series 1997-1 Senior Note Spread" shall mean ___% per
annum, with respect to the Series 1997-1I Notes, and ___% per annum, with
respect to the Series 1997-1J Notes.
"Taxable LIBOR Rate Series 1997-1 Senior Notes" shall mean, collectively,
the Series 1997-1I Notes and the Series 1997-1J Notes.
-200-
<PAGE>
"Taxable LIBOR Rate Series 1997-1 Subordinate Note Initial Interest Rate"
shall mean the interest rate to be borne by the Taxable LIBOR Rate Series 1997-1
Subordinate Notes for the Initial Interest Period therefor, as set forth in the
First Supplemental Indenture.
"Taxable LIBOR Rate Series 1997-1 Subordinate Note Interest Rate" shall
mean the rate of interest per annum borne by the Taxable LIBOR Rate Series
1997-1 Subordinate Notes, which, during the Initial Interest Period for such
series, shall be the Taxable LIBOR Rate Series 1997-1 Subordinate Note Initial
Interest Rate, and during each Interest Period thereafter, shall be the lesser
of (i) One-Month LIBOR plus the Taxable LIBOR Rate Series 1997-1 Subordinate
Note Spread or (ii) the Net Loan Rate.
"Taxable LIBOR Rate Series 1997-1 Subordinate Note LIBOR-Based Rate" shall
have the meaning assigned thereto on page 116 of this Prospectus.
"Taxable LIBOR Rate Series 1997-1 Subordinate Note Spread" shall mean ___%
per annum.
"Taxable LIBOR Rate Series 1997-1 Subordinate Notes" shall mean the Series
1997-1L Notes.
"Taxable Series 1997-1 Notes" shall mean, collectively, the Taxable Auction
Rate Series 1997-1 Senior Notes and the Taxable LIBOR Rate Series 1997-1 Notes.
"Telerate Page 3750" shall mean the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Terms and Conditions" shall have the meaning assigned thereto on page 49
of this Prospectus.
"Three-Month LIBOR" shall mean, with respect to a series of Taxable Auction
Rate Series 1997-1 Senior Notes and any Interest Rate Determination Date, the
rate of interest per annum equal to the London interbank offered rate for
deposits in United States dollars having a maturity of three months (commencing
on such Interest Rate Determination Date) which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on such Interest Rate Determination Date. If such
rate does not appear on Telerate Page 3750, Three-Month LIBOR for such Interest
Rate Determination Date will be determined on the basis of the rates at which
deposits in United States dollars having a maturity of three months 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 Interest Rate Determination Date to prime banks
in the London interbank market by the Reference Banks. The Auction Agent will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, Three-
Month LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the
nearest .01%) of such offered rates. If fewer than two such quotations are
provided, Three-Month LIBOR will be the arithmetic mean (rounded upwards, if
necessary, to the nearest .01%) of the rates quoted at approximately 11:00 a.m.,
New York City time, on such Interest Rate Determination Date by three major
banks in New York, New York, selected by the Auction Agent after consultation
with the Trustee, for loans in United States dollars to leading European banks
having a maturity of three months and in a principal amount of not less than
U.S. $1,000,000; provided, however, that if the banks selected as aforesaid are
not quoting as mentioned in this sentence, Three-Month LIBOR will be the Three-
Month LIBOR in effect for the immediately preceding Interest Period.
"Trust Estate" shall have the meaning assigned thereto on page 2 of this
Prospectus.
"Trust Funds" shall mean, in the aggregate, all of the Funds and Accounts.
"Trustee" shall have the meaning assigned thereto on page 2 of this
Prospectus.
-201-
<PAGE>
"Underwriters" shall mean Smith Barney Inc., FBS Investment Services, Inc.,
an operating Division of U.S. Bancorp Investments, Inc., Dougherty Summit
Securities LLC, Miller & Schroeder Financial, Inc., Norwest Investment
Services, Inc. and Salomon Brothers Inc.
"Underwriting Agreement" shall have the meaning assigned thereto on page
171 of this Prospectus.
"Unenhanced" shall mean, with respect to a Senior Note or a Subordinate
Note, that the payment of the principal of and interest on such Note is not
secured by a Credit Enhancement Facility.
"Unsubsidized Stafford Loan" shall mean a Student Loan made pursuant to
Section 428H of the Higher Education Act.
"U.K. Regulations" shall have the meaning assigned thereto on page 4 of
this Prospectus.
"U.S. Person" shall have the meaning assigned thereto on page 169 of this
Prospectus.
"Value" shall mean, on any calculation date when required under the
Indenture, the value of the Trust Estate calculated by the Corporation in
accordance with the following:
(1) with respect to any Eligible Loan, the Principal Balance thereof,
plus any unamortized premiums, accrued interest and Special Allowance
Payments thereon;
(2) with respect to any funds of the Corporation on deposit in any
commercial bank or as to any banker's acceptance or repurchase agreement or
investment agreement, the amount thereof plus accrued interest thereon;
(3) with respect to any Investment Securities of an investment
company, the bid price of the shares as reported by the investment company;
(4) as to other investments (i) the bid price published by a
nationally recognized pricing service, or (ii) if the bid and asked prices
thereof are published on a regular basis in The Wall Street Journal (or, if
not there, then in The New York Times), the average of the bid and asked
prices for such investments so published on or most recently prior to such
time of determination, in each case plus accrued interest thereon;
(5) as to investments the bid prices of which are not published by a
nationally recognized pricing service and the bid and asked prices of which
are not published on a regular basis in The Wall Street Journal or The New
York Times, the lower of the bid prices at such time of determination for
such investments by any two nationally recognized government securities
dealers (selected by the Corporation in its absolute discretion) at the
time making a market in such investments, plus accrued interest thereon;
and
(6) any accrued but unpaid Swap Counterparty Payments under a Swap
Agreement, unless the Swap Counterparty is in default of its obligations
thereunder.
"Value of Investment Securities" shall mean (i) as to demand bank deposits,
bank time deposits which may be withdrawn without penalty by the depositor upon
14 days' or less notice and Investment Securities which mature not more than six
months from the date of computation, the amount of such deposits and the par
value of such Investment Securities, and (ii) as to Investment Securities, other
than demand bank deposits and bank time deposits described in clause (i), which
mature more than six months after the date of computation, the par value thereof
or, if purchased at more or less than par, the cost thereof adjusted to reflect
the amortization or premium or discount,
-202-
<PAGE>
as the case may be, paid upon their purchase. The computation made under this
paragraph shall included accrued interest.
"Variable Rate Notes" shall mean Notes whose interest rate is not fixed but
varies on a periodic basis as specified in the Supplemental Indenture providing
for the issuance thereof.
-203-
<PAGE>
Index to Financial Statement
----------------------------
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
Independent Auditor's Report....................................... F-2
Balance Sheet...................................................... F-3
Notes to Balance Sheet............................................. F-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Education Loans Incorporated
Aberdeen, South Dakota
We have audited the accompanying balance sheet of Education Loans Incorporated
(a Delaware corporation and wholly-owned subsidiary of Student Loan Finance
Corporation, a South Dakota corporation) as of August 31, 1997. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly the
financial position of Education Loans Incorporated as of August 31, 1997 in
conformity with generally accepted accounting principles.
Eide Helmeke PLLP
September 2, 1997
Aberdeen, South Dakota
F-2
<PAGE>
EDUCATION LOANS INCORPORATED
(a wholly-owned subsidiary of Student Loan Finance Corporation)
BALANCE SHEET
AUGUST 31, 1997
================================================================================
ASSETS
CASH $ 100
------------
Total assets $ 100
============
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.01;
100 shares authorized, issued and outstanding $ 1
ADDITIONAL PAID-IN CAPITAL 99
------------
Total stockholders' equity $ 100
============
See Notes to Balance Sheet
F-3
<PAGE>
EDUCATION LOANS INCORPORATED
(a wholly-owned subsidiary of Student Loan Finance Corporation)
NOTES TO BALANCE SHEET
AUGUST 31, 1997
================================================================================
NOTE 1 - ORGANIZATION
Education Loans Incorporated (the "Corporation"), a Delaware corporation and
wholly-owned subsidiary of Student Loan Finance Corporation ("SLFC"), was
incorporated in the State of Delaware on May 7, 1997 and has had no operations
from that date to August 31, 1997. The Company has established its fiscal year-
end to be June 30.
The Corporation was organized to engage exclusively in the following business
and financial activities: (i) to receive the assets and assume the liabilities
transferred to it in connection with the election by Education Loans
Incorporated, a South Dakota nonprofit corporation, under Section 150(d)(3) of
the Internal Revenue Code; (ii) to originate or acquire Student Loans; (iii) to
enter into certain agreements relating to Student Loans; (iv) to issue bonds,
notes, asset-backed certificates or other securities payable solely from Student
Loans and other assets pledged to the payment thereof; and (v) to engage in acts
incidental to and necessary, suitable or convenient for the accomplishment of
the foregoing purposes and permitted under Delaware law.
As of the date of incorporation, Student Loan Finance Corporation, a newly
organized South Dakota corporation, subscribed for all 100 shares of the
Corporation's common stock for a total cash consideration of $100. As of August
31, 1997, the Corporation had received a total of $100 for which it had issued
100 shares of its $0.01 par value common stock and had credited $1 to the common
stock account and credited $99 to the additional paid-in capital account.
# # # # #
F-4
<PAGE>
<TABLE>
<CAPTION>
Annex A
COMPUTATIONAL MATERIALS
Relating to
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Debt Payment Summary
LIBOR Floating Rate Classes
- ---------- --------------------------- ------------------------------
Class 1I Senior Notes 1J Senior Notes
- ---------- --------------------------- ------------------------------
Prepayment Average Payment Average Payment
Rate Life (Yrs.) Window Life (Yrs) Window
- ---------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
0% 2.27 12/1/97-4/1/02 7.23 4/1/02-7/1/09
3% 1.99 12/1/97-10/1/01 6.45 10/1/01-12/1/07
5% 1.87 12/1/97-6/1/01 6.06 6/1/01-6/1/07
7% 1.78 12/1/97-4/1/01 5.71 4/1/01-12/1/06
10% 1.66 12/1/97-12/1/00 5.23 12/1/00-4/1/06
- ---------- ----------------------------
Class 1L Subordinate Notes
- ---------- ----------------------------
Prepayment Average Payment
Rate Life (Yrs) Window
- -------- ----------------------------
<S> <C> <C>
0% 4.79 12/1/97-7/1/09
3% 4.26 12/1/97-12/1/07
5% 4.00 12/1/97-6/1/07
7% 3.77 12/1/97-12/1/06
10% 3.47 12/1/97-4/1/06
</TABLE>
The amounts shown in the tables above and on the following pages are based on
various assumptions and considerations described under "Weighted Average Life of
the Taxable LIBOR Rate Series 1997-1 Notes".
A-1
<PAGE>
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Projected Outstanding Balances
1I Senior Notes
<TABLE>
<CAPTION>
0% CPR 3% CPR 5% CPR 7% CPR 10% CPR
Outstanding Outstanding Outstanding Outstanding Outstanding
Date Balance Balance Balance Balance Balance
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
05-Nov-97 209,000,000 209,000,000 209,000,000 209,000,000 209,000,000
01-Dec-97 205,715,932 205,715,034 205,714,420 205,713,795 205,712,834
01-Jan-98 202,235,014 202,241,651 202,246,183 202,250,806 202,257,918
01-Feb-98 198,866,875 198,889,982 198,905,737 198,921,784 198,946,431
01-Mar-98 195,262,069 195,310,817 195,344,005 195,377,770 195,429,547
01-Apr-98 191,623,524 191,707,108 191,763,931 191,821,673 191,910,086
01-May-98 188,189,282 188,316,954 188,403,626 188,491,597 188,626,097
01-Jun-98 184,412,100 184,593,078 184,715,764 184,840,145 185,030,029
01-Jul-98 180,573,245 180,817,020 180,982,044 181,149,156 181,403,900
01-Aug-98 176,902,804 177,218,964 177,432,692 177,648,875 177,977,942
01-Sep-98 173,074,047 169,172,591 168,856,784 168,532,365 168,028,747
01-Oct-98 169,145,053 164,440,181 163,577,332 162,696,328 161,339,139
01-Nov-98 165,319,703 159,809,978 158,401,385 156,967,017 154,764,931
01-Dec-98 161,328,636 155,022,669 153,076,452 151,098,851 148,071,065
01-Jan-99 157,263,592 150,169,058 147,692,638 145,181,165 141,345,549
01-Feb-99 153,300,418 145,428,690 142,431,943 139,398,395 134,776,409
01-Mar-99 149,209,608 140,538,300 137,008,013 133,440,593 128,017,304
01-Apr-99 145,094,944 135,624,125 131,562,426 127,464,986 121,249,510
01-May-99 141,057,157 130,796,227 126,211,567 121,594,356 114,605,538
01-Jun-99 136,928,295 125,882,229 120,779,993 115,650,087 107,901,779
01-Jul-99 132,818,855 120,994,065 115,380,577 109,745,962 101,253,315
01-Aug-99 128,772,423 116,181,602 110,067,394 103,940,279 94,724,776
01-Sep-99 124,668,747 111,330,808 104,730,591 98,127,379 88,216,818
01-Oct-99 120,589,152 106,467,790 99,372,148 92,284,560 81,668,612
01-Nov-99 116,537,015 101,691,460 94,115,238 86,559,735 75,266,103
01-Dec-99 112,452,905 96,868,975 88,817,769 80,801,294 68,842,864
01-Jan-2000 108,359,555 92,051,685 83,536,914 75,072,294 62,470,887
01-Feb-2000 104,318,188 87,308,819 78,347,301 69,452,804 56,238,479
01-Mar-2000 100,219,255 82,524,188 73,128,094 63,817,156 50,012,336
01-Apr-2000 96,111,841 77,749,065 67,932,035 58,219,556 43,848,858
01-May-2000 92,048,565 73,040,045 62,818,329 52,721,788 37,813,614
01-Jun-2000 87,927,301 68,294,525 57,683,919 47,220,219 31,801,865
01-Jul-2000 83,818,559 63,582,271 52,598,027 41,783,481 25,881,262
01-Aug-2000 79,747,091 58,928,241 47,585,660 36,436,555 20,076,591
01-Sep-2000 75,682,221 54,300,683 42,614,272 31,146,032 14,353,008
01-Oct-2000 71,623,007 49,696,441 37,679,053 25,905,298 8,700,898
01-Nov-2000 67,601,038 45,149,456 32,815,500 20,751,391 3,159,588
01-Dec-2000 63,493,648 40,544,288 27,912,689 15,577,669 0
01-Jan-2001 59,397,618 35,955,558 23,030,340 10,428,824 0
01-Feb-2001 55,337,717 31,423,181 18,218,681 5,365,582 0
01-Mar-2001 51,279,330 26,909,219 13,437,412 345,158 0
01-Apr-2001 47,236,614 22,429,873 8,704,064 0 0
01-May-2001 43,236,409 18,012,589 4,046,429 0 0
01-Jun-2001 39,206,841 13,585,834 0 0 0
01-Jul-2001 35,198,178 9,198,961 0 0 0
01-Aug-2001 31,213,013 4,854,823 0 0 0
01-Sep-2001 27,240,041 541,906 0 0 0
01-Oct-2001 23,278,174 0 0 0 0
01-Nov-2001 19,335,463 0 0 0 0
01-Dec-2001 15,403,436 0 0 0 0
01-Jan-2002 11,501,826 0 0 0 0
01-Feb-2002 7,619,565 0 0 0 0
01-Mar-2002 3,754,514 0 0 0 0
01-Apr-2002 0 0 0 0 0
01-May-2002 0 0 0 0 0
01-Jun-2002 0 0 0 0 0
01-Jul-2002 0 0 0 0 0
01-Aug-2002 0 0 0 0 0
01-Sep-2002 0 0 0 0 0
01-Oct-2002 0 0 0 0 0
01-Nov-2002 0 0 0 0 0
01-Dec-2002 0 0 0 0 0
01-Jan-2003 0 0 0 0 0
01-Feb-2003 0 0 0 0 0
01-Mar-2003 0 0 0 0 0
01-Apr-2003 0 0 0 0 0
01-May-2003 0 0 0 0 0
01-Jun-2003 0 0 0 0 0
01-Jul-2003 0 0 0 0 0
01-Aug-2003 0 0 0 0 0
01-Sep-2003 0 0 0 0 0
01-Oct-2003 0 0 0 0 0
01-Nov-2003 0 0 0 0 0
01-Dec-2003 0 0 0 0 0
01-Jan-2004 0 0 0 0 0
</TABLE>
A-2
<PAGE>
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Projected Outstanding Balances
1I Senior Notes
<TABLE>
<CAPTION>
0% CPR 3% CPR 5% CPR 7% CPR 10% CPR
Outstanding Outstanding Outstanding Outstanding Outstanding
Date Balance Balance Balance Balance Balance
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
01-Feb-2004 0 0 0 0 0
01-Mar-2004 0 0 0 0 0
01-Apr-2004 0 0 0 0 0
01-May-2004 0 0 0 0 0
01-Jun-2004 0 0 0 0 0
01-Jul-2004 0 0 0 0 0
01-Aug-2004 0 0 0 0 0
01-Sep-2004 0 0 0 0 0
01-Oct-2004 0 0 0 0 0
01-Nov-2004 0 0 0 0 0
01-Dec-2004 0 0 0 0 0
01-Jan-2005 0 0 0 0 0
01-Feb-2005 0 0 0 0 0
01-Mar-2005 0 0 0 0 0
01-Apr-2005 0 0 0 0 0
01-May-2005 0 0 0 0 0
01-Jun-2005 0 0 0 0 0
01-Jul-2005 0 0 0 0 0
01-Aug-2005 0 0 0 0 0
01-Sep-2005 0 0 0 0 0
01-Oct-2005 0 0 0 0 0
01-Nov-2005 0 0 0 0 0
01-Dec-2005 0 0 0 0 0
01-Jan-2006 0 0 0 0 0
01-Feb-2006 0 0 0 0 0
01-Mar-2006 0 0 0 0 0
01-Apr-2006 0 0 0 0 0
01-May-2006 0 0 0 0 0
01-Jun-2006 0 0 0 0 0
01-Jul-2006 0 0 0 0 0
01-Aug-2006 0 0 0 0 0
01-Sep-2006 0 0 0 0 0
01-Oct-2006 0 0 0 0 0
01-Nov-2006 0 0 0 0 0
01-Dec-2006 0 0 0 0 0
01-Jan-2007 0 0 0 0 0
01-Feb-2007 0 0 0 0 0
01-Mar-2007 0 0 0 0 0
01-Apr-2007 0 0 0 0 0
01-May-2007 0 0 0 0 0
01-Jun-2007 0 0 0 0 0
01-Jul-2007 0 0 0 0 0
01-Aug-2007 0 0 0 0 0
01-Sep-2007 0 0 0 0 0
01-Oct-2007 0 0 0 0 0
01-Nov-2007 0 0 0 0 0
01-Dec-2007 0 0 0 0 0
01-Jan-2008 0 0 0 0 0
01-Feb-2008 0 0 0 0 0
01-Mar-2008 0 0 0 0 0
01-Apr-2008 0 0 0 0 0
01-May-2008 0 0 0 0 0
01-Jun-2008 0 0 0 0 0
01-Jul-2008 0 0 0 0 0
01-Aug-2008 0 0 0 0 0
01-Sep-2008 0 0 0 0 0
01-Oct-2008 0 0 0 0 0
01-Nov-2008 0 0 0 0 0
01-Dec-2008 0 0 0 0 0
01-Jan-2009 0 0 0 0 0
01-Feb-2009 0 0 0 0 0
01-Mar-2009 0 0 0 0 0
01-Apr-2009 0 0 0 0 0
01-May-2009 0 0 0 0 0
01-Jun-2009 0 0 0 0 0
01-Jul-2009 0 0 0 0 0
01-Aug-2009 0 0 0 0 0
01-Sep-2009 0 0 0 0 0
01-Oct-2009 0 0 0 0 0
01-Nov-2009 0 0 0 0 0
01-Dec-2009 0 0 0 0 0
A - 3
</TABLE>
<PAGE>
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Projected Outstanding Balances
1J Senior Notes
<TABLE>
<CAPTION>
0% CPR 3% CPR 5% CPR 7% CPR 10% CPR
Outstanding Outstanding Outstanding Outstanding Outstanding
Date Balance Balance Balance Balance Balance
- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
05-Nov-97 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Dec-97 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jan-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Feb-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Mar-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Apr-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-May-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jun-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jul-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Aug-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Sep-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Oct-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Nov-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Dec-98 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jan-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Feb-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Mar-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Apr-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-May-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jun-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jul-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Aug-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Sep-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Oct-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Nov-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Dec-99 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jan-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Feb-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Mar-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Apr-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-May-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jun-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Jul-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Aug-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Sep-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Oct-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Nov-2000 215,600,000 215,600,000 215,600,000 215,600,000 215,600,000
01-Dec-2000 215,600,000 215,600,000 215,600,000 215,600,000 213,228,403
01-Jan-2001 215,600,000 215,600,000 215,600,000 215,600,000 207,729,235
01-Feb-2001 215,600,000 215,600,000 215,600,000 215,600,000 202,338,921
01-Mar-2001 215,600,000 215,600,000 215,600,000 215,600,000 197,010,707
01-Apr-2001 215,600,000 215,600,000 215,600,000 210,986,388 191,765,337
01-May-2001 215,600,000 215,600,000 215,600,000 206,117,357 186,631,247
01-Jun-2001 215,600,000 215,600,000 214,993,110 201,266,735 181,537,059
01-Jul-2001 215,600,000 215,600,000 210,392,809 196,482,533 176,529,686
01-Aug-2001 215,600,000 215,600,000 205,848,465 191,767,712 171,611,990
01-Sep-2001 215,600,000 215,600,000 201,348,351 187,110,268 166,771,435
01-Oct-2001 215,600,000 211,859,350 196,891,638 182,509,307 162,006,862
01-Nov-2001 215,600,000 207,614,661 192,485,423 177,971,482 157,324,184
01-Dec-2001 215,600,000 203,399,418 188,121,255 173,488,261 152,714,658
01-Jan-2002 215,600,000 199,231,403 183,815,618 169,074,833 148,191,534
01-Feb-2002 215,600,000 195,100,909 179,559,577 164,722,928 143,747,350
01-Mar-2002 215,600,000 190,993,105 175,329,596 160,400,106 139,335,930
01-Apr-2002 215,509,321 186,922,540 171,148,322 156,137,257 135,000,813
01-May-2002 211,685,181 182,890,458 167,016,968 151,935,509 130,742,919
01-Jun-2002 207,874,435 178,889,202 162,927,801 147,787,001 126,554,095
01-Jul-2002 204,085,954 174,926,753 158,888,191 143,698,475 122,440,114
01-Aug-2002 200,318,696 171,002,386 154,897,530 139,669,372 118,400,377
01-Sep-2002 196,573,566 167,116,007 150,955,052 135,698,252 114,432,427
01-Oct-2002 192,854,891 163,271,767 147,064,723 131,788,840 110,539,539
01-Nov-2002 189,159,484 159,466,350 143,223,079 127,937,485 106,717,717
01-Dec-2002 185,488,348 155,700,286 139,430,315 124,144,030 102,966,249
01-Jan-2003 181,838,200 151,970,860 135,683,981 120,406,214 99,283,022
01-Feb-2003 178,212,990 148,281,359 131,986,905 116,726,389 95,669,665
01-Mar-2003 174,609,109 144,627,783 128,334,771 113,099,887 92,120,914
01-Apr-2003 171,022,736 141,007,137 124,725,037 109,524,550 88,635,074
01-May-2003 167,469,099 137,432,202 121,168,970 106,010,221 85,220,016
01-Jun-2003 163,928,360 133,885,286 117,650,091 102,541,472 81,861,622
01-Jul-2003 160,406,503 130,371,143 114,172,326 99,121,403 78,561,752
01-Aug-2003 156,902,975 126,889,753 110,735,963 95,750,579 75,321,344
01-Sep-2003 153,422,826 123,445,178 107,344,421 92,431,790 72,142,280
01-Oct-2003 149,969,569 120,040,179 103,999,950 89,166,771 69,025,526
01-Nov-2003 146,539,863 116,671,705 100,699,626 85,952,681 65,968,293
01-Dec-2003 143,112,462 113,321,552 97,426,987 82,774,599 62,957,636
01-Jan-2004 139,725,883 110,022,016 94,210,614 79,657,706 60,014,189
</TABLE>
A - 4
<PAGE>
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Projected Outstanding Balances
1J Senior Notes
<TABLE>
<CAPTION>
0% CPR 3% CPR 5% CPR 7% CPR 10% CPR
Outstanding Outstanding Outstanding Outstanding Outstanding
Date Balance Balance Balance Balance Balance
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
01-Feb-2004 136,363,338 106,758,772 91,037,590 76,590,329 57,127,869
01-Mar-2004 133,033,390 103,538,102 87,912,755 73,575,926 54,300,169
01-Apr-2004 129,736,772 100,360,796 84,836,949 70,615,402 51,532,132
01-May-2004 126,452,552 97,209,545 81,794,923 67,695,319 48,812,616
01-Jun-2004 123,198,453 94,098,499 78,798,708 64,825,778 46,149,166
01-Jul-2004 119,944,475 91,002,956 75,826,630 61,987,776 43,526,193
01-Aug-2004 116,724,046 87,950,134 72,902,265 59,201,617 40,959,712
01-Sep-2004 113,522,044 84,927,466 70,014,488 56,457,428 38,441,438
01-Oct-2004 110,329,040 81,927,058 67,156,236 53,748,850 35,965,850
01-Nov-2004 107,150,815 78,953,355 64,331,149 51,078,783 33,534,867
01-Dec-2004 103,991,896 76,010,106 61,542,478 48,450,001 31,150,588
01-Jan-2005 100,856,561 73,100,387 58,792,579 45,864,203 28,813,845
01-Feb-2005 97,761,370 70,237,338 56,092,604 43,330,767 26,531,715
01-Mar-2005 94,697,325 67,413,296 53,435,604 40,843,339 24,298,545
01-Apr-2005 91,651,709 64,618,099 50,812,857 38,394,450 22,108,459
01-May-2005 88,636,060 61,860,833 48,232,011 35,990,462 19,966,141
01-Jun-2005 85,668,878 59,155,859 45,705,059 33,641,279 17,878,831
01-Jul-2005 82,757,933 56,509,061 43,236,821 31,350,792 15,849,257
01-Aug-2005 79,899,908 53,917,650 40,824,767 29,116,671 13,875,305
01-Sep-2005 77,086,258 51,374,339 38,462,303 26,932,924 11,951,734
01-Oct-2005 74,322,234 48,883,122 36,152,706 24,802,190 10,080,368
01-Nov-2005 71,607,763 46,443,652 33,895,455 22,723,792 8,260,324
01-Dec-2005 68,927,676 44,043,579 31,679,766 20,688,296 6,483,879
01-Jan-2006 66,277,057 41,679,028 29,502,317 18,692,841 4,748,662
01-Feb-2006 63,667,543 39,358,553 27,369,934 16,742,753 3,058,206
01-Mar-2006 61,090,615 37,075,444 25,276,893 14,833,149 1,408,592
01-Apr-2006 58,536,520 34,821,700 23,216,156 12,957,818 0
01-May-2006 55,998,425 32,591,893 21,183,056 11,112,741 0
01-Jun-2006 53,524,490 30,422,884 19,208,211 9,323,173 0
01-Jul-2006 51,096,830 28,300,592 17,279,638 7,578,936 0
01-Aug-2006 48,707,506 26,218,572 15,391,699 5,875,077 0
01-Sep-2006 46,363,906 24,182,319 13,548,842 4,215,146 0
01-Oct-2006 44,057,867 22,185,263 11,745,376 2,594,205 0
01-Nov-2006 41,798,848 20,234,319 9,986,822 1,016,595 0
01-Dec-2006 39,581,384 18,325,151 8,269,458 0 0
01-Jan-2007 37,397,026 16,451,019 6,587,447 0 0
01-Feb-2007 35,254,648 14,618,591 4,946,254 0 0
01-Mar-2007 33,131,947 12,810,588 3,331,340 0 0
01-Apr-2007 31,049,021 11,042,019 1,754,930 0 0
01-May-2007 29,080,906 9,369,017 263,040 0 0
01-Jun-2007 27,159,918 7,740,203 0 0 0
01-Jul-2007 25,264,758 6,139,454 0 0 0
01-Aug-2007 23,401,208 4,570,747 0 0 0
01-Sep-2007 21,595,565 3,053,503 0 0 0
01-Oct-2007 19,858,403 1,594,915 0 0 0
01-Nov-2007 18,131,114 151,901 0 0 0
01-Dec-2007 16,893,512 0 0 0 0
01-Jan-2008 15,687,826 0 0 0 0
01-Feb-2008 14,491,961 0 0 0 0
01-Mar-2008 13,318,529 0 0 0 0
01-Apr-2008 12,153,930 0 0 0 0
01-May-2008 10,997,280 0 0 0 0
01-Jun-2008 9,933,766 0 0 0 0
01-Jul-2008 8,895,692 0 0 0 0
01-Aug-2008 7,878,233 0 0 0 0
01-Sep-2008 6,902,328 0 0 0 0
01-Oct-2008 5,969,796 0 0 0 0
01-Nov-2008 5,062,812 0 0 0 0
01-Dec-2008 4,167,134 0 0 0 0
01-Jan-2009 3,444,439 0 0 0 0
01-Feb-2009 2,733,122 0 0 0 0
01-Mar-2009 2,105,039 0 0 0 0
01-Apr-2009 1,516,790 0 0 0 0
01-May-2009 929,584 0 0 0 0
01-Jun-2009 344,070 0 0 0 0
01-Jul-2009 0 0 0 0 0
01-Aug-2009 0 0 0 0 0
01-Sep-2009 0 0 0 0 0
01-Oct-2009 0 0 0 0 0
01-Nov-2009 0 0 0 0 0
01-Dec-2009 0 0 0 0 0
</TABLE>
A - 5
<PAGE>
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Projected Outstanding Balances
1L Subordinate Notes
<TABLE>
CAPTION>
0% CPR 3% CPR 5% CPR 7% CPR 10% CPR
Outstanding Outstanding Outstanding Outstanding Outstanding
Date Balance Balance Balance Balance Balance
---- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
05-Nov-97 59,200,000 59,200,000 59,200,000 59,200,000 59,200,000
01-Dec-97 58,742,118 58,741,992 58,741,907 58,741,820 58,741,686
01-Jan-98 58,256,790 58,257,715 58,258,347 58,258,991 58,259,983
01-Feb-98 57,787,186 57,790,407 57,792,604 57,794,841 57,798,278
01-Mar-98 57,284,584 57,291,381 57,296,008 57,300,716 57,307,935
01-Apr-98 56,777,279 56,788,933 56,796,855 56,804,906 56,817,233
01-May-98 56,298,458 56,316,259 56,328,344 56,340,609 56,359,362
01-Jun-98 55,771,824 55,797,057 55,814,162 55,831,504 55,857,979
01-Jul-98 55,236,590 55,270,578 55,293,587 55,316,887 55,352,404
01-Aug-98 54,724,838 54,768,918 54,798,717 54,828,859 54,874,739
01-Sep-98 54,191,012 53,647,050 53,603,018 53,557,786 53,487,569
01-Oct-98 53,643,210 52,987,232 52,866,929 52,744,095 52,554,868
01-Nov-98 53,109,860 52,341,664 52,145,271 51,945,284 51,638,257
01-Dec-98 52,553,404 51,674,192 51,402,840 51,127,113 50,704,962
01-Jan-99 51,986,634 50,997,476 50,652,200 50,302,037 49,767,255
01-Feb-99 51,434,067 50,336,548 49,918,726 49,495,772 48,851,351
01-Mar-99 50,863,704 49,654,704 49,162,493 48,665,104 47,908,960
01-Apr-99 50,290,016 48,969,544 48,403,240 47,831,953 46,965,358
01-May-99 49,727,046 48,296,412 47,657,194 47,013,438 46,039,020
01-Jun-99 49,151,378 47,611,276 46,899,895 46,184,656 45,104,346
01-Jul-99 48,578,418 46,929,742 46,147,080 45,361,472 44,177,382
01-Aug-99 48,014,243 46,258,763 45,406,288 44,552,013 43,267,138
01-Sep-99 47,442,086 45,582,440 44,662,202 43,741,547 42,359,764
01-Oct-99 46,870,499 44,904,412 43,915,099 42,926,910 41,446,778
01-Nov-99 46,308,317 44,238,470 43,182,153 42,128,724 40,554,106
01-Dec-99 45,738,888 43,566,094 42,443,551 41,325,852 39,658,543
01-Jan-2000 45,168,172 42,894,441 41,707,266 40,527,084 38,770,128
01-Feb-2000 44,604,703 42,233,166 40,983,703 39,743,585 37,901,173
01-Mar-2000 44,033,208 41,566,067 40,256,013 38,957,832 37,033,091
01-Apr-2000 43,460,530 40,900,294 39,531,551 38,177,385 36,173,746
01-May-2000 42,894,006 40,243,737 38,818,571 37,410,857 35,332,280
01-Jun-2000 42,319,398 39,582,091 38,102,704 36,643,799 34,494,090
01-Jul-2000 41,746,535 38,925,084 37,393,602 35,885,780 33,668,607
01-Aug-2000 41,178,869 38,276,194 36,694,751 35,140,283 32,859,289
01-Sep-2000 40,612,123 37,630,995 36,001,613 34,402,650 32,061,277
01-Oct-2000 40,046,166 36,989,047 35,313,519 33,671,959 31,273,229
01-Nov-2000 39,485,401 36,355,082 34,635,416 32,953,373 30,500,630
01-Dec-2000 38,912,727 35,713,005 33,951,840 32,232,025 29,729,443
01-Jan-2001 38,341,637 35,073,220 33,271,117 31,514,146 28,962,720
01-Feb-2001 37,775,584 34,441,291 32,600,249 30,808,202 28,211,173
01-Mar-2001 37,209,742 33,811,931 31,933,619 30,108,227 27,468,285
01-Apr-2001 36,646,085 33,187,396 31,273,671 29,416,849 26,736,948
01-May-2001 36,088,355 32,571,515 30,624,278 28,737,983 26,021,125
01-Jun-2001 35,526,531 31,954,313 29,975,488 28,061,683 25,310,867
01-Jul-2001 34,967,622 31,342,672 29,334,089 27,394,644 24,612,712
01-Aug-2001 34,411,989 30,736,989 28,700,493 26,737,279 23,927,060
01-Sep-2001 33,858,056 30,135,659 28,073,063 26,087,913 23,252,164
01-Oct-2001 33,305,671 29,538,562 27,451,684 25,446,422 22,587,862
01-Nov-2001 32,755,957 28,946,745 26,837,346 24,813,735 21,934,978
01-Dec-2001 32,207,733 28,359,033 26,228,870 24,188,660 21,292,293
01-Jan-2002 31,663,750 27,777,906 25,628,555 23,573,316 20,661,655
01-Feb-2002 31,122,464 27,202,011 25,035,155 22,966,550 20,042,023
01-Mar-2002 30,583,578 26,629,279 24,445,389 22,363,840 19,426,960
01-Apr-2002 30,047,461 26,061,739 23,862,413 21,769,490 18,822,534
01-May-2002 29,514,279 25,499,565 23,286,398 21,183,660 18,228,876
01-Jun-2002 28,982,964 24,941,688 22,716,264 20,605,253 17,644,848
01-Jul-2002 28,454,754 24,389,222 22,153,040 20,035,209 17,071,255
01-Aug-2002 27,929,503 23,842,066 21,596,641 19,473,450 16,508,013
01-Sep-2002 27,407,337 23,300,206 21,046,960 18,919,775 15,954,780
01-Oct-2002 26,888,859 22,764,222 20,504,549 18,374,704 15,412,013
01-Nov-2002 26,373,626 22,233,650 19,968,927 17,837,728 14,879,154
01-Dec-2002 25,861,776 21,708,566 19,440,119 17,308,824 14,356,104
01-Jan-2003 25,352,853 21,188,589 18,917,785 16,787,677 13,842,569
01-Feb-2003 24,847,407 20,674,179 18,402,319 16,274,617 13,338,776
01-Mar-2003 24,344,935 20,164,778 17,893,119 15,768,990 12,843,990
01-Apr-2003 23,844,903 19,659,968 17,389,831 15,270,498 12,357,975
01-May-2003 23,349,436 19,161,532 16,894,025 14,780,511 11,881,830
01-Jun-2003 22,855,768 18,667,002 16,403,404 14,296,880 11,413,585
01-Jul-2003 22,364,731 18,177,041 15,918,516 13,820,036 10,953,499
01-Aug-2003 21,876,251 17,691,647 15,439,399 13,350,057 10,501,704
01-Sep-2003 21,391,030 17,211,386 14,966,533 12,887,334 10,058,462
01-Oct-2003 20,909,558 16,736,643 14,500,229 12,432,108 9,623,908
01-Nov-2003 20,431,370 16,266,992 14,040,080 11,983,982 9,197,652
01-Dec-2003 19,953,504 15,799,896 13,583,791 11,540,877 8,777,890
01-Jan-2004 19,481,329 15,339,857 13,135,347 11,106,303 8,367,499
</TABLE>
A-6
<PAGE>
$923,470,000
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Callable Notes, Series 1997-1
Projected Outstanding Balances
1L Subordinate Notes
<TABLE>
<CAPTION>
0% CPR 3% CPR 5% CPR 7% CPR 10% CPR
Outstanding Outstanding Outstanding Outstanding Outstanding
Date Balance Balance Balance Balance Balance
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
01-Feb-2004 19,012,505 14,884,878 12,692,947 10,678,633 7,965,073
01-Mar-2004 18,548,226 14,435,835 12,257,266 10,258,349 7,570,820
01-Apr-2004 18,088,594 13,992,838 11,828,421 9,845,577 7,184,885
01-May-2004 17,630,690 13,553,474 11,404,285 9,438,443 6,805,716
01-Jun-2004 17,176,986 13,119,715 10,986,537 9,038,356 6,434,363
01-Jul-2004 16,723,299 12,688,118 10,572,154 8,642,667 6,068,654
01-Aug-2004 16,274,290 12,262,478 10,164,423 8,254,206 5,710,822
01-Sep-2004 15,827,850 11,841,041 9,761,794 7,871,596 5,359,711
01-Oct-2004 15,382,664 11,422,708 9,363,281 7,493,952 5,014,551
01-Nov-2004 14,939,539 11,008,098 8,969,392 7,121,677 4,675,610
01-Dec-2004 14,499,106 10,597,735 8,580,581 6,755,158 4,343,181
01-Jan-2005 14,061,960 10,192,046 8,197,175 6,394,632 4,017,380
01-Feb-2005 13,630,412 9,792,865 7,820,730 6,041,407 3,699,193
01-Mar-2005 13,203,207 9,399,122 7,450,277 5,694,596 3,387,833
01-Apr-2005 12,778,571 9,009,401 7,084,600 5,353,159 3,082,479
01-May-2005 12,358,113 8,624,968 6,724,765 5,017,982 2,783,786
01-Jun-2005 11,944,413 8,247,826 6,372,444 4,690,447 2,492,762
01-Jul-2005 11,538,553 7,878,795 6,028,309 4,371,095 2,209,788
01-Aug-2005 11,140,072 7,517,487 5,692,007 4,059,602 1,934,569
01-Sep-2005 10,747,778 7,162,885 5,362,620 3,755,132 1,666,375
01-Oct-2005 10,362,403 6,815,546 5,040,603 3,458,054 1,405,459
01-Nov-2005 9,983,937 6,475,422 4,725,885 3,168,272 1,151,698
01-Dec-2005 9,610,265 6,140,791 4,416,962 2,884,473 904,017
01-Jan-2006 9,240,701 5,811,113 4,113,371 2,606,256 662,084
01-Feb-2006 8,876,869 5,487,580 3,816,062 2,334,364 426,391
01-Mar-2006 8,517,580 5,169,256 3,524,239 2,068,117 196,393
01-Apr-2006 8,161,474 4,855,027 3,236,920 1,806,648 0
01-May-2006 7,807,600 4,544,136 2,953,455 1,549,398 0
01-Jun-2006 7,462,670 4,241,721 2,678,111 1,299,887 0
01-Jul-2006 7,124,193 3,945,820 2,409,219 1,056,696 0
01-Aug-2006 6,791,061 3,655,533 2,145,993 819,135 0
01-Sep-2006 6,464,303 3,371,628 1,889,052 587,698 0
01-Oct-2006 6,142,783 3,093,188 1,637,603 361,698 0
01-Nov-2006 5,827,819 2,821,177 1,392,416 141,739 0
01-Dec-2006 5,518,648 2,554,990 1,152,972 0 0
01-Jan-2007 5,214,093 2,293,689 918,457 0 0
01-Feb-2007 4,915,391 2,038,202 689,633 0 0
01-Mar-2007 4,619,433 1,786,121 464,473 0 0
01-Apr-2007 4,329,020 1,539,537 244,682 0 0
01-May-2007 4,054,615 1,306,278 36,675 0 0
01-Jun-2007 3,786,781 1,079,180 0 0 0
01-Jul-2007 3,522,547 855,995 0 0 0
01-Aug-2007 3,262,721 637,278 0 0 0
01-Sep-2007 3,010,969 425,736 0 0 0
01-Oct-2007 2,768,765 222,372 0 0 0
01-Nov-2007 2,527,937 21,179 0 0 0
01-Dec-2007 2,355,384 0 0 0 0
01-Jan-2008 2,187,280 0 0 0 0
01-Feb-2008 2,020,547 0 0 0 0
01-Mar-2008 1,856,940 0 0 0 0
01-Apr-2008 1,694,566 0 0 0 0
01-May-2008 1,533,299 0 0 0 0
01-Jun-2008 1,385,019 0 0 0 0
01-Jul-2008 1,240,285 0 0 0 0
01-Aug-2008 1,098,425 0 0 0 0
01-Sep-2008 962,359 0 0 0 0
01-Oct-2008 832,341 0 0 0 0
01-Nov-2008 705,884 0 0 0 0
01-Dec-2008 581,004 0 0 0 0
01-Jan-2009 480,242 0 0 0 0
01-Feb-2009 381,066 0 0 0 0
01-Mar-2009 293,496 0 0 0 0
01-Apr-2009 211,479 0 0 0 0
01-May-2009 129,608 0 0 0 0
01-Jun-2009 47,972 0 0 0 0
01-Jul-2009 0 0 0 0 0
01-Aug-2009 0 0 0 0 0
01-Sep-2009 0 0 0 0 0
01-Oct-2009 0 0 0 0 0
01-Nov-2009 0 0 0 0 0
01-Dec-2009 0 0 0 0 0
</TABLE>
A-7
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the Series 1997-1 Notes offered hereby nor an
offer of the Series 1997-1 Notes to any person in any state or other
jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
______________
TABLE OF CONTENTS TO PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.......................................... 6
Reports to Noteholders......................................... 6
Prospectus Summary............................................. 7
Risk Factors................................................... 32
Description of Series 1997-1 Notes............................. 45
Application of Series 1997-1 Note Proceeds..................... 55
Source of Payment and Security for the Notes................... 57
The Original Issuer............................................ 60
The Servicer................................................... 61
The Corporation................................................ 65
The SLFC Servicing Agreement................................... 68
Description of Financed Eligible Loan Program.................. 72
Characteristics of the Initial Financed Eligible Loans......... 75
Description of Federal Family Education Loan Program........... 80
Description of the Guarantee Agencies.......................... 95
Terms of the Tax Exempt Auction Rate Series 1997-1 Senior
Notes........................................................ 104
Terms of the Tax Exempt Fixed Rate Series 1997-1 Senior Notes.. 107
Terms of the Taxable Auction Rate Series 1997-1 Senior Notes... 107
Terms of the Taxable LIBOR Rate Series 1997-1 Senior Notes..... 111
Terms of the Tax Exempt Fixed Rate Series 1997-1 Subordinate
Notes........................................................ 114
Terms of the Taxable LIBOR Rate Series 1997-1 Subordinate
Notes........................................................ 115
Weighted Average Life of the Taxable LIBOR Rate Series 1997-1
Notes........................................................ 118
Auction of the Auction Rate Series 1997-1 Senior Notes......... 119
Settlement Procedures for Auction Rate Series 1997-1 Senior
Notes........................................................ 135
Summary of the Indenture....................................... 138
Tax Matters.................................................... 165
ERISA Considerations........................................... 170
Certain Relationships Among Financing Participants............. 171
Plan of Distribution........................................... 171
Legal Matters.................................................. 172
Experts........................................................ 173
Ratings........................................................ 173
Glossary of Certain Defined Terms.............................. 173
Index to Financial Statement................................... F-1
Annex A--Computational Materials............................... A-1
-----------------------
</TABLE>
Until January __, 1998, all dealers effecting transactions in the Series 1997-1
Notes, whether or not participating in this distribution, may be required to
deliver a Prospectus. This delivery requirement 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.
================================================================================
Education Loans Incorporated
Student Loan Asset-Backed
Callable Notes, Series 1997-1
$274,900,000
Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1A through E
$24,055,000
Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1F
$107,500,000
Taxable Auction Rate
Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1G and H
$424,600,000
Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1I and J
$33,215,000
Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes,
Subordinate Series 1997-1K
$59,200,000
Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes,
Subordinate Series 1997-1L
__________
PROSPECTUS
__________
Smith Barney Inc.
FBS Investment Services, Inc.
an operating division of U.S. Bancorp Investments, Inc.
Dougherty Summit Securities LLC
Miller & Schroeder Financial, Inc.
Norwest Investment Services, Inc.
Salomon Brothers Inc
October __, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS--
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
Item 13. Other Expenses of Issuance and Distribution.
The following table shows the estimated expenses to be incurred in
connection with the issuance of the securities being registered by the
registrant:
<TABLE>
<S> <C>
SEC registration fee....................... $ 279,840
Blue Sky fees and expenses................. 11,145
Trustees' fees and expenses................ 175,000
Printing and engraving expenses............ 75,000
Legal fees and expenses.................... 925,000
Accounting fees and expenses............... 15,000
Rating agency fees......................... 160,000
State Fees................................. 146,250
Miscellaneous.............................. 42,765
----------
Total................................. $1,830,000
==========
</TABLE>
All of the above expenses except the SEC registration fee are estimated.
All of the above expenses are being paid by Education Loans Incorporated, a
South Dakota nonprofit corporation of which the registrant is an indirect,
wholly-owned subsidiary.
Item 14. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in summary, that the directors and officers of the
registrant may, under certain circumstances, be indemnified by the
registrant against all expenses incurred by or imposed upon them as a
result of actions, suits or proceedings brought against them as such
directors and officers, or as directors or officers of any other
organization at the request of the registrant, if they act in good faith
and in a manner they reasonably believe to be in or not opposed to the best
interests of the registrant, and with respect to any criminal action or
proceeding, have no reasonable cause to believe their conduct was unlawful,
except that no indemnification shall be made against expenses in respect of
any claim, issue or matters to which they shall have been adjudged to be
liable to the registrant unless and only to the extent that the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper. Section
145 of the DGCL also provides that directors and officers of the registrant
are entitled to such indemnification by the registrant to the extent that
such persons are successful on the merits or otherwise in defending any
such action, suit or proceeding. The registrant's Bylaws authorize the
registrant to indemnify its officers and directors, under certain
circumstances, as provided by Section 145 of the DGCL.
Pursuant to the form of Underwriting Agreement, a copy of which is
included as Exhibit 1.1 hereto, the Underwriters agree to indemnify, under
certain conditions, the registrant, its directors, and certain of its
officers and persons who control the registrant within the meaning of the
Securities Act of 1933 against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
In May 1997, in connection with the formation of the registrant, the
registrant accepted the subscription of Student Loan Finance Corporation, a
South Dakota corporation, to purchase 100 shares of the registrant's common
stock for consideration of $100. Based on the fact that there was only one
purchaser and no effort was made to sell stock to any other person, the
registrant believes this transaction was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended.
<PAGE>
Item 16. Exhibits.
1.1 Revised Form of Underwriting Agreement
3.1b Certificate of Incorporation of Education Loans Incorporated,
a Delaware corporation+
3.2b Bylaws of Education Loans Incorporated, a Delaware
corporation+
4.1 Revised Form of Indenture
4.2 Revised Form of First Supplemental Indenture
4.3 Revised Form of Auction Agent Agreement (Taxable Auction Rate
Series 1997-1 Notes)
4.4 Revised Form of Auction Agent Agreement (Tax Exempt Auction
Rate Series 1997-1 Notes)
4.5 Revised Form of Broker-Dealer Agreement (Taxable Auction Rate
Series 1997-1 Notes)
4.6 Revised Form of Broker-Dealer Agreement (Tax Exempt Auction
Rate Series 1997-1 Notes)
5.1 Opinion of Dorsey & Whitney LLP to legality+
8.1 Opinion of Dorsey & Whitney LLP as to tax matters+
10.1 Revised Form of Servicing Agreement
10.2 Form of Student Loan Purchase Agreement (Taxable)*
10.3 Form of Student Loan Purchase Agreement (Tax Exempt)*
10.4 Guarantee Agreements with Education Assistance Corporation
dated July 3, 1997 and September 12, 1997.+
10.5 Guarantee Agreement with Pennsylvania Higher Education
Assistance Agency dated February 28, 1994.+
10.6 Guarantee Agreement with United Student Aid Funds, Inc. dated
July 11, 1997.+
10.7 Guarantee Agreement with Student Loans of North Dakota dated
July 8, 1997.+
10.8 Guarantee Agreement with Northstar Guarantee, Inc. dated July
15, 1997.+
10.9 Guarantee Agreement with Great Lakes Higher Education
Corporation dated July 15, 1977.+
10.10 Guarantee Agreement with Educational Credit Management
Corporation (formerly known as Transitional Guaranty Agency,
Inc.) dated December 15, 1994.+
10.11 Guarantee Agreements with Iowa College Aid Commission dated
July 15, 1997.+
10.12 Guarantee Agreement with Missouri Coordinating Board for
Higher Education dated July 15, 1997.+
10.13 Guarantee Agreement with Illinois Student Assistance
Commission dated July 7, 1997.+
10.14 Guarantee Agreements with California Student Aid Commission
dated July 6 and July 10, 1977.+
23.1 Consents of Dorsey & Whitney LLP (included in Exhibits 5.1 and
8.1)
23.2 Consent of Eide Helmeke PLLP+
24.1b Powers of Attorney+
25.1 Statement of Eligibility of Trustee (Form T-1)*
27.1 Financial Data Schedule+
99.1 Form of Opinion of Dorsey & Whitney LLP as to "true sale"
matters+
99.2 Form of Opinion of Dorsey & Whitney LLP as to
nonconsolidation+
99.3 Form of Assignment and Assumption Agreement by and among
Education Loans Incorporated, a South Dakota nonprofit
corporation, Student Loan Finance Corporation, a South Dakota
corporation, and the Registrant to be executed as of the
closing of the offering
----------------
* Incorporated by reference to a similarly numbered exhibit filed
by the registrant's former co-registrant, Education Loans
Incorporated, a South Dakota nonprofit corporation, on this
registration statement (SEC File No, 333-26679).
+ Previously filed.
Item 17. Undertakings.
The undersigned registrant hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
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 counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
<PAGE>
(c) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
<PAGE>
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Aberdeen, State of South Dakota on
October 20, 1997.
EDUCATION LOANS INCORPORATED
By: /s/ A. Norgrin Sanderson
--------------------------
A. Norgrin Sanderson
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ A. Norgrin Sanderson President, Treasurer October 20, 1997
- ------------------------ and Chairman of the Board
A. Norgrin Sanderson (principal executive officer,
principal financial and accounting officer)
____________*____________ Director October 20, 1997
V. G. Stoia
____________*____________ Director October 20, 1997
Manley B. Feinstein
____________*____________ Director October 20, 1997
Harvey C. Jewett
*By /s/ A. Norgrin Sanderson
- -----------------------------
A. Norgrin Sanderson,
as attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Listing Exhibits filed by
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
Number Exhibit
- ------ -------
1.1 Revised Form of Underwriting Agreement
3.1b Certificate of Incorporation of Education Loans Incorporated, a
Delaware corporation+
3.2b Bylaws of Education Loans Incorporated, a Delaware corporation+
4.1 Revised Form of Indenture
4.2 Revised Form of First Supplemental Indenture
4.3 Revised Form of Auction Agent Agreement (Taxable Auction Rate Series
1997-1 Notes)
4.4 Revised Form of Auction Agent Agreement (Tax Exempt Auction Rate
Series 1997-1 Notes)
4.5 Revised Form of Broker-Dealer Agreement (Taxable Auction Rate Series
1997-1 Notes)
4.6 Revised Form of Broker-Dealer Agreement (Tax Exempt Auction Rate
Series 1997-1 Notes)
5.1 Opinion of Dorsey & Whitney LLP as to legality+
8.1 Opinion of Dorsey & Whitney LLP as to tax matters+
10.1 Revised Form of Servicing Agreement
10.2 Form of Student Loan Purchase Agreement (Taxable)*
10.3 Form of Student Loan Purchase Agreement (Tax Exempt)*
10.4 Guarantee Agreements with Education Assistance Corporation dated
July 3, 1997 and September 12, 1997+
10.5 Guarantee Agreement with Pennsylvania Higher Education Assistance
Agency dated February 28, 1994+
10.6 Guarantee Agreement with United Student Aid Funds, Inc. dated
July 11, 1997.+
10.7 Guarantee Agreement with Student Loans of North Dakota dated July 8,
1997.+
10.8 Guarantee Agreement with Northstar Guarantee, Inc. dated July 15,
1997.+
10.9 Guarantee Agreement with Great Lakes Higher Education Corporation
dated July 15, 1977.+
10.10 Guarantee Agreement with Educational Credit Management Corporation
(formerly known as Transitional Guaranty Agency, Inc.) dated December
15, 1994.+
10.11 Guarantee Agreements with Iowa College Aid Commission dated July 15,
1997.+
10.12 Guarantee Agreement with Missouri Coordinating Board for Higher
Education dated July 15, 1997.+
10.13 Guarantee Agreement with Illinois Student Assistance Commission dated
July 7, 1997.+
10.14 Guarantee Agreements with California Student Aid Commission dated July
6 and July 10, 1977.+
23.1 Consents of Dorsey & Whitney LLP (included in Exhibits 5.1 and
8.1.)
23.2 Consent of Eide Helmeke PLLP+
24.1b Powers of Attorney+
25.1 Statement of Eligibility of Trustee (Form T-1)*
27.1 Financial Data Schedule+
99.1 Form of Opinion of Dorsey & Whitney LLP as to "true sale" matters+
99.2 Form of Opinion of Dorsey & Whitney LLP as to nonconsolidation+
99.3 Form of Assignment and Assumption Agreement by and among Education
Loans Incorporated, a South Dakota nonprofit corporation, Student Loan
Finance Corporation, a South Dakota corporation, and the Registrant to
be executed as of the closing of the offering
- ---------------
* Incorporated by reference to a similarly numbered exhibit filed by the
registrant's former co-registrant, Education Loans Incorporated, a
South Dakota nonprofit corporation, on this registration statement
(SEC File No, 333-26679).
+ Previously filed.
<PAGE>
Exhibit 1.1
$923,470,000
Education Loans Incorporated
----------------------------
STUDENT LOAN ASSET-BACKED CALLABLE NOTES, SERIES 1997-1
consisting of
$274,900,000 Tax Exempt Auction Rate Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1A through E
$24,055,000 Tax Exempt Fixed Rate Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1F
$107,500,000 Taxable Auction Rate Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1G and H
$424,600,000 Taxable LIBOR Rate Student Loan Asset-Backed Callable Notes, Senior
Series 1997-1I and J
$33,215,000 Tax Exempt Fixed Rate Student Loan Asset-Backed Callable Notes,
Subordinate Series 1997-1K
$59,200,000 Taxable LIBOR Rate Student Loan Asset-Backed Callable Notes,
Subordinate Series 1997-1L
Underwriting Agreement
----------------------
SMITH BARNEY INC.
U.S. BANCORP INVESTMENTS, INC.
DOUGHERTY SUMMIT SECURITIES LLC
MILLER & SCHROEDER FINANCIAL, INC.
NORWEST INVESTMENT SERVICES, INC.
SALOMON BROTHERS INC
c/o Smith Barney Inc.
390 Greenwich Street
New York, NY 10013
Dear Sirs:
Education Loans Incorporated (formerly known as Student Loan Finance
Corporation), a South Dakota nonprofit corporation (the "Original Issuer"),
proposes to sell to Smith Barney Inc., U.S. Bancorp Investments, Inc., Dougherty
Summit Securities LLC, Miller & Schroeder Financial, Inc., Norwest Investment
Services, Inc. and Salomon Brothers Inc (the "Underwriters"), pursuant to the
terms of this Underwriting Agreement (this "Agreement"), $923,470,000 aggregate
principal amount of its Student Loan Asset-Backed Callable Notes, Series 1997-1
(the "Notes"). The Notes are to be issued in twelve series designated as Tax
Exempt Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series
1997-1A through 1997-1E (the "Tax Exempt Auction Rate Series 1997-1 Senior
<PAGE>
Notes"), Tax Exempt Fixed Rate Student Loan Asset-Backed Callable Notes, Senior
Series 1997-1F (the "Tax Exempt Fixed Rate Series 1997-1 Senior Notes"), Taxable
Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1G and
1997-1H (the "Taxable Auction Rate Series 1997-1 Senior Notes"), Taxable LIBOR
Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1I and 1997-1J
(the "Taxable LIBOR Rate Series 1997-1 Senior Notes"), Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1K (the "Tax
Exempt Fixed Rate Series 1997-1 Subordinate Notes"), and Taxable LIBOR Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1L (the
"Taxable LIBOR Rate Series 1997-1 Subordinate Notes").
The Tax Exempt Auction Rate Series 1997-1 Senior Notes, the Tax Exempt
Fixed Rate Series 1997-1 Senior Notes, the Taxable Auction Rate Series 1997-1
Senior Notes, the Taxable LIBOR Rate Series 1997-1 Senior Notes, the Tax Exempt
Series 1997-1 Subordinate Notes and the Taxable Series 1997-1 Subordinate Notes
will be issued in the initial aggregate principal amounts of $274,900,000,
$24,055,000, $107,500,000, $424,600,000, $33,215,000 and $59,200,000,
respectively. The initial aggregate principal amounts of each series of Notes
shall be as listed in Appendix A hereto.
The Notes shall be as described in, shall be subject to redemption and
auction, shall have such other provisions and details and shall be issued
pursuant to the First Supplemental Indenture, dated as of July 1, 1997 (the
"Supplemental Indenture"), supplemental to an Indenture of Trust, dated as of
July 1, 1997 (as supplemented and amended, the "Indenture"), between the
Original Issuer and First Bank National Association, as trustee (the "Trustee").
Upon issuance, the Notes will be secured by, among other things, Financed
Student Loans pledged to the Trustee and described in the Prospectus (as
hereinafter defined).
In connection with an election to be made by the Original Issuer under
Section 150(d)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
Education Loans Incorporated, a separate, newly organized Delaware corporation
(the "Corporation"), will, immediately upon the issuance of the Notes, assume
all of the Original Issuer's liabilities and obligations with respect to the
Notes pursuant to a Contribution Agreement, dated as of the Closing Date (the
"Contribution Agreement"), by and among the Original Issuer, the Corporation and
Student Loan Finance Corporation, a newly organized South Dakota corporation
("SLFC"), and an Assignment Assumption Agreement, dated as of the Closing Date
(the "Assumption Agreement"), by and among the Original Issuer, the Corporation,
SLFC and the Trustee, and the Original Issuer will be released from all such
liabilities and obligations.
Capitalized terms used but not defined herein have the respective meanings
ascribed thereto in Appendix B hereto.
-2-
<PAGE>
1. Agreement to Sell, Purchase and Resell
(a) The Original Issuer hereby agrees, subject to all of the terms and
conditions set forth herein, to sell to the Underwriters and, upon the basis of
the representations, warranties and agreements of the Original Issuer, the
Corporation and SLFC herein contained and subject to all of the terms and
conditions set forth herein, the Underwriters, jointly and severally (except as
hereinafter limited in part with respect to U.S. Bancorp Investments, Inc. in
Section 12 hereof) agree to purchase from the Original Issuer, all (but not less
than all) of the Notes at the aggregate purchase price of
[$____________________,] plus interest accrued on the Tax Exempt Fixed Rate
Series 1997-1 Senior Notes and the Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes from October 15, 1997 to the Closing Date (as defined in
Section 2 hereof), and the Original Issuer hereby agrees to pay to the
Underwriters an aggregate underwriting fee in the amount of [$________________].
The maturity dates, purchase prices and underwriting fees for each series of the
Notes shall be as listed in Appendix A hereto.
(b) The Tax Exempt Auction Rate Series 1997-1 Senior Notes and the Taxable
Auction Rate Series 1997-1 Senior Notes shall bear interest for the period
commencing on the date of issuance of the Notes through the end of the
respective Initial Interest Periods at rates to be agreed to by the Original
Issuer and the Underwriters pursuant to an executed writing (which may be in
counterparts), and may be evidenced by telegraphic communications or any other
rapid transmission device designed to produce a written record of communication
transmitted, which writing shall be effective no later than the Closing Date,
provided that such interest rates shall not exceed 10% per annum. Thereafter,
such rates per annum shall be determined in accordance with the Supplemental
Indenture. The Tax Exempt Fixed Rate Series 1997-1 Senior Notes maturing June 1,
2010 shall bear interest at the rate of [___%] per annum, the Tax Exempt Fixed
Rate Series 1997-1 Senior Notes maturing June 1, 2020 shall bear interest at the
rate of [___%] per annum, and the Tax Exempt Fixed Rate Series 1997-1
Subordinate Notes shall bear interest at the rate of [___%] per annum. The
Taxable LIBOR Rate Series 1997-1 Senior Note Initial Interest Rate (as defined
in the First Supplemental Indenture) with respect to the Series 1997-1I Notes
shall be [___%] per annum and with respect to the Series 1997-1J Notes shall be
[___%] per annum. The Taxable LIBOR Rate Series 1997-1 Senior Note Interest Rate
(as defined in the First Supplemental Indenture) with respect to each series of
Taxable LIBOR Rate Series 1997-1 Senior Notes will be determined by the Trustee
from time to time as described in the First Supplemental Indenture to equal the
One-Month LIBOR plus [____%] per annum with respect to the Series 1997-1I Notes
and the One-Month LIBOR plus [____%] per annum with respect to the Series 1997-
1J Notes. The Taxable LIBOR Rate Series 1997-1 Subordinate Note Initial Interest
Rate (as defined in the First Supplemental
-3-
<PAGE>
Indenture) with respect to the Taxable LIBOR Rate Series 1997-1 Subordinate
Notes shall be [___%] per annum. The Taxable LIBOR Rate Series 1997-1
Subordinate Note Interest Rate (as defined in the First Supplemental Indenture)
with respect to the Taxable LIBOR Rate Series 1997-1 Subordinate Notes will be
determined by the Trustee from time to time as described in the First
Supplemental Indenture to equal the One-Month LIBOR plus [____%] per annum.
(c) It is understood that the Underwriters propose to offer the Notes for
sale to the public (which may include selected dealers) as set forth in the
Prospectus. The Underwriters agree to make a bona fide public offering of the
Tax Exempt Series 1997-1 Notes (as defined in the First Supplemental Indenture)
at prices not in excess of the initial public offering prices (which may be
expressed in terms of yield) set forth on the cover page of the Prospectus
referred to below. The Notes may be offered and sold to certain dealers
(including the Underwriters and other dealers depositing such Notes into
investment trusts or mutual funds) at prices lower than such public offering
prices.
(d) Smith Barney Inc. is duly authorized to execute this Agreement and to
act hereunder on behalf of the Underwriters.
(e) Each Underwriter severally represents and agrees that (i) it has not
offered or sold, and will not offer or sell, any Notes to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purpose of their businesses or otherwise in circumstances which have not
resulted, and will not result in, an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to the
Notes in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on, and will only issue and pass on, in the United Kingdom any
document received by it in connection with the issue of the Notes to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or to a person to whom such
document may otherwise lawfully be issued, distributed or passed on.
2. Delivery of the Notes and Payment Therefor. At 10:00 A.M., New York
City time, on November 5, 1997, or at such other time or on such earlier or
later business day as shall have been mutually agreed upon by the Original
Issuer, SLFC, the Corporation and the Underwriters (the "Closing Date"), the
Original Issuer will deliver to DTC, for the account of the Underwriters, the
Notes in definitive form bearing CUSIP numbers, duly executed and authenticated,
together with the other documents hereinafter
-4-
<PAGE>
mentioned; and the Underwriters will accept such delivery and pay the purchase
price of the Notes as set forth in Section 1 hereof in immediately available
funds to the account of the Original Issuer and the Original Issuer shall pay to
the Underwriters the underwriting fee as set forth in Section 1 hereof in
immediately available funds to the account of Smith Barney. Delivery of the
Notes and payment as aforesaid shall be made at such location in New York, New
York as shall be requested by Smith Barney. Delivery of the other documents
shall be at the offices of Dorsey & Whitney LLP, 250 Park Avenue, 15th Floor,
New York, New York 10022. This payment and delivery is herein called the
"Closing". The Notes delivered at the Closing shall be made available to the
Underwriters and DTC at least two business days prior to the date of the Closing
for purposes of inspection. The Notes shall be prepared and delivered as fully
registered notes in authorized denominations and registered in such manner as
the Underwriters shall have requested.
3. Representations and Warranties of the Original Issuer, SLFC and the
Corporation. The Original Issuer, SLFC and the Corporation represent and warrant
to, and agree with, the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-26679-01) relating
to the Notes, including a form of prospectus, has been filed with the Securities
and Exchange Commission (the "Commission"); such registration statement and any
post-effective amendment thereto, each in the form previously delivered to the
Underwriters, excluding exhibits to such registration statement, have been
declared effective under the Securities Act of 1933, as amended (the "Securities
Act"). The term "Registration Statement" as used in this Agreement means such
registration statement, as amended, at the time each part thereof became
effective and shall be deemed to include all information omitted therefrom in
reliance upon Rule 430A and contained in the Prospectus referred to below. The
term "Registration Statement" as used in this Agreement, shall include any
registration statement relating to the Notes that is filed and declared
effective pursuant to Rule 462(b) under the Securities Act. The term
"Prospectus" as used in this Agreement means the final prospectus, as first
filed with the Commission pursuant to Rule 424(b) under the Securities Act. The
term "Preliminary Prospectus" as used in this Agreement, means the prospectus
subject to completion in the form included in the Registration Statement at the
time of the initial filing of the Registration Statement with the Commission,
and as such prospectus shall have been amended from time to time prior to the
date of the Prospectus. For purposes of the following representations and
warranties, to the extent reference is made to the Prospectus and at the
relevant time the Prospectus is not yet in existence, such reference shall be
deemed to be to the most recent Preliminary Prospectus. Copies of the
Registration Statement, the Preliminary Prospectus and all other documents which
were filed by the Original
-5-
<PAGE>
Issuer and the Corporation with the Commission on or prior to the date hereof
have been delivered to you. The Corporation has satisfied all conditions and
requirements for the use of Form S-1 and the filing of the Registration
Statement under the Securities Act and the applicable rules and regulations
thereunder (the "Rules and Regulations").
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the
Securities Act and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") and the rules and regulations of the Commission thereunder, as
of the Closing, and do not and will not, as of the applicable effective date as
to any part of the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and warranty
shall not apply to any statements made in reliance upon and in conformity with
information furnished in writing to the Original Issuer by the Underwriters
expressly for use therein. There are no contracts or other documents required by
the Securities Act or by the Rules and Regulations to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which have not been described or filed as required.
(c) The Commission has not issued and, to the best knowledge of the
Original Issuer and the Corporation, is not threatening to issue any order
preventing or suspending the use of the Registration Statement. No order
preventing or suspending the use of any Preliminary Prospectus or prospectus has
been issued by the Commission or any state regulatory authority or other
jurisdictional regulatory agency ("Blue Sky Authorities").
(d) As of the Closing Date, each consent, approval, authorization or order
of, or filing with, any court or governmental agency or body which is required
to be obtained or made by the Original Issuer, SLFC, the Corporation or any of
their affiliates for the consummation of the transactions contemplated by this
Agreement shall have been obtained, except as otherwise provided in the Basic
Documents.
(e) The Original Issuer has the requisite power and authority to execute,
deliver and perform its obligations under the Indenture, the Supplemental
Indenture and the Auction Agent Agreements. The Indenture, the Supplemental
Indenture and the Auction Agent Agreements have been duly and validly authorized
by the Original Issuer and, upon their execution and delivery by the Original
Issuer, assuming due authorization, execution and delivery
-6-
<PAGE>
by the Trustee and, in the case of the Auction Agent Agreements, the Auction
Agent, will be duly executed and delivered by the Original Issuer and will
constitute valid and legally binding agreements of the Original Issuer,
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general applicability affecting creditors' rights or general equitable
principles. The Indenture, the Supplemental Indenture and the Auction Agent
Agreements conform in all material respects to the descriptions thereof in the
Prospectus.
(f) The Original Issuer has the requisite power and authority to issue
the Notes. The Notes have been duly authorized by the Original Issuer and, when
executed by the Original Issuer, authenticated by the Trustee in accordance with
the Indenture and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will have been validly issued and delivered,
and will constitute valid and legally binding obligations of the Original Issuer
entitled to the benefits of the Indenture and enforceable in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, moratorium, or other similar laws of general applicability relating
to or affecting creditors' rights or general equitable principles. The Notes
conform in all material respects to the description thereof in the Prospectus.
(g) The Original Issuer, SLFC and the Corporation each has the
requisite power and authority to execute, deliver and perform its obligations
under the Contribution Agreement and the Assumption Agreement. The Contribution
Agreement and the Assumption Agreement have been duly and validly authorized,
executed and delivered by the Original Issuer, SLFC and the Corporation and,
upon their execution and delivery (assuming, with respect to the Assumption
Agreement, due authorization, execution and delivery by the Trustee) will be
duly executed and delivered by each of the Original Issuer, SLFC and the
Corporation and will constitute valid and legally binding agreements of each of
the Original Issuer, SLFC and the Corporation, enforceable in accordance with
their respective terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability relating to or affecting creditors' rights or general
equitable principles. The Contribution Agreement and the Assumption Agreement
conform in all material respects to the descriptions thereof in the Prospectus.
(h) SLFC and the Corporation each have the requisite power and
authority to execute, deliver and perform its obligations under the Servicing
Agreement. The Servicing Agreement has been duly and validly authorized by each
of SLFC and the Corporation and, upon execution and delivery, assuming due
authorization, execution and delivery by the Trustee, will be duly executed and
delivered by each of SLFC and the Corporation and will constitute
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a valid and legally binding agreement of each of SLFC and the Corporation,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general applicability relating to or affecting creditors' rights or
general equitable principles. The Servicing Agreement conforms in all material
respects to the description thereof in the Prospectus.
(i) The Original Issuer is a nonprofit corporation and SLFC is a
corporation and wholly owned subsidiary of the Original Issuer, each is duly
organized, validly existing and in good standing under the laws of the State of
South Dakota, with the requisite power and authority to own, lease and operate
its properties and to conduct its business as conducted on the date hereof and
as contemplated in the Prospectus, and is duly qualified to conduct its business
and is in good standing in each jurisdiction where the nature of its properties
or the conduct of its business requires such qualification, except where the
failure so to qualify could not have a material adverse effect on its condition
(financial or other), business, prospectus, properties, net worth or results of
operations.
(j) The Corporation is a Delaware corporation and wholly owned
subsidiary of SLFC, is duly organized, validly existing and in good standing
under the laws of the State of Delaware, with the requisite power and authority
to own, lease and operate its properties and to conduct its business as
conducted on the date hereof and as contemplated in the Prospectus and with full
power and authority to own and pledge its assets and to issue the Notes as
described in the Prospectus. The Corporation is duly qualified to conduct its
business and is in good standing in each jurisdiction where the nature of its
properties or the conduct of its business requires such qualification, except
where the failure so to qualify could not have a material adverse effect on its
condition (financial or other), business, prospectus, properties, net worth or
results of operations.
(k) There is no action, suit, proceeding, inquiry or investigation, at
law or in equity, or before or by any court, governmental or public board or
body, pending or known to be threatened against or affecting the Original
Issuer, SLFC or the Corporation or to which the Original Issuer, SLFC, the
Corporation or any of their respective properties is subject, nor to the best of
the knowledge of the Original Issuer, SLFC and the Corporation is there any
basis therefor, that are not disclosed in the Prospectus and wherein an
unfavorable decision, ruling or finding would materially adversely affect the
validity or enforceability of the Notes, the Original Issuer's Authorizing
Resolutions, SLFC's Authorizing Resolution, the Corporation's Authorizing
Resolution, the Basic Documents, the Investment Agreement, the Issuer's Plan,
the Plan Approval, the Original Issuer's Program Agreements, the State Request,
the Volume Cap Documents, this Agreement or any
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other agreement or instrument to which the Original Issuer, SLFC or the
Corporation is a party, used or contemplated for use in the consummation of
transactions contemplated by this Agreement, the Basic Documents or by the
Prospectus.
(l) Neither the offer, sale or delivery of the Notes by the Original
Issuer, nor the execution, delivery or performance of this Agreement, any of the
Basic Documents or any of the Original Issuer's Program Agreements by the
Original Issuer, SLFC or the Corporation, nor the adoption of the Original
Issuer's Authorizing Resolutions, SLFC's Authorizing Resolution, the
Corporation's Authorizing Resolution or the Issuer's Plan, nor the consummation
by the Original Issuer, SLFC or the Corporation of the transactions contemplated
hereby or thereby (i) requires or will require any consent, approval,
authorization or other order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except for compliance with the federal securities laws or Blue Sky
laws of various jurisdictions, the qualification of the Indenture under the
Trust Indenture Act and such other consents, approvals or authorizations as
shall have been obtained prior to the Closing Date), or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the organizational documents of the Original Issuer, SLFC or the Corporation or
(iii) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, in any material respect, any material agreement,
indenture, lease or other instrument to which the Original Issuer, SLFC or the
Corporation is a party or by which the Original Issuer, SLFC or the Corporation
or any of their respective properties may be bound, or (iv) violates or will
violate in any material respect any statute, law, regulation or filing or
judgment, injunction, order or decree applicable to the Original Issuer, SLFC or
the Corporation or any of their respective properties, or (v) results or will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Original Issuer, SLFC or the Corporation pursuant to
the terms of any agreement or instrument to which any is a party or by which any
may be bound or to which any of their respective properties is subject other
than as contemplated by the Basic Documents.
(m) The Original Issuer, SLFC and the Corporation each have all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement; the execution and delivery of, and the performance by each of the
Original Issuer, SLFC and the Corporation of its respective obligations under
this Agreement have been duly and validly authorized by the Original Issuer,
SLFC and the Corporation, respectively, and this Agreement has been duly
executed and delivered by each of them and constitutes the valid and legally
binding agreement of each of them, enforceable against each of them in
accordance with its terms, except as the enforcement may be limited by
bankruptcy,
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insolvency, moratorium, or other similar laws relating to or affecting
creditors' rights generally or general equitable principles, and except as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws or principles of public policy.
(n) SLFC and the Corporation have duly adopted SLFC's Authorizing
Resolutions and the Corporation's Authorizing Resolutions, respectively, and
have duly approved the furnishing and use of the information contained in the
Prospectus, and the taking of any and all such actions as may be required on the
part of SLFC and the Corporation to carry out, give effect to and consummate the
transactions contemplated by this Agreement, the Prospectus and the Basic
Documents, and all approvals necessary in connection with the foregoing have
been obtained.
(o) Neither the Original Issuer, SLFC nor the Corporation is, and following
the consummation of the transactions contemplated hereby and the use of proceeds
from the Notes as described in the Preliminary Prospectus will be, an
"investment company" under the Investment Company Act of 1940, as amended (the
"1940 Act').
(p) Neither the Original Issuer, SLFC, the Corporation nor any of their
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075, Florida Statute
and the Original Issuer, SLFC and the Corporation agrees to comply with such
Section if prior to the completion of the distribution of the Notes it commences
doing such business. The Original Issuer, SLFC and the Corporation are not, and
have not at any time been, in default in the payment of principal of or interest
on any obligations of the Original Issuer, SLFC, or the Corporation,
respectively.
(q) The representations and warranties made by (i) the Original Issuer
herein, in the Indenture, in the Contribution Agreement, in the Assumption
Agreement, in the Auction Agent Agreement and in any officer's certificate
delivered pursuant hereto or thereto and (ii) the Corporation and SLFC herein,
in the Servicing Agreement, in the Contribution Agreement, in the Assumption
Agreement and in any officer's certificate of the Corporation or SLFC delivered
pursuant hereto or thereto, will be true and correct at the time made and on and
as of the Closing Date.
(r) The Indenture will create a first lien upon the Financed Student Loans
and a valid pledge of and perfected security interest in the entire Trust
Estate, subject only to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth
therein. On the Closing Date, the Trustee will have legal title to the Trust
Estate for the benefit of the Original Issuer, including without
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limitation the Financed Student Loans, and no lien other than the lien of the
Indenture will exist with respect to any asset which constitutes a part of the
Trust Estate securing the Notes.
(s) The Original Issuer is a corporation described in Section 501(c)(3) of
the Code, it is exempt from federal income tax under Section 501(a) of the Code
and it is not a private foundation within the meaning of Section 509(a) of the
Code.
(t) The Original Issuer has the requisite power and authority to execute,
deliver and perform its obligations under the Original Issuer's Program
Agreements. The Original Issuer's Program Agreements have been duly and validly
authorized by the Original Issuer and, assuming due authorization, execution and
delivery by the other parties thereto, duly executed and delivered by the
Original Issuer and constitute valid and legally binding agreements of the
Original Issuer, enforceable in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general applicability affecting creditors'
rights or general equitable principles. The Original Issuer's Program
Agreements and the Issuer's Plan conform in all material respects to the
descriptions thereof in the Prospectus.
(u) The Original Issuer has duly adopted the Original Issuer's Authorizing
Resolutions and the Issuer's Plan and has duly approved the execution, delivery
and performance of the Indenture, the Supplemental Indenture, the Contribution
Agreement, the Assumption Agreement, this Agreement, the Auction Agent
Agreement, the Original Issuer's Program Agreements, the furnishing and use of
the information contained in the Prospectus, and the taking of any and all such
actions as may be required on the part of the Original Issuer to carry out, give
effect to and consummate the transactions contemplated by this Agreement, the
Prospectus, the Contribution Agreement, the Assumption Agreement, the Original
Issuer's Program Agreements, the Indenture, the Supplemental Indenture, the
Auction Agent Agreement, the State Request, and all approvals necessary in
connection with the foregoing have been obtained.
(v) As of the date hereof, the Original Issuer's Program Agreements, the
Issuer's Plan, the Plan Approval and the State Request are in full force and
effect.
(w) Neither the Original Issuer, SFLC or the Corporation nor any agent
acting on any of their behalf has taken or will take any action that might cause
this Agreement or the sale of the Notes to violate Regulations G, T, U, or X of
the Board of Governors of the Federal Reserve System, in each case as in effect,
or as the same may hereafter be in effect, as of the Closing.
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4. Agreements of the Original Issuer, SLFC and the Corporation. The
Original Issuer, SLFC and the Corporation agree with the Underwriters as
follows:
(a) The Original Issuer and the Corporation will prepare the Prospectus in
a form approved by the Underwriters and the Corporation will file such
Prospectus pursuant to Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) or Rule 424(b) under the Securities Act;
the Original Issuer and the Corporation will (i) make no further amendment or
any supplement to the Registration Statement or Prospectus which is not approved
by the Underwriters after reasonable notice thereof, (ii) advise the
Underwriters, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective or
any amended Prospectus has been filed and furnish the Underwriters with copies
thereof; (iii) advise the Underwriters, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus, of
the suspension of the qualification of the Notes for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding relating to the
offering or sale of the Notes, or of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus or for
additional information; and (iv) use its best efforts to prevent the issuance of
any stop order or other order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending the qualification of the
Indenture or the Notes for offering or sale in any jurisdiction and, in the
event of the issuance of any stop order or of any other such order, promptly use
its best efforts to obtain the withdrawal of such order.
(b) The Original Issuer will furnish to the Underwriters, without charge,
copies of the Registration Statement (at least one copy of which will be signed
and include all documents and exhibits thereto or incorporated by reference
therein), the Prospectus, and all amendments and supplements to such documents
relating to the Notes, in each case in such quantities as the Underwriters may
reasonably request. If the delivery of a prospectus is required at any time
after an event has occurred which results in the Prospectus, as then amended or
supplemented, including an untrue statement of a material fact or omitting to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, if
for any other reason it shall be necessary to amend or supplement the Prospectus
to comply with the Securities Act or the Trust Indenture Act, the Original
Issuer and the Corporation will notify the Underwriters and, upon the
Underwriters' request, prepare and furnish without charge to the
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Underwriters and to any dealer in securities as many copies as the Underwriters
may from time to time reasonably request, an amended Prospectus which corrects
such Statement or omission or effects such compliance.
(c) The Original Issuer, SLFC and the Corporation will cooperate with the
Underwriters and with its counsel in connection with the qualification of, or
procurement of exemptions with respect to, the Notes for offering and sale by
the Underwriters and by dealers, and with the determination of their eligibility
for investment, under the laws of such jurisdictions as the Underwriters may
designate and will file such consents to service of process or other documents
necessary or appropriate to effect such qualification or exemptions; provided
that in no event shall either the Corporation, SLFC or the Original Issuer be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified (other than the State of South Dakota if not currently so qualified)
or to take any action which would subject it to service of process in suits,
other than those arising out of the offering or sale of the Notes, in any
jurisdiction where it is not now so subject.
(d) The Original Issuer, SLFC and the Corporation consent to the use, in
accordance with the securities or Blue Sky laws of such jurisdictions in which
the Notes are offered by the Underwriter and by dealers, of the Prospectus.
(e) To the extent, if any, that the ratings provided with respect to the
Notes by the Rating Agencies are conditional upon the furnishing of documents or
the taking of any other actions by the Original Issuer, SLFC or the Corporation,
SLFC, the Original Issuer, SLFC and the Corporation shall cause to be furnished
such documents and such other actions to be taken.
(f) So long as any of the Notes are outstanding, the Original Issuer, SLFC
or the Corporation will furnish to the Underwriters (i) as soon as available, a
copy of each document relating to the Original Issuer, the Corporation or the
Notes required to be filed with the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any order of the
Commission thereunder, and (ii) such other information concerning the Original
Issuer, SLFC or the Corporation, as the Underwriters may request from time to
time.
(g) To make generally available to the Noteholders and the Underwriters as
soon as practicable, a copy of each Monthly Servicing Report (as defined in the
Indenture) required under the Indenture and the Servicing Agreement.
(h) If this Agreement shall terminate or shall be terminated after
execution and delivery pursuant to any provisions hereof or if this Agreement
shall be terminated by the Underwriters
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because of any failure or refusal on the part of the Original Issuer, SLFC or
the Corporation to comply with the terms or fulfill any of the conditions of
this Agreement, the Original Issuer and SLFC agree jointly and severally to
reimburse the Underwriters for all out-of-pocket expenses (including, without
limitation, fees and expenses of its counsel; costs related to its due diligence
investigation of the Original Issuer, SLFC and the Corporation; costs of
preparing to market and the actual marketing of the Notes; and costs incurred in
the performance of its obligations hereunder) reasonably incurred by them in
their roles as Underwriters, but without any further obligation on the part of
the Original Issuer or SLFC for loss of profits or otherwise.
(i) The net proceeds from the sale of the Notes hereunder will be applied
substantially in the manner specified under the caption "Application of Series
1997-1 Note Proceeds" in the Prospectus. The Original Issuer, SLFC and the
Corporation will not take or omit to take any action which will in any way cause
the proceeds from the sale of the Notes to be applied in a manner contrary to
that provided for in the Prospectus and the Indenture.
(j) Except as stated in this Agreement and in the Prospectus, neither the
Original Issuer, the Corporation nor SLFC has taken, nor will any of them take,
and each of them will use their best efforts to cause each of their respective
directors and officers not to take, directly or indirectly, any action designed
to or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Notes to facilitate the sale or resale of the
Notes.
(k) Deposits required by the Indenture into the Acquisition Fund and the
Reserve Fund shall be made on the Closing Date.
(l) Other than pursuant to your consent and as permitted by the Securities
Act and the Rules and Regulations, the Original Issuer, SLFC and the Corporation
will not distribute any prospectus or other offering material in connection with
the offering of the Notes.
5. Indemnification and Contribution. (a) The Original Issuer and SLFC
jointly and severally agree to indemnify and hold harmless the Underwriters and
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, the Prospectus, or in any amendment or supplement thereto, or in any
Preliminary Prospectus, or in any application filed under the Blue Sky laws of
any jurisdiction or other document executed by the Original Issuer or
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the Corporation for that purpose, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out of or
are based upon any untrue statement or omission or alleged untrue statement or
omission which has been made therein or omitted therefrom in reliance upon and
in conformity with the information relating to the Underwriters furnished in
writing to the Original Issuer by or on behalf of the Underwriters expressly for
use in connection therewith; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Preliminary Prospectus shall
not inure to the benefit of the Underwriters (or to the benefit of any person
controlling an Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Series of Notes covered
thereby by the Underwriter to any person if the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such Preliminary Prospectus was corrected in the final Prospectus relating to
such Series of Notes and the Underwriters sold Notes of such Series to that
person without sending or giving at or prior to the written confirmation of such
sale, a copy of the final Prospectus (as then amended or supplemented) if the
Original Issuer or SLFC has previously furnished sufficient copies thereof to
the Underwriters. The foregoing indemnity agreement shall be in addition to any
liability which the Original Issuer or SLFC may otherwise have.
(b) If any action, suit or proceeding shall be brought against the
Underwriters or any person controlling an Underwriter in respect of which
indemnity may be sought against the Original Issuer or SLFC, the Underwriters or
such controlling person, as the case may be, shall promptly notify the parties
against whom indemnification is being sought (the "indemnifying parties"), and
such indemnifying parties shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. The Underwriters or
any such controlling person, as the case may be, shall have the right to employ
separate counsel in any such action, suit or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Underwriters or such controlling person unless (i) the
indemnifying parties have agreed in writing to pay such fees and expenses, (ii)
the indemnifying parties have failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both the Underwriters or such controlling person and
the indemnifying parties and the Underwriters or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying
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party shall not have the right to assume the defense of such action, suit or
proceeding on behalf of the Underwriters or such controlling person). It is
understood, however, that the indemnifying parties shall, in connection with any
one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for the Underwriters and controlling persons not having
actual or potential differing interests with the Underwriters or among
themselves, which firm shall be designated in writing by Smith Barney Inc., and
that all such fees and expense shall be reimbursed on a monthly basis. The
indemnifying parties shall not be liable for any settlement of any such action,
suit or proceeding effected without their written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless the Underwriters, to the extent provided in paragraph (a), and any
such controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) The Underwriters agree, jointly and severally, to indemnify and hold
harmless the Original Issuer and SLFC and their respective directors and
officers, and any person who controls the Original Issuer and the SLFC within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the indemnity from the Original Issuer and SLFC to the
Underwriters set forth in paragraph (a) hereof, but only with respect to
information relating to the Underwriters furnished in writing by or on behalf of
the Underwriter expressly for use under the caption "Plan of Distribution" in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus or "Blue Sky" applications. If
any action, suit or proceeding shall be brought against the Original Issuer,
SLFC or the Corporation, any of their respective directors or officers, or any
such controlling person based on the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus and
in respect of which indemnity may be sought against the Underwriters pursuant to
this paragraph (c), the Underwriters shall have the rights and duties given to
the Original Issuer and SLFC by paragraph (b) above (except that if the Original
Issuer or SLFC shall have assumed the defense thereof, the Underwriters shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the Underwriters' expense), and the Original Issuer and SLFC, their
respective directors and officers, and any such controlling person shall have
the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing
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indemnity agreement shall be in addition to any liability which the Underwriters
may otherwise have.
(d) If the indemnification provided for in this Section 5 is unavailable
to an indemnified party under paragraphs (a) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Original
Issuer and SLFC on the one hand and the Underwriters on the other hand from the
offering of the Notes, or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Original Issuer and SLFC on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Original Issuer and SLFC 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 of the Notes (before deducting expenses) received by the Original
Issuer SLFC bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the Original Issuer and SLFC on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Original Issuer or SLFC on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Original Issuer, SLFC and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 5 were determined
by a pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 5, the Underwriters
shall not be required to contribute any amount in excess of the amount received
by the Underwriters over the price paid by the Underwriters for the Notes
purchased by them and distributed to the public less the amount of any damages
which the Underwriters have
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otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 5 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Original Issuer, SLFC, the Corporation and
the Underwriters set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Underwriters, Original Issuer, SLFC or the Corporation or any person
controlling any of them or their respective directors or officers, (ii)
acceptance of any Notes and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to the Underwriters, the Original
Issuer, SLFC or the Corporation or any person controlling any of them or their
respective directors or officers, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
5.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters to purchase the Notes hereunder are subject to the following
conditions:
(a) All actions required to be taken and all filings required to be made
by the Original Issuer, SLFC or the Corporation under the Securities Act and the
Trust Indenture Act prior to the sale of the Notes shall have been duly taken or
made. At and prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the sale of the Notes or the
qualification of the Indenture shall have been issued and no proceedings for
that purpose shall have been instituted or, to the knowledge of the Original
Issuer, SLFC, the Corporation or the Underwriters, shall be contemplated by the
Commission or any Blue Sky Authorities.
(b) Any requests to the Commission for inclusion of additional or
supplemental information in the Registration Statement or the Prospectus shall
have been complied with by the Original Issuer and the Corporation to your
reasonable satisfaction.
(c) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting the condition (financial or other) or net worth of the Original
Issuer, SLFC or
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the Corporation not contemplated by the Registration Statement, which in the
opinion of the Underwriters, would materially adversely affect the market for
the Notes, or (ii) any event or development which makes any statement made in
the Registration Statement or Prospectus untrue or which, in the opinion of the
Original Issuer and its counsel, the Corporation and its counsel or the
Underwriters and their counsel, requires the filing of any amendment to or
change in the Registration Statement or Prospectus in order to state a material
fact required by any law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the Registration
Statement or Prospectus to reflect such event or development would, in the
opinion of the Underwriters, materially adversely affect the market for the
Notes.
(d) At the time of the Closing, (i) the Notes, each of the Basic
Documents, the Original Issuer's Program Agreements, the Trustee's Program
Agreements and this Agreement shall have been duly authorized, executed and
delivered, and in full force and effect, and, in the case of the Notes,
authenticated; (ii) the Original Issuer's Authorizing Resolutions, SLFC's
Authorizing Resolution, the Corporation's Authorizing Resolution and the
Issuer's Plan shall have been duly adopted by the Original Issuer, SLFC and the
Corporation, as applicable, and shall be in full force and effect; (iii) the
State Request, the Plan Approval, the TEFRA Approval, the Volume Cap Documents,
and the contracts between the United States Secretary of Education and each of
the Guarantee Agencies shall be duly authorized, executed and delivered and in
full force and effect; (iv) the documents referred to in clauses (i) through
(iii) above shall be in forms satisfactory to the Underwriters and shall not
have been amended, modified or supplemented from the respective forms heretofore
delivered to the Underwriters, except as may have been agreed to in writing by
Smith Barney Inc., and the Original Issuer, SLFC and the Corporation shall have
duly adopted and there shall be in full force and effect such additional
resolutions and agreements, as shall, in the opinion of Dorsey & Whitney LLP,
Minneapolis, Minnesota, be necessary in connection with the transactions
contemplated hereby; and (v) the Original Issuer, SLFC, the Corporation, the
Trustee, the Auction Agent, the Investment Agreement Provider and the Guarantee
Agencies shall perform or have performed all their respective obligations
required under or specified in this Agreement, the Basic Documents, the
Investment Agreement, the Original Issuer's Authorizing Resolutions, SLFC's
Authorizing Resolution, the Corporation's Authorizing Resolution, the Original
Issuer's Program Agreements, the Issuer's Plan, the Plan Approval, the TEFRA
Approval and the Volume Cap Documents to be performed simultaneously with or
prior to Closing.
(e) The Underwriters shall have received on the Closing Date an opinion of
Dorsey & Whitney LLP, Special Counsel to the Original Issuer, SLFC and the
Corporation, dated the Closing Date
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and addressed to the Underwriters, in form and scope satisfactory to the
Underwriters and their counsel.
(f) The Underwriters shall have received on the Closing Date the approving
opinion of Dorsey & Whitney LLP, Bond Counsel, dated the Closing Date and in
form and scope satisfactory to the Underwriters and their counsel, and a letter
addressed to the Underwriters to the effect that the Underwriters may rely on
such opinion and consenting to the references to it in the Prospectus.
(g) The Underwriters shall have received on the Closing Date an opinion of
Rollyn H. Samp, counsel for the Original Issuer, and Rock & Leitz, P.C., Special
Counsel to the Original Issuer, each dated the Closing Date and addressed to the
Underwriters, in form and scope satisfactory to the Underwriters and their
counsel.
(h) The Underwriters shall have received on the Closing Date an opinion of
Davenport, Evans, Hurwitz & Smith, counsel for the Trustee, dated the Closing
Date and addressed to the Underwriters, in form and scope satisfactory to the
Underwriters and their counsel.
(i) The Underwriters shall have received on the Closing Date an opinion of
counsel for the Auction Agent, dated the Closing Date and addressed to the
Underwriters, in form and scope satisfactory to the Underwriters and their
counsel.
(j) The Underwriters shall have received on the Closing Date opinions of
counsel for the Investment Agreement Providers, dated the Closing Date and
addressed to the Underwriters, in form and scope satisfactory to the
Underwriters and their counsel.
(k) The Underwriters shall have received on the Closing Date opinions of
counsel for EAC and PHEAA, each dated the Closing Date and addressed to the
Underwriters, in form and scope satisfactory to the Underwriters and their
counsel.
(l) The Underwriters shall have received on the Closing Date an opinion or
opinions of Foley & Lardner, counsel for the Underwriters, dated the Closing
Date, and addressed to the Underwriters, in form and scope satisfactory to the
Underwriters.
(m) The Underwriters shall have received on the Closing Date from Eide,
Helmeke PLLP, certified public accountants, a agreed-upon procedures letter
dated the Closing Date, and in form and substance satisfactory to the
Underwriters, to the effect that they have carried out certain specified
procedures, not constituting an audit, with respect to certain financial
information pertaining to the Original Issuer and to the Financed Student Loans
and setting forth the results of such specified procedures.
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(n) All the representations and warranties of the Original Issuer, SLFC and
the Corporation contained in this Agreement and the Basic Documents shall be
true and correct in all material respects on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date.
(o) The Original Issuer, SLFC and the Corporation each shall have performed
or complied with any of its agreements herein contained and required to be
performed or complied with by it hereunder at or prior to the Closing Date.
(p) The Underwriters shall have received by instrument dated the Closing
Date (at the option of the Underwriters), in addition to the opinions referred
to in clauses (d) through (k) of this Section 6, the right to rely on opinions
provided by such counsel and all other counsel under the terms of the Basic
Documents or to Moody's and Fitch.
(q) The Underwriters shall have received evidence satisfactory to them that
Moody's and Fitch have rated (i) each Series of Notes, other than the Series
1997-1K and Series 1997-1L Notes, "Aaa" and "AAA", respectively, and (ii) the
Series 1997-1K and Series 1997-1L Notes, "A3" and "A", respectively, and there
has not been any announcement by Moody's or Fitch that (Y) it is downgrading any
of its ratings assigned to the Notes or (Z) it is reviewing its ratings assigned
to the Notes with a view to possible downgrading, or with negative implications,
or direction not determined.
(r) The Underwriters shall have received a certificate of the President of
the Original Issuer, SLFC and the Corporation, as applicable, affirming the
matters specified in Sections 6(n) through (q) and such other matters as the
Underwriters may reasonably request.
(s) The Underwriters shall have received (i) a certificate or certificates
from the Secretary or Assistant Secretary of each of the Original Issuer, SLFC
and the Corporation certifying and attaching copies of (A) organizational
documents, (B) resolutions authorizing this Agreement, the Basic Documents, the
Original Issuer's Program Agreements and the transactions contemplated hereby
and thereby, (C) all written communications, and any memoranda relating to
conversations between such entity, its officers and employees or, to its
knowledge, its counsel, accountants or other representatives, on the one hand,
and the Commission or its staff, on the other hand, relating to the Registration
Statement and certifying the incumbency and signature of the officers executing
this Agreement and the Basic Documents; and (ii) certificates of legal existence
and good standing with respect to Original Issuer and SLFC from the Secretary of
State of the State of South Dakota and with respect to the Corporation from the
Secretary of State of the State of Delaware, dated as of the
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Closing Date or such earlier date within two weeks of the Closing Date.
(t) The Underwriters shall have received a certificate of the Trustee,
signed by an officer of the Trustee, dated the Closing Date, (i) to the effect
that the Trustee received each of the items enumerated in Section 3.2 of the
Indenture; (ii) containing permission to include the information concerning the
Trustee in the Preliminary Prospectus and the Prospectus; (iii) representing
that (A) the Indenture, the Supplemental Indenture, the Servicing Agreement, the
Assumption Agreement, the Trustee's Program Agreements, the Investment Agreement
and the Auction Agent Agreement have been duly authorized, executed and
delivered on behalf of the Trustee and are in full force and effect, (B) such
agreements may be used in connection with the public offering of the Notes, (C)
the Trustee is an "eligible lender" under the Higher Education Act of 1965, as
amended, (D) no litigation is pending or, to his or her knowledge, threatened in
any court to restrain or enjoin the issuance or delivery of any of the Notes, or
the collection of revenues pledged or to be pledged to pay the principal of, and
interest on, the Notes, or in any way contesting or affecting the validity or
enforceability of the Notes, the Indenture, the Supplemental Indenture, the
Letter of Representations, the Auction Agent Agreements, the Investment
Agreement, the Assumption Agreement, the Trustee's Program Agreements, or the
collection of said revenues or the pledge thereof, (E) there is no litigation
pending or to his or her knowledge threatened against the Trustee, or involving
any of the property or assets under the control of the Trustee, which involves
the possibility of any judgment or liability which may materially adversely
affect the security for the Notes or materially adversely affect the Trustee or
the Program (but in lieu of such certificate the Underwriters may in their sole
discretion accept an opinion of the Trustee's counsel as to the matters referred
to above, acceptable to the Underwriters in form and substance, that in their
opinion the issues raised in any such pending or threatened litigation are
without substance or that the contentions of the plaintiffs therein are without
merit), (F) he or she has carefully examined the Prospectus with respect to
references to the Trustee and that, in his or her opinion, with respect to
references to the Trustee, as of the date of the Prospectus and at all times
subsequent through and including the Closing Date, the Prospectus did not and
does 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;
(u) The Underwriters shall have received a certified copy of the Internal
Revenue Service's determination letter to the effect that the Original Issuer is
a corporation described in Section 501(c)(3) of the Internal Revenue Code of
1954, as amended (the "1954 Code"), and is exempt from federal income tax under
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Section 501(a) of the 1954 Code, as modified by the Internal Revenue Service's
determination letter, dated June 8, 1984, to the effect that the Issuer is not a
private foundation within the meaning of Section 509(a) of the 1954 Code,
certified as of the Closing Date by the Secretary of the Original Issuer to be
true and correct copies thereof and in full force and effect.
(v) The Underwriters shall have received certified copies of the State
Request, the Basic Documents, the Original Issuer's Authorizing Resolutions,
SLFC's Authorizing Resolution, the Corporation's Authorizing Resolution, the
Original Issuer's Program Agreements, the Issuer's Plan, the Plan Approval, the
Volume Cap Documents, and the TEFRA Approval (together with affidavits of
publication of notice of the Public Hearing and certified copies of any reports
or records of the proceedings of the Public Hearing), in each case certified as
of the Closing Date by the Original Issuer's Secretary to be a true and correct
copy thereof and in full force and effect.
(w) The Underwriters shall have received certified copies of the Trustee's
Program Agreements and the Investment Agreement, in each case certified as of
the Closing Date by a duly authorized officer of the Trustee to be a true and
correct copy thereof and in full force and effect, and certified copies of the
Broker-Dealer Agreements, in each case certified as of the Closing Date by a
duly authorized officer of the Broker-Dealer to be a true and correct copy
thereof and in full force and effect.
(x) The Underwriters shall have received such additional certificates,
instruments and other documents as shall be requested by the Underwriters,
including, without limitation, from the Original Issuer, SLFC, the Corporation,
the Trustee, the Auction Agent, the Investment Agreement Provider, EAC and
PHEAA.
All opinions, certificates, letters and other documents referred in this
Section 6 will be in compliance with the provisions hereof only if they are
reasonably satisfactory in form and substance to the Underwriters and counsel
for the Underwriters.
Any certificate or document signed by any officer of the Original Issuer,
SLFC or the Corporation and delivered to the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Original
Issuer, SLFC or the Corporation, respectively, to the Underwriters as to the
statements made therein.
If these conditions are not satisfied, or if the obligations of the
Underwriters shall be terminated for any reason permitted by this Agreement,
this Agreement shall terminate and neither the Underwriters nor the Original
Issuer, SLFC or the Corporation shall be under further obligation hereunder,
except that the respective obligations of the Original Issuer and SLFC and
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<PAGE>
the Underwriters for the payment of expenses, as provided in Section 7 hereof,
shall continue in full force and effect.
7. Expenses. The Original Issuer and SLFC, jointly and severally, agree
to pay or to otherwise cause the payment of the following costs and expenses and
all other costs and expenses incident to the performance by them and Original
Issuer of their respective obligations hereunder: (i) the preparation, printing
or reproduction of any Registration Statement and each amendment or supplement
thereto and each other Basic Document; (ii) the preparation, printing,
authentication, issuance and delivery of definitive certificates for the Notes;
(iii) the qualification of the Indenture under the Trust Indenture Act; (iv) the
fees and disbursements of (A) Bond Counsel, counsel and Special Counsel for the
Original Issuer, SLFC and the Corporation, (B) the Trustee and its counsel, (C)
the Auction Agent and its counsel, (D) EAC, PHEAA and their respective counsel,
(E) the Investment Agreement Provider and its counsel, (F) the Depository Trust
Company in connection with the book-entry registration of the Notes and (G)
Eide, Helmeke PLLP, accountants for the Original Issuer, SLFC and the
Corporation and issuer of the specified procedures letter referenced in Section
6(m) hereof; (v) the fees charged by Moody's and Fitch for rating the Notes;
(vi) the Blue Sky filing fees and expenses; and (vii) the cost of any
advertising expenses requested or undertaken by the Original Issuer, SLFC or the
Corporation and incurred in connection with the public offering of the Notes.
The Underwriters shall be under no obligation to pay any expense incident to the
performance of the obligations of the Original Issuer, SLFC or the Corporation
hereunder.
The Underwriters shall pay the cost of preparation, reproduction and
distribution of the Preliminary Prospectus and the final Prospectus distributed
to investors (excluding any amendments or supplements thereto) and this
Agreement and all other expenses incurred by it in connection with its public
offering and distribution of the Notes, including the cost of preparing,
printing and delivering the Preliminary Blue Sky Memorandum and all other
underwriting documents and the fees and disbursements of their counsel.
8. Effective Date of Agreement. This Agreement shall become effective
upon the execution and delivery hereof by all the parties hereto.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in the Agreement or
contained in certificates of officers of the Original Issuer, SFLC or the
Corporation submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the
Underwriters or any officer, director, or controlling person of the
Underwriters, or by or on behalf of the Original Issuer, SFLC or
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<PAGE>
the Corporation, and shall survive delivery of the Notes to the Underwriters.
The expense payment provisions set forth in Sections 4(h) and 7 hereof and the
indemnification and contribution provisions in Section 5 hereof also shall
survive delivery of the Notes to the Underwriters and any termination or
cancellation of this Agreement.
10. Termination of Agreement. This Agreement shall be subject to
termination in the absolute discretion of the Underwriters, without liability on
the part of the Underwriters to the Original Issuer, SLFC or the Corporation, by
notice to the Original Issuer, SLFC and the Corporation, if on or prior to the
Closing Date (i) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited; (ii) a general moratorium on commercial banking
activities in New York, Delaware or South Dakota shall have been declared by
either federal or state authorities; (iii) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Underwriters, impracticable or inadvisable to
commence or continue the offering of the Notes on the terms set forth in the
Prospectus or to enforce contracts for the resale of the Notes by the
Underwriters; (iv) legislation shall be introduced in or enacted by the Congress
of the United States or adopted by either the House of Representatives or the
Senate or approved by a Committee thereof, or a decision by a court of the
United States or the Tax Court of the United States shall be rendered, or a
ruling, regulation, proposed regulation or official statement by or on behalf of
the Treasury Department of the United States, the Internal Revenue Service or
any other governmental agency shall be made, an announcement by a member of
Congress shall be made relating to legislation which has been introduced or
which is proposed to be introduced, or any other event shall occur, with respect
to federal taxation upon revenues or other income of the general character
expected to be pledged under the Indenture or upon interest received on
securities of the general character of the Notes, or which would have the effect
of changing, directly or indirectly, the federal income tax consequences of
interest on securities of the general character of the Notes in the hands of the
holders thereof, which in the opinion of the Underwriters materially and
adversely affects the market price of the Notes; (v) legislation shall be
enacted by the States of South Dakota or Delaware, or a decision by a court of
competent jurisdiction of the States of South Dakota or Delaware or any
administrative tribunal of the States of South Dakota or Delaware or other
governmental agency or department thereof shall be rendered with respect to
taxation by the States of South Dakota or Delaware or any of their respective
political subdivisions upon revenues or other income of the general character
expected to be pledged under the Indenture or upon
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interest received on securities of the general character of the Notes, or which
would have the effect the changing, directly or indirectly, the tax consequences
under the States of South Dakota or Delaware tax laws of interest on securities
of the general character of the Notes in the hands of the holders thereof, which
in the opinion of the Underwriters materially affects the market price of the
Notes; (vi) additional material restrictions not in force as of the date hereof
shall have been imposed upon trading in securities of the general character of
the Notes by any governmental authority or by any national securities exchange;
(vii) a default shall have occurred in the payment of principal or interest on
outstanding obligations of the Original Issuer, SLFC or the Corporation, the
State of South Dakota, or any agency or authority thereof, which in the opinion
of the Underwriters materially and adversely affects the market for the Notes;
(vii) any rating of the Notes shall have been changed or withdrawn by Moody's or
Fitch, or Moody's or Fitch shall have announced that it is considering a change
or withdrawal of such rating and such action, in the opinion of the
Underwriters, shall materially and adversely affect the market for the Notes; or
(viii) the Plan Approval shall have been changed, revoked or suspended and such
action, in the opinion of the Underwriters, shall materially and adversely
affect the market for the Notes. Notice of such termination may be given to the
Original Issuer, SLFC and the Corporation, by telegram, telecopy or telephone
and shall be subsequently confirmed by letter.
11. Information Furnished by the Underwriter. The statements set forth
under the heading "Plan of Distribution" in the Prospectus constitute the only
information furnished by or on behalf of the Underwriter as such information is
referred to in Sections 3(b) and 5 hereof.
12. Liability of Underwriters. Except as limited by law or regulation of
the United States Comptroller of the Currency as to commercial banks' legal
capacity to underwrite, the obligation of each particular Underwriter hereunder
is joint and several. To the extent U.S. Bancorp Investments, Inc. is legally
limited in respect to its underwriting the Notes, its obligation hereunder shall
be deemed to have been initially and for all purposes a several and neither a
joint or joint and several obligation, and to such extent its several obligation
shall be in the proportion which its participation (initially identified in
writing to the Original Issuer, and thereafter as modified from time to time by
the Underwriters) bears to the aggregate principal amount of the Notes;
provided, however, that each Underwriter not so expressly limited shall continue
to have a joint and several obligation to purchase the Notes in accordance with
the terms of this Purchase Contract.
13. Miscellaneous. Except as otherwise provided in Section 4 hereof,
notice given pursuant to any provision of this Agreement shall be in writing and
shall be delivered (i) if to the
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Original Issuer, SLFC or the Corporation, at 105 First Avenue, Southwest,
Aberdeen, South Dakota 57401, Attention: A. Norgrin Sanderson, (ii) if to the
Underwriters, to Smith Barney Inc., 390 Greenwich Street, 2nd Floor, New York,
NY 10013, Attention: Harry T. Apfel.
This Agreement has been and is made solely for the benefit of, and shall be
binding upon, the Underwriters, the Company, SLFC, the Original Issuer, their
respective directors, officers, trustees and controlling persons referred to in
Section 5 hereof and their respective successors and assigns, to the extent
provided herein, and no other person shall acquire or have any right under or by
virtue of this Agreement. Neither the term "successor" nor the term "successors
and assigns" as used in this Agreement shall include a purchaser from the
Underwriters of any of the Notes in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York without giving
effect to the choice of laws or conflict of laws principles thereof.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof or
thereof shall have been executed and delivered on behalf of each party hereto.
The headings of the Sections of this Agreement are inserted for convenience
only and shall not be deemed to be part hereof.
Please confirm that the foregoing correctly sets forth the agreement among
the Original Issuer, SLFC, the Corporation and the Underwriters.
Very truly yours,
EDUCATION LOANS INCORPORATED
(the "Original Issuer")
By_____________________________________
Name:
Title:
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STUDENT LOAN FINANCE CORPORATION
("SLFC")
By___________________________________
Name:
Title:
EDUCATION LOANS INCORPORATED
(the "Corporation")
By___________________________________
Name:
Title:
Confirmed as of the date first
above mentioned.
SMITH BARNEY INC.
U.S. BANCORP INVESTMENTS, INC.
DOUGHERTY SUMMIT SECURITIES LLC
MILLER & SCHROEDER FINANCIAL, INC.
NORWEST INVESTMENT SERVICES, INC.
SALOMON BROTHERS INC
By Smith Barney Inc.
By:_______________________________
Name:
Title:
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<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
Initial Aggregate Underwriting
Series Principal Amount Maturity Date Purchase Price Fee
- --------- ----------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
1997-1A $ 74,900,000 June 1, 2020
1997-1B 50,000,000 June 1, 2020
1997-1C 50,000,000 June 1, 2020
1997-1D 50,000,000 June 1, 2020
1997-1E 50,000,000 June 1, 2020
1997-1F 14,270,000 June 1, 2010
1997-1F 9,785,000 June 1, 2020
1997-1G 53,500,000 June 1, 2020
1997-1H 54,000,000 June 1, 2020
1997-1I 209,000,000 June 1, 2002
1997-1J 215,600,000 June 1, 2020
1997-1K 33,215,000 June 1, 2020
1997-1L 59,200,000 June 1, 2020
</TABLE>
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APPENDIX B
----------
CERTAIN DEFINITIONS
Capitalized terms used but not defined in this Appendix B or elsewhere
in this Agreement have the respective meanings ascribed thereto in the
Supplemental Indenture.
"Basic Documents" means the Indenture, the Supplemental Indenture, the
Contribution Agreement, the Assumption Agreement, the Auction Agent Agreements,
the Broker-Dealer Agreements, the Servicing Agreement and the Letter of
Representations.
"Corporation's Authorizing Resolutions" means the Resolutions of the
Corporation's board of directors, adopting, accepting, ratifying and approving:
1. the Basic Documents;
2. this Agreement, the Investment Agreements, the Preliminary
Prospectus and the Prospectus; and
3. the Loan Purchase Contracts and the forms of Student Loan
Purchase Agreements.
"Original Issuer's Authorizing Resolutions" means the Resolutions of
the Original Issuer's board of directors, adopting, accepting, ratifying and
approving:
1. the Basic Documents;
2. one or more investment agreements (individually and collectively
the "Investment Agreement") between the Trustee and one or more
parties meeting the requirements of the Indenture (individually
and collectively the "Investment Agreement Provider"),
3. the notice and scheduling of the Public Hearing;
4. the Volume Cap Request;
5. this Agreement, the Preliminary Prospectus and the Prospectus;
6. the Loan Purchase Contracts and the forms of Student Loan
Purchase Agreements;
7. the Original Issuer's Program Agreements;
8. the State Request; and
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9. the Issuer's Plan.
"Issuer's Plan" means the Original Issuer's Plan for Doing Business,
dated February 6, 1981, as amended on September 16, 1983, November 18, 1983,
April 22, 1985, January 12, 1987, July 26, 1988, June 6, 1991, June 22, 1993,
May 23, 1996 and October [[__]], 1997 as required by Section 438 of the Higher
Education Act of 1965, as amended (which term shall include the Issuer's
Justifications for the issuance of tax-exempt obligations submitted to the
Department of Education in connection with the Issuer's Series D Student Loan
Revenue Bonds and Series E Student Loan Revenue Bonds).
"Letter of Representations" means, individually and collectively, the
Blanket Issuer Letter of Representations, dated as of July 31, 1997, from the
Original Issuer to The Depository Trust Company ("DTC") and the Blanket Issuer
Letter of Representations, dated as of September 26, 1997, from the Corporation
to DTC, each containing certain representations to induce DTC to accept the
Notes for deposit.
"Loan Purchase Contracts" means, individually and collectively, the
Student Loan Purchase Agreements between the Original Issuer and the eligible
lenders described in Exhibits H-1, H-2, H-3 and H-5 to the Supplemental
Indenture, and the Student Loan Purchase Agreements between the Corporation and
the eligible lenders described in Exhibit H-4 and H-6 to the Supplemental
Indenture.
"Original Issuer's Contract of Insurance" shall mean the Contract of
Insurance for Loans to Students Under Title IV Part B of the Higher Education
Act, dated March 12, 1979, and the Contract of Federal Loan Insurance, dated
January 22, 1981, between the Original Issuer and the Secretary of Education,
and any amendment thereof which is hereafter entered into.
"Original Issuer's Guarantee Agreements" shall mean (1) that certain
Lender Agreement for Guarantee of Student Loans With Federal Reinsurance, dated
December 21, 1992, between the Original Issuer and Education Assistance
Corporation, (2) that certain Lender Agreement for Guarantee of Student Loans
With Federal Reinsurance, dated August 17, 1989, between the Original Issuer and
Pennsylvania Higher Education Assistance Agency, (3) that certain Agreement to
Guarantee Loans, dated October 9, 1986, between the Original Issuer and United
Student Aid Funds, Inc., (4) that certain Lender Participation Agreement for
Insurance, dated August 4, 1987, between the Original Issuer and the North
Dakota Guaranteed Student Loan Program, (5) that certain Lender Agreement for
Guarantee of Student Loans With Federal Reinsurance, dated November 1, 1991,
between the Original Issuer and Northstar Guarantee Inc., (6) that certain
Student Loan Guaranty, dated August 24, 1990, between the Original Issuer and
Great Lakes Higher
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<PAGE>
Education Corporation, (7) that certain Agreement for Payment on Guarantee of
Student Loans With Federal Reinsurance, dated October 6, 1994, between the
Original Issuer and Educational Management Credit Corporation (formerly known as
Transitional Guaranty Agency, Inc.), and (8) any other agreement between a
Guarantee Agency (including, without limitation, Iowa College Aid Commission,
Missouri Coordinating Board for Higher Education and Illinois Student Aid
Commission) and the Original Issuer providing for the insurance or guarantee by
such Guarantee Agency, to the extent provided in the Higher Education Act, of
the principal of and accrued interest on Student Loans made or acquired by the
Original Issuer from time to time, including any supplement thereto or amendment
thereof entered into in accordance with the provisions thereof.
"Original Issuer's Participation Agreement" means the Agreement for
Participation in the Guaranteed Loan Program, dated February 4, 1981, between
the Original Issuer and the United States Secretary of Education.
"Original Issuer's Program Agreements" means the Original Issuer's
Contract of Insurance, the Original Issuer's Participation Agreement, the
Original Issuer's Guarantee Agreements and the Loan Purchase Contracts.
"Plan Approval" means the approval of the Issuer's Plan by the
Governor of the State of South Dakota, dated October [[__,]] 1997 (together with
prior such approvals by the Governor of the State of South Dakota and by the
United States Secretary of Education).
"Public Hearing" means the public hearing held on June 27, 1997
pursuant to Section 147(f) of the Code, relating to the Tax Exempt Series 1997-1
Notes.
"SLFC's Authorizing Resolutions" means the Resolutions of the SLFC's
board of directors, adopting, accepting, ratifying and approving:
1. the Basic Documents;
2. this Agreement, the Preliminary Prospectus and the Prospectus;
and,
3. the Loan Purchase Contracts and the forms of Student Loan
Purchase Agreements.
"State Request" means the letter, dated May 11, 1987, from the
Governor of the State of South Dakota to the Original Issuer.
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"TEFRA Approval" means the Governor's approval of the issuance of the
Notes for the purposes of Section 147(f) of the Code, dated August 26, 1997.
"Trustee's Program Agreements" means the Trustee Contract of Insurance
and the Trustee Guarantee Agreement.
"Volume Cap Documents" means the Volume Cap Request, the executive
orders of the Governor of the State of South Dakota and relevant legislation of
the State of South Dakota legislature providing for a system of allocating the
State's ceiling on private activity bonds, and the allocations to the Original
Issuer, dated December 22, 1993, December 28, 1994, December 29, 1995 and
December 30, 1996 of portions of such State ceiling, and the certifications of
the Governor of the State of South Dakota that the Tax Exempt Series 1997-1
Notes meet the requirements of Section 146 of the Code.
"Volume Cap Request" means the Original Issuer's applications for
allocations of the State of South Dakota's volume cap with respect to private
activity bonds, dated December 21, 1993, December 28, 1994, December 27, 1995
and December 23, 1996 and the Original Issuer's Carryforward Elections of Unused
Private Activity Bond Limitations, dated December 30, 1993, December 30, 1994,
December 29, 1995 and December 30, 1996.
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Draft of 10/16/97
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EXHIBIT 4.1
================================================================================
INDENTURE OF TRUST
between
EDUCATION LOANS INCORPORATED
and
FIRST BANK NATIONAL ASSOCIATION
as Trustee
------------------------------------------------
Dated as of July 1, 1997
------------------------------------------------
================================================================================
<PAGE>
CROSS REFERENCE TABLE
<TABLE>
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<S> <C>
TIA Indenture
Section Section
- ------- ----------
310(a)(1)...................................................... 7.13
(a)(2)...................................................... 7.13
(a)(3)...................................................... 7.12
(a)(4)...................................................... N.A./2/
(a)(5)...................................................... 7.13
(b)......................................................... 7.8; 7.13
(c)......................................................... N.A.
311(a)......................................................... 7.14
(b)......................................................... 7.14
(c)......................................................... N.A.
312(a)......................................................... 12.1
(b)......................................................... 12.2
(c)......................................................... 12.2
313(a)......................................................... 12.4
(b)(1)...................................................... 12.4
(b)(2)...................................................... 12.4
(c)......................................................... 13.4
(d)......................................................... 12.4
314(a)......................................................... 12.3
(b)......................................................... 13.12;13.13
(c)(1)...................................................... 1.4
(c)(2)...................................................... 1.4
(c)(3)...................................................... 1.4
(d)......................................................... 1.4
(e)......................................................... 1.4
(f)......................................................... 1.4
315(a)......................................................... 7.1
(b)......................................................... 7.3; 13.4
(c)......................................................... 7.1
(d)......................................................... 7.1
(e)......................................................... 6.11
316(a)(last sentence).......................................... 1.1
(a)(1)(A)................................................... 6.4
(a)(1)(B)................................................... 6.13
(a)(2)...................................................... N.A.
(b)......................................................... 6.9
(c)......................................................... N.A.
317(a)(1)...................................................... 6.3
(a)(2)...................................................... 6.10
(b)......................................................... 7.17
318(a)......................................................... 13.11
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</TABLE>
1 Note: This Cross Reference Table shall not, for any purpose, be deemed to
be part of this Indenture.
2 N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
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PARTIES........................................................... vii
RECITALS.......................................................... vii
GRANTING CLAUSES.................................................. viii
ARTICLE ONE -- DEFINITIONS AND GENERAL PROVISIONS................. 1-1
Section 1.1. Definitions...................................... 1-1
Section 1.2. Definitions of General Terms..................... 1-29
Section 1.3. Computations..................................... 1-29
Section 1.4. Compliance Certificates and Opinions, etc........ 1-29
Section 1.5. Evidence of Action by the Corporation............ 1-32
Section 1.6. Exclusion of Notes Held By or For the
Corporation...................................... 1-32
Section 1.7. Exhibits......................................... 1-32
Section 1.8. Incorporation by Reference of Trust Indenture Act 1-33
ARTICLE TWO -- NOTE FORMS......................................... 2-1
Section 2.1. Forms Generally................................... 2-1
Section 2.2. Form of Notes..................................... 2-1
ARTICLE THREE -- THE NOTES......................................... 3-1
Section 3.1. General Title..................................... 3-1
Section 3.2. General Limitations; Issuable in Series; Purposes
and Conditions for Issuance; Payment of Principal
and Interest...................................... 3-1
Section 3.3. Terms of Particular Series........................ 3-3
Section 3.4. Form and Denominations............................ 3-4
Section 3.5. Execution, Authentication and Delivery............ 3-4
Section 3.6. Temporary Notes................................... 3-5
Section 3.7. Registration, Transfer and Exchange............... 3-5
Section 3.8. Mutilated, Destroyed, Lost and Stolen Notes....... 3-7
Section 3.9. Interest Rights Preserved; Dating of Notes........ 3-8
Section 3.10. Persons Deemed Holders............................ 3-8
Section 3.11. Cancellation...................................... 3-8
Section 3.12. Class B and Class C Notes......................... 3-8
ARTICLE FOUR -- CREATION OF FUNDS AND ACCOUNTS; CREDITS THERETO
AND PAYMENTS THEREFROM............................ 4-1
Section 4.1. Creation of Funds and Accounts.................... 4-1
Section 4.2. Acquisition Fund.................................. 4-1
Section 4.3. Administration Fund............................... 4-4
</TABLE>
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Section 4.4. Reserve Fund..................................... 4-6
Section 4.5. Rebate Fund...................................... 4-8
Section 4.6. Revenue Fund..................................... 4-13
Section 4.7. Note Fund........................................ 4-15
Section 4.7.1. Interest Account................................. 4-16
Section 4.7.2. Principal Account................................ 4-19
Section 4.7.3. Retirement Account............................... 4-25
Section 4.8. Surplus Fund..................................... 4-26
Section 4.9. Termination...................................... 4-32
Section 4.10. Pledge........................................... 4-33
Section 4.11. Investments...................................... 4-34
Section 4.12. Transfer of Investment Securities................ 4-35
ARTICLE FIVE -- COVENANTS TO SECURE NOTES; REPRESENTATIONS AND
WARRANTIES....................................... 5-1
Section 5.1. Trustee to Hold Financed Student Loans........... 5-1
Section 5.2. Credit Enhancement Facilities, Demand Purchase
Agreements and Swap Agreements................... 5-1
Section 5.3. Enforcement and Amendment of Guarantee
Agreements....................................... 5-2
Section 5.4. Enforcement and Amendment of Certificates
of Insurance and Contract of Insurance........... 5-2
Section 5.5. Acquisition, Collection and Assignment of
Student Loans.................................... 5-2
Section 5.6. Enforcement of Financed Student Loans............ 5-3
Section 5.7. Servicing and Other Agreements................... 5-4
Section 5.8. Administration and Collection of Financed Student
Loans............................................ 5-4
Section 5.9. Books of Account; Annual Audit................... 5-5
Section 5.10. Punctual Payments................................ 5-5
Section 5.11. Further Assurances............................... 5-5
Section 5.12. Protection of Security; Power To Issue Notes
and Pledge Revenues and Other Funds.............. 5-5
Section 5.13. No Encumbrances.................................. 5-6
Section 5.14. Tax Covenant..................................... 5-7
Section 5.15. Limitation on Administrative Expenses and
Note Fees; Reports............................... 5-8
Section 5.16. Continuing Existence; Merger and Consolidation... 5-8
Section 5.17. Fidelity Bonds................................... 5-9
Section 5.18. Amendment of Student Loan Purchase Agreements.... 5-9
Section 5.19. Enforcement and Amendment of Guarantee
Agreements, Certificates of Insurance and
Contract of Insurance............................ 5-9
Section 5.20. Amendment of Remarketing Agreements and
Depositary Agreements............................ 5-10
</TABLE>
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Section 5.21. Additional Covenants of the Corporation After
Section 150(d)(3) Transfer......................... 5-10
Section 5.22. Representations and Warranties of the Corporation.. 5-13
Section 5.23. Trustee to Furnish Monthly Servicing Report........ 5-15
Section 5.24. Use of Trustee Eligible Lender Number.............. 5-15
ARTICLE SIX -- DEFAULTS AND REMEDIES.............................. 6-1
Section 6.1. Events of Default.................................. 6-1
Section 6.2. Acceleration....................................... 6-3
Section 6.3. Other Remedies; Rights of Beneficiaries............ 6-5
Section 6.4. Direction of Proceedings by Acting Beneficiaries
Upon Default....................................... 6-7
Section 6.5. Waiver of Stay or Extension Laws................... 6-7
Section 6.6. Application of Moneys.............................. 6-7
Section 6.7. Remedies Vested in Trustee......................... 6-11
Section 6.8. Limitation on Suits by Beneficiaries............... 6-11
Section 6.9. Unconditional Right of Noteholders To Enforce
Payment............................................ 6-11
Section 6.10. Trustee May File Proofs of Claims.................. 6-12
Section 6.11. Undertaking for Costs.............................. 6-13
Section 6.12. Termination of Proceedings......................... 6-13
Section 6.13. Waiver of Defaults and Events of Default........... 6-13
Section 6.14. Inspection of Books and Records.................... 6-14
ARTICLE SEVEN -- FIDUCIARIES...................................... 7-1
Section 7.1. Acceptance of the Trustee.......................... 7-1
Section 7.2. Fees, Charges and Expenses of the Trustee, Paying
Agents, Note Registrar, Authenticating Agents,
Deposit Agents, Remarketing Agents, Depositaries,
Auction Agents and Broker-Dealers.................. 7-4
Section 7.3. Notice to Beneficiaries if Default Occurs.......... 7-4
Section 7.4. Intervention by Trustee............................ 7-5
Section 7.5. Successor Trustee, Paying Agents, Authenticating
Agents, Deposit Agents and Depositaries............ 7-5
Section 7.6. Resignation by Trustee, Paying Agents,
Authenticating Agents, Deposit Agents
and Depositaries................................... 7-5
Section 7.7. Removal of Trustee................................. 7-6
Section 7.8. Appointment of Successor Trustee................... 7-6
Section 7.9. Concerning any Successor Trustee................... 7-7
Section 7.10. Trustee Protected in Relying Upon Resolutions,
Etc................................................ 7-7
Section 7.11. Successor Trustee as Custodian of Funds............ 7-7
Section 7.12. Co-Trustee......................................... 7-7
Section 7.13. Corporate Trustee Required; Eligibility;
Disqualification................................... 7-9
</TABLE>
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Section 7.14. Preferential Collection of Claims Against
Corporation........................................ 7-10
Section 7.15. Statement by Trustee of Funds and Accounts
and Other Matters.................................. 7-10
Section 7.16. Trustee, Authenticating Agent, Note Registrar,
Paying Agents, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers
May Buy, Hold, Sell or Deal in Notes............... 7-10
Section 7.17. Authenticating Agent and Paying Agents; Paying
Agents To Hold Moneys in Trust..................... 7-11
Section 7.18. Removal of Authenticating Agent and Paying Agents;
Successors......................................... 7-12
Section 7.19. Appointment and Qualifications of Deposit Agents... 7-12
Section 7.20. Appointment and Qualifications of Depositaries..... 7-13
Section 7.21. Remarketing Agents................................. 7-15
Section 7.22. Qualifications of Remarketing Agents............... 7-15
ARTICLE EIGHT -- SUPPLEMENTAL INDENTURES............................ 8-1
Section 8.1. Supplemental Indentures Not Requiring Consent of
Beneficiaries...................................... 8-1
Section 8.2. Supplemental Indentures Requiring Consent of
Beneficiaries...................................... 8-2
Section 8.3. Rights of Trustee.................................. 8-3
Section 8.4. Opinion and Rating Agency Approval Required Prior
to Execution of Supplemental Indenture............. 8-4
Section 8.5. Consent of Depositaries............................ 8-4
Section 8.6. Consent of Remarketing Agents...................... 8-4
Section 8.7. Consent of Auction Agents.......................... 8-4
Section 8.8. Consent of Broker-Dealers.......................... 8-4
Section 8.9. Conformity With Trust Indenture Act................ 8-5
ARTICLE NINE -- NOTEHOLDERS' MEETINGS.............................. 9-1
Section 9.1. Purposes for Which Noteholders' Meetings May Be
Called............................................. 9-1
Section 9.2. Place of Meetings of Noteholders................... 9-1
Section 9.3. Call and Notice of Noteholders' Meetings........... 9-1
Section 9.4. Persons Entitled To Vote at Noteholders' Meetings.. 9-2
Section 9.5. Determination of Voting Rights; Conduct and
Adjournment of Meetings............................ 9-2
Section 9.6. Counting Votes and Recording Action of Meetings.... 9-3
Section 9.7. Revocation by Noteholders.......................... 9-3
ARTICLE TEN -- REDEMPTION AND PREPAYMENT.......................... 10-1
Section 10.1. Right of Redemption and Prepayment................. 10-1
</TABLE>
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Section 10.2. Election to Redeem, Prepay or Purchase;
Notice to Trustee; Senior Asset Requirement...... 10-1
Section 10.3. Selection by Trustee of Notes To Be Redeemed..... 10-2
Section 10.4. Notice of Redemption............................. 10-2
Section 10.5. Notes Payable on Redemption Date and Sinking
Fund Payment Date................................ 10-3
Section 10.6. Notes Redeemed or Prepaid in Part................ 10-4
Section 10.7. Purchase of Notes................................ 10-4
ARTICLE ELEVEN -- DEFEASANCE; MONEYS HELD FOR PAYMENT
OF DEFEASED NOTES................................ 11-1
Section 11.1. Discharge of Liens and Pledges; Notes No Longer
Outstanding and Deemed To Be Paid Hereunder...... 11-1
Section 11.2. Notes Not Presented for Payment When Due;
Moneys Held for the Notes after Due Date
of Notes......................................... 11-3
ARTICLE TWELVE -- NOTEHOLDERS' LISTS AND REPORTS................... 12-1
Section 12.1. Note Registrar To Furnish Trustee Names
and Addresses to Noteholders..................... 12-1
Section 12.2. Preservation of Information; Communications
to Noteholders................................... 12-1
Section 12.3. Reports by Corporation........................... 12-1
Section 12.4. Reports by Trustee............................... 12-2
ARTICLE THIRTEEN -- MISCELLANEOUS.................................. 13-1
Section 13.1. Consent, Etc., of Noteholders.................... 13-1
Section 13.2. Limitation of Rights............................. 13-1
Section 13.3. Severability..................................... 13-1
Section 13.4. Notices.......................................... 13-2
Section 13.5. Counterparts..................................... 13-3
Section 13.6. Indenture Constitutes a Security Agreement....... 13-3
Section 13.7. Payments Due on Non-Business Days................ 13-3
Section 13.8. Notices to Rating Agencies....................... 13-3
Section 13.9. Governing Law.................................... 13-3
Section 13.10. Rights of Other Beneficiaries.................... 13-3
Section 13.11. Conflict with Trust Indenture Act................ 13-3
Section 13.12. Opinions as to Trust Estate...................... 13-4
Section 13.13. Recording of Indenture........................... 13-4
Section 13.14. No Petition...................................... 13-5
Section 13.15. Income Tax Characterization...................... 13-5
SIGNATURES........................................................... 13-6
EXHIBIT A Eligible Loan Acquisition Certificate............ A-1
EXHIBIT B Eligible Loan Origination Certificate............ B-1
</TABLE>
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EXHIBIT C Student Loan Acquisition Certificate............. C-1
EXHIBIT D Form of Updating Eligible Loan Acquisition
Certificate...................................... D-1
</TABLE>
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THIS INDENTURE OF TRUST, dated as of July 1, 1997, between EDUCATION
LOANS INCORPORATED, a nonprofit corporation duly organized and existing under
the laws of the State of South Dakota (herein called the "Corporation"), and
FIRST BANK NATIONAL ASSOCIATION, a national banking association duly
established, existing and authorized to accept and execute trusts of the
character herein set out under and by virtue of the laws of the United States
(herein called the "Trustee");
RECITALS OF THE CORPORATION
WHEREAS, the Trustee has entered into certain contracts and
agreements, herein identified, with the Secretary of Education (hereinafter,
together with the former United States Commissioner of Education, referred to
as the "Secretary of Education") and each Guarantee Agency (as hereinafter
defined), to provide an insurance or guarantee program for student loans
incurred under the Higher Education Act of 1965, as amended, and the
regulations promulgated by the United States Department of Education thereunder
(hereinafter referred to as the "Higher Education Act"), that the Trustee on
behalf of the Corporation may acquire with the proceeds of the sale of the
Corporation's bonds, notes or other obligations, and it is contemplated that
the Trustee may in the future enter into comparable agreements with other
Guarantee Agencies; and
WHEREAS, each Guarantee Agency has entered into agreements with the
Secretary of Education for the payment by the Secretary of Education of amounts
authorized to be paid pursuant to the Higher Education Act, including
reimbursement of certain amounts to be paid upon certain defaulted student
loans guaranteed or insured by such Guarantee Agency, and interest subsidy
payments and Special Allowance Payments to holders of loans guaranteed or
insured by such Guarantee Agency, and it is contemplated that any other
Guarantee Agency as described in the preceding paragraph will enter into
comparable agreements; and
WHEREAS, the Corporation has duly authorized the execution and
delivery of this Indenture to provide for the issuance of its Notes, to be
issued in one or more series (hereinafter referred to as the "Notes") and for
the purposes as in this Indenture provided; and
WHEREAS, all things necessary to make the Notes, when executed by the
Corporation and authenticated and delivered by the Trustee hereunder, the valid
obligations of the Corporation, and to make this Indenture a valid agreement of
the Corporation in accordance with their and its terms, have been done;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
The Corporation, in consideration of the premises and the acceptance
by the Trustee of the trusts hereby created and of the purchase and acceptance
of the Notes by the Holders thereof, the execution and delivery of any Swap
Agreement (as
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hereinafter defined) by any Swap Counterparty (as hereinafter
defined), the execution and delivery of any Credit Enhancement Facility (as
hereinafter defined) by any Credit Facility Provider (as hereinafter defined),
the execution and delivery of any Demand Purchase Agreement (as hereinafter
defined) by any Credit Facility Provider, and the acknowledgment thereof by the
Trustee, in order to secure the payment of the principal of, premium, if any,
and interest on and any Carry-Over Amounts (and accrued interest thereon) with
respect to the Notes according to their tenor and effect and the performance
and observance by the Corporation of all the covenants expressed or implied
herein and in the Notes and in any such Swap Agreement, Credit Enhancement
Facility or Demand Purchase Agreement, does hereby grant to the Trustee,
and to its successors in trust, and to them and their assigns, forever, a
security interest in the following:
GRANTING CLAUSE FIRST
All rights, title, interest and privileges of the Corporation (1)
with respect to Financed Student Loans, in, to and under the Contract of
Insurance, the Federal Reimbursement Contracts, the Certificate of Insurance,
any Servicing Agreement, the Student Loan Purchase Agreements (including, but
not limited to, those agreements described in Exhibits H-1 through H-6 to the
First Supplemental Indenture), any Non-Delivery Fees and the Guarantee
Agreements, (2) in, to and under all Financed Student Loans (including the
evidences of indebtedness thereof and related documentation), the proceeds
of the sale of the Notes (until expended for the purpose for which the Notes
were issued) and the revenues, moneys, evidences of indebtedness and securities
(including any earnings thereon) in and payable into the Acquisition Fund,
Note Fund, Revenue Fund, Reserve Fund, Administration Fund, Rebate Fund
and Surplus Fund, in the manner and subject to the prior applications provided
in Article Four hereof, and (3) in, to and under any Credit Enhancement
Facility, any Demand Purchase Agreement, any Swap Agreement, any Swap
Counterparty Guarantee, any Depositary Agreement, any Remarketing Agreement, any
Auction Agent Agreement and any Broker-Dealer Agreement, all as hereinbefore
and hereinafter defined, including any contract or any evidence of indebtedness
or other rights of the Corporation to receive any of the same whether now
existing or hereafter coming into existence, and whether now or hereafter
acquired;
GRANTING CLAUSE SECOND
All proceeds from any property described in these Granting Clauses
and any and all other property of every name and nature from time to time
hereafter by delivery or by writing of any kind conveyed, pledged, assigned or
transferred, as and for additional security hereunder by the Corporation or by
anyone in its behalf or with its written consent to the Trustee, which is
hereby authorized to receive any and all such property at any and all times
and to hold and apply the same subject to the terms hereof;
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TO HAVE AND TO HOLD all the same with all privileges and appurtenances
hereby conveyed and assigned, or agreed or intended so to be, to the Trustee and
its successors in said trust and to them and their assigns forever;
IN TRUST NEVERTHELESS, upon the terms and trust herein set forth (i)
for the equal and proportionate benefit, security and protection of all present
and future Senior Beneficiaries (as hereinafter defined), without privilege,
priority or distinction as to lien or otherwise of any of the Senior
Beneficiaries over any of the other, (ii) for the equal and proportionate
benefit, security and protection of all present and future Subordinate
Beneficiaries (as hereinafter defined), without privilege, priority or
distinction as to the lien or otherwise of any of the Subordinate Beneficiaries
over any of the other, but on a basis subordinate to the Senior Beneficiaries on
the terms described herein, and (iii) for the equal and proportionate benefit,
security and protection of all present and future Holders of Class C Notes (as
hereinafter defined), but on a basis subordinate to the Senior Beneficiaries and
the Subordinate Beneficiaries on the terms described herein;
PROVIDED, HOWEVER, that if the Corporation, its successors or assigns,
shall well and truly pay, or cause to be paid, the principal of and premium, if
any, on the Notes and the interest and any Carry-Over Amounts (and accrued
interest thereon) with respect thereto due and to become due thereon, or provide
fully for payment thereof as herein provided, at the times and in the manner
mentioned in the Notes, according to the true intent and meaning thereof, and
shall make the payments into the Trust Funds as required under Article Four
hereof, or shall provide, as permitted hereby, for the payment thereof by
depositing with the Trustee sums sufficient for payment of the entire amount due
and to become due thereon as herein provided, and shall well and truly keep,
perform and observe all the covenants and conditions pursuant to the terms of
this Indenture to be kept, performed and observed by it, and shall pay to the
Trustee, any Swap Counterparty and any Credit Facility Provider all sums of
money due or to become due to them in accordance with the terms and provisions
hereof, then (except as provided in Sections 4.5 and 5.14 hereof or otherwise
provided in a Supplemental Indenture) this Indenture and the rights hereby
granted shall cease, terminate and be void; otherwise, this Indenture shall be
and remain in full force and effect.
NOW, THEREFORE, it is mutually covenanted and agreed for the benefit
of all Holders of the Notes and for the benefit of any Swap Counterparty and any
Credit Facility Provider, as follows:
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ARTICLE ONE
DEFINITIONS AND GENERAL PROVISIONS
Section 1.1. Definitions. In this Indenture the following terms have
the following respective meanings unless the context hereof clearly requires
otherwise:
"Account" shall mean any of the Accounts created or established by
this Indenture.
"Accountant" shall mean Eide Helmeke PLLP, Certified Public
Accountants, Aberdeen, South Dakota, any other registered or certified public
accountant or firm of such accountants duly licensed to practice and practicing
as such under the laws of the State, selected and paid by the Corporation, who
is Independent and not under the domination of the Corporation, but who may be
regularly retained to make annual or similar audits of the books or records of
the Corporation.
"Acquisition Fund" shall mean the Acquisition Fund created and
established by Section 4.1 hereof.
"Acting Beneficiaries Upon Default" shall mean, as such term is used
in Article Six hereof:
(a) at any time that any Senior Obligations are Outstanding,
(i) for purposes of clause (i) of Section 6.2(A) hereof, (x) the
Holders of a majority in aggregate Principal Amount of Class A Notes
Outstanding or (y) (unless the Trustee shall, in its sole discretion,
determine that acceleration of the maturity of the Outstanding Notes is not
in the overall interest of the Senior Beneficiaries) any Other Senior
Beneficiary,
(ii) for purposes of clause (ii) of Section 6.2(A) hereof, (x) the
Holders of one hundred percent (100%) in aggregate Principal Amount of
Class A Notes Outstanding, or (y) (unless the Trustee shall, in its sole
discretion, determine that acceleration of the maturity of the Outstanding
Notes is not in the overall interest of the Senior Beneficiaries) all Other
Senior Beneficiaries,
(iii) for purposes of Sections 6.2(B), 6.3, 6.4 and 6.13 hereof, (x)
the Holders of a majority in aggregate Principal Amount of the Class A
Notes Outstanding, unless the Trustee shall have received or shall
thereafter receive conflicting requests or directions from one or more
Other Senior Beneficiaries; or (y) any Other Senior Beneficiary, unless
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<PAGE>
the trustee shall, in its sole discretion, determine that the requesting
action is not in the overall interest of the Senior Beneficiaries or shall
have received or shall thereafter receive conflicting requests or
directions from one or more Other Senior Beneficiaries or the Holders of
a majority in aggregate Principal Amount of the Class A Notes Outstanding;
and
(iv) for all other purposes hereunder, the Holders of a majority in
aggregate Principal Amount of Class A Notes Outstanding or any Other Senior
Beneficiary;
(b) at any time that no Senior Obligations are Outstanding but
Subordinate Obligations are Outstanding,
(i) for purposes of clause (i) of Section 6.2(A) hereof, (x) the
Holders of a majority in aggregate Principal Amount of Class B Notes
Outstanding or (y) (unless the Trustee shall, in its sole discretion,
determine that acceleration of the maturity of the Outstanding Notes is
not in the overall interest of the Subordinate Beneficiaries) any Other
Subordinate Beneficiary,
(ii) for purposes of clause (ii) of Section 6.2(A) hereof, (x) the
Holders of one hundred percent (100%) in aggregate Principal Amount of
Class B Notes Outstanding or (y) (unless the Trustee shall, in its sole
discretion, determine that acceleration of the maturity of the Outstanding
Notes is not in the overall interest of the Subordinate Beneficiaries) all
Other Subordinate Beneficiaries,
(iii) for purposes of Sections 6.2(B), 6.3, 6.4 and 6.13 hereof, (x)
the Holders of a majority in aggregate Principal Amount of the Class B
Notes Outstanding, unless the Trustee shall have received or shall
thereafter receive conflicting requests or directions from one or more
Other Subordinate Beneficiaries, or (y) any Other Subordinate
Beneficiaries, unless the Trustee shall, in its sole discretion, determine
that the requested action is not in the overall interest of the Subordinate
Beneficiaries or shall have received or shall thereafter receive
conflicting requests or directions from one or more Other Subordinate
Beneficiaries or the Holders of a majority in aggregate Principal Amount
of the Class B Notes Outstanding; and
(iv) for all other purposes hereunder, the Holders of a majority in
aggregate Principal Amount of Class B Notes Outstanding or any Other
Subordinate Beneficiary; and
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<PAGE>
(c) at any time that no Senior Obligations are Outstanding and no
Subordinate Obligations are Outstanding, for all purposes hereunder, the Holders
of a majority in aggregate Principal Amount of Class C Notes Outstanding.
"Administration Fund" shall mean the Administration Fund created and
established by Section 4.1 hereof.
"Administrative Expenses" shall mean the Corporation's actual
expenses, excluding Note Fees but including Servicing Fees and any other
expenses of the Corporation incurred in connection with the servicing of
Financed Student Loans, of carrying out and administering its powers, duties and
functions under (1) its articles of incorporation, its bylaws, the Student Loan
Purchase Agreements, any Servicing Agreement, the Contract of Insurance, the
Guarantee Agreements, any Certificate of Insurance, the Program, the Higher
Education Act or any requirement of the laws of the United States or the
Statutes with respect to the Program, as such powers, duties and functions
relate to Financed Student Loans, (2) any Swap Agreement, Credit Enhancement
Facility or Demand Purchase Agreement (other than amounts payable thereunder
which constitute Other Obligations), (3) any Remarketing Agreement, Depositary
Agreement, Auction Agent Agreement or Broker-Dealer Agreement, and (4) this
Indenture. Such expenses may include, without limiting the generality of the
foregoing, salaries, supplies, utilities, mailing, labor, materials, office
rent, maintenance, furnishings, equipment, machinery, telephones, travel
expenses, insurance premiums, and legal, accounting, management, consulting and
banking services and expenses, and payments for pension, retirement, health and
hospitalization and life and disability insurance benefits; but shall not
include (i) debt service on the Notes or any other bonds, notes or other
evidences of indebtedness of the Corporation, (ii) amounts payable under any
Other Obligation or (iii) Costs of Issuance or the fees, costs or expenses of
the Corporation with respect to any other bonds, notes or indebtedness of the
Corporation.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
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.
"Aggregate Value" means on any calculation date the sum of the Values
of all assets of the Trust Estate, less moneys in any Fund or Account which the
Corporation is then entitled to receive for deposit into the Rebate Fund but has
not yet removed from the Trust Estate, and less any funds to be used to pay
Costs of Issuance unless, under the provisions of a Supplemental Indenture, such
funds are not to be applied to the payment of Costs of Issuance to the extent
the Senior Asset Requirement would not be met after such payment.
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"Arbitrage Regulations" shall mean the Treasury Regulations pertaining
to Section 148 of the Code, now or hereafter promulgated, including Treasury
Regulations, Sections 1.148-0 through 1.148-11 and 1.150-1.
"Auction Agent" shall mean, with respect to any series of Notes, any
bank, national banking association or trust company designated as such with
respect to such Notes pursuant to the provisions of a Supplemental Indenture,
and its successor or successors, and any bank, national banking association or
trust company at any time substituted in its place pursuant to such Supplemental
Indenture.
"Auction Agent Agreement" shall mean, with respect to any series of
Notes, an agreement among an Auction Agent, the Trustee and the Corporation
setting forth the rights and obligations of the Auction Agent acting in such
capacity with respect to such Notes under this Indenture and the related
Supplemental Indenture, including any supplement thereto or amendment thereof
entered into in accordance with the provisions thereof.
"Authenticating Agent," when used with respect to a series of Notes,
shall mean a bank or trust company appointed for the purpose of receiving,
authenticating and delivering Notes of that series in connection with transfers,
exchanges and registrations as in this Indenture provided, and its successor or
successors and any other bank or trust company which may at any time be
substituted in its place as Authenticating Agent pursuant to this Indenture.
"Authorized Officer," when used with reference to the Corporation,
shall mean the chairman of the Board, the president, any vice president, the
secretary or other person designated in writing to the Trustee from time to time
by the Board.
"Balance," when used with reference to any Account or Fund, shall mean
the aggregate sum of all assets standing to the credit of such Account or Fund,
including, without limitation, Investment Securities computed at the Value of
Investment Securities; Notes purchased with moneys standing to the credit of
such Fund or Account computed at the Principal Amount of such Notes; Financed
Student Loans computed at the Principal Balance thereof; and lawful money of the
United States; provided, however, that (1) the Balance of the Interest Account
shall not include amounts standing to the credit thereof which are being held
therein for (A) the payment of past due and unpaid interest on Notes, or (B) the
payment of interest on Notes that are deemed no longer Outstanding as a result
of the defeasance thereof pursuant to subparagraph (ii) of the first paragraph
of Section 11.1 hereof, and (2) the Balances of the Principal Account and the
Retirement Account shall not include amounts standing to the credit thereof
which are being held therein for the payment of principal of or premium, if any,
on Notes which are deemed no longer Outstanding in accordance with the
provisions of subparagraph (ii) of the first paragraph of Section 11.1 hereof.
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"Beneficiaries" shall mean, collectively, all Senior Beneficiaries,
all Subordinate Beneficiaries and all Holders of any Outstanding Class C Notes.
"Board" shall mean the Board of Directors of the Corporation.
"Board Resolution" shall mean a copy of a resolution certified by the
secretary or an assistant secretary of the Corporation to have been duly adopted
by the Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Bond Counsel" shall mean any Counsel of nationally recognized
standing in the field of law relating to municipal bonds.
"Bond Year," when used with respect to a series of Tax Exempt Notes,
shall have the meaning ascribed thereto in the Supplemental Indenture providing
for the issuance of such series of Notes.
"Broker-Dealer" shall mean, with respect to any series of Notes, any
broker or dealer (each as defined in the Securities Exchange Act of 1934, as
amended), commercial bank or other entity permitted by law to perform the
functions required of a broker-dealer set forth in the auction procedures
relating to such Notes, designated as such with respect to such Notes pursuant
to the provisions of a Supplemental Indenture, and its successor or successors,
and any broker or dealer, commercial bank or other entity at any time
substituted in its place pursuant to such Supplemental Indenture.
"Broker-Dealer Agreement" shall mean, with respect to any series of
Notes, an agreement between an Auction Agent and a Broker-Dealer, and approved
by the Corporation, setting forth the rights and obligations of the Broker-
Dealer acting in such capacity with respect to such Notes under this Indenture
and the related Supplemental Indenture, including any supplement thereto or
amendment thereof entered into in accordance with the provisions thereof.
"Budgeted Administrative Expenses" shall mean, with respect to each
Fiscal Year, subject to the provisions of Section 5.15 hereof, an amount of
Administrative Expenses budgeted by the Corporation for such Fiscal Year, as
evidenced by a Board Resolution adopted prior to the commencement of such Fiscal
Year; provided that such Budgeted Administrative Expenses shall not exceed (and,
in the absence of a Board Resolution with respect thereto, shall be assumed to
be equal to) the amount of Administrative Expenses permitted to be paid, or
reimbursed to the Corporation, from the Administration Fund pursuant to any
Supplemental Indenture providing for the issuance of a series of Notes.
"Business Day" shall mean, except as otherwise provided in a
Supplemental Indenture, a day of the year other than a Saturday, a Sunday or a
day on which banks located in the city in which the Principal Office of the
Trustee is
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located, in the city in which the Principal Office of any
Authenticating Agent is located, in the city in which the Principal Office of
any Paying Agent (other than the Trustee) is located, in the city in which the
Principal Office of any Auction Agent is located, or in the city in which the
Principal Office of any Depositary is located, are required or authorized by law
to remain closed, or on which The New York Stock Exchange is closed.
"Carry-Over Amount" shall mean, if and to the extent specifically
provided for as such in a Supplemental Indenture with respect to a series of
Variable Rate Notes, the amount, if any, by which (i) the interest payable on
such series with respect to a given interest period is exceeded by (ii) the
interest that otherwise would have been payable with respect to such interest
period but for a limitation on the interest rate for such interest period based
upon the anticipated return on Financed Student Loans, together with the unpaid
portion of any such excess from prior interest periods. To the extent required
by a Supplemental Indenture providing for any Carry-Over Amount, interest will
accrue on such Carry-Over Amount until paid. Any reference to "principal" or
"interest" in this Indenture and in the related Notes shall not include, within
the meanings of such words, any Carry-Over Amount or any interest accrued on any
Carry-Over Amount.
"Cash Flow Projection" shall mean a projection as to future revenues
and cash flow through the final Stated Maturity of the Outstanding Notes based
upon existing facts and, to the extent not so based, upon assumptions accepted
by each Rating Agency (including, without limitation, assumptions relating to
variable rates of interest under Swap Agreements, Credit Enhancement Facilities
and Demand Purchase Agreements and on any Notes) and the following assumptions:
(1) a thirty (30)-day lag in receipt of borrower payments, and a sixty (60)-day
lag in receipt of federal payments, with respect to Financed Student Loans; (2)
no prepayments of principal of Financed Student Loans; (3) bond-equivalent rates
of 91-day or 52-week U.S. Treasury bills (for purposes of determining returns on
Financed Student Loans that are based upon such rates or averages thereof) equal
to known rates (or averages) for such time as they are known, and thereafter
equal to ________________ percent (_______%) per annum; and (4) a reinvestment
rate of ________________ percent (_______%) per annum. The foregoing
assumptions may, pursuant to a Supplemental Indenture as provided in
Section 8.1(h) hereof, be replaced with or supplemented by such other reasonable
assumptions as will not result in the withdrawal or reduction of the then-
current rating of any of the Unenhanced Outstanding Notes, as evidenced by
written confirmation to that effect from each Rating Agency, or, if no
Unenhanced Notes are then Outstanding, but Other Obligations are Outstanding, as
are acceptable to the Other Beneficiaries holding such Other Obligations, as
evidenced in writing to the Trustee by each such Other Beneficiary.
"Certificate of Insurance" shall mean a certificate of federal loan
insurance issued with respect to an Eligible Loan by the Secretary of Education
pursuant to the provisions of the Higher Education Act.
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"Class A Notes" shall mean any Notes designated in a Supplemental
Indenture as Class A Notes, which are secured under this Indenture on a basis
senior to any Subordinate Obligations and any Class C Notes (as such seniority
is described in Section 3.12 hereof), and on a parity with Other Senior
Obligations.
"Class B Notes" shall mean any Notes designated in a Supplemental
Indenture as Class B Notes, which are secured under this Indenture on a basis
subordinate to any Senior Obligations (as such subordination is described in
Section 3.12 hereof and elsewhere herein), on a parity with Other Subordinate
Obligations but on a basis senior to any Class C Notes (as such seniority is
described in Section 3.12 hereof and elsewhere herein).
"Class C Notes" shall mean any Notes designated in a Supplemental
Indenture as Class C Notes, which are secured under this Indenture subordinate
to any Senior Obligations and any Subordinate Obligations (as such subordination
is described in Section 3.12 hereof and elsewhere herein).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consolidation Loan" shall mean a Student Loan authorized under
Section 428C of the Higher Education Act.
"Contract of Insurance" shall mean the Contract of Federal Loan
Insurance, dated January 28, 1981, entered into between the Trustee and the
Secretary of Education, and any other document evidencing the eligibility of the
Trustee to receive payments of principal and interest from the Secretary of
Education with respect to Insured Loans Financed hereunder (or, in the event a
co-trustee has been appointed pursuant to Section 7.12 hereof, such Contract of
Federal Loan Insurance and other documentation relating to such co-trustee), and
any amendment thereof which is hereafter entered into.
"Corporation" shall mean (1) Education Loans Incorporated, a nonprofit
corporation duly organized and existing under the laws of the State, (2) upon
completion of the Section 150(d)(3) Transfer, EdLinc, (3) any successor thereto
under this Indenture, and (4) for purposes of any provision contained herein and
required by the TIA, each other obligor on the Notes.
"Corporation Request," "Corporation Order," "Corporation Certificate"
or "Corporation Consent" shall mean, respectively, a written request, order,
certificate or consent signed in the name of the Corporation by an Authorized
Officer and delivered to the Trustee.
"Corporation Swap Payment" means a payment due to a Swap Counterparty
from the Corporation pursuant to the applicable Swap Agreement (including, but
not limited to, payments in respect of any early termination of such Swap
Agreement).
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"Costs of Issuance" shall mean all items of expense directly or
indirectly payable by or reimbursable to the Corporation and related to the
authorization, sale and issuance of a series of the Notes, including, but not
limited to, printing costs, costs of preparation and reproduction of documents,
filing fees, initial fees and charges of the Trustee, any Authenticating Agent,
any Deposit Agent, any Remarketing Agent, any Depositary, any Auction Agent or
any Broker-Dealer, legal fees and charges, fees and disbursements of
underwriters, consultants and professionals, underwriters' discount, costs of
credit ratings, fees and charges for preparation, execution, transportation and
safekeeping of such Notes, other costs incurred by the Corporation in
anticipation of the issuance of such Notes and any other cost, charge or fee in
connection with the issuance of such Notes.
"Counsel" shall mean a person, or firm of which such a person is a
member, authorized in any state to practice law.
"Counterparty Swap Payment" means a payment due to or received by the
Corporation from a Swap Counterparty pursuant to a Swap Agreement (including,
but not limited to, payments in respect of any early termination of such Swap
Agreement) and amounts received by the Corporation under any related Swap
Counterparty Guarantee.
"Credit Enhancement Facility" shall mean, if and to the extent
provided for in a Supplemental Indenture described in Section 8.1(i) hereof,
with respect to Notes of one or more series of the same class, an insurance
policy insuring, or a letter of credit or surety bond providing a direct or
indirect source of funds for, the timely payment of principal of and interest on
such Notes (but not necessarily principal due upon acceleration thereof under
Section 6.2 hereof), and all agreements entered into by the Corporation or the
Trustee with respect thereto.
"Credit Facility Provider" means, if and to the extent provided for in
a Supplemental Indenture entered into pursuant to Section 8.1(i), any Person or
Persons engaged by the Corporation (i) pursuant to a Demand Purchase Agreement,
to provide credit enhancement or liquidity for the Corporation's obligation to
repurchase or redeem Notes of one or more series of the same class subject to a
remarketing which have not been remarketed, or (ii) pursuant to a Credit
Enhancement Facility, to provide credit enhancement for the payment of the
principal of and interest on any or all of the Notes of one or more series.
"Debt Service" shall mean: (1) with respect to any Notes, as of any
particular date and with respect to any particular period, the aggregate of the
moneys to be paid or set aside on such date or during such period for the
payment (or retirement) of the principal of, premium, if any, and interest on
Notes, after giving effect to any Corporation Swap Payments and Counterparty
Swap Payments, and (2) with respect to Other Obligations, as of any particular
date and with respect to any particular period, the aggregate of the moneys to
be paid or set aside on such date or during such period for the payment of
amounts payable by the Corporation under
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any Swap Agreements, Credit Enhancement Facilities or Demand Purchase
Agreements, including, inter alia, fees payable by the Corporation to the
Credit Facility Provider thereunder.
"Defaulted Interest" shall have the meaning given in Section 3.2
hereof.
"Deemed Tendered" shall mean, with respect to any Note, a Note deemed
tendered in accordance with the provisions of the Supplemental Indenture
providing for the issuance thereof.
"Demand Note" shall mean a Note required to be purchased by or on
behalf of the Corporation, at the option of the Holder thereof, upon receipt of
a Purchase Demand.
"Demand Purchase Agreement" shall mean any or all of the credit
facilities, reimbursement agreements, standby purchase agreements and the like,
pertaining to Notes of one or more series issued with a tender right granted to
or tender obligation imposed on the Holder thereof, if and to the extent
provided for in a Supplemental Indenture described in Section 8.1(i) hereof.
"Deposit Agent" shall mean any bank or banking association having
trust powers or trust company designated as such pursuant to the provisions of
Section 7.19 hereof and its successor or successors and any other bank or
banking association having trust powers or trust company at any time substituted
in its place pursuant to this Indenture.
"Depositary" shall mean, with respect to any series of Notes, any
commercial bank or banking association having trust powers or trust company
designated as such with respect to such Notes pursuant to the provisions of
Section 7.20 hereof and its successor or successors and any other commercial
bank or banking association having trust powers or trust company at any time
substituted in its place pursuant to this Indenture.
"Depositary Agreement" shall mean an agreement among a Depositary, the
Trustee, the Corporation, any Remarketing Agent and/or any related Credit
Facility Provider setting forth the rights and obligations of the Depositary
acting in such capacity under this Indenture and otherwise meeting the
requirements of Section 7.20 hereof, including any supplement thereto or
amendment thereof entered into in accordance with the provisions thereof.
"EdLinc" shall mean Education Loans Incorporated, a corporation duly
organized and existing under the laws of the State of Delaware.
"Eligible Borrower" shall mean a borrower who is eligible under the
Higher Education Act to be the obligor of a loan for financing a program
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post-secondary education, including a borrower who is eligible under the Higher
Education Act to be an obligor of a Plus Loan.
"Eligible Loan" shall mean: (A) a Student Loan which: (1) has been or
will be made to an Eligible Borrower for post-secondary education; (2) is either
(a) Insured, or (b) Guaranteed by a Guarantee Agency to the extent of not less
than ninety-eight percent (98%) of the principal thereof and all accrued
interest thereon; (3) is an "eligible loan" as defined in Section 438 of the
Higher Education Act for purposes of receiving Special Allowance Payments (other
than nonsubsidized Stafford Loans originally financed by the Corporation); and
(4) bears interest at a rate per annum not less than or in excess of the
applicable rate of interest provided by the Higher Education Act, or such lesser
rates as may be approved by each Rating Agency; or (B) any other Student Loan if
the Corporation shall have caused to be provided to the Trustee: (1) written
advice from each Rating Agency that treating such type of loan as an Eligible
Loan will not adversely affect any rating or ratings then applicable to any of
the Unenhanced Notes or, if no Unenhanced Notes are then Outstanding, but Other
Obligations are Outstanding, such Other Beneficiaries holding such Other
Obligations consent to the treatment of such type of loan an Eligible Loan, as
evidenced in writing to the Trustee by each such Other Beneficiary, and (2) a
written opinion of Bond Counsel to the effect that treating such type of loan as
an Eligible Loan will not, under then existing law, affect the exclusion from
gross income for federal income tax purposes of interest on any Tax Exempt Notes
then outstanding.
"Eligible Loan Acquisition Certificate" shall mean a certificate
signed by an Authorized Officer of the Corporation and substantially in the
form attached as Exhibit A hereto.
"Eligible Loan Origination Certificate" shall mean a certificate
signed by an Authorized Officer of the Corporation and substantially in the
form attached as Exhibit B hereto.
"Event of Default" shall mean one of the events described as such in
Section 6.1 hereof.
"Excess Earnings" shall mean, with respect to any series of Tax Exempt
Notes, the amount, if any, which, if applied to reduce the yield on all Student
Loans Financed, in whole or in part, with amounts allocated to such Notes, would
be necessary to reduce such yield to the yield on such Notes plus such
additional spread as would not cause such Notes to be "arbitrage bonds" under
Section 148 of the Code.
"Excess Earnings Account" shall mean the Account by that name created
and established by Section 4.1 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Federal Reimbursement Contract" shall mean any agreement between a
Guarantee Agency and the Secretary of Education providing for the payment by the
Secretary of Education of amounts authorized to be paid pursuant to the Higher
Education Act, including (but not necessarily limited to) reimbursement of
amounts paid or payable upon defaulted Financed Student Loans and other student
loans guaranteed or insured by the Guarantee Agency and interest subsidy
payments to holders of qualifying student loans guaranteed or insured by the
Guarantee Agency.
"Financed," when used with respect to Student Loans or Eligible Loans,
shall mean Student Loans or Eligible Loans, as the case may be, acquired or
originated by the Trustee on behalf of the Corporation with moneys in the
Acquisition Fund or the Surplus Account, any Eligible Loans received in exchange
for Financed Student Loans upon the sale thereof or substitution therefor in
accordance with Section 4.2 hereof and any other Student Loans deemed to be
"Financed" with moneys in the Acquisition Fund and the Surplus Account pursuant
to this Indenture, but does not include Student Loans released from the lien of
this Indenture and sold, as permitted in this Indenture, to any purchaser,
including a trustee for the holders of the Corporation's bonds, notes or other
evidences of indebtedness.
"Fiscal Year" shall mean the fiscal year of the Corporation as
established from time to time.
"FISL Loans" shall mean student loans insured under the FISL Program.
"FISL Program" shall mean the federal loan insurance program created
under the Higher Education Act whereby the Secretary of Education directly
insures the repayment of at least eighty percent (80%) of the principal of (or
in certain cases up to one hundred percent (100%) of the principal of and
accrued interest on) student loans under the Higher Education Act.
"Fitch" shall mean Fitch Investors Service, L.P., its successors and
their assigns, and, if such partnership shall be dissolved or liquidated or
shall no longer perform the functions of a securities rating agency, "Fitch"
shall be deemed to refer to any other nationally recognized securities rating
agency designated by the Trustee, at the written direction of the Corporation.
"Government Obligations" shall mean direct obligations of, or
obligations the full and timely payment of the principal of and interest on
which are unconditionally guaranteed by, the United States of America.
"Governor" shall mean the chief executive officer of the State.
"Guarantee" or "Guaranteed" shall mean, with respect to a Student
Loan, the insurance or guarantee by a Guarantee Agency, to the extent provided
in
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the Higher Education Act, of the principal of and accrued interest on such
Student Loan, and the coverage of such Student Loan by one or more Federal
Reimbursement Contracts providing, among other things, for reimbursement to the
Guarantee Agency for losses incurred by it on defaulted Financed Student Loans
insured or guaranteed by the Guarantee Agency to the extent provided in the
Higher Education Act.
"Guarantee Agency" shall mean (1) Education Assistance Corporation,
and its successors and assigns, including, without limitation, the Secretary of
Education, (2) Pennsylvania Higher Education Assistance Agency, and its
successors and assigns, including, without limitation, the Secretary of
Education, (3) United Student Aid Funds, Inc., and its successors and assigns,
including, without limitation, the Secretary of Education, (4) Student Loans of
North Dakota, and its successors and assigns, including, without limitation, the
Secretary of Education, (5) Northstar Guarantee Inc., and its successors and
assigns, including, without limitation, the Secretary of Education, (6) Great
Lakes Higher Education Corporation, and its successors and assigns, including,
without limitation, the Secretary of Education, (7) Educational Credit
Management Corporation (formerly known as Transitional Guaranty Agency, Inc.),
and its successors and assigns, including, without limitation, the Secretary of
Education, (8) Iowa College Aid Commission, and its successors and assigns,
including, without limitation, the Secretary of Education, (9) Missouri
Coordinating Board for Higher Education, and its successors and assigns,
including, without limitation, the Secretary of Education, (10) Illinois Student
Assistance Commission, and its successors and assigns, including, without
limitation, the Secretary of Education, (11) California Student Aid Commission,
and its successors and assigns, including, without limitation, the Secretary of
Education, or (12) any other state agency or private nonprofit institution or
organization which administers a Guarantee Program, subject to confirmation of
ratings on any Outstanding Unenhanced Notes or, if no Unenhanced Notes are then
Outstanding but Other Obligations are Outstanding, consent of each Other
Beneficiary holding such Outstanding Other Obligations, as evidenced in writing
to the Trustee by each such Other Beneficiary.
"Guarantee Agreements" shall mean, collectively, (1) that certain
Lender Agreement for Guarantee of Student Loans With Federal Reinsurance, dated
July 3, 1997, between the Trustee and Education Assistance Corporation, (2) that
certain Lender Agreement for Guarantee of Student Loans With Federal
Reinsurance, dated February 28, 1994, between the Trustee and Pennsylvania
Higher Education Assistance Agency, (3) that certain Agreement to Guarantee
Loans, dated July 11, 1997, between the Trustee and United Student Aid Funds,
Inc., (4) that certain Lender Participation Agreement for Insurance, dated July
8, 1997, between the Trustee and Student Loans of North Dakota, (5) that certain
Lender Agreement for Guarantee of Student Loans With Federal Reinsurance, dated
July 15, 1997, between the Trustee and Northstar Guarantee, Inc., (6) that
certain Student Loan Guaranty, dated July 15, 1997, between the Trustee and
Great Lakes Higher Education Corporation, (7) that certain Agreement for Payment
on Guarantee of Student Loans
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With Federal Reinsurance, dated December 15, 1994, between the Trustee and
Educational Credit Management Corporation (formerly known as Transitional
Guaranty Agency, Inc.), (8) that certain Agreement to Guarantee Loans, dated
July 15, 1997, and that certain Agreement to Guarantee PLUS/SLS Loans, dated
July 15, 1997, each between the Trustee and Iowa College Aid Commission, (9)
that certain Agreement to Guarantee Federal Stafford Loans (Subsidized and
Unsubsidized), Federal PLUS Loans, Federal SLS Loans, dated July 15, 1997,
between the Trustee and Missouri Coordinating Board for Higher Education, (10)
that certain Holder Agreement, dated July 7, 1997, between the Trustee and
Illinois Student Assistance Commission, (11) that certain Agreement to Guarantee
Loans Made by a Commercial Lender, dated July 10, 1997, that certain Agreement
to Guarantee CLAS Program Loans Made by a Commercial Lender, dated July 10,
1997, that certain Consolidation Loan Program Lender Participation Agreement,
dated July 6, 1997, each between the Trustee and California Student Aid
Commission, and (12) any other agreement between a Guarantee Agency and the
Trustee providing for the insurance or guarantee by such Guarantee Agency, to
the extent provided in the Higher Education Act, of the principal of and accrued
interest on Student Loans acquired by the Trustee from time to time, including
any supplement thereto or amendment thereof entered into in accordance with the
provisions thereof and hereof.
"Guarantee Program" shall mean a Guarantee Agency's student loan
insurance program pursuant to which such Guarantee Agency guarantees or insures
Student Loans.
"Guaranteed Loan" shall mean a Student Loan which is Guaranteed.
"Higher Education Act" shall mean the Higher Education Act of 1965, as
amended or supplemented from time to time, and all regulations promulgated
thereunder.
"Holder," when used with respect to any Note, shall mean the Person in
whose name such Note is registered in the Note Register.
"Income Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Indemnification Account" shall mean the Account by that name created
and established by Section 4.1 hereof.
"Indenture" shall mean this Indenture of Trust, including any
supplement hereto or amendment hereof entered into in accordance with the
provisions hereof.
"Independent," when used with respect to any specified Person, means
such a Person who (i) is in fact independent; (ii) does not have any direct
financial
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interest or any material indirect financial interest in the Corporation, other
than the payment to be received under a contract for services to be performed
by such Person; and (iii) is not connected with the Corporation as an official,
officer, employee, promoter, underwriter, trustee, partner, affiliate,
subsidiary, director or Person performing similar functions. Whenever it is
herein provided that any Independent Person's opinion or certificate shall be
furnished to the Trustee, such Person shall be appointed by the Corporation or
the Trustee, as the case may be, and such opinion or certificate shall state
that the signer has read this definition and that the signer is Independent
within the meaning hereof.
"Independent Certificate" shall mean a certificate or opinion to be
delivered to the Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 1.4, made by an
Independent appraiser or other expert appointed by a Corporation Order and
approved by the Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Initial Notes" shall mean the Notes of the initial twelve (12) series
hereunder issued contemporaneously with the execution and delivery of this
Indenture.
"Insurance" or "Insured" or "Insuring" shall mean, with respect to a
Student Loan, the insuring by the Secretary of Education (as evidenced by a
Certificate of Insurance or other document or certification issued under the
provisions of the Higher Education Act) under the Higher Education Act of one
hundred percent (100%) of the principal of and accrued interest on such Student
Loan; provided, however, that a Student Loan for which an application for
insurance commitment was received by the Secretary of Education prior to March
1, 1973, shall be deemed Insured if insured by the Secretary of Education to the
extent of one hundred percent (100%) of the principal amount of such Student
Loan.
"Insured Loan" shall mean a Student Loan which is Insured.
"Interest Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Interest Payment Date" shall mean each regularly scheduled interest
payment date on the Notes [which, except in the case of any Variable Rate Notes,
including those Initial Notes constituting Variable Rate Notes (as to which such
dates shall be specified in the Supplemental Indenture providing for the
issuance thereof), shall be each June 1 and December 1] or, with respect to the
payment of interest upon redemption or acceleration of a Note, purchase of a
Note by the Trustee on a Mandatory Tender Date (to the extent such Mandatory
Tender Date is designated as an Interest Payment Date in the related
Supplemental Indenture) or
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the payment of Defaulted Interest, such date on which such interest is payable
under this Indenture.
"Investment Securities" shall mean any of the following:
1. Government Obligations;
2. Interest-bearing time or demand deposits, certificates of deposit
or other similar banking arrangements with any bank, trust company,
national banking association or other depository institution (including the
Trustee or any of its affiliates), provided that, at the time of deposit or
purchase, if the investment is for a period exceeding one year, such
depository institution shall have long-term unsecured debt rated by each
Rating Agency not lower than in its highest applicable Specific Rating
Category or, if the investment is for a period of less than one year, such
depository institution shall have short-term unsecured debt rated by each
Rating Agency not lower than its highest applicable Specific Rating
Category;
3. Obligations issued or guaranteed as to principal and interest by
any of the following: (a) the Government National Mortgage Association;
(b) the Federal National Mortgage Association; or (c) the Federal Farm
Credit Banks, the Federal Intermediate Credit Banks, the Export-Import Bank
of the United States, the Federal Land Banks, the Student Loan Marketing
Association, the Federal Financing Bank, the Federal Home Loan Banks, the
Federal Home Loan Mortgage Corporation or the Farmers Home Administration,
or any agency or instrumentality of the United States of America which
shall be established for the purpose of acquiring the obligations of any of
the foregoing or otherwise providing financing therefor, provided that any
such obligation described in this clause (c) shall either be rated by Fitch
or, if not rated by Fitch, rated by Moody's, (i) if such obligation has a
term of less than one year, not lower than in its highest applicable
Specific Rating Category, or (ii) if such obligation has a term of one year
or longer, not lower than in its highest applicable Specific Rating
Category;
4. Repurchase agreements or reverse repurchase agreements with banks
(which may include the Trustee or any of its affiliates) which are members
of the Federal Deposit Insurance Corporation or with government bond
dealers insured by the Securities Investor Protection Corporation, which
such agreements are secured by securities which are Government Obligations
to a level sufficient to obtain a rating by each Rating Agency in its
highest Specific Rating Category, or with brokers or dealers whose
unsecured long-term debt is rated by each Rating Agency in its highest
Specific Rating Category;
5. Any money market fund, including a qualified regulated investment
company described in Internal Revenue Service Notice 87-22,
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1987-1 C.B. 466, rated by each Rating Agency not lower than its highest
applicable Specific Rating Category;
6. Any debt instrument; provided that if such instrument has a term
of less than one year, it is rated by each Rating Agency not lower than in
its highest applicable Specific Rating Category, and if such instrument has
a term of one year or longer, it is rated by each Rating Agency not lower
than in its highest applicable Specific Rating Category;
7. Any investment agreement which constitutes a general obligation of
a Person, or the obligations under which are unconditionally guaranteed by
a Person, whose debt, unsecured securities, deposits or claims paying
ability is rated by each Rating Agency, (a) if such investment agreement
has a term of less than one year, not lower than in its highest applicable
Specific Rating Category, or (b) if such investment agreement has a term of
one year or longer, not lower than in its highest applicable Specific
Rating Category; and
8. Any other investment if the Trustee shall have received written
evidence from each Rating Agency that treating such investment as an
Investment Security will not cause any rating then applicable to any
Unenhanced Outstanding Notes to be lowered or withdrawn or, if no
Unenhanced Notes are then Outstanding, but Other Obligations are
Outstanding, is acceptable to such Other Beneficiaries, as evidenced in
writing to the Trustee by each such Other Beneficiary.
"Joint Sharing Agreement" shall mean any agreement entered into in
accordance with Section 5.24(2) hereof.
"Lender" shall mean any "eligible lender" (as defined in the Higher
Education Act and the applicable Student Loan Purchase Agreement) permitted to
participate as a seller of Student Loans to the Corporation under the Program
and which has received an eligible lender designation from the Secretary of
Education with respect to Insured Loans or from a Guarantee Agency with respect
to Guaranteed Loans.
"Mandatory Tender Date" shall mean, with respect to any Note, a date
on which such Note is required to be tendered for purchase by or on behalf of
the Corporation in accordance with the provisions in the Supplemental Indenture
providing for the issuance thereof.
"Maturity," when used with respect to any Note, shall mean the date on
which the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity thereof or by declaration of
acceleration, call for redemption or otherwise.
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"Monthly Payment Date" shall mean the 12th day of each calendar month
(or, in the event such 12th day is not a Business Day, the next preceding
Business Day); provided that any transfers to be made from the Revenue Fund on
a Monthly Payment Date shall, as to amounts therein constituting payments in
respect of Financed Student Loans, include only such payments as have been
deposited in the Revenue Fund as of the last day of the preceding calendar
month.
"Monthly Servicing Report" shall mean the monthly report prepared by
the Servicer in accordance with any Servicing Agreement.
"Moody's" shall mean Moody's Investors Service, Inc., its successors
and their assigns, and, if such corporation shall be dissolved or liquidated or
shall no longer perform the functions of a securities rating agency, "Moody's"
shall be deemed to refer to any other nationally recognized securities rating
agency designated by the Trustee, at the written direction of the Corporation.
"Non-Delivery Fee" shall mean any fee received by the Corporation or
the Trustee from a Lender upon the failure of the Lender, in whole or in part,
to perform its obligation to sell Eligible Loans to the Corporation pursuant to
a Student Loan Purchase Agreement.
"Note Fees" shall mean the fees, costs and expenses, excluding Costs
of Issuance, of the Trustee and any Paying Agents, Authenticating Agent, Deposit
Agents, Remarketing Agents, Depositaries, Auction Agents, Broker-Dealers,
Counsel, Note Registrar, Accountants and other consultants and professionals
incurred by the Corporation in carrying out and administering its powers, duties
and functions under (1) its articles of incorporation, its bylaws, the Student
Loan Purchase Agreements, any Servicing Agreement, the Contract of Insurance,
the Guarantee Agreements, any Certificate of Insurance, the Program, the Higher
Education Act or any requirement of the laws of the United States or any State
with respect to the Program, as such powers, duties and functions relate to
Financed Student Loans, (2) any Swap Agreement, Credit Enhancement Facility or
Demand Purchase Agreement (other than any amounts payable thereunder which
constitute Other Obligations), (3) any Remarketing Agreement, Depositary
Agreement, Auction Agent Agreement or Broker-Dealer Agreement and (4) this
Indenture.
"Note Fund" shall mean the Fund by that name created and established
by Section 4.1 hereof.
"Note Register" shall mean the register maintained by the Note
Registrar pursuant to Section 3.7 hereof.
"Note Registrar" shall mean the Trustee, or, if so designated pursuant
to the terms of a Supplemental Indenture, the Authenticating Agent, serving in
such capacity under the terms of this Indenture, unless and until a Corporation
Order is delivered to the Authenticating Agent and the Trustee directing that
the
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Authenticating Agent or the Trustee, as the case may be, become the Note
Registrar and the Authenticating Agent or the Trustee, as the case may be,
agrees to serve in such capacity hereunder.
"Noteholder" shall mean the Holder of any Note.
"Notes" shall mean all Notes issued pursuant to this Indenture in
accordance with the provisions of Article Three hereof.
"Other Beneficiary" shall mean an Other Senior Beneficiary or an
Other Subordinate Beneficiary.
"Other Obligations" shall mean, collectively, Other Senior
Obligations and Other Subordinate Obligations.
"Other Senior Beneficiary" shall mean a Person who is a Senior
Beneficiary other than as a result of ownership of Class A Notes.
"Other Senior Obligation" shall mean the Corporation's obligations to
pay any amounts under any Senior Swap Agreements, any Senior Credit Enhancement
Facilities and any Senior Demand Purchase Agreements.
"Other Subordinate Beneficiary" shall mean a Person who is a
Subordinate Beneficiary other than as a result of ownership of Class B Notes.
"Other Subordinate Obligation" shall mean the Corporation's
obligations to pay any amounts under any Subordinate Swap Agreements, any
Subordinate Credit Enhancement Facilities and any Subordinate Demand Purchase
Agreements.
"Outstanding," (1) when used with respect to any Note, shall (a) have
the construction given to such word in Sections 1.6, 3.7 and 11.1 hereof, i.e.,
a Note shall not be Outstanding hereunder if such Note is at the time not deemed
to be Outstanding hereunder by reason of the operation and effect of Section
1.6, Section 3.7 or Section 11.1 hereof, and (b) not include any Note Deemed
Tendered; and (2) when used with respect to any Other Obligation, shall mean all
Other Obligations which have become, or may in the future become, due and
payable and which have not been paid or otherwise satisfied.
"Paying Agent" shall mean the Trustee and any other commercial bank
designated herein or in accordance herewith as a place at which principal of,
premium, if any, or interest on any Note is payable.
"Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
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incorporated organization or government or any agency or political subdivision
thereof.
"Plus Loan" shall mean a Student Loan made pursuant to Section 428B
of the Higher Education Act.
"Prepayment Date," when used with respect to any Note, a portion of
the Principal Amount of which is to be paid prior to its Stated Maturity, shall
mean the date fixed for such prepayment by or pursuant to this Indenture.
"Principal Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Principal Amount," when used with respect to a Note, shall mean the
original principal amount of such Note less all payments previously made to the
Holder thereof in respect of principal.
"Principal Balance," when used with respect to a Student Loan, shall
mean the unpaid principal amount thereof (including any unpaid capitalized
interest thereon that is authorized to be capitalized under the Higher Education
Act for purposes of Special Allowance Payments, federal interest subsidy
payments, a borrower's liability to a lender and the amount of the lender's
loss on a guarantee or insurance claim) as of a given date.
"Principal Office" shall mean (i) when used with respect to the
Trustee, the principal office of the Trustee for the performance of its duties
as trustee hereunder, which office as of the date of execution of this Indenture
is located at the address specified in Section 13.4 hereof, and (ii) when used
with respect to a Paying Agent (other than the Trustee), an Authenticating
Agent, the Note Registrar, a Depositary, a Remarketing Agent, an Auction Agent
or a Broker-Dealer, such office designated in writing to the Trustee and the
Corporation as the location of its principal office for the performance of its
duties as Paying Agent, Authenticating Agent, Note Registrar, Depositary,
Remarketing Agent, Auction Agent or Broker-Dealer, as the case may be, under
this Indenture.
"Principal Payment Date" shall mean the Stated Maturity of principal
of any Serial Note and the Sinking Fund Payment Date for any Term Note, which,
unless otherwise specified with respect to any Variable Rate Notes, including
those Initial Notes constituting Variable Rate Notes, in the Supplemental
Indenture providing for the issuance thereof, shall occur on a June 1 or an
December 1.
"Program" shall mean the program to be administered by the Corporation
(or, after the Section 150(d)(3) Transfer, the Servicer) for the purchase of
Student Loans from Lenders or origination of Student Loans in order to increase
the supply of moneys available for new Student Loans, thereby assisting students
in obtaining a post-secondary school education.
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"Purchase Date" shall mean, with respect to a Demand Note, the date
specified in a Purchase Demand (provided that such date is not less than the
required number of calendar days after receipt of such Purchase Demand by the
Depositary) as the date on which the Holder of the Demand Note identified in
such Purchase Demand is demanding purchase of such Note, or a specified portion
thereof, in accordance with the applicable provisions of the related
Supplemental Indenture, or the next preceding or succeeding Business Day, as
specified in such Supplemental Indenture, if such date is not a Business Day.
"Purchase Demand" shall mean, with respect to a Demand Note, a written
demand, in the form required by the related Supplemental Indenture, by the
Holder thereof that such Note, or, in the case of a partial purchase demand, a
specified portion thereof, be purchased in accordance with the applicable
provisions of such Supplemental Indenture.
"Rating Agency" shall mean any rating agency that shall have an
outstanding rating on any of the Notes pursuant to request by the Corporation.
"Rating Agency Condition" shall mean, with respect to any action, that
each of the Rating Agencies shall have notified the Corporation and the Trustee
in writing that such action will not result in a reduction, qualification or
withdrawal of the then-current rating of any of the Notes.
"Rating Category" shall mean one of the general rating categories of a
Rating Agency, without regard to any refinement or gradation of such rating
category by a numerical modifier or otherwise.
"Rebate Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Rebate Amount" shall have the meaning ascribed thereto in Section
4.5(A) hereof.
"Rebate Fund" shall mean the Rebate Fund created and established by
Section 4.1 hereof.
"Redemption Date," when used with respect to any Note to be redeemed,
shall mean the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" shall mean, with respect to an Interest Payment
Date for any series of Notes, unless the Supplemental Indenture authorizing the
issuance of such series of Notes otherwise provides, the fifteenth day (whether
or
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not a Business Day) of the calendar month immediately preceding such Interest
Payment Date.
"Regulations" shall mean the regulations promulgated from time to time
by the Department of the Treasury under the Code relating to the tax exemption
of interest on Tax Exempt Notes, including, without limitation, Treasury
Regulations, Sections 1.144-0 to 1.144-2, 1.148-0 to 1.148-11, 1.149(b)-1,
1.149(g)-1, 1.150-1 and 1.150-2.
"Remarketing Agent" shall mean, with respect to any series of Notes,
any securities dealer designated as such with respect to such Notes pursuant to
the provisions of Section 7.21 hereof and its successor or successors and any
securities dealer at any time substituted in its place pursuant to this
Indenture.
"Remarketing Agreement" shall mean an agreement between a Remarketing
Agent and the Corporation setting forth the rights and obligations of the
Remarketing Agent acting in such capacity under this Indenture and otherwise
meeting the requirements of Section 7.21 hereof, including any supplement
thereto or amendment thereof entered into in accordance with the provisions
thereof.
"Repayment Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Reserve Fund" shall mean the Reserve Fund created and established by
Section 4.1 hereof.
"Reserve Fund Requirement" shall mean, at any time, an amount equal to
the greater of (1) two percent (2.00%) of the aggregate Principal Amount of
Class A Notes and Class B Notes then Outstanding, and (2) $500,000; or, as
determined upon the issuance of any Class A Notes or any Class B Notes, such
lesser or greater amount as will not cause any Rating Agency to lower or
withdraw any rating on any Unenhanced Outstanding Notes, as confirmed in writing
to the Trustee by each Rating Agency or, if no Unenhanced Notes are then
Outstanding, but Other Obligations are Outstanding, and the Reserve Fund
Requirement is to be reduced, such lesser amount as is acceptable to the Other
Beneficiaries holding such Other Obligations, as evidenced in writing to the
Trustee by each such Other Beneficiary.
"Retirement Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Revenue Fund" shall mean the Revenue Fund created and established by
Section 4.1 hereof.
"Secretary of Education" shall mean the Commissioner of Education,
Department of Health, Education and Welfare of the United States, and the
Secretary
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of the United States Department of Education (who succeeded to the
functions of the Commissioner of Education pursuant to the Department of
Education Organization Act), or any other officer, board, body, commission or
agency succeeding to the functions thereof under the Higher Education Act.
"Section 150(d)(3) Transfer" shall mean the transfer of all of the
Corporation's right, title and interest in and to the Trust Estate from
Education Loans Incorporated, a South Dakota nonprofit corporation, to SLFC, and
from SLFC to EdLinc, together with the assumption by EdLinc of all of the
obligations and liabilities of the Corporation hereunder and under the Notes and
any Other Obligations, all in accordance with Section 150(d)(3) of the Code.
"Senior Asset Requirement" shall mean, as of the date of
determination, that:
(a) the Senior Percentage is at least equal to one hundred ten percent
(110%) (or such lower percentage specified in a Corporation Certificate
delivered to the Trustee which, if Unenhanced Class A Notes are
Outstanding, shall not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Class A Notes Outstanding prior to such action being taken by the
Corporation, as evidenced in writing to the Trustee by each such Rating
Agency, or, if no Unenhanced Class A Notes are Outstanding but Other Senior
Obligations are Outstanding, is acceptable to the Other Senior
Beneficiaries holding such Other Senior Obligations, as evidenced in
writing to the Trustee by each such Other Senior Beneficiary), and
(b) the Subordinate Percentage is at least equal to one hundred
percent (100%) (or such lower percentage specified in a Corporation
Certificate delivered to the Trustee which, if Unenhanced Class B Notes are
Outstanding, shall not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Class B Notes Outstanding prior to such action being taken by the
Corporation, as evidenced in writing to the Trustee by each such Rating
Agency, or, if no Unenhanced Class B Notes are Outstanding but Other
Subordinate Obligations are Outstanding, is acceptable to the Other
Subordinate Beneficiaries holding such Other Subordinate Obligations, as
evidenced in writing to the Trustee by each such Other Subordinate
Beneficiary).
"Senior Beneficiaries" shall mean (1) the Holders of any Outstanding
Class A Notes, and (2) any Other Senior Beneficiary holding any Other Senior
Obligation that is Outstanding.
"Senior Credit Enhancement Facility" shall mean a Credit Enhancement
Facility designated as a Senior Credit Enhancement Facility in the
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Supplemental Indenture pursuant to which such Credit Enhancement Facility is
furnished by the Corporation.
"Senior Credit Enhancement Provider" shall mean any Person who
provides a Senior Credit Enhancement Facility or a Senior Demand Purchase
Agreement.
"Senior Demand Purchase Agreement" shall mean a Demand Purchase
Agreement designated as a Senior Demand Purchase Agreement in the Supplemental
Indenture pursuant to which such Demand Purchase Agreement is furnished by the
Corporation.
"Senior Obligations" shall mean, collectively, the Class A Notes and
any Other Senior Obligations.
"Senior Percentage" shall mean, as of the date of determination, the
percentage resulting by dividing the Aggregate Value by the sum of (i) the
aggregate Principal Amount of Outstanding Class A Notes plus accrued interest
thereon and (ii) accrued Corporation Swap Payments under Senior Swap Agreements
and (iii) other payments accrued and owing by the Corporation on Other Senior
Obligations.
"Senior Swap Agreement" shall mean a Swap Agreement designated as a
Senior Swap Agreement in the Supplemental Indenture pursuant to which such Swap
Agreement is furnished by the Corporation.
"Senior Swap Counterparty" shall mean any Person who provides a Senior
Swap Agreement.
"Serial Notes" shall mean all Notes other than Term Notes.
"Servicer" shall mean, after the Section 150(d)(3) Transfer, SLFC, and
any other organization with which the Corporation and the Trustee have entered
into a Servicing Agreement, subject to confirmation of ratings on any then
Outstanding Unenhanced Notes, as evidenced by written confirmation to the
Trustee to that effect from each Rating Agency, or, if no Unenhanced Notes are
then Outstanding but Other Obligations are Outstanding, consent of each Other
Beneficiary holding such Outstanding Other Obligations, as evidenced in writing
to the Trustee by each such Other Beneficiary.
"Servicing Agreement" shall mean, after the Section 150(d)(3)
Transfer, the Servicing Agreement, dated as of July 1, 1997, among the
Corporation, the Trustee and SLFC, as servicer, and any other agreement among
the Corporation, the Trustee and a Servicer under which the Servicer agrees to
act as the Corporation's agent in connection with the administration and
collection of Financed Student Loans in accordance with this Indenture.
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"Servicing Fees" shall mean any fees payable by the Corporation to a
Servicer in respect of Financed Student Loans pursuant to the provisions of a
Servicing Agreement.
"Sinking Fund Payment Date" shall mean the date on which any Term Note
is to be called for redemption pursuant to subsection (A) or (B) of Section
4.7.2 hereof and the applicable provisions of the Supplemental Indenture
providing for the issuance thereof, or, if not redeemed, the Stated Maturity
thereof.
"SLFC" shall mean Student Loan Finance Corporation, a corporation duly
organized and existing under the laws of the State of South Dakota.
"SLS Loan" shall mean a Student Loan made pursuant to former Section
428A of the Higher Education Act.
"Special Allowance Payments" shall mean special allowance payments
authorized to be made by the Secretary of Education by Section 438 of the Higher
Education Act, or similar allowances authorized from time to time by federal law
or regulation.
"Special Record Date" shall mean, with respect to the payment of any
Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.2 hereof.
"Special Redemption and Prepayment Account" shall mean the Account by
that name created and established by Section 4.1 hereof.
"Special Redemption and Prepayment Account Requirement" shall mean the
amount specified for a series of Notes in the Supplemental Indenture authorizing
the issuance of Notes of such series.
"Specific Rating Category" shall mean a specific rating category of a
Rating Agency, taking into account any refinement or gradation of a Rating
Category by a numerical or other qualifier. For so long as any of the Notes are
rated by Moody's: (a) references to the highest applicable Specific Rating
Category shall be, with respect to obligations or investments having a term of
less than one year, to a rating of "P-1" (or, if Moody's revises its rating
schedule from time to time, such rating as Moody's shall advise the Trustee in
writing is comparable to "P-1" under such revised rating schedule), and with
respect to obligations or investments having a term of one year or longer, to a
rating of "Aaa" (or, if Moody's revises its rating schedule from time to time,
such rating as Moody's shall advise the Trustee in writing is comparable to
"Aaa" under such revised rating schedule); and (b) references to the third
highest applicable Specific Rating Category shall be, with respect to
obligations or investments having a term of one year or longer, to a rating of
"Aa2" (or, if Moody's revises its rating schedule from time to time, such rating
as Moody's shall advise the Trustee in writing is comparable to "Aa2" under such
revised rating schedule). For so long as any of the Notes are rated by Fitch:
(a)
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references to the highest applicable Specific Rating Category shall be, with
respect to obligations or investments having a term of less than one year, to a
rating of "F-1+" (or, if Fitch revises its rating schedule from time to time,
such rating as Fitch shall advise the Trustee in writing is comparable to "F-1+"
under such revised rating schedule), and with respect to obligations or
investments having a term of one year or longer, to a rating of "AAA" (or, if
Fitch revises its rating schedule from time to time, such rating as Fitch shall
advise the Trustee in writing is comparable to "AAA" under such revised rating
schedule); and (b) references to the third highest applicable Specific Rating
Category shall be, with respect to obligations or investments having a term of
one year or longer, to a rating of "AA" (or, if Fitch revises its rating
schedule from time to time, such rating as Fitch shall advise the Trustee in
writing is comparable to "AA" under such revised rating schedule).
"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, shall mean the date specified in such Note as
the fixed date on which principal of such Note or such installment of interest
is due and payable.
"Statutes" shall mean the South Dakota Codified Laws, as amended.
"Student Loan" shall mean a loan to a borrower for post-secondary
education.
"Student Loan Acquisition Certificate" shall mean a certificate signed
by an Authorized Officer of the Corporation and substantially in the form
attached as Exhibit C hereto.
"Student Loan Purchase Agreements" shall mean all agreements between
the Corporation and a Lender providing for the sale by such Lender to the
Corporation of Student Loans Financed or to be Financed under this Indenture and
substantially in the forms which are on file with the Trustee, including
amendments thereto made in accordance with Section 5.18 hereof.
"Subaccount" shall mean any subaccount of an Account created or
established by a Supplemental Indenture.
"Subordinate Beneficiaries" shall mean (1) the Holders of any
Outstanding Class B Notes, and (2) any Other Subordinate Beneficiary holding any
Other Subordinate Obligation that is Outstanding.
"Subordinate Credit Enhancement Facility" shall mean a Credit
Enhancement Facility designated as a Subordinate Credit Enhancement Facility in
the Supplemental Indenture pursuant to which such Credit Enhancement Facility is
furnished by the Corporation.
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"Subordinate Credit Facility Provider" shall mean any Person who
provides a Subordinate Credit Enhancement Facility or a Subordinate Demand
Purchase Agreement.
"Subordinate Demand Purchase Agreement" shall mean a Demand Purchase
Agreement designated as a Subordinate Demand Purchase Agreement in the
Supplemental Indenture pursuant to which such Demand Purchase Agreement is
furnished by the Corporation.
"Subordinate Obligations" shall mean, collectively, the Class B Notes
and any Other Subordinate Obligations.
"Subordinate Percentage" shall mean, as of the date of determination,
the percentage resulting by dividing the Aggregate Value by the sum of (i) the
aggregate Principal Amount of Outstanding Class A Notes and Class B Notes plus
accrued interest thereon, (ii) accrued Corporation Swap Payments and (iii) other
payments accrued and owing by the Corporation on Other Obligations.
"Subordinate Swap Agreement" shall mean a Swap Agreement designated as
a Subordinate Swap Agreement in the Supplemental Indenture pursuant to which
such Swap Agreement is furnished by the Corporation.
"Subordinate Swap Counterparty" shall mean any Person who provides a
Subordinate Swap Agreement.
"Supplemental Indenture" shall mean any amendment of or supplement to
this Indenture made in accordance with Article Eight hereof.
"Surplus Account" shall mean the Account by that name created and
established by Section 4.1 hereof.
"Surplus Fund" shall mean the Fund by that name created and
established by Section 4.1 hereof.
"Swap Agreement" shall mean an interest rate exchange agreement
between the Corporation and a Swap Counterparty, as originally executed and as
amended or supplemented, or other interest rate hedge agreement between the
Corporation and a Swap Counterparty, as originally executed and as amended or
supplemented, in each case approved by each Rating Agency, for the purpose of
converting, in whole or in part, (i) the Corporation's fixed interest rate
liability on all or a portion of any Notes to a variable rate liability, (ii)
the Corporation's variable rate liability on all or a portion of the Notes to a
fixed rate liability or (iii) the Corporation's variable rate liability on all
or a portion of the Notes to a different variable rate liability.
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"Swap Counterparty" shall mean any Person with whom the Corporation
shall, from time to time, enter into a Swap Agreement.
"Swap Counterparty Guarantee" shall mean a guarantee in favor of the
Corporation given in connection with the execution and delivery of a Swap
Agreement under this Indenture.
"Tax Exempt Notes" shall mean each series of Notes that is issued with
the intent that interest thereon be excludable from gross income for purposes of
federal income taxation, as evidenced by an opinion of Bond Counsel to that
effect delivered upon issuance of such series of Notes.
"Tax Matters Certificate" shall mean, with respect to one or all
series of Tax Exempt Notes, the applicable Corporation Certificate or
Certificates relating to arbitrage and other tax matters delivered in connection
with the issuance of such series of Notes, as the same may be amended or
supplemented in accordance with its or their terms.
"Term Notes" shall mean Notes the payment of the principal of which is
provided for from moneys credited to the Principal Account pursuant to
subsection (A) or (B) of Section 4.7.2 hereof.
"Trust Estate" shall mean the Trust Estate as described in the
Granting Clauses hereof.
"Trust Funds" shall mean, in the aggregate, all of the Funds and
Accounts.
"Trust Indenture Act" or "TIA" shall mean the Trust Indenture Act of
1939, as amended, as in force on the date hereof, unless otherwise specifically
provided.
"Trustee" shall mean First Bank National Association, as trustee under
this Indenture, and its successor or successors and any other corporation which
may at any time be substituted in its place pursuant to this Indenture.
"Unenhanced Note" shall mean, with respect to a Class A Note or a
Class B Note, any Note the payment of the principal of and interest on which is
not secured by a Credit Enhancement Facility or a Demand Purchase Agreement.
"Value" shall mean, on any calculation date when required under this
Indenture, the value of the Trust Estate calculated by the Corporation, in
accordance with the following:
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(1) with respect to any Eligible Loan, the Principal Balance thereof,
plus any unamortized premiums, accrued interest and Special Allowance
Payments thereon;
(2) with respect to any funds of the Corporation on deposit in any
commercial bank or as to any banker's acceptance or repurchase agreement or
investment agreement, the amount thereof plus accrued interest thereon;
(3) with respect to any Investment Securities of an investment
company, the bid price of the shares as reported by the investment company;
(4) as to other investments, (i) the bid price published by a
nationally recognized pricing service, or (ii) if the bid and asked prices
thereof are published on a regular basis in The Wall Street Journal (or, if
not there, then in The New York Times): the average of the bid and asked
prices for such investments so published on or most recently prior to such
time of determination plus accrued interest thereon;
(5) as to investments the bid prices of which are not published by a
nationally recognized pricing service and the bid and asked prices of which
are not published on a regular basis in The Wall Street Journal or The New
York Times the lower of the bid prices at such time of determination for
such investments by any two nationally recognized government securities
dealers (selected by the Corporation in its absolute discretion) at the
time making a market in such investments, plus accrued interest thereon;
and
(6) any accrued but unpaid Swap Counterparty Payment, unless the Swap
Counterparty is in default of its obligations under the Swap Agreement.
"Value of Investment Securities" shall mean (i) as to demand bank
deposits, bank time deposits which may be withdrawn without penalty by the
depositor upon fourteen (14) days' or less notice and Investment Securities
which mature not more than six (6) months from the date of computation, the
amount of such deposits and the par value of such Investment Securities, and
(ii) as to Investment Securities, other than demand bank deposits and bank time
deposits described in clause (i), which mature more than six (6) months after
the date of computation, the par value thereof or, if purchased at more or less
than par, the cost thereof adjusted to reflect the amortization or premium or
discount, as the case may be, paid upon their purchase. The computation made
under this paragraph shall include accrued interest.
"Variable Rate Notes" shall mean Notes whose interest rate is not
fixed but varies on a periodic basis as specified in the Supplemental Indenture
providing for the issuance thereof.
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Section 1.2. Definitions of General Terms. Unless the context shall
clearly indicate otherwise, or may otherwise require, in this Indenture the
terms "herein," "hereunder," "hereby," "hereto," "hereof" and any similar terms
refer to this Indenture as a whole and not to any particular article, section or
subdivision hereof.
Unless the context shall clearly indicate otherwise, or may otherwise
require, in this Indenture: (i) references to articles, sections and other
subdivisions, whether by number or letter or otherwise, are to the respective or
corresponding articles, sections or subdivisions of this Indenture as such
articles, sections or subdivisions may be amended from time to time; (ii)
references to articles, chapters, subchapters and sections of the Statutes, or
to any public law or other statute of the United States or any section thereof,
are to the respective or corresponding chapters, subchapters, sections and
statutes as they may be amended from time to time; (iii) the word "heretofore"
means before the date of execution of this Indenture, the word "now" means at
the date of execution of this Indenture, and the word "hereafter" means after
the date of execution of this Indenture.
Section 1.3. Computations. Unless the facts shall then be otherwise,
all computations required for the purposes of this Indenture shall be made on
the assumption that: (i) the principal of and interest on all Notes shall be
paid as and when the same become due; (ii) all credits required by this
Indenture to be made to any Fund or Account shall be made in the amounts and at
the times required; (iii) all Notes required by this Indenture to be redeemed
from moneys credited to the Note Principal Account shall be redeemed on the
respective Sinking Fund Payment Dates therefor in the amounts and at the times
as required by this Indenture; and (iv) all Corporation Swap Payments and
Counterparty Swap Payments (unless the Swap Counterparty is then in default of
its obligations under the Swap Agreement) shall be paid when the same become
due.
Section 1.4. Compliance Certificates and Opinions, etc.
(a) Except as otherwise specifically provided in this Indenture, upon
any application or request by the Corporation to the Trustee to take any action
under any provision of this Indenture, the Corporation shall furnish to the
Trustee (i) a Corporation Certificate 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.
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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;
(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 property or securities with the
Trustee that is to be made the basis for the release of any property
subject to the lien created by this Indenture, the Corporation shall, in
addition to any obligation imposed in Section 1.4(a) or elsewhere in this
Indenture, furnish to the Trustee (1) a Corporation Certificate certifying
or stating the opinion of each person signing such certificate as to the
fair value (within 90 days of such deposit) to the Corporation of the
property or securities to be so deposited, (2) 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 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 first priority lien and security interest in
favor of the Trustee, for the benefit of the Trustee, created by this
Indenture in the property or securities to be so deposited, 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, and (3) evidence that the Rating Agency Condition has
been satisfied.
(ii) Whenever the Corporation is required to furnish to the Trustee a
Corporation Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Corporation
shall also deliver to the Trustee an Independent Certificate as to the same
matters, if the fair value to the Corporation of the property to be so
deposited and of all other such property made the basis of any such
withdrawal or release since the commencement of the then-current fiscal
year of the Corporation, as set forth in the certificates delivered
pursuant to clause (i) above and this clause (ii), is 10% or more of the
Outstanding Principal Amount of the Notes, but such a
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certificate need not be furnished with respect to any property so
deposited, if the fair value thereof to the Corporation as set forth in the
related Corporation Certificate is less than $25,000 or less than 1% of the
Outstanding Principal Amount of the Notes.
(iii) Other than with respect to any release described in clause (A)
or (B) of Section 1.4(b)(v), whenever any property or securities are to be
released from the lien created by this Indenture, the Corporation shall
also furnish to the Trustee a Corporation Certificate 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 created by this Indenture in
contravention of the provisions hereof.
(iv) Whenever the Corporation is required to furnish to the Trustee a
Corporation Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Corporation
shall also furnish to the Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property or securities (other than property described in clauses (A) or (B)
of Section 1.4(b)(v)) released from the lien created by this Indenture
since the commencement of the then current fiscal year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals
10% or more of the Outstanding Principal 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
Corporation Certificate is less than $25,000 or less than one percent of
the then Outstanding Principal Amount of the Notes.
(v) Notwithstanding any other provision of this Section, the
Corporation may, without compliance with the other provisions of this
Section, (A) collect, liquidate, sell or otherwise dispose of Student Loans
as and to the extent permitted or required by this Indenture and the
Servicing Agreement, and (B) make cash payments out of the Funds and
Accounts as and to the extent permitted or required by this Indenture.
(c) 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 Corporation
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
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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
the Servicer or the Corporation, stating that the information with respect to
such factual matters is in the possession of the Servicer or the Corporation,
unless such Counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Corporation shall
deliver any document as a condition of the granting of such application, or as
evidence of the Corporation'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 Corporation to have such application granted or to
the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VII.
Section 1.5. Evidence of Action by the Corporation. Except as
otherwise specifically provided in this Indenture, any request, direction,
command, order, notice, certificate or other instrument of, by or from the
Corporation shall be effective and binding upon the Corporation for the purposes
of this Indenture if signed by an Authorized Officer.
Section 1.6. Exclusion of Notes Held By or For the Corporation. In
determining whether the Holders of the requisite Principal Amount of Notes
Outstanding have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Notes owned by the Corporation shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, or waiver, only Notes which the
Trustee knows to be so owned shall be disregarded.
Section 1.7. Exhibits. Attached to and by reference made a part of
this Indenture are the following Exhibits:
Exhibit A: Form of Eligible Loan Acquisition Certificate;
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Exhibit B: Form of Eligible Loan Origination Certificate;
Exhibit C: Form of Student Loan Acquisition Certificate; and
Exhibit D: Form of Updating Eligible Loan Acquisition Certificate.
Section 1.8. 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 and any Other Obligations.
"indenture security holder" means a Noteholder or Other Beneficiary.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Corporation and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
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ARTICLE TWO
NOTE FORMS
Section 2.1. Forms Generally. The Notes and the Trustee's
certificate of authentication shall be in substantially the forms set forth in
this Article Two, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture or by the
Supplemental Indenture providing for the issuance thereof, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their signing 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.
Section 2.2. Form of Notes. The Notes shall be in substantially the
following form:
EDUCATION LOANS INCORPORATED
STUDENT LOAN ASSET-BACKED NOTE
[SENIOR] [SUBORDINATE] [JUNIOR SUBORDINATE] SERIES ____
CLASS ___________
No. R__________________________ $
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ---------------- -------- -----
REGISTERED HOLDER:
PRINCIPAL AMOUNT:
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FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to), acknowledges itself indebted and hereby promises to
pay to the registered holder specified above, or registered assigns (the
"Registered Holder"), but solely from the revenues and receipts hereinafter
specified and not otherwise, the Principal Amount specified above on the Stated
Maturity Date specified above (subject to the right of prior redemption
hereinafter mentioned), upon presentation and surrender of this Note at the
Principal Office (as defined in the Indenture) of the Trustee hereinafter
referred to or, at the option of the Registered Holder hereof, at the Principal
Office of any duly appointed Paying Agent, and to pay, from the source and in
the manner hereinafter provided, interest on said principal sum to the
Registered Holder hereof from the date hereof until the payment of said
principal sum in full, at the rate per annum specified above, payable
semiannually on the first day of June and December in each year, commencing
______________________, ________, by check or draft mailed to the Person who is
the Registered Holder hereof as of 5:00 p.m. in the city in which the Principal
Office of the Note Registrar is located on the fifteenth day of the calendar
month, whether or not a Business Day (as defined in the Indenture), preceding
such interest payment date (the "Record Date"), at the address of such
Registered Holder as it appears on the Note Register maintained by the Note
Registrar[; provided that, if the Registered Holder of this Note is the
Registered Holder of Notes of this series in the aggregate Principal Amount of
$1,000,000 or more (or, if less than $1,000,000 in Principal Amount of Notes of
such series is outstanding, the Registered Holder of all outstanding Notes), at
the direction of such Registered Holder such principal and interest shall be
payable by electronic transfer by the Trustee in immediately available funds to
an account designated by such Registered Holder]. In addition, interest on this
Note is payable at the maturity hereof in the same manner as the principal
hereof, unless the date of such maturity is a regularly scheduled interest
payment date, in which event interest is payable in the manner set forth in the
preceding sentence. Any interest not so timely paid or duly provided for shall
cease to be payable to the Person who is the Registered Holder hereof at the
close of business on the Record Date and shall be payable to the Person who is
the Registered Holder hereof at the close of business on a special record date
for the payment of any such defaulted interest. Such special record date shall
be fixed by the Trustee whenever moneys become available for payment of the
defaulted interest, and notice of the special record date shall be given to the
Registered Holder hereof not less than ten days prior thereto by first-class
mail to such Registered Holder as shown on the Note Register on a date selected
by the Trustee, stating the date of the special record date and the date fixed
for the payment of such defaulted interest. The principal of, premium, if any,
and interest on this Note are payable in lawful money of the United States of
America.
This Note is one of an authorized issue of Notes (hereinafter called
the "Notes"), issued and to be issued by the Corporation in one or more series
pursuant to an Indenture of Trust, dated as of July 1, 1997, as [amended and]
supplemented by a ______________________ Supplemental Indenture of Trust, dated
as of __________________________________,
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(collectively, the "Indenture"), each between the Corporation and First Bank
National Association, Minneapolis, Minnesota, as Trustee (the "Trustee," which
term includes any successor trustee under the Indenture). As provided in the
Indenture, the Notes are issuable in series which may vary as in the Indenture
provided or permitted. This Note is one of a series (the "Series __________
Notes") limited to an aggregate Principal Amount of $________________________,
the proceeds of which will be used by the Corporation to ____________________.
Reference is hereby made to the Indenture, copies of which are on
file in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
(as defined in the Indenture) secured thereunder; the student loan acquisition
program being financed by the issuance of the Notes; the revenues and other
moneys pledged to the payment of the principal of, premium, if any, and interest
on the Notes and the Other Obligations; the nature and extent and manner of
enforcement of the pledge; the conditions upon which Notes may be issued or
Other Obligations may be incurred by the Corporation thereunder, payable from
such revenues and other moneys thereunder as Senior Obligations, Subordinate
Obligations or Class C Notes (each as defined in the Indenture); the conditions
upon which the Indenture may be amended or supplemented with or without the
consent of the Holders of the Notes; the rights and remedies of the Registered
Holder hereof with respect hereto and thereto, including the limitations upon
the right of a Registered Holder hereof to institute any suit, action or
proceeding in equity or at law with respect hereto and thereto; the rights,
duties and obligations of the Corporation and the Trustee thereunder; the terms
and provisions upon which the liens, pledges, charges, trusts and covenants made
therein may be discharged at or prior to the maturity or redemption of this
Note, and this Note thereafter no longer be secured by the Indenture, or be
deemed to be Outstanding (as defined in the Indenture) thereunder; and for the
other terms and provisions thereof.
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture, including certain notes evidencing
Student Loans and the proceeds of the Corporation's bonds, notes or other
evidences of indebtedness, if any, issued with respect to the Notes.
Each Noteholder, by acceptance of a Note, covenants and agrees that
by accepting the benefits of the Indenture and such Note that such Noteholder
will not at any time institute against the Corporation, or join in any
institution against the Corporation, any bankruptcy, reorganization,
arrangement, insolvency or liquidation 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 Servicing Agreement.
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The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
[The Series ______________ Notes constitute Class B Notes under the
Indenture which are subordinated in right of payment, the direction of remedies
and certain other matters in accordance with the terms of the Indenture to the
rights of Class A Notes issued from time to time under the Indenture and Other
Senior Beneficiaries thereunder. A failure to pay principal of, premium, if
any, or interest on this Class B Note will not constitute an Event of Default
under the Indenture if any Senior Obligation is Outstanding (each as defined in
the Indenture).]
[The Series ______________ Notes constitute Class C Notes under the
Indenture which are subordinated in right of payment, the direction of remedies
and certain other matters in accordance with the terms of the Indenture to the
rights of Class A Notes and Class B Notes issued from time to time under the
Indenture and Other Senior Beneficiaries and Other Subordinate Beneficiaries (as
defined in the Indenture) thereunder. A failure to pay principal of, premium,
if any, or interest on this Class C Note will not constitute an Event of Default
under the Indenture if any Senior Obligation is Outstanding or any Subordinate
Obligation (as defined in the Indenture) is Outstanding.]
[At this point in the Note form of any series should be inserted the
paragraphs, if any, relating to the terms of redemption for that series.]
Notice of redemption shall be given by first-class mail mailed at
least 30 days before the Redemption Date to each Registered Holder of Notes to
be redeemed at his last address appearing on the Note Register; but no defect in
or failure to give such notice of redemption shall affect the validity of
proceedings for redemption of any Note not affected by such defect or failure.
All Notes so called for redemption will cease to bear interest on such
Redemption Date, provided funds for their redemption have been duly deposited,
and, except for the purpose of payment, shall no longer be protected by the
Indenture and shall not be deemed Outstanding thereunder.
It is provided in the Indenture that Notes of a denomination larger
than $[5,000] may be redeemed in part ($[5,000] or an integral multiple thereof)
and that upon any partial redemption of any such Note the same shall be
surrendered in
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exchange for one or more new Notes of the same series in authorized form for the
unredeemed portion of principal.
If provision is made for the payment of principal of, premium, if any,
and interest on this Note in accordance with the Indenture, this Note shall no
longer be deemed Outstanding under the Indenture, shall cease to be entitled to
the benefits of the Indenture and shall thereafter be payable solely from the
funds provided for such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and with the consent of
the Holders of two-thirds of the aggregate Principal Amount of Class B Notes at
the time Outstanding, if affected thereby. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
Principal Amount of the Class A Notes at the time Outstanding or Other Senior
Beneficiaries or, if no Senior Obligations are Outstanding, the Holders of
specified percentages in aggregate Principal Amount of the Class B Notes at the
time Outstanding or Other Subordinate Beneficiaries, on behalf of the Holders of
all the Notes, to waive certain past defaults under the Indenture and their
consequences. Any such consent or waiver shall be conclusive and binding upon
the Registered Holder of this Note and upon all future Registered Holders hereof
and of any Note issued in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar (which shall be the Trustee unless and until the Authenticating Agent
becomes the Note Registrar under the Indenture) or at the Principal Office of a
duly appointed Authenticating Agent (the "Authenticating Agent," which term
includes any successor Authenticating Agent under the Indenture), duly endorsed
or accompanied by a written instrument of transfer in form satisfactory to the
Note Registrar or the Authenticating Agent, as the case may be, and executed by
the Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or the Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more
other Notes of the same series and Stated Maturity upon surrender hereof at the
Principal Office of the Note Registrar or the Principal Office of an
Authenticating Agent. Thereupon the Corporation shall execute and the Trustee
or the Authenticating Agent, as the case
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may be, shall authenticate and deliver, in exchange for this Note, one or more
new fully registered Notes in the name of the transferee, of an authorized
denomination, in aggregate Principal Amount equal to the Principal Amount of
this Note, of the same series and Stated Maturity and bearing interest at the
same rate.
The Corporation may require payment by the Registered Holder hereof
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of this Note, other than
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
Person in whose name this Note is registered on the Note Register as the
absolute owner hereof for all purposes, whether or not this Note is overdue,
and neither the Corporation, the Trustee, any Paying Agent, any Authenticating
Agent, the Note Registrar nor any other such agent shall be affected by notice
to the contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
Authenticating Agent by the manual signature of one of its authorized
representatives.
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the facsimile signatures of its President and Secretary,
and a facsimile of its corporate seal to be reproduced hereon.
EDUCATION LOANS INCORPORATED
____________________________
President
(SEAL)
____________________________
Secretary
Dated:
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CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, ____________________________,
as Trustee [or ______________, ____________,
as Authenticating Agent
By_________________________ By__________________________
Authorized Representative Authorized Representative]
___________________________
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto ________________________ the within Note and irrevocably appoints
____________________________, attorney-in-fact, to transfer the within Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated _______________________
PLEASE INSERT SOCIAL SECURITY ______________________________
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this
OF ASSIGNEE assignment must correspond with
the name as it appears upon the
face of the within Note in every
______________________________ particular, without any alteration
whatsoever.
SIGNATURE GUARANTEED:
______________________________
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ARTICLE THREE
THE NOTES
Section 3.1. General Title. There is hereby created and established
an issue of Notes of the Corporation to be known and designated as "Student Loan
Asset-Backed Notes," which Notes may be issued in series as hereinafter
provided. With respect to the Notes of any particular series, the Corporation
may incorporate in or add to the general title of such Notes any words, letters
or figures designed to distinguish that series.
Section 3.2. General Limitations; Issuable in Series; Purposes and
Conditions for Issuance; Payment of Principal and Interest. The aggregate
Principal Amount of Notes that may be authenticated and delivered and
Outstanding under this Indenture is not limited, except as may be limited by
law. The Notes may be issued in series as from time to time authorized by the
Board.
Notes shall be issued only for the purposes of (a) providing funds for
the origination or purchase, or both, by the Corporation of Eligible Loans
(including, for this purpose, the acquisition under this Indenture of Eligible
Loans previously purchased or originated by the Corporation from other available
moneys of the Corporation), or (b) refunding at or before their Stated Maturity
any or all Outstanding Notes issued for that purpose, and (c) paying
Administrative Costs, Note Fees, Costs of Issuance and capitalized interest on
the Notes being issued and making deposits to the Reserve Fund.
The Notes, including the principal thereof, premium, if any, and
interest thereon and any Carry-Over Amounts (and accrued interest thereon) with
respect thereto, and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under this Indenture.
The Stated Maturities and Sinking Fund Payment Dates of all Notes
shall occur on a June 1 or an December 1 (unless otherwise specified with
respect to any Variable Rate Notes, including those Initial Notes constituting
Variable Rate Notes, in the Supplemental Indenture providing for the issuance
thereof). All Corporation Swap Payments and other payments to be made by the
Corporation to Credit Facility Providers shall be payable on a regularly
scheduled Interest Payment Date. Except as otherwise provided in a Supplemental
Indenture with respect to the series of Notes authorized thereby, interest on
each Note shall be calculated to accrue on the basis of a 360-day year composed
of twelve 30-day months. In the event a default occurs in the due and punctual
payment of any interest on any Note, interest shall be payable thereon to the
extent permitted by law on the overdue installment of interest, at the interest
rate borne by the Note in respect of which such interest is overdue.
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The principal of and premium, if any, on the Notes, together with
interest payable on the Notes at the Maturity thereof if the date of such
Maturity is other than a regularly scheduled Interest Payment Date, shall,
except as hereinafter provided or as otherwise provided in a Supplemental
Indenture, be payable upon presentation and surrender of such Notes at the
Principal Office of the Trustee or, at the option of the Holder, at the
Principal Office of a duly appointed Paying Agent. Interest due on the Notes on
each regularly scheduled Interest Payment Date shall, except as hereinafter
provided or as otherwise provided in a Supplemental Indenture, be payable by
check or draft drawn upon the Trustee mailed to the Person who is the Holder
thereof as of 5:00 p.m. in the city in which the Principal Office of the Note
Registrar is located on the Regular Record Date relating thereto, at the address
of such Holder as it appears on the Note Register. Any interest not so timely
paid or duly provided for (herein referred to as "Defaulted Interest") shall
cease to be payable to the Person who is the Holder thereof at the close of
business on the Regular Record Date and shall be payable to the Person who is
the Holder thereof at the close of business on a Special Record Date for the
payment of any such defaulted interest. Such Special Record Date shall be fixed
by the Trustee whenever moneys become available for payment of the Defaulted
Interest, and notice of the Special Record Date shall be given to the Holders of
the Notes not less than ten (10) days prior thereto by first-class mail to each
such Holder as shown on the Note Register on a date selected by the Trustee,
stating the date of the Special Record Date and the date fixed for the payment
of such Defaulted Interest. All payments of principal of, premium, if any, and
interest on the Notes shall be made in lawful money of the United States of
America.
After the issuance of the Initial Notes, and from time to time, one or
more additional series of Notes may be issued upon compliance with the
provisions of Article Three hereof (except where specifically indicated
otherwise in this Section 3.2) in such Principal Amounts as may be determined by
the Corporation for any of the purposes hereinbefore specified in this Section
3.2 upon compliance with the following conditions and any additional conditions
specified in a Supplemental Indenture:
A. The Trustee shall have certified that there is no deficiency in
the Rebate Fund or the Note Fund and that, after the issuance of the series
of Notes then to be issued, there will not be a deficiency in the Reserve
Fund.
B. An Authorized Officer of the Corporation shall have certified (as
evidenced by a Corporation Certificate filed with the Trustee) that the
Corporation is not in default in the performance of any of its covenants
and agreements in this Indenture made (unless, in the opinion of Counsel,
any such default does not deprive any Beneficiary in any material respect
of the security afforded by this Indenture).
C. The Trustee shall have been provided with a Cash Flow Projection
giving effect to such issuance of Notes which shall reflect that, after
such
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issuance, the Senior Asset Requirement will be met; provided that no
such Cash Flow Projection shall be required if Unenhanced Notes are then
Outstanding and each Rating Agency confirms in writing to the Trustee that
it will not require such Cash Flow Projection.
D. If such Notes are to be Class A Notes or Class B Notes, the
Trustee shall have been provided with written evidence from each Rating
Agency that such series of Notes is rated (i) if such Notes are to be Class
A Notes, at least as high as the outstanding rating assigned by each Rating
Agency to any Outstanding Class A Notes, and (ii) if such Notes are to be
Class B Notes, at least as high as the outstanding rating assigned by each
Rating Agency to any Outstanding Class B Notes.
E. If any Unenhanced Notes are Outstanding, each Rating Agency shall
have confirmed that no outstanding ratings on any of the Outstanding
Unenhanced Notes will be reduced or withdrawn as a result of such issuance,
as evidenced by written confirmations thereof delivered to the Trustee from
each Rating Agency, or, if no Unenhanced Notes are then Outstanding, but
Other Obligations are Outstanding, the Other Beneficiaries holding such
Other Obligations consent to the issuance of such Notes, as evidenced in
writing to the Trustee by each such Other Beneficiary.
In calculating the Reserve Fund Requirement, all Notes to be defeased by a
series of refunding Notes shall be deemed not Outstanding as of the date of
calculation.
Section 3.3. Terms of Particular Series. Each series of Notes shall
be created by and issued pursuant to a Supplemental Indenture and such
Supplemental Indenture shall designate Notes of each series as Class A Notes,
Class B Notes or Class C Notes. The Notes of each series shall bear such date
or dates, shall be payable at such place or places, shall have such Stated
Maturities and Sinking Fund Payment Dates on June 1 or December 1 (unless
otherwise specified with respect to any Variable Rate Notes, including those
Initial Notes constituting Variable Rate Notes, in the Supplemental Indenture
providing for the issuance thereof), shall bear interest at such rate or rates,
from such date or dates, payable in such installments and on Interest Payment
Dates and at such place or places, may be redeemable at such Redemption Price or
Prices and upon such terms (in addition to the prices and terms herein specified
for redemption of all Notes) and may be prepayable upon such terms as shall be
provided for in the Supplemental Indenture creating that series. The
Supplemental Indenture creating any series of Notes may contain a provision
limiting the aggregate Principal Amount of the Notes of that series or the
aggregate Principal Amount of Notes which may thereafter be issued.
All Notes of the same series shall be substantially identical in tenor
and effect, except as to denomination, the differences specified herein or in a
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Supplemental Indenture between interest rates, Stated Maturities and redemption
provisions.
Section 3.4. Form and Denominations. Except as otherwise set forth
in the Supplemental Indenture providing for the issuance thereof, the Notes of
each series shall be issued in substantially the form set forth in Article Two
hereof. The Notes of each series shall be distinguished from the Notes of other
series and Term Notes shall be distinguished from Serial Notes in such manner as
the Board may determine.
The Notes of any series may be issuable as fully registered Notes
only, of single Stated Maturities.
The Notes of each series shall be issuable in such denominations as
shall be provided in the provisions of the Supplemental Indenture creating such
series. In the absence of any such provisions with respect to the Notes of any
particular series, the Notes of such series shall be in the denomination of
$5,000 in original Principal Amount or any integral multiple thereof.
Section 3.5. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Corporation by the president or any vice president
of the Corporation and attested by the secretary or an assistant secretary of
the Corporation, either or both of which signatures may be facsimiles, and a
facsimile of the seal of the Corporation.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Corporation shall bind the
Corporation, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Corporation may deliver Notes executed by the Corporation to
the Trustee or the Authenticating Agent for authentication; and, upon
Corporation Order, the Trustee or the Authenticating Agent, as the case may be,
shall authenticate and deliver such Notes as in this Indenture provided and not
otherwise.
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 in Article
Two hereof executed by the Trustee or the Authenticating Agent by manual
signature of one of its authorized officers, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
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Section 3.6. Temporary Notes. Pending the preparation of definitive
Notes, the Corporation may execute and, upon Corporation Order, the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued, in fully registered form, without coupons, and with such appropriate
insertions, omissions, substitutions and other variations as the officers of the
Corporation executing such Notes may determine, as evidenced by their signing of
such Notes.
If temporary Notes are issued, the Corporation 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 Principal Office of the Trustee,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Notes, the Corporation shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like Principal Amount of
definitive Notes of the same series and Stated Maturity 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 3.7. Registration, Transfer and Exchange. The Corporation
shall cause to be kept at the Principal Office of the Note Registrar a Note
Register in which, subject to such reasonable regulations as it may prescribe,
the Corporation shall provide for the registration of Notes and of transfers of
Notes as herein provided. The Corporation may, in a Supplemental Indenture,
appoint an Authenticating Agent for the purpose of receiving, authenticating and
delivering Notes in connection with transfers, exchanges and registrations as
herein provided. Unless an Authenticating Agent is designated to serve in such
capacity pursuant to a Supplemental Indenture or is otherwise directed, and
agrees, to so serve in accordance with a Corporation Order, the Trustee shall be
Note Registrar for the purpose of registering Notes and transfer of Notes as
herein provided. At reasonable times and under reasonable regulations
established by the Note Registrar, the Note Register may be inspected and copied
by the Corporation or by the Holders (or a designated representative thereof) of
ten percent (10%) or more in Principal Amount of Notes then Outstanding.
The Trustee and any Authenticating Agent shall adhere, with respect to
transfer of Notes, to the standards for efficiency in transfer agent performance
established in Securities and Exchange Commission Rules 17Ad-2 through 17Ad-7
under the Securities Exchange Act of 1934, most particularly Rule 17Ad-2, which
requires that registered transfer agents process at least ninety percent (90%)
of routine items (such as certificates presented for transfer) received during
any month within three (3) business days of their receipt.
Upon surrender for transfer or exchange of any Note at the Principal
Office of the Note Registrar or at the Principal Office of any Authenticating
Agent, or
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on a Purchase Date or Mandatory Tender Date with respect to Notes which are
Deemed Tendered, whether or not surrendered on such date, the Corporation shall
execute, and the Trustee or the Authenticating Agent, as the case may be, shall
authenticate and deliver, in the name of the designated transferee or
transferees, including transferees designated by a Depositary with respect to
Notes Deemed Tendered, or in exchange for the Note surrendered, one or more new
fully registered Notes of any authorized denomination or denominations, of like
aggregate Principal Amount, of the same series, having the same Stated Maturity
and interest rate and bearing numbers not previously assigned.
All Notes executed, delivered and authenticated pursuant to the
preceding paragraph shall be registered in the name of the Holder presenting the
Note for exchange or the designated transferee, as the case may be, on the Note
Register on the date of such transfer or exchange.
All Notes surrendered upon any exchange or transfer provided for in
this Indenture shall be promptly canceled by the Trustee upon receipt thereof
from the Note Registrar or the Authenticating Agent, as the case may be, and
thereafter disposed of as directed by Corporation Order.
All Notes issued upon any transfer or exchange of Notes, including
Notes issued in lieu of Notes Deemed Tendered, whether or not surrendered, shall
be the valid obligations of the Corporation evidencing the same debt, and
entitled to the same security and benefits under this Indenture, as the Notes
surrendered upon such transfer or exchange or in lieu of which such Notes were
issued.
Every Note presented or surrendered for transfer or exchange shall be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Note Registrar or the Authenticating Agent, as the case may
be, duly executed, by the Holder thereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar or the Authenticating Agent, as
the case may be, which requirements include membership or participation in a
"signature guarantee program" determined by the Note Registrar or the
Authenticating Agent, as the case may be, in accordance with the Exchange Act,
and such other documents as the Trustee may require.
The Corporation may require payment by the Noteholder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Notes, other than exchanges upon a
partial redemption of a Note not involving any transfer. All other expenses
incurred by the Corporation, the Trustee, the Note Registrar or the
Authenticating Agent in connection with any transfer or exchange of Notes shall
be paid by the Corporation.
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Except in connection with a Purchase Demand, the Corporation shall not
be required to transfer any Note (i) during a period beginning at the opening of
business fifteen (15) days before any selection of Notes of the same series for
redemption and ending at the close of business on the day of such selection,
(ii) selected for redemption in whole or in part, (iii) after receipt by the
Depositary of a properly completed Purchase Demand with respect thereto, or (iv)
on or after the date notice of a Mandatory Tender Date is given through such
Mandatory Tender Date. In the event that a Note is transferred in connection
with a Purchase Demand either during the period referred to in clause (i) or
after being selected for redemption in whole or in part, the Note Registrar or
the Authenticating Agent, as appropriate, shall give written notice to any
transferee thereof that such Note may be, or has been, selected for redemption,
as the case may be.
Section 3.8. Mutilated, Destroyed, Lost and Stolen Notes. If a
mutilated Note is surrendered to the Trustee or the Note Registrar, the
Corporation shall execute and the Trustee or any Authenticating Agent shall
authenticate and deliver in exchange therefor a new Note of the same series and
of like tenor and Principal Amount, Stated Maturity and interest rate, bearing a
number not contemporaneously outstanding. If the Corporation, the Note
Registrar, any Authenticating Agent and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Corporation, the Note Registrar, any Authenticating Agent and
the Trustee such security or indemnity as may be required by them to save each
of them harmless, then, in the absence of notice to the Corporation, the Note
Registrar, any Authenticating Agent or the Trustee that such Note has been
acquired by a bona fide purchaser, the Corporation shall execute and upon its
request the Trustee or any Authenticating Agent shall authenticate and deliver,
in exchange for or in lieu of such destroyed, lost or stolen Note, a new Note of
the same series and of like tenor, Principal Amount, Stated Maturity and
interest rate.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Corporation in its discretion may,
instead of issuing a new Note, pay such Note.
Every new Note issued pursuant to this Section 3.8 in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Corporation, whether or not the 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 of such series duly issued and authenticated hereunder. Neither the
Corporation, the Trustee, the Note Registrar nor any Authenticating Agent shall
be required to treat both the original Note and any duplicate Note as being
Outstanding for the purpose of determining the Principal Amount of Notes which
may be issued hereunder or for the purpose of determining any percentage of
Notes Outstanding hereunder, but both the original and duplicate Note shall be
treated as one and the same.
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Upon the issuance of any new Note under this Section 3.8, the
Corporation may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Note Registrar, any
Authenticating Agent and the Trustee) connected therewith.
The provisions of this Section 3.8 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 3.9. Interest Rights Preserved; Dating of Notes. Each Note
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Note shall carry all the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Note. Each Note shall bear an original
issue date as provided in the Supplemental Indenture authorizing the issuance of
the series of Notes of which such Note is a part and, upon the original delivery
of a series of Notes or an exchange or transfer of Notes pursuant to Section 3.7
hereof, the Trustee or the Authenticating Agent, as the case may be, shall date
each Note to be delivered as of the date of authentication thereof, except as
may be otherwise provided in a Supplemental Indenture with respect to Notes of
the series authorized to be issued thereby.
Section 3.10. Persons Deemed Holders. The Corporation, the Trustee,
each Authenticating Agent, each Paying Agent, each Note Registrar, each
Depositary and any other agent of the Corporation may, except in the case of
Notes Deemed Tendered, treat the Person in whose name any Registered Note is
registered as the owner of such Note for the purpose of receiving payment of
principal of (and premium, if any), interest on and any Carry-Over Amounts (and
accrued interest thereon) with respect to such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Corporation,
the Trustee, any Authenticating Agent, any Paying Agent, any Note Registrar, any
Depositary nor any other agent of the Corporation shall be affected by notice to
the contrary.
Section 3.11. Cancellation. All Notes surrendered for payment,
redemption, transfer or exchange, if surrendered to the Trustee, shall be
promptly canceled by it, and, if surrendered to any Person other than the
Trustee, shall be delivered to the Trustee and, if not already canceled, shall
be promptly canceled by it. The Corporation may at any time deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder, which Notes so delivered shall be promptly canceled by the Trustee.
All canceled Notes held by the Trustee shall be disposed of as directed by a
Corporation Order.
Section 3.12. Class B and Class C Notes. The Corporation may at any
time issue a series of Notes pursuant to Section 3.2 hereof which is subordinate
in rights to the Senior Obligations. Such subordinate obligations shall either
be on a parity with the Subordinate Obligations in all respects or may be
subordinate to the
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Subordinate Obligations in respect of each of the provisions of this Indenture
which express the subordination of the Subordinate Obligations.
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ARTICLE FOUR
CREATION OF FUNDS AND ACCOUNTS;
CREDITS THERETO AND PAYMENTS THEREFROM
Section 4.1. Creation of Funds and Accounts. There are hereby
created and established the following Funds and Accounts to be held by the
Trustee, or, in the case of the Acquisition Fund, the Revenue Fund or the
Administration Fund, by the Trustee or a Deposit Agent, and maintained in
accordance with the provisions of this Indenture:
1. An Acquisition Fund.
2. An Administration Fund.
3. A Reserve Fund.
4. A Rebate Fund, within which there shall be a Rebate Account, an
Excess Earnings Account and an Indemnification Account.
5. A Revenue Fund, within which there shall be a Repayment Account
and an Income Account.
6. A Note Fund, within which there shall be an Interest Account, a
Principal Account and a Retirement Account.
7. A Surplus Fund, within which there shall be a Special Redemption
and Prepayment Account and a Surplus Account.
Section 4.2. Acquisition Fund. With respect to each series of Notes,
the Trustee shall, upon delivery to the initial purchasers thereof and from the
proceeds thereof, credit to the Acquisition Fund the amount, if any, specified
in the Supplemental Indenture providing for the issuance of such series of
Notes. The Trustee shall also deposit in the Acquisition Fund: (i) any funds to
be transferred thereto from the Revenue Fund as provided in Section 4.6 hereof
or from the Surplus Fund as provided in Section 4.8 hereof, and (ii) any other
amounts specified in a Supplemental Indenture to be deposited therein. In
addition, the Trustee shall also credit to the Acquisition Fund any Eligible
Loans transferred thereto from the Surplus Account pursuant to Section 4.8
hereof (any such Eligible Loans so transferred being thereafter deemed to have
been Financed with moneys in the Acquisition Fund).
Balances in the Acquisition Fund shall be used only for (a) the
acquisition of Eligible Loans pursuant to a Student Loan Purchase Agreement
(including, for this purpose, the acquisition of Eligible Loans previously
purchased or originated by the Corporation or the Trustee on behalf of the
Corporation
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pursuant to a Student Loan Purchase Agreement from other available moneys of the
Corporation), (b) the origination of Eligible Loans, (c) the redemption or
purchase of Notes as provided in a Supplemental Indenture providing for the
issuance of such Notes, (d) the payment of Debt Service on the Class A Notes and
Other Senior Obligations when due (upon transfer to the Note Fund as set forth
in the following paragraph), (e) the payment of the purchase price of any Class
A Notes required to be purchased on a Purchase Date or a Mandatory Tender Date
(upon transfer to the Note Fund as set forth in the following paragraph), or (f)
to cure deficiencies in the Rebate Fund (upon transfer to the Rebate Fund as set
forth in the following paragraph). The Trustee shall make or shall authorize the
Deposit Agent to make payments to Lenders from the Acquisition Fund for the
acquisition of Eligible Loans (such payments to be made at purchase prices not
in excess of the amount specified therefor in the Supplemental Indenture which
created the Account in the Acquisition Fund from which such purchase price is to
be withdrawn), including the payment of reasonable transfer or assignment fees,
if applicable, upon receipt by the Trustee of an Eligible Loan Acquisition
Certificate and all documents, opinions and certificates required thereby.
Within three (3) Business Days after the disbursement of moneys from the
Acquisition Fund for the purchase of Eligible Loans pursuant to an Eligible Loan
Acquisition Certificate, the Corporation shall forward to the Trustee an
updating Corporation Certificate substantially in the form of Exhibit D hereto
with respect to such Eligible Loans. The Trustee shall make or shall authorize
the Deposit Agent to make payments from the Acquisition Fund for the origination
of Eligible Loans upon receipt by the Trustee of an Eligible Loan Origination
Certificate and all documents, opinions and certificates required thereby.
Anything in this Section 4.2 to the contrary notwithstanding, any Eligible Loan
to be Financed from Balances in the Acquisition Fund shall be described in
Section 144(b)(1) (if Financed from the proceeds of Tax Exempt Notes) and
Section 150(d) (if Financed prior to the Section 150(d)(3) Transfer) of the
Code.
Balances in the Acquisition Fund (other than any portion of such
Balance consisting of Student Loans) shall be (i) transferred to the credit of
the Rebate Fund to the extent necessary, after transfers thereto from the
Revenue Fund, the Surplus Fund, the Reserve Fund, the Administration Fund and
the Note Fund, to make any deposit to the credit of the Rebate Fund required by
Section 4.5 hereof, (ii) after such transfer, if any, to be made pursuant to the
preceding clause (i) has been taken into account, transferred to the credit of
the Note Fund on the last Business Day preceding any Interest Payment Date,
Principal Payment Date or Redemption Date to the extent required to pay the Debt
Service due on the Class A Notes and any Other Senior Obligations, all as
provided in Section 4.7 hereof, and (iii) after such transfers, if any, to be
made pursuant to the preceding clauses (i) and (ii) have been taken into
account, transferred to the credit of the Principal Account on any Purchase Date
or Mandatory Tender Date with respect to Class A Notes, to the extent required
by Section 4.7.2(C) hereof. Transfers of amounts from the Acquisition Fund to
the Rebate Fund and the Note Fund pursuant to the preceding sentence shall be
made by the Trustee without any further authorization or direction. In the
event that, after transfers to the Rebate Fund from all other Funds
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and Accounts, a deficiency exists in the Rebate Fund under Section 4.5 hereof,
the Trustee shall use its best efforts to sell Student Loans included in the
Balance of the Acquisition Fund at the best price available to the extent of
such deficiency; and the proceeds of any such sale shall be credited to the
Rebate Fund, to the extent of any deficiency in the Rebate Fund, and otherwise
to the Revenue Fund. If any amounts have been transferred to either or both of
the Rebate Fund or the Note Fund pursuant to this paragraph, the Trustee shall,
to the extent necessary to cure the deficiency in the Acquisition Fund as a
result of such transfer or transfers, transfer to the Acquisition Fund amounts
from the Revenue Fund in the manner provided in Section 4.6 hereof.
The unpaid principal balance of Financed Student Loans in the
Acquisition Fund shall be included in the Balance of the Acquisition Fund until
such Financed Student Loans shall have been paid in full or sold or exchanged as
herein provided. Interest and principal payments, including Insurance payments
and Guarantee payments, and Special Allowance Payments received with respect to
Financed Student Loans (excluding, except as otherwise provided in a
Supplemental Indenture, any federal interest subsidy payments and Special
Allowance Payments that accrued prior to the date on which such Student Loans
were Financed) and proceeds from the sale or other conveyance of Financed
Student Loans (except as otherwise provided in the preceding paragraph) shall be
credited, in the case of such principal and interest, including Insurance
payments and Guarantee payments, and Special Allowance Payments, to the Revenue
Fund as provided in Section 4.6 hereof; in the case of the portion of the
proceeds of such sale or other conveyance which represents payment of the
principal of Financed Student Loans sold, to the Principal Account; and in the
case of the portion of the proceeds of such sale or other conveyance which
represent payment of accrued interest on and Special Allowance Payments with
respect to Financed Student Loans sold, to the Interest Account.
The Corporation may direct the Trustee to sell to any purchaser one or
more Student Loans Financed with moneys in the Acquisition Fund in exchange for
one or more Eligible Loans (of approximately the same aggregate Principal
Balance and accrued noncapitalized borrower interest as such Financed Student
Loans) which (1) evidence the additional obligations of Eligible Borrowers whose
Student Loans have been previously Financed hereunder, or (2) are to be
substituted for Financed Student Loans which are not Eligible Loans; provided
that (I) no such sale and exchange shall cause the Corporation to breach any of
its representations or covenants contained in the Tax Matters Certificate
furnished by the Corporation in connection with the issuance of any series of
Tax Exempt Notes, and (II) prior to any such sale and exchange the Trustee shall
have received an Eligible Loan Acquisition Certificate and an updating
Corporation Certificate substantially in the form of Exhibit D hereto and all
documents, opinions and certifications required thereby with respect to all
Eligible Loans to be so transferred to this Indenture in exchange, together with
(A) except in the case of Eligible Loans referred to in the preceding clause (2)
or unless the Principal Balance of Eligible Loans sold or exchanged within
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the preceding twelve (12)-month period pursuant to this paragraph will not,
together with the Principal Balance of Eligible Loans then proposed to be sold
or exchanged, exceed $1,000,000, a Corporation Certificate that, based on a Cash
Flow Projection, such sale and exchange will not materially adversely affect the
Corporation's ability to pay Debt Service on the Outstanding Notes and
Outstanding Other Obligations, Carry-Over Amounts (including accrued interest
thereon) with respect to Outstanding Notes, Administrative Expenses or Note Fees
or to make the required deposits to the credit of the Rebate Fund, and (B) a
written instrument satisfactory to the Trustee assigning all right, title,
interest and privilege of the Corporation in, to and under the student loan
purchase agreement pursuant to which each such Eligible Loan to be transferred
to this Indenture was acquired by the Trustee on behalf of the Corporation, to
the extent such right, title, interest and privilege relate to such Eligible
Loan; and thereafter the Corporation and the Trustee shall amend the Exhibit or
Exhibits to the applicable Supplemental Indentures to reflect the addition of
such student loan purchase agreements and such agreements shall become Student
Loan Purchase Agreements for all purposes under this Indenture. Any money
received by the Corporation in connection with a sale and exchange of Financed
Student Loans pursuant to this paragraph, including those moneys representing
the excess of the aggregate Principal Balance of and accrued noncapitalized
borrower interest on such Financed Student Loans released from this Indenture
over the aggregate Principal Balance of and accrued noncapitalized borrower
interest on the Eligible Loans transferred to this Indenture in exchange
therefor, shall be deposited to the credit of the Principal Account and the
Interest Account in accordance with the preceding paragraph. Any such Eligible
Loans so transferred to this Indenture in exchange for Student Loans previously
Financed from the Acquisition Fund shall, for all purposes of this Indenture, be
deemed to have been Financed with moneys in the Acquisition Fund and shall be
credited to the Acquisition Fund and included in the Balance thereof.
Pending application of moneys in the Acquisition Fund for one or more
authorized purposes, such moneys shall be invested in Investment Securities, as
provided in Section 4.11 hereof, and any earnings on or income from said
investments shall be deposited in the Revenue Fund as provided in Section 4.6
hereof.
Section 4.3. Administration Fund. With respect to each series of
Notes, the Trustee shall, upon delivery thereof and from the proceeds thereof,
credit to the Administration Fund the amount, if any, specified in the
Supplemental Indenture providing for the issuance of such series of Notes. The
Trustee shall also credit to the Administration Fund all amounts transferred
thereto from the Revenue Fund and the Surplus Account. Except as otherwise
provided in this Section 4.3, amounts in the Administration Fund shall, upon
receipt by the Trustee of Corporation Orders directing the payment to designated
payees in designated amounts for stated services, or, in the case of
reimbursement of the Corporation for its expenses, to the Corporation, and in
each case certifying that such payment is authorized by this Indenture, be used
for and applied only to pay Costs of Issuance,
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Administrative Expenses and Note Fees or to reimburse another fund, account or
other source of the Corporation for the previous payment of Costs of Issuance,
Administrative Expenses or Note Fees. Payments from the Administration Fund for
such purposes shall be made by check or wire transfer by the Trustee or a
Deposit Agent, but only in accordance with such Corporation Orders.
Balances in the Administration Fund shall be applied to the following
purposes in the following order of priority: first, to remedy deficiencies in
the Rebate Fund to the extent and in the manner provided in Section 4.5 hereof;
second, to remedy deficiencies in the Interest Account to the extent and in the
manner provided in Section 4.7.1 hereof for the payment of interest on Class A
Notes or Other Senior Obligations payable therefrom; third, to remedy
deficiencies in the Principal Account to the extent and in the manner provided
in subsections (A) and (C) of Section 4.7.2 hereof for the redemption or payment
of principal or the purchase price of Class A Notes or the payment of Other
Senior Obligations payable therefrom; fourth, to remedy deficiencies in the
Retirement Account to the extent and in the manner provided in Section 4.7.3
hereof for the redemption of Class A Notes or the payment of Other Senior
Obligations payable therefrom; fifth, to remedy deficiencies in the Interest
Account to the extent and in the manner provided in Section 4.7.1 hereof for the
payment of interest on Class B Notes or Other Subordinate Obligations payable
therefrom; sixth, to remedy deficiencies in the Principal Account to the extent
and in the manner provided in subsections (A) and (C) of Section 4.7.2 hereof
for the payment of principal or the purchase price of Class B Notes or the
payment of Other Subordinate Obligations payable therefrom; seventh, to remedy
deficiencies in the Retirement Account to the extent and in the manner provided
in Section 4.7.3 hereof for the redemption of Class B Notes or the payment of
Other Subordinate Obligations payable therefrom; and, eighth, to pay Costs of
Issuance, Note Fees and Administrative Expenses.
Amounts in the Administration Fund may, subject to the last sentence
of this paragraph and any limitations specified in a Supplemental Indenture, be
paid out for Costs of Issuance or Note Fees at any time upon receipt of a
Corporation Order and shall be paid in the full amount designated therein;
provided that the aggregate amount of Costs of Issuance paid or reimbursed from
amounts in the Administrative Fund or any other Fund or Account in respect of a
particular series of Notes shall under no circumstances exceed the amount, if
any, specified therefor in the Supplemental Indenture authorizing the issuance
of Notes of such series. Amounts in the Administration Fund may, subject to the
last sentence of this paragraph and any limitations specified in a Supplemental
Indenture, be paid out for Administrative Expenses, or to reimburse the
Corporation for the prior payment of Administrative Expenses, at any time, in
cumulative amounts in any given Fiscal Year not in excess of (A) the amount of
Budgeted Administrative Expenses for that Fiscal Year, unless an Authorized
Officer of the Corporation shall certify in writing to the Trustee that
Administrative Expenses in an increased amount (i) are reasonable and necessary
in light of all circumstances then existing, (ii) will not materially adversely
affect the ability of the Corporation to pay or perform, as the
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as the case may be, all of its obligations under this Indenture, and (iii) can
be paid out of amounts deposited into the Administration Fund pursuant to the
provisions of this Indenture, plus (B) the amount of Administrative Expenses for
any prior Fiscal Year previously paid by the Corporation from a source other
than the Administration Fund and requested to be reimbursed to such source,
provided that the amount of such Administrative Expenses, together with all
other Administrative Expenses for such prior Fiscal Year previously paid or
reimbursed from the Administration Fund, shall not exceed the Budgeted
Administrative Expenses for such prior Fiscal Year. Notwithstanding the
foregoing provisions of this Section 4.3, no amounts in the Administration Fund
shall be paid out for Costs of Issuance, Note Fees or Administrative Expenses
unless, after giving effect to such payment (taking into account, for this
purpose, all previous such payments from the Administration Fund and all
payments from the Surplus Fund with respect to Costs of Issuance, Note Fees,
Administrative Expenses and any other uses permitted by clause (iii) of the
sixth paragraph of Section 4.8 hereof), as to each series of Tax Exempt Notes,
either (i) at least ninety percent (90%) of the net proceeds of such series
will, at the time of such payment, have been used directly or indirectly to make
or finance student loans described in Section 144(b)(1)(A) of the Code, or (ii)
at least ninety-five percent (95%) of the net proceeds of such series will, at
the time of such payment, have been used directly or indirectly to make or
finance student loans described in Section 144(b)(1)(B) of the Code, as
applicable, all within the meaning of such Section 144(b) of the Code.
The Trustee shall transfer and credit to the Administration Fund
moneys available hereunder for transfer thereto from the sources set forth in
the following paragraph and in such amounts and at such times as an Authorized
Officer of the Corporation shall direct by Corporation Order; provided such
Corporation Order shall certify that the amounts are required and have been or
will be expended within the next ninety (90) days for a purpose for which the
Administration Fund may be used and applied.
Deposits to the credit of the Administration Fund shall be made from
the following sources in the following order of priority: the Income Account to
the extent and in the manner provided in Section 4.6 hereof; and the Surplus
Account to the extent and in the manner provided in Section 4.8 hereof.
Pending transfers from the Administration Fund, the moneys therein
shall be invested in Investment Securities, as provided in Section 4.11 hereof,
and any earnings on or income from such investments shall be deposited in the
Revenue Fund as provided in Section 4.6 hereof.
Section 4.4. Reserve Fund. The Reserve Fund is established only for
the security of the Senior Beneficiaries and the Subordinate Beneficiaries, and
not for the Holders of the Class C Notes (other than to provide funds for
transfers to the Rebate Fund for Tax Exempt Class C Notes as hereinafter set
forth). Immediately upon the delivery of any series of Class A Notes or Class B
Notes, and from the
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proceeds thereof or, at the option of the Corporation, from any amounts to be
transferred thereto from the Surplus Fund pursuant to Section 4.8 hereof and
from any other available moneys of the Corporation not otherwise credited to or
payable into any Fund or Account under this Indenture or otherwise subject to
the pledge and security interest created by this Indenture, the Trustee shall
credit to the Reserve Fund the amount, if any, specified in the Supplemental
Indenture providing for the issuance of that series of Notes, such that upon
issuance of such Notes, the Balance in the Reserve Fund shall not be less than
the Reserve Fund Requirement.
If on any Monthly Payment Date the Balance in the Reserve Fund shall
be less than the Reserve Fund Requirement, the Trustee shall transfer and credit
thereto an amount equal to the deficiency from the following Funds and Accounts
in the following order of priority: the Repayment Account (to the extent not
required for credit to the Rebate Fund, the Note Fund or the Acquisition Fund),
the Income Account (to the extent not required for credit to the Rebate Fund,
the Note Fund, the Acquisition Fund or the Administration Fund) and the Surplus
Fund (to the extent not required for credit to the Rebate Fund, the Note Fund or
the Administration Fund); provided, however, that any such transfer from the
Surplus Fund shall be made only to the extent that that portion of the Balance
thereof not consisting of Eligible Loans is sufficient therefor.
The Balance in the Reserve Fund shall be used and applied solely for
(i) transfers to the Rebate Fund to the extent necessary, after transfers
thereto from the Revenue Fund and the Surplus Fund, to make any deposit to the
credit of the Rebate Fund required by Section 4.5 hereof, and (ii) after such
transfer, if any, to be made pursuant to the preceding clause (i) has been taken
into account, the payment when due of Debt Service on the Class A Notes, the
Class B Notes and the Other Obligations and the purchase price of Class A Notes
and Class B Notes on a Purchase Date or Mandatory Tender Date and the other
purposes specified in Section 4.7 hereof, and shall be so used and applied by
transfer by the Trustee to the credit of the Note Fund, (a) at any time and to
the extent that the Balance therein and the Balances available for deposit to
the credit thereof from the Revenue Fund and the Surplus Fund (other than that
portion of the Balance thereof consisting of Eligible Loans) are insufficient to
meet the requirements specified in Section 4.7 hereof for deposit to the credit
of the Note Fund at such time (provided, however, that such amounts shall be
applied, first, to the payment of interest on the Class A Notes and the payment
of Other Senior Obligations payable from the Interest Account, second, to the
payment of principal and the purchase price of the Class A Notes and the payment
of Other Senior Obligations payable from the Principal Account, third, to the
payment of interest on the Class B Notes and the payment of Other Subordinate
Obligations payable from the Interest Account, and, fourth, to the payment of
principal and the purchase price of the Class B Notes and the payment of Other
Subordinate Obligations payable from the Principal Account), and (b) at any time
when a portion of the Balance therein is required to be transferred to the
Retirement Account to pay a portion of the Redemption Price of Class A Notes or
Class B Notes to be redeemed as provided in a Supplemental Indenture relating
thereto;
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provided, however, that on the Stated Maturity or any Redemption Date
of any Class A Notes or Class B Notes, amounts in the Reserve Fund shall, upon
Corporation Order, be applied to the payment at maturity or redemption of all
Outstanding Class A Notes or Class B Notes of a series, to the extent that such
application, and payment of all deposits to be made to the credit of the Rebate
Fund required by Section 4.5 hereof upon such redemption, will not reduce the
Balance of the Reserve Fund below the Reserve Fund Requirement (calculated as
though the Notes to be retired on such Stated Maturity or Redemption Date were
not Outstanding as of the date of such calculation), and, after giving effect to
such payment or redemption, the conditions of Section 10.2 will be met; and
provided, further, that at any time when the aggregate of the Balances in the
Note Fund, the Reserve Fund and the Surplus Fund (exclusive of Student Loans)
equals an amount sufficient to discharge and satisfy the obligations of the
Corporation with respect to all of the Outstanding Class A Notes, Class B Notes
and Other Obligations and to make all deposits to the credit of the Rebate Fund
required by Section 4.5 hereof, all in the manner described in Section 11.1
hereof, said Balances shall, upon Corporation Order, be so applied.
Notwithstanding the foregoing, if on any Monthly Payment Date the Balance in the
Reserve Fund exceeds the Reserve Fund Requirement, such excess shall, upon
Corporation Order, be transferred to the Principal Account, to the extent
necessary to make the deposits required to be made to the credit of the
Principal Account on such Monthly Payment Date pursuant to the provisions of
Section 4.7.2 hereof, whether or not other moneys are available to make such
deposits.
Pending transfers from the Reserve Fund, the moneys therein shall be
invested in Investment Securities as provided in Section 4.11 hereof, and any
earnings on or income from such investments shall be deposited in the Revenue
Fund as provided in Section 4.6 hereof.
Section 4.5. Rebate Fund. The Corporation and the Trustee recognize
that the exclusion from gross income for purposes of federal income taxation of
the interest paid on Tax Exempt Notes of any series is dependent upon compliance
with the provisions of Section 148 of the Code. For each issue (as defined in
the Regulations) of Tax Exempt Notes, a separate subaccount shall be established
in the Rebate Account and the Excess Earnings Account.
(A) The Corporation and the Trustee shall, unless and until the
Corporation delivers to the Trustee a written opinion of Bond Counsel as
described in the last paragraph of this Section 4.5(A), make the determinations
and take the actions hereinafter by this Section 4.5(A) required and make such
further or different determinations and take such further or different actions
as are necessary, in the opinion of Bond Counsel, to comply with the
requirements of Section 148(f) of the Code and the Treasury Regulations
pertaining thereto with respect to each series of Tax Exempt Notes. In respect
of each series of Tax Exempt Notes, the Trustee, on behalf of, and as agent for,
the Corporation, shall rebate to the United States, not later than sixty (60)
days after the end of the five-Bond Year period for
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such series, and not later than sixty (60) days after the end of each five-Bond
Year period thereafter for such series, an amount which ensures that at least
ninety percent (90%) of the Rebate Amount (as hereinafter defined) for such
series at the time of such payment will have been paid to the United States, and
within sixty (60) days after the payment or redemption of all principal of the
Notes of such series, an amount sufficient to pay the remaining unpaid balance
of the Rebate Amount, all in the manner and as required by Section 148 of the
Code and the Treasury Regulations pertaining thereto. As used herein, "Rebate
Amount" means, with respect to a series of Tax Exempt Notes, the amount
described in Section 148(f)(2) of the Code, computed in accordance with the
provisions of said Section 148(f)(2) and the Arbitrage Regulations. In this
regard, a portion of the proceeds of the Initial Notes will be applied to the
refunding of other tax exempt bonds or notes of the Corporation (the "Refunded
Obligations"), which Refunded Obligations will remain outstanding for varying
periods after the issuance of the Initial Notes. Certain of the Balances in the
Funds and Accounts otherwise to be treated as proceeds of the Initial Notes
will, under applicable Treasury Regulations, be deemed to be proceeds of the
various issues of Refunded Obligations until all outstanding obligations of such
issues have been paid. Notwithstanding anything in this Indenture to the
contrary, the Rebate Amount shall be computed on such Balances, and applied in
the manner and priority, as specified in the Supplemental Indenture providing
for the issuance of the Initial Notes.
The Corporation shall determine the Rebate Amount for each series of
Tax Exempt Notes within forty-five (45) days after the close of each Bond Year
therefor and upon payment or redemption of all principal of the Notes of such
series, and shall, upon each such determination, furnish the Trustee with a
Corporation Certificate verifying such determination and with any supporting
documentation required to calculate or evidence the Rebate Amount in accordance
with the Code and applicable regulations. The Corporation and the Trustee shall
retain records of such determinations until six (6) years after final payment or
redemption of principal of the Notes of such series. Upon each such
determination, the Trustee shall transfer to the subaccount in the Rebate
Account relating to the Notes of such series, from the Balances in the Revenue
Fund, the Surplus Fund (other than that portion of the Balance therein
consisting of Eligible Loans), the Reserve Fund, the Administration Fund, the
Surplus Fund (including any portion of the Balance therein consisting of
Eligible Loans), the Retirement Account, the Principal Account, the Interest
Account and the Acquisition Fund, in that order of priority, the Rebate Amount
so determined, and shall separately account for, or cause to be separately
accounted for, the earnings from the investment thereof.
In determining the Rebate Amount for a series of Tax Exempt Notes, the
Corporation and the Trustee shall take into account all amounts held under this
Indenture and, pending the application of such amounts to the purpose for which
such amounts were removed, all amounts removed from under this Indenture, to the
extent such are allocable under the Regulations to Notes of such series.
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Moneys in a Subaccount in the Rebate Account shall be paid by the
Trustee to the United States at such times and in such amounts as are necessary
to comply with the provisions of Section 148(f) of the Code with respect to the
series of Tax Exempt Notes to which such Subaccount relates. In addition, upon
receipt by the Trustee of a Corporation Certificate certifying that certain
amounts in a Subaccount in the Rebate Account are not subject to rebate and an
opinion of Bond Counsel to the effect that failure to rebate such amounts will
not cause interest on the Notes of the series to which such Subaccount relates
to become includable in gross income of the owners thereof for federal income
tax purposes under both existing laws, regulations, rulings and decisions and
any then pending federal legislation, the Trustee shall transfer any such
amounts to the credit of the Revenue Fund. Moneys in the Rebate Account shall
not be available for transfer to any Fund or Account under this Indenture,
except the Revenue Fund under the circumstances described in the preceding
sentence, and shall be applied solely to meet the Corporation's rebate
obligations.
In making the computations required to make the deposits and rebates
provided for in this Section 4.5(A) with respect to a series of Tax Exempt
Notes, the Corporation and the Trustee shall comply with the applicable
provisions of the Tax Matters Certificate furnished by the Corporation in
connection with the issuance of the Notes of such series, as such may be amended
or supplemented from time to time in accordance with its terms.
The Trustee shall verify at least annually from the date of delivery
of a series of Tax Exempt Notes that (i) all requirements of this Section 4.5(A)
with respect to such series of Notes have been met on a continuing basis, (ii)
adequate procedures have been established and are being complied with to ensure
continuing compliance with the requirements of the Tax Matters Certificate
furnished by the Corporation in connection with the issuance of the Notes of
such series, as such may be amended or supplemented from time to time in
accordance with its terms, (iii) the proper amounts are deposited into the
Subaccount in the Rebate Account relating to Notes of the series, and (iv) the
timely payment of all amounts due and owing to the United States Treasury from
the Rebate Account has occurred.
Pending payments from the Rebate Account, the moneys in the
Subaccounts therein shall be invested in Investment Securities as provided in
Section 4.11 hereof, and any earnings on or income from such investments shall
be retained in such respective Subaccounts.
Notwithstanding the foregoing, in the event the Trustee is furnished
with a written opinion of Bond Counsel to the effect that it is not necessary
under either existing laws, regulations, rulings and decisions or any then
pending federal legislation to pay any portion of earnings on investments held
under this Indenture or otherwise to the United States in order to assure the
exclusion from gross income for federal income tax purposes of interest on the
Tax Exempt Notes of any series, the requirements set forth in the preceding
portion of this Section 4.5(A) (with
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respect to the portion of such earnings specified in such opinion) need not be
complied with and shall no longer be effective and all amounts at the time on
deposit in the Subaccount in the Rebate Account to which such series of Notes
relates (to the extent covered by such opinion) shall be transferred to the
Revenue Fund.
(B) The Corporation shall calculate the Excess Earnings with respect
to each series of Tax Exempt Notes to the extent and in the manner provided in
the Supplemental Indenture pursuant to which such Notes were issued. In this
regard, a portion of the proceeds of the Initial Notes will be applied to the
purchase of certain Eligible Loans previously financed with the proceeds of
other bonds or notes of the Corporation, thereby refunding such bonds or notes.
Notwithstanding anything in this Indenture to the contrary, Excess Earnings
shall be computed on such Eligible Loans, and applied in the priority, as
specified in the Supplemental Indenture providing for the issuance of the
Initial Notes.
The Corporation shall furnish the Trustee, upon each calculation of
Excess Earnings with respect to a series of Tax Exempt Notes, with a Corporation
Certificate verifying such calculation and with any supporting documentation
required to calculate or evidence the Excess Earnings in accordance with the
Arbitrage Regulations. The Corporation and the Trustee shall retain records of
such calculations until six (6) years after final payment or redemption of
principal of the Tax Exempt Notes of that series. Upon each such calculation
and a determination pursuant to the related Supplemental Indenture that a
transfer is to be made to the Excess Earnings Account, the Trustee shall
transfer to the Excess Earnings Account (but only after any required transfers
to the Rebate Account have been made or taken into account), from the Balances
in the Revenue Fund, the Surplus Fund (other than that portion of the Balance
therein consisting of Eligible Loans), the Reserve Fund, the Administration
Fund, the Surplus Fund (including any portion of the Balance therein consisting
of Eligible Loans), the Retirement Account, the Principal Account, the Interest
Account and the Acquisition Fund, in that order of priority, the amount so
determined.
All amounts in the Excess Earnings Account, including all investment
earnings thereon, shall remain therein until transferred to the Revenue Fund or
paid by the Trustee to the United States Department of the Treasury or for such
other purpose, as the Corporation shall specify, upon receipt by the Trustee of
(a) a Corporation Order directing the Trustee to so transfer or pay a specified
amount, and (b) a written opinion of Bond Counsel to the effect that any such
transfer or payment, upon satisfaction of any conditions set forth in such
opinion (e.g., forgiveness of indebtedness on all or a portion of the related
Financed Student Loans), would not cause interest on the related series of Tax
Exempt Notes to be includable in the gross income of any owners thereof for
federal income tax purposes. The Corporation shall consult with Bond Counsel on
or within thirty (30) days before each date on which, pursuant to the Arbitrage
Regulations or otherwise, amounts are required to be paid to the United States
Department of the Treasury
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with respect to Excess Earnings, to determine what, if any, action may be
necessary to be taken with respect to disposition of any amounts in the Excess
Earnings Account to prevent each applicable series of Tax Exempt Notes from
becoming "arbitrage bonds" under Section 148 of the Code, and the Corporation
agrees to take any such action as shall be necessary to prevent each such series
of Tax Exempt Notes from becoming arbitrage bonds. In any event, the Corporation
and the Trustee shall comply with all provisions and restrictions, including,
but not limited to, those with respect to the Excess Earnings Account, set forth
in the Tax Matters Certificate furnished by the Corporation in connection with
the issuance of each series of Tax Exempt Notes.
Amounts in the Excess Earnings Account shall be used only for the
purposes specified in the preceding paragraph, and shall not be available for
any other purpose, including, but not limited to, payment of Debt Service on or
the purchase price of the Notes or Other Obligations.
The Trustee shall verify at least annually from the date of delivery
of each series of Tax Exempt Notes that (i) all requirements of this Section
4.5(B) have been met on a continuing basis with respect to such series,
(ii) adequate procedures have been established and are being complied with to
ensure continuing compliance with the requirements of the applicable Tax Matters
Certificate, (iii) the proper amounts are deposited into the Excess Earnings
Account with respect to such series of Tax Exempt Notes, and (iv) the timely
payment to the United States Treasury or other disposition of amounts with
respect to Excess Earnings provided for in this Section 4.5(B) has occurred with
respect to such series of Tax Exempt Notes.
Pending payments or transfers from the Excess Earnings Account, the
moneys therein shall be invested in Investment Securities as provided in Section
4.11 hereof, and any earnings on or income from such investments shall be
retained therein.
Notwithstanding the foregoing, in the event the Trustee is furnished
with a written opinion of Bond Counsel to the effect that it is unnecessary
under both existing laws, regulations, rulings and decisions and any then
pending federal legislation to pay any portion of Excess Earnings to the United
States (or take any other action with respect thereto) in order to assure the
exclusion from gross income for federal income tax purposes of interest on one
or more series of Tax Exempt Notes, the requirements set forth in the preceding
portion of this Section 4.5(B) with respect to such series of Notes (but only
with respect to the portion of such Excess Earnings specified in such opinion)
need not be complied with and shall no longer be effective and all amounts at
the time on deposit in the Excess Earnings Account (to the extent covered by
such opinion) shall be transferred to the Revenue Fund.
(C) The Trustee shall, upon receipt of any notice that an amount is
payable from the Trust Estate pursuant to the indemnification provisions of a
Joint
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Sharing Agreement, immediately furnish a copy thereof to the Corporation.
Thereafter, the Corporation and the Trustee shall promptly determine if, and the
extent to which, such amount is so payable and, if and to the extent it is, the
Trustee shall transfer such amount to the Indemnification Account from the
Balances in the Revenue Fund, the Surplus Fund (other than that portion of the
Balance therein consisting of Eligible Loans), the Reserve Fund, the
Administration Fund, the Surplus Fund (including any portion of the Balance
therein consisting of Eligible Loans), the Retirement Account, the Principal
Account, the Interest Account and the Acquisition Fund, in that order of
priority. Any amount so transferred to the Indemnification Account shall be
immediately paid by the Trustee to the appropriate party or parties.
Amounts in the Indemnification Account shall be used only for the
purposes specified in the preceding paragraph, and shall not be available for
any other purpose, including, but not limited to, payment of Debt Service on or
the purchase price of the Notes or Other Obligations.
(D) The provisions of subsections (A) and (B) of this Section 4.5
shall remain in full force and effect notwithstanding the defeasance of the
Notes pursuant to Article Eleven hereof or any other provision hereof.
Section 4.6. Revenue Fund. The Trustee and any Deposit Agent shall
credit to the Revenue Fund: (i) all amounts received as interest, including
federal interest subsidy payments, and principal payments with respect to
Financed Student Loans, including all Insurance payments and Guarantee payments,
and all Special Allowance Payments with respect to Financed Student Loans
(excluding, unless otherwise provided in a Supplemental Indenture, any federal
interest subsidy payments and Special Allowance Payments that accrued prior to
the date on which such Student Loans were Financed), (ii) unless otherwise
provided in a Supplemental Indenture, proceeds of the resale to a Lender of any
Financed Student Loans pursuant to such Lender's repurchase obligation under the
applicable Student Loan Purchase Agreement, (iii) all amounts received as
earnings on or income from Investment Securities in the Acquisition Fund, the
Reserve Fund, the Administration Fund, the Surplus Fund and the Note Fund, (iv)
all Non-Delivery Fees, (v) all amounts to be transferred to the Revenue Fund
from the Rebate Fund, and (vi) any amounts received by the Trustee pursuant to
the indemnification provisions of any Joint Sharing Agreement.
Pending transfers from the Revenue Fund, the moneys therein shall be
invested in Investment Securities as provided in Section 4.11 hereof, and any
earnings on or income from said investments shall be retained therein.
The Corporation shall cause all amounts required to be credited to the
Revenue Fund, upon receipt by the Corporation, a Lender or a Servicer, or any
agent thereof, as the case may be, to be forthwith transmitted to the Trustee or
any Deposit Agent therefor for such credit. On each Monthly Payment Date and on
any other
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date on which the Balance in the Note Fund is not sufficient to pay all amounts
payable therefrom on such date, all such moneys theretofore received and then
held by a Deposit Agent shall be transferred to the Trustee. The Trustee shall
deposit and credit all revenues to be credited to the Revenue Fund as follows:
all such revenues received as payments of principal of Financed Student Loans
shall be credited by the Trustee forthwith upon receipt to the Repayment
Account; and all other revenues and amounts, including all such revenues
received as payments of interest on or Special Allowance Payments with respect
to Financed Student Loans, income from Investment Securities and Non-Delivery
Fees, shall be credited by the Trustee forthwith upon receipt to the Income
Account.
On each Monthly Payment Date and on any other date on which the
Balance in the Note Fund is not sufficient to pay all amounts payable therefrom
on such date, the Trustee shall, from the moneys received since the preceding
Monthly Payment Date in the Repayment Account, (1) make any periodic rebate fee
payments required to be made to the Secretary of Education in connection with
Financed Student Loans, and (2) transfer the remainder of such moneys, as
follows:
First, to the credit of the Rebate Fund to the extent and in the
manner provided in Section 4.5 hereof; second, to the credit of the
Interest Account to the extent and in the manner provided in Section 4.7.1
hereof for the payment of interest on Class A Notes or Other Senior
Obligations payable therefrom; third, to the credit of the Principal
Account to the extent and in the manner provided in subsections (A) and (C)
of Section 4.7.2 hereof for the redemption or payment of principal or the
purchase price of the Class A Notes or the payment of Other Senior
Obligations payable therefrom; fourth, to the credit of the Retirement
Account, to the extent and in the manner provided in Section 4.7.3 hereof
for the redemption of Class A Notes or the payment of Other Senior
Obligations payable therefrom; fifth, to the credit of the Acquisition Fund
to the extent and in the manner provided in Section 4.2 hereof; sixth, to
the credit of the Interest Account to the extent and in the manner provided
in Section 4.7.1 hereof for the payment of interest on Class B Notes or
Other Subordinate Obligations payable therefrom; seventh, to the credit of
the Principal Account to the extent and in the manner provided in
subsections (A) and (C) of Section 4.7.2 hereof for the payment of
principal or the purchase price of Class B Notes or the payment of Other
Subordinate Obligations payable therefrom; eighth, to the credit of the
Retirement Account, to the extent and in the manner provided in Section
4.7.3 hereof for the redemption of Class B Notes or the payment of Other
Subordinate Obligations payable therefrom; ninth, to the credit of the
Reserve Fund to the extent and in the manner provided in Section 4.4
hereof; tenth, to the credit of the Principal Account to the extent and in
the manner provided in Section 4.7.2(B) hereof for the redemption of Class
B Notes; eleventh, to the credit of the Special Redemption and Prepayment
Account to the extent and in the manner provided in Section 4.8 hereof; and
twelfth, to the credit of the Surplus Account in the manner provided in
Section 4.8 hereof.
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On each Monthly Payment Date and on any other date on which the
Balance in the Note Fund is not sufficient to pay all amounts payable therefrom
on such date, the Trustee shall, after transferring all amounts received in the
Repayment Account pursuant to the preceding paragraph, from the moneys received
since the preceding Monthly Payment Date in the Income Account, (1) to the
extent amounts in the Repayment Account were not sufficient therefor, make any
periodic rebate fee payments required to be made to the Secretary of Education
in connection with Financed Student Loans, and (2) transfer the remainder of
such moneys as follows:
First, to the credit of the Rebate Fund to the extent and in the
manner provided in Section 4.5 hereof; second, to the credit of the
Interest Account to the extent and in the manner provided in Section 4.7.1
hereof for the payment of interest on Class A Notes or Other Senior
Obligations payable therefrom; third, to the credit of the Principal
Account to the extent and in the manner provided in subsections (A) and (C)
of Section 4.7.2 hereof for the redemption or payment of principal or the
purchase price of Class A Notes or the payment of Other Senior Obligations
payable therefrom; fourth, to the credit of the Retirement Account, to the
extent and in the manner provided in Section 4.7.3 hereof for the
redemption of Class A Notes or for the payment of Other Senior Obligations
payable therefrom; fifth, to the credit of the Acquisition Fund to the
extent and in the manner provided in Section 4.2 hereof; sixth, to the
credit of the Interest Account to the extent and in the manner provided in
Section 4.7.1 hereof for the payment of interest on Class B Notes or Other
Subordinate Obligations payable therefrom; seventh, to the credit of the
Principal Account to the extent and in the manner provided in subsections
(A) and (C) of Section 4.7.2 hereof for the payment of principal or the
purchase price of Class B Notes or the payment of Other Subordinate
Obligations payable therefrom; eighth, to the credit of the Retirement
Account, to the extent and in the manner provided in Section 4.7.3 hereof
for the redemption of Class B Notes or the payment of Other Subordinate
Obligations payable therefrom; ninth, to the credit of the Administration
Fund to the extent and in the manner provided in Section 4.3 hereof; tenth,
to the credit of the Reserve Fund to the extent and in the manner provided
in Section 4.4 hereof; eleventh, to the credit of the Principal Account to
the extent and in the manner provided in Section 4.7.2(B) hereof for the
redemption of Class B Notes; twelfth, to the credit of the Special
Redemption and Prepayment Account to the extent and in the manner provided
in Section 4.8 hereof; and thirteenth, to the credit of the Surplus Account
in the manner provided in Section 4.8 hereof.
Section 4.7. Note Fund. The Note Fund shall be used only for the
payment when due of principal of, premium, if any, and interest on the Class A
Notes and the Class B Notes, the purchase price of the Class A Notes and the
Class B Notes to be purchased on a Purchase Date or Mandatory Tender Date or
otherwise in accordance with Section 10.7 hereof, Other Obligations and Carry-
Over Amounts
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(including any accrued interest thereon) and to make transfers to the credit of
the Rebate Fund required by Section 4.5 hereof. The principal of and interest on
the Class C Notes shall be payable from the Surplus Fund as provided in Section
4.8 hereof.
The Trustee shall identify the Monthly Payment Date for each
installment of interest, installment of principal for Serial Notes and sinking
fund installment for Term Notes with respect to each series of Notes.
Section 4.7.1. Interest Account. With respect to each series of
Class A Notes or Class B Notes, the Trustee shall, upon delivery to the original
purchasers thereof and from the proceeds thereof, credit to the Interest Account
the amount, if any, specified in the Supplemental Indenture providing for the
issuance of such series of Notes. The Trustee shall also deposit in the
Interest Account (i) that portion of the proceeds from the sale of Financed
Student Loans as is specified in Section 4.2 hereof, (ii) that portion of the
proceeds from the sale of the Corporation's bonds, notes or other evidences of
indebtedness, if any, to be used to pay interest on the Class A Notes or the
Class B Notes, (iii) all Counterparty Swap Payments, (iv) all payments under any
Credit Enhancement Facilities by Credit Facility Providers to be used to pay
interest on Class A Notes or Class B Notes, and (v) all amounts required to be
transferred thereto from the Funds and Accounts specified in the last sentence
of the following paragraph. The moneys in the Interest Account shall be
invested in Investment Securities as provided in Section 4.11 hereof, and any
earnings on or income from such investments shall be deposited in the Revenue
Fund as provided in Section 4.6 hereof.
To provide for the payment of each installment of interest which falls
due upon Class A Notes or Class B Notes on each regularly scheduled Interest
Payment Date and all Corporation Swap Payments and fees to a Credit Facility
Provider payable on such Interest Payment Date, the Trustee shall make six (6)
equal monthly deposits to the credit of the Interest Account not later than the
six (6) Monthly Payment Dates preceding such Interest Payment Date, to aggregate
the full amount of such interest, payment and fees, except that if the first
such Interest Payment Date occurs in six (6) months and fifteen (15) days or
less from the date on which the Class A Notes or Class B Notes of such series
are delivered to the initial purchasers thereof, then the Trustee shall make
equal monthly deposits to the credit of the Interest Account not later than each
Monthly Payment Date beginning with the calendar month following the calendar
month in which such Notes are delivered to the initial purchasers and ending
with the last such Monthly Payment Date prior to such first Interest Payment
Date (provided, however, with respect to any Variable Rate Notes, deposits shall
be made in an amount equal to the interest accrued on such Notes from the last
previous Monthly Payment Date or regularly scheduled Interest Payment Date
therefor, whichever is later, to that Monthly Payment Date or, in the case of
the last Monthly Payment Date preceding a regularly scheduled Interest Payment
Date, to such regularly scheduled Interest Payment Date), to aggregate the full
amount of such interest, payment and fees, and except
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that the Corporation shall receive a credit against such payments for any
accrued Counterparty Swap Payments that are to be paid on or before the next
regularly scheduled Interest Payment Date if the Swap Counterparty is not then
in default in its obligations under the Swap Agreement and if the Swap
Counterparty or any obligor under a related Swap Counterparty Guarantee has
unsecured long-term debt rated by each Rating Agency in any of its three (3)
highest Rating Categories. Anything in this paragraph to the contrary
notwithstanding, the Trustee shall, if so instructed in writing by an Authorized
Officer of the Corporation, deposit to the credit of the Interest Account on any
Monthly Payment Date for any installment of interest a larger amount than is
required to be made on such Monthly Payment Date. If, on any Interest Payment
Date (including any Redemption Date occurring on a date that is not a regularly
scheduled Interest Payment Date) or other date on which Class A Notes or Class B
Notes are to be purchased in accordance with Section 4.7.2(F) or 4.7.3 hereof,
moneys in the Interest Account are insufficient to pay the accrued interest due
on the Class A Notes and Class B Notes and all Corporation Swap Payments and
fees to a Credit Facility Provider payable on such Interest Payment Date or
constituting a portion of the purchase price of Notes to be so purchased, the
Trustee shall immediately deposit to the credit of the Interest Account an
amount equal to such deficiency. In making the deposits required to be deposited
and credited to the Interest Account, the amounts credited to the Interest
Account pursuant to the first two (2) sentences of this Section and other
deposits and credits otherwise made or required to be made to the Interest
Account shall, to the extent available for such purpose, be taken into
consideration and allowed for. Each deposit required by this Section 4.7.1 to
pay the foregoing amounts shall be made by transfer from the following Funds and
Accounts, in the following order of priority: the Revenue Fund, the Surplus Fund
(other than that portion of the Balance thereof consisting of Eligible Loans),
the Reserve Fund, the Administration Fund, the Surplus Fund (including any
portion of the Balance thereof consisting of Eligible Loans), the Retirement
Account, the Principal Account and, as to Class A Notes and Other Senior
Obligations only, the Acquisition Fund (other than that portion of the Balance
thereof consisting of Student Loans); provided that such transfers shall be made
from the Retirement Account or the Principal Account in respect of Subordinate
Obligations only if, and to the extent, any amounts to be so transferred are in
excess of the requirements of such Accounts with respect to Senior Obligations
payable therefrom.
If, as of any regularly scheduled Interest Payment Date, any Carry-
Over Amount (including any accrued interest thereon) is due and payable with
respect to a series of Notes, as provided in the related Supplemental Indenture,
the Trustee shall transfer to the Interest Account (to the extent amounts are
available therefor in the Surplus Account in accordance with the second
paragraph of Section 4.8 hereof, after taking into account all other amounts
payable from the Surplus Fund in accordance with such paragraph on such Interest
Payment Date) an amount equal to such Carry-Over Amount (including any accrued
interest thereon) so due and payable. The Trustee shall make payment of any
Carry-Over Amount (and any
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interest accrued thereon) on an Interest Payment Date in the same manner as it
pays interest on the related series of Notes on such Interest Payment Date.
The moneys in the Interest Account required for the payment of
interest on the Class A Notes or the Class B Notes of any series (including,
without limitation, the payment of that portion of the purchase price of Class A
Notes or Class B Notes purchased pursuant to Section 4.7.2(F) or 4.7.3 hereof
attributable to accrued interest thereon), any Corporation Swap Payments or fees
payable to a Credit Facility Provider under a Credit Enhancement Facility or
Demand Purchase Agreement or any Carry-Over Amount (including any accrued
interest thereon) shall be applied by the Trustee to the payment of such
interest or amounts when due without further authorization or direction.
Balances in the Interest Account shall be transferred to the credit of
the Rebate Fund to the extent necessary, after transfers thereto from the
Revenue Fund, the Surplus Fund, the Reserve Fund, the Administration Fund, the
Retirement Account and the Principal Account, to make any deposit to the credit
of the Rebate Fund required by Section 4.5 hereof.
Balances in the Interest Account shall be transferred to the credit of
the Principal Account to the extent necessary, after transfers thereto from the
Revenue Fund, the Surplus Fund, the Reserve Fund and the Administration Fund, to
make payment of the principal and purchase price of Class A Notes, as provided
in Section 4.7.2 hereof.
The moneys in the Interest Account required for (A) transfer to the
Rebate Fund as hereinbefore provided shall be transferred to such Fund without
further authorization or direction, and (B) transfer to the Principal Account
for payment of the principal or purchase price of Class A Notes, as provided in
Section 4.7.2 hereof, shall be transferred to such Account without further
authorization or direction.
Notwithstanding any other provisions of this Article Four, deposits to
the credit of the Interest Account required to be made on each Monthly Payment
Date by this Section 4.7.1 or on any other date on which the Balance in the
Interest Account is not sufficient to pay all amounts payable therefrom on such
date, and any other amounts at any time on deposit in the Interest Account,
shall be applied in the following order of priority: first, to the extent
hereinabove provided, for transfers to the Rebate Fund; second, to the payment
of interest on all Class A Notes, Corporation Swap Payments under Senior Swap
Agreements and fees payable to Senior Credit Facility Providers under a Senior
Credit Enhancement Facility or Senior Demand Purchase Agreement, and if such
money (after the transfers hereinabove described, including all amounts, to the
extent necessary, in the Principal Account) is less than such interest and Other
Senior Obligations on an Interest Payment Date, such money shall be applied, pro
rata, among such indebtedness based upon such amounts then owing to Senior
Beneficiaries and to be
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paid from the Interest Account; third, by transfer to the Principal Account or
the Retirement Account, to the extent required under Section 4.7.2 and 4.7.3
hereof, in respect of amounts with respect to the principal of the Class A Notes
or other amounts owed to Other Senior Beneficiaries payable therefrom; fourth,
to the payment of interest on all Class B Notes, Corporation Swap Payments under
Subordinate Swap Agreements and fees payable to Subordinate Credit Facility
Providers, and if such money (after the transfers hereinabove described,
including all amounts, to the extent necessary, in the Principal Account over
and above the amount on deposit therein to meet any accrued obligations to pay
principal of the Class A Notes or amounts, other than fees, to Senior Credit
Facility Providers) is less than such interest and Other Subordinate Obligations
on an Interest Payment Date, such money shall be applied, pro rata, among such
indebtedness based upon such amounts then owing to Subordinate Beneficiaries and
to be paid from the Interest Account; fifth, to the payment of all Carry-Over
Amounts (including any accrued interest thereon) due and payable on all series
of Class A Notes, and if such money is less than such Carry-Over Amounts
(including any accrued interest thereon) on an Interest Payment Date, such money
shall be applied, pro rata, among such Carry-Over Amounts (including any accrued
interest thereon) based upon such amounts then otherwise due and payable to
Class A Noteholders and to be paid from the Interest Account; and sixth, to the
payment of all Carry-Over Amounts (including any accrued interest thereon) due
and payable on all series of Class B Notes, and if such money is less than such
Carry-Over Amounts (including any accrued interest thereon) on an Interest
Payment Date, such money shall be applied, pro rata, among such Carry-Over
Amounts (including any accrued interest thereon) based upon such amounts then
otherwise due and payable to Class B Noteholders and to be paid from the
Interest Account.
Other Obligations payable from the Interest Account shall include
reimbursement to any Credit Facility Provider for interest paid on Class A Notes
or Class B Notes from amounts paid by the Credit Facility Provider under a
Credit Enhancement Facility.
Section 4.7.2. Principal Account. In making the payments, deposits
and credits required by subsections (A), (B) and (C) of this Section 4.7.2, an
amount deposited and credited or required to be deposited and credited to the
Principal Account representing premium on Term Notes paid as part of the
purchase price thereof and any other deposits and credits otherwise made or
required to be made to the Principal Account shall, to the extent available for
such purpose, be taken into consideration and allowed for. The Trustee shall
also deposit to the credit of Principal Account: (i) that portion of the
proceeds from the sale of Financed Student Loans as is specified in Section 4.2
hereof, (ii) that portion of the proceeds from the sale of the Corporation's
bonds, notes or other evidences of indebtedness, if any, to be used to pay
principal of the Class A Notes and the Class B Notes on a Principal Payment
Date, (iii) all payments under any Credit Enhancement Facility or Demand
Purchase Agreement to be used to pay principal of Class A Notes or Class B Notes
or the purchase price of Class A Notes or Class B Notes to be purchased on a
Purchase
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Date or Mandatory Tender Date, and (iv) all amounts required to be transferred
thereto from the Funds and Accounts specified in subsection (D) of this Section
4.7.2.
Other Obligations payable from the Principal Account shall include
reimbursement to any Credit Facility Provider for principal or the purchase
price paid on Class A Notes or Class B Notes from amounts paid by the Credit
Facility Provider under a Credit Enhancement Facility or Demand Purchase
Agreement.
(A) To provide for the payment of each installment of principal which
falls due upon Class A Serial Notes, Class B Serial Notes or Class B Term Notes
at the Stated Maturity thereof or Class A Term Notes on a Sinking Fund Payment
Date therefor, the Trustee shall make six (6) (if the principal of Notes of such
series is payable semiannually) or twelve (12) (if the principal of Notes of
such series is payable annually) equal monthly deposits to the credit of the
Principal Account not later than the six (6) or twelve (12) Monthly Payment
Dates, as the case may be, preceding such Principal Payment Date, to aggregate
the full amount of such installment, except that if the first such Principal
Payment Date of a series of Notes occurs within twelve (12) months and fifteen
(15) days after the date on which the Class A Notes or Class B Notes of such
series are delivered to the initial purchasers thereof, then the Trustee shall
make equal monthly deposits to the credit of the Principal Account not later
than each Monthly Payment Date for such installment beginning with the calendar
month following the month in which such Notes are delivered to the initial
purchasers and ending with the last such Monthly Payment Date prior to such
first Principal Payment Date, to aggregate the full amount of such installment.
In making the deposits and credits required by this subsection (A), any amounts
deposited or required to be deposited and credited to the Principal Account
representing premium on Class A or Class B Serial Notes or Class A Term Notes
paid as part of the purchase price thereof and any other deposits and credits
otherwise made or required to be made to the Principal Account shall, to the
extent available for such purpose, be taken into consideration and allowed for.
The moneys in the Principal Account required for the payment of the
principal of Class A Serial Notes, Class B Serial Notes or Class B Term Notes at
the Stated Maturity thereof or of Class A Term Notes on a Sinking Fund Payment
Date therefor or for the payment of Other Obligations (other than fees,
Corporation Swap Payments and reimbursements for amounts paid under a Credit
Enhancement Facility to pay interest on Class A Notes or Class B Notes, all of
which are payable from the Interest Account) shall be applied by the Trustee to
such payment when due without further authorization or direction, subject,
however, to subsection (D) of this Section 4.7.2.
(B) To meet each specified sinking fund installment which falls due
upon Class B Term Notes on each Sinking Fund Payment Date for each series of
Class B Notes which includes Term Notes (other than the Stated Maturity thereof,
as to which subsection (A) of this Section 4.7.2 shall govern), the Trustee
shall:
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(1) determine (commencing as of the Monthly Payment Date not less
than seven (7) calendar months, if such Sinking Fund Payment Dates occur
semiannually, or twelve (12) calendar months, if such Sinking Fund Payment
Dates occur annually, before the first Sinking Fund Payment Date for Class
B Term Notes of such series) with regard to each specified sinking fund
installment which falls due upon such Class B Term Notes on each Sinking
Fund Payment Date (other than the Stated Maturity thereof) the amount
which, if deposited to the credit of the Principal Account on each of the
six (6) successive Monthly Payment Dates, if such Sinking Fund Payment
Dates occur semiannually, or on each of the eleven (11) successive Monthly
Payment Dates, if such Sinking Fund Payment Dates occur annually, for such
installment which are before the last Monthly Payment Date before such
Sinking Fund Payment Date, would in the aggregate equal the full amount of
such installment, except that if the installment due on the first Sinking
Fund Payment Date for the Class B Term Notes of any series is less than
seven (7) calendar months, if such Sinking Fund Payment Dates occur
semiannually, or twelve (12) calendar months, if such Sinking Fund Payment
Dates occur annually, after the month in which such Notes are delivered to
the initial purchasers thereof, the Trustee shall determine the amount
which, if deposited to the credit of the Principal Account on each of the
Monthly Payment Dates occurring during the period beginning with the
calendar month following the month in which such Notes are delivered to the
initial purchasers thereof and ending with the next-to-the-last Monthly
Payment Date prior to such Sinking Fund Payment Date, would in the
aggregate equal the full amount of such installment;
(2) express the monthly amount so determined for each such sinking
fund installment on a cumulative basis, so that the cumulative amount for
any Monthly Payment Date for that installment will be the sum of the amount
for such Monthly Payment Date and the amounts of the preceding such Monthly
Payment Dates; and
(3) on each such Monthly Payment Date (a) determine whether in fact
and to what extent the contingency, if any, specified in the Supplemental
Indenture authorizing the issuance of such Notes has been satisfied which
requires a deposit on such Monthly Payment Date to the credit of the
Principal Account on account of such sinking fund installment, as specified
in the Supplemental Indenture authorizing such series of Notes, (b)
determine the amount of any such deposit if so required, which for each
such Monthly Payment Date shall not exceed the cumulative amount therefor,
less the sum of all prior deposits made on account of such sinking fund
installment, and (c) deposit to the credit of the Principal Account any
amount so determined to be required to be deposited on such Monthly Payment
Date.
To the extent that on any such Sinking Fund Payment Date (other than
the Stated Maturity of such Notes) the aggregate of the deposits thus actually
made
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to the credit of the Principal Account as of the next-to-the-last Monthly
Payment Date before such Sinking Fund Payment Date on account of the sinking
fund installment due on such Sinking Fund Payment Date shall be less than the
full amount of such sinking fund installment, the amount of such deficiency
shall be added to the amount of the sinking fund installment otherwise due on
the next Sinking Fund Payment Date and the increased amount shall thereupon be
deemed to be the amount due for the next sinking fund installment. However,
nothing contained in this paragraph shall be construed to create an Event of
Default in the event of any such deficiency unless a sinking fund installment of
such Class B Term Notes shall not only be due and not applied to the redemption
or purchase of Notes in accordance with the provisions of the Supplemental
Indenture authorizing the issuance of the Notes of such series and subsection
(F) of this Section 4.7.2, but also all contingencies, if any, specified in such
Supplemental Indenture upon the obligation so to apply it as of such time shall
in fact have been satisfied. Any such contingencies specified in a Supplemental
Indenture authorizing the issuance of a series of Class B Notes must be
identical to the contingencies, if any, specified in any other Supplemental
Indenture authorizing a series of Class B Notes any Note of which is then
Outstanding.
Subject to subsection (D) of this Section 4.7.2, in the event that, in
any year in which sinking fund installments are due with respect to two (2) or
more series of Class B Notes, payments on account of such sinking fund
installments are not deposited and accumulated in the Principal Account in the
full amount thereof (taking into account any reduction in or credit against such
installments as provided in the Supplemental Indenture pursuant to which such
Class B Notes were issued) on or before the next-to-the-last Monthly Payment
Date prior to the Sinking Fund Payment Date with respect thereto, such payments
as shall have been accumulated shall be allocated as follows: (i) first, to the
payment of any such Class B Term Notes whose Stated Maturity is such Sinking
Fund Payment Date (as provided in subsection (A) of this Section 4.7.2), and
(ii) otherwise, between the series of Class B Notes in proportion to the
respective total amounts of sinking fund installments due on such Sinking Fund
Payment Date.
The Trustee shall without further authorization or direction apply the
moneys deposited to the credit of the Principal Account pursuant to this
subsection (B), on each Sinking Fund Payment Date, to the retirement of the
Class B Term Notes in accordance with the provisions in the Supplemental
Indenture pursuant to which such Notes were issued; subject, however, to
subsection (D) of this Section 4.7.2. The Trustee shall give notice of all such
redemptions, in the name and on behalf of the Corporation, in accordance with
the provisions of Article Ten hereof.
(C) In the event that the Corporation is required to furnish moneys
to the Depositary to purchase Notes on a Purchase Date or Mandatory Tender Date,
the Trustee shall, subject to the applicable provisions of the related
Supplemental Indenture, immediately deposit to the credit of the Principal
Account moneys sufficient to pay the purchase price thereof. Moneys in the
Principal Account
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required for the payment of the purchase price of such Notes shall, subject to
the applicable provisions of the related Supplemental Indenture, be applied by
the Trustee to such payment without further authorization or direction.
(D) Each deposit required to be made to the credit of the Principal
Account by subsections (A), (B) and (C) of this Section 4.7.2 shall be made by
transfer from the following Funds, in the following order of priority: (1) in
the case of subsection (A) and subsection (C), the Revenue Fund, the Surplus
Fund (other than that portion of the Balance thereof consisting of Eligible
Loans), the Reserve Fund, the Administration Fund, the Surplus Fund (including
that portion of the Balance thereof consisting of Eligible Loans), and (2) in
the case of subsection (B), the Revenue Fund and the Surplus Fund (other than
that portion of the Balance thereof consisting of Eligible Loans); provided,
however, that if principal is payable on Class A Notes at the Stated Maturity
thereof or upon a Sinking Fund Payment Date therefor, or the purchase price is
payable on Class A Notes on a Purchase Date or Mandatory Tender Date, and money
credited to the Principal Account, after the foregoing transfers, is
insufficient to pay such principal or purchase price, funds shall be
transferred, to the extent necessary, to the Principal Account for this purpose
from (i) the Interest Account, but only to the extent that the Balance in the
Interest Account exceeds any then accrued payments of interest on the Class A
Notes, Corporation Swap Payments under Senior Swap Agreements and fees owing to
Senior Credit Facility Providers and (ii) thereafter from the Acquisition Fund
(other than that portion of the Balance thereof consisting of Student Loans).
Notwithstanding any other provisions of this Article Four, deposits to
the credit of the Principal Account required to be made on each Monthly Payment
Date by this Section 4.7.2 or on any other date on which the Balance in the
Principal Account is not sufficient to pay all amounts payable therefrom on such
date, and any other amounts on deposit in the Principal Account, shall be
applied in the following order of priority: first, to the extent required by
subsection (E) of this Section 4.7.2, for transfer to the Rebate Fund; second,
to the extent required by Section 4.7.1, to the Interest Account for the payment
of interest on Class A Notes and Other Senior Obligations payable therefrom;
third, to the payment of Class A Notes at their Stated Maturity or on a Sinking
Fund Payment Date or amounts due on Other Senior Obligations payable from the
Principal Account; fourth, to the payment of the purchase price of Class A Notes
on a Purchase Date or Mandatory Tender Date; fifth, to the extent required by
Section 4.7.1, to the Interest Account for the payment of interest on Class B
Notes and Other Subordinate Obligations payable therefrom; sixth, to the amounts
due with respect to Class B Notes to be paid at their Stated Maturity or amounts
due on Other Subordinate Obligations payable from the Principal Account;
seventh, to the payment of the purchase price of Class B Notes on a Purchase
Date or Mandatory Tender Date; and, eighth, to the amounts due with respect to
Class B Term Notes to be redeemed on a Sinking Fund Payment Date. Any moneys in
the Principal Account required to be so transferred to the Interest Account
shall be transferred by the Trustee to such Account without further
authorization or direction.
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(E) Balances in the Principal Account shall be transferred to the
credit of the Rebate Fund to the extent necessary, after transfers thereto from
the Revenue Fund, the Surplus Fund, the Reserve Fund, the Administration Fund
and the Retirement Account, to make any deposit to the credit of the Rebate Fund
required by Section 4.5 hereof. Any moneys in the Principal Account required to
be so transferred to the Rebate Fund shall be transferred by the Trustee to such
Fund without further authorization or direction.
(F) Subject to Section 10.2 hereof, balances in the Principal Account
may also be applied to the purchase of Class A Notes or Class B Notes at a
purchase price (including any brokerage or other charges) not to exceed the
Principal Amount thereof plus accrued interest, in accordance with the
provisions of Section 10.7 hereof, as determined by the Corporation at such
time, provided the Trustee shall have first certified that no deficiencies exist
at such time in the Note Fund or the Rebate Fund. Any such purchase shall be
limited to those Class A Notes or Class B Notes whose Stated Maturity or Sinking
Fund Payment Date is the next succeeding Principal Payment Date. If any moneys
credited to the Principal Account for the retirement of the Term Notes are
applied to the purchase of such Notes as provided in this subsection (F), the
Principal Amount of such Notes to be redeemed on the next respective Sinking
Fund Payment Date shall be reduced by the Principal Amount of the Notes so
purchased; provided, however, that no Term Notes shall be so purchased during
the interval between the date on which notice of redemption of said Notes on a
Sinking Fund Payment Date is given and the date of redemption set forth in such
notice, unless the Notes so purchased are Notes called for redemption in such
notice or are purchased from moneys other than those credited to the Principal
Account with respect to sinking fund installments.
Any purchase of Class A Notes or Class B Notes pursuant to this
subsection (F) may be made with or without tenders of Notes and at either public
or private sale.
(G) All Class A Notes or Class B Notes retired by redemption,
purchase (other than on a Purchase Date or Mandatory Tender Date) or payment at
maturity pursuant to this Section 4.7.2 shall be canceled and shall not be
reissued. The accrued interest to be paid on the redemption, purchase (other
than on a Purchase Date or Mandatory Tender Date) or payment at Stated Maturity
of such Notes shall be paid from the Interest Account. Any Notes purchased or
otherwise Deemed Tendered on a Purchase Date or Mandatory Tender Date with
moneys furnished pursuant to this Section 4.7.2 shall not be canceled or the
indebtedness represented thereby otherwise extinguished except at the direction
of the Corporation, it being the intention of the Corporation that, absent such
a direction, such Notes remain outstanding and represent a continuing
indebtedness of the Corporation, whether such Notes are held by the Corporation,
the Remarketing Agent or others for the account of the Corporation, any
Remarketing Agent for its own account, any Depositary, the Trustee, any Credit
Facility Provider or any other purchaser.
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(H) The moneys in the Principal Account shall be invested in
Investment Securities as provided in Section 4.11 hereof, and any earnings on or
income from such investments shall be deposited in the Revenue Fund as provided
in Section 4.6 hereof.
Section 4.7.3. Retirement Account. The Trustee shall deposit to the
credit of the Retirement Account (i) any amounts transferred thereto from the
Reserve Fund and the Surplus Fund, (ii) that portion of the proceeds from the
sale of the Corporation's bonds, notes or other evidences of indebtedness, if
any, to be used to pay the principal or Redemption Price of Class A Notes or
Class B Notes on a date other than the Stated Maturity thereof or a Sinking Fund
Payment Date therefor, and (iii) all payments made by a Credit Facility Provider
under a Credit Enhancement Facility to be used to pay the Redemption Price of
Class A Notes or Class B Notes payable from the Retirement Account. All Class A
Notes or Class B Notes which are to be retired other than with moneys in the
Principal Account, or the principal of which is to be prepaid, shall be retired
or prepaid with moneys deposited to the credit of the Retirement Account.
Other Obligations payable from the Retirement Account shall include
reimbursement to any Credit Facility Provider for the Redemption Price or amount
or prepayment paid on Class A Notes or Class B Notes from amounts paid by the
Credit Facility Provider under a Credit Enhancement Facility.
Balances in the Retirement Account shall be transferred to the credit
of the Rebate Fund to the extent necessary, after transfers thereto from the
Revenue Fund, the Surplus Fund, the Reserve Fund and the Administration Fund, to
make any deposit to the credit of the Rebate Fund required by Section 4.5
hereof. Any moneys in the Retirement Account required to be so transferred to
the Rebate Fund shall be transferred by the Trustee to such Fund without further
authorization or direction.
After taking into account any transfers required by the preceding
paragraph, Balances in the Retirement Account shall be transferred to the credit
of the Interest Account to the extent required by Section 4.7.1 hereof in
respect of any accrued obligation in respect of payment of interest on Class A
Notes or Class B Notes and payment of Other Obligations payable from the
Interest Account. Any moneys in the Retirement Account required to be so
transferred to the Interest Account shall be transferred by the Trustee to the
Interest Account without further authorization or direction.
Subject to Section 10.2 hereof, balances in the Retirement Account may
also be applied to the purchase of Class A Notes or Class B Notes at a purchase
price (including any brokerage or other charges) not to exceed the Principal
Amount thereof plus accrued interest plus any then applicable redemption
premium, in accordance with the provisions of Section 10.7 hereof, as determined
by the
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Corporation at such time; provided the Trustee shall have first certified that
no deficiencies exist at such time in the Note Fund or the Rebate Fund.
In the event that Class A Notes or Class B Notes are to be redeemed
from the Retirement Account on a date other than a regularly scheduled Interest
Payment Date or are to be purchased from Balances in the Retirement Account
pursuant to the preceding paragraph, accrued interest on such Notes shall
nonetheless be paid from the Interest Account.
The moneys in the Retirement Account required for the payment of the
Redemption Price of Class A Notes or Class B Notes to be redeemed or for the
prepayment of Class A Notes or Class B Notes to be prepaid shall be applied by
the Trustee to such payment or prepayment when due without further authorization
or direction.
The moneys in the Retirement Account shall be invested in Investment
Securities as provided in Section 4.11 hereof, and any earnings on or income
from such investment shall be deposited in the Revenue Fund as provided in
Section 4.6 hereof.
Section 4.8. Surplus Fund. On each Monthly Payment Date the Trustee
shall transfer from the Revenue Fund to (I) the Special Redemption and
Prepayment Account any amounts which are not then required to be transferred
from the Revenue Fund to the Rebate Fund, the Note Fund, the Acquisition Fund,
the Administration Fund or the Reserve Fund to the extent necessary to increase
the Balance in the Special Redemption and Prepayment Account to equal the
aggregate of the Special Redemption and Prepayment Account Requirements for each
series of Notes any Note of which is then Outstanding, and (II) the Surplus
Account any amounts which are not then required to be transferred from the
Revenue Fund to the Rebate Fund, the Note Fund, the Acquisition Fund, the
Administration Fund, the Reserve Fund or the Special Redemption and Prepayment
Account. The Trustee shall also credit to the Surplus Account the proceeds of
the resale to a Lender of any Student Loans previously purchased with moneys in
the Surplus Account pursuant to the repurchase obligation of the Lender under
the applicable Student Loan Purchase Agreement.
Balances in the Surplus Fund shall be applied to the following
purposes in the following order of priority: first, to remedy deficiencies in
the Rebate Fund to the extent and in the manner provided in Section 4.5 hereof;
second, to remedy deficiencies in the Interest Account to the extent and in the
manner provided in Section 4.7.1 hereof for the payment of interest on Class A
Notes or Other Senior Obligations payable therefrom; third, to remedy
deficiencies in the Principal Account to the extent and in the manner provided
in Section 4.7.2 hereof for the payment of Class A Notes at the Stated Maturity
thereof or on a Sinking Fund Payment Date therefor, the purchase price of Class
A Notes on a Purchase Date or Mandatory Tender Date therefor or Other Senior
Obligations payable therefrom;
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fourth, to remedy deficiencies in the Retirement Account to the extent and in
the manner provided in Section 4.7.3 hereof for the redemption or payment of
Class A Notes or for the payment of Other Senior Obligations payable therefrom;
fifth, to remedy deficiencies in the Interest Account to the extent and in the
manner provided in Section 4.7.1 hereof for the payment of interest on Class B
Notes and Other Subordinate Obligations payable therefrom; sixth, to remedy
deficiencies in the Principal Account to the extent and in the manner provided
in Section 4.7.2 hereof for the payment of Class B Notes at the Stated Maturity
thereof, the purchase price of Class B Notes on a Purchase Date or Mandatory
Tender Date therefor and Other Subordinate Obligations payable therefrom;
seventh, to remedy deficiencies in the Retirement Account to the extent and in
the manner provided in Section 4.7.3 hereof for the redemption or payment of
Class B Notes or for the payment of Other Subordinate Obligations payable
therefrom; eighth, to make deposits to the credit of the Administration Fund to
the extent and in the manner provided in Section 4.3 hereof (provided that such
transfers shall only be made from Balances in the Surplus Account); ninth, to
remedy deficiencies in the Reserve Fund to the extent and in the manner provided
in Section 4.4 hereof; tenth, to remedy deficiencies in the Principal Account to
meet the sinking fund installment with respect to Class B Term Notes on a
Sinking Fund Payment Date (other than the Stated Maturity thereof); eleventh, to
make transfers to the credit of the Retirement Account to redeem or prepay Class
A Notes or Class B Notes as provided in a Supplemental Indenture relating
thereto (provided that any such transfers shall only be made from Balances in
the Special Redemption and Prepayment Account); and twelfth, to make deposits to
the credit of the Interest Account for the payment of Carry-Over Amounts (and
accrued interest thereon) to the extent and in the manner provided in Section
4.7.1 hereof (provided that such transfers shall only be made from Balances in
the Surplus Account). Notwithstanding the foregoing, Balances in the Surplus
Fund consisting of Eligible Loans shall not be required to be applied (1)
pursuant to priorities first through seventh in the preceding sentence until
after any transfers from the Reserve Fund have been taken into account, and (2)
in any event pursuant to priorities eighth through twelfth in the preceding
sentence. If the amounts in the Surplus Fund are to be used to remedy any such
deficiency or to make a transfer to the credit of the Administration Fund or the
Retirement Account, transfers shall be made first from any cash or Investment
Securities included in the Surplus Account and the Special Redemption and
Prepayment Account, in that order of priority, and thereafter from the proceeds
of any sale of Student Loans included in the Surplus Account.
Balances in the Special Redemption and Prepayment Account may also be
transferred to the Acquisition Fund for the acquisition or origination of
Eligible Loans as provided in Section 4.2 hereof and as further authorized or
limited in a Supplemental Indenture. Balances in the Special Redemption and
Prepayment Account shall be transferred to the Acquisition Fund to be so used
upon receipt by the Trustee of a Corporation Request directing such transfer,
accompanied by an Eligible Loan Acquisition Certificate or an Eligible Loan
Origination Certificate and all documents, opinions and certificates required
thereby.
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Subject to Section 10.2 hereof, balances in the Special Redemption and
Prepayment Account (other than any portion thereof to be applied to the
mandatory prepayment of principal of any Notes) may also be transferred to the
Note Fund for the purchase of Notes at a purchase price (including any brokerage
or other charges) not to exceed the greater of the Principal Amount thereof or,
if such purchase occurs during the period when such Notes are subject to
redemption at the option of the Corporation from such funds, the Redemption
Price set forth in the Supplemental Indenture authorizing the issuance of such
Notes that would be applicable to the redemption of Notes pursuant thereto on
the date of such purchase, in either case plus accrued interest, in accordance
with the provisions of Section 10.7 hereof, as determined by the Corporation at
such time, provided that the Trustee shall have first certified that no
deficiencies exist at such time in the Note Fund, the Rebate Fund or the Reserve
Fund, any such Balances to be so used are not required to be applied to the
prepayment of principal of any Notes and, if the purchase price of any Note to
be so purchased is to exceed the Principal Amount thereof plus accrued interest
thereon, the Trustee shall have been provided with a Corporation Certificate
certifying that, based on a Cash Flow Projection, any such purchase of Notes
will not materially adversely affect the Corporation's ability to pay Debt
Service on the Outstanding Notes, Outstanding Other Obligations, Carry-Over
Amounts (including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees or to make required deposits to the Rebate
Fund.
Balances in the Surplus Fund may, subject to the last sentence of the
following paragraph, also be applied, as determined by the Corporation from time
to time, to the payment of principal of, premium, if any, or interest on Class C
Notes when due or upon the redemption thereof at the option of the Corporation;
provided that (A) the Trustee shall have certified that no deficiencies exist at
such time in the Note Fund, the Rebate Fund or the Reserve Fund, (B) after
taking into account any such payments of interest on the Class C Notes, the
Senior Percentage will not be less than one hundred ________ percent (1______%)
(or such lower percentage specified in a Corporation Certificate delivered to
the Trustee which, if Unenhanced Class A Notes are Outstanding, shall not result
in the lowering or withdrawal of the outstanding rating assigned by any Rating
Agency to any of the Unenhanced Class A Notes Outstanding, as evidenced in
writing to the Trustee by each such Rating Agency, or if no Unenhanced Class A
Notes are Outstanding but Other Senior Obligations are Outstanding, is
acceptable to the Other Senior Beneficiaries holding such Other Senior
Obligations, as evidenced in writing to the Trustee by each such Other Senior
Beneficiary), and the Subordinate Percentage will not be less than
________________ percent (________%) (or such lower percentage specified in a
Corporation Certificate delivered to the Trustee which, if Unenhanced Class B
Notes are Outstanding, shall not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced Class
B Notes Outstanding, as evidenced in writing to the Trustee by each such Rating
Agency, or if no Unenhanced Class B Notes are Outstanding but Other Subordinate
Obligations are Outstanding, is acceptable to the Other Subordinate
Beneficiaries holding such
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Other Subordinate Obligations, as evidenced in writing to the Trustee by each
such Other Subordinate Beneficiary); and (C) after taking into account any such
payments of principal of or premium, if any, on the Class C Notes, the Senior
Asset Requirement will be met. If the amounts in the Surplus Fund are to be used
to pay principal of, premium or interest on the Class C Notes in accordance with
this paragraph, payments shall be made first from any cash or Investment
Securities in the Surplus Account and the Special Redemption and Prepayment
Account, in that order of priority, then from the proceeds of any sale of
Student Loans in the Surplus Account not constituting Eligible Loans, and
thereafter from the proceeds of any sale of Eligible Loans in the Surplus
Account.
Subject to Section 10.2 hereof and to the last sentence of this
paragraph, balances in the Surplus Account may also be applied to any one or
more of the following purposes at any time as determined by the Corporation at
such time, provided the Trustee shall have first certified that no deficiencies
exist at such time in the Note Fund, the Rebate Fund, the Reserve Fund or the
Special Redemption and Prepayment Account:
(i) transfer to the Retirement Account for the redemption of Class A
Notes or Class B Notes; provided that, if the Redemption Price of any Note
to be so redeemed is to exceed the Principal Amount thereof, the Trustee
shall have received a Corporation Certificate certifying that any such
Balances to be so used are not reasonably expected to be needed to pay Debt
Service on the Outstanding Notes and Outstanding Other Obligations, Carry-
Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes, Administrative Expenses or Note Fees or to make required
transfers to the Rebate Fund;
(ii) transfer to the Principal Account or the Retirement Account for
the purchase of Class A Notes or Class B Notes at a purchase price
(including any brokerage or other charge) not to exceed the greater of the
Principal Amount thereof or, if such purchase occurs during the period when
such Notes are subject to redemption at the option of the Corporation from
such funds, the Redemption Price set forth in the Supplemental Indenture
authorizing the issuance of such Notes that would be applicable to the
redemption of Notes pursuant thereto on the date of such purchase, in
either case plus accrued interest, in accordance with the provisions of
Section 10.7 hereof, provided that, if the purchase price of any Note to be
so purchased is to exceed the Principal Amount thereof plus accrued
interest thereon, the Trustee shall have first received a Corporation
Certificate certifying that, based on a Cash Flow Projection, any such
purchase of Notes will not materially adversely affect the Corporation's
ability to pay Debt Service on the Outstanding Notes and Outstanding Other
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees or to
make required deposits to the Rebate Fund; or
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(iii) upon the receipt by the Trustee of a Corporation Certificate
that the Balance in the Administration Fund is at least equal to the
Budgeted Administrative Expenses and Note Fees for the next succeeding
ninety (90) days, and that, based on a Cash Flow Projection, any moneys to
be so used are not reasonably expected to be needed for the payment of Debt
Service on the Outstanding Notes and Outstanding Other Obligations, Carry-
Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes, Administrative Expenses or Note Fees or for transfer to
the Rebate Fund: (a) the acquisition of Student Loans meeting the
requirements of clauses (A)(1) and (A)(2) or (B) of the definition of
"Eligible Loan" in Section 1.1 hereof, the moneys to be applied from the
Surplus Account for such purpose being no more than the Principal Balance
of such Student Loans, plus accrued noncapitalized interest thereon payable
by the Eligible Borrower, if any, to the date of purchase, reasonable
transfer, origination and assignment fees, if applicable, and a premium not
to exceed that assumed in the most recent Cash Flow Projection delivered in
conjunction with the issuance of a series of Notes [or such greater premium
the payment of which will not materially adversely affect the Corporation's
ability to pay Debt Service on the Outstanding Notes, Other Indenture
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees or to
make required transfers to the Rebate Fund, as shown in a subsequent Cash
Flow Projection received by the Trustee, and which will not result in the
lowering or withdrawal of the outstanding rating assigned by any Rating
Agency to any of the Unenhanced Senior or Subordinate Notes Outstanding, as
evidenced in writing to the Trustee by each such Rating Agency], and being
paid to the Lender upon the receipt by the Trustee of a Student Loan
Acquisition Certificate and all documents, opinions and certifications
required thereby; (b) to reimburse another fund, account or other source of
the Corporation for the previous payment of Costs of Issuance, to the
extent not previously reimbursed from the Surplus Account; and (c) for such
other purposes as the Corporation shall determine upon receipt by the
Trustee of an opinion of Counsel that such use will not violate any
covenants of the Corporation contained in Sections 5.14 or 5.16 hereof, is
authorized by the Corporation's Articles of Incorporation and Bylaws, and
will not violate the provisions of Section 150(d) of the Code; provided,
however, that Balances in the Surplus Account shall not be applied to any
of the purposes specified in the preceding clauses (iii)(b) or (c) or to
the purchase of Student Loans that are not Eligible Loans unless, after
taking into account any such application and excluding, for these purposes
only, from the calculation of Aggregate Value, any Financed Student Loans
which are not Eligible Loans and any moneys reasonably expected to be
needed for transfer to the Rebate Fund or to be used to pay Costs of
Issuance, Note Fees or Administrative Expenses, (1) the Senior Percentage
will not be less than one hundred ____________ percent (1_______%) (or such
lower percentage specified in a Corporation Certificate delivered to the
Trustee which, if Unenhanced Class A Notes are Outstanding, shall not
result in the lowering or withdrawal of
<PAGE>
the outstanding rating assigned by any Rating Agency to any of the
Unenhanced Class A Notes Outstanding, as evidenced in writing to the
Trustee by each such Rating Agency, or if no Unenhanced Class A Notes are
Outstanding but Other Senior Obligations are Outstanding, is acceptable to
the Other Senior Beneficiaries holding such Outstanding Other Senior
Obligations, as evidenced in writing to the Trustee by each such Other
Senior Beneficiary), and (2) the Subordinate Percentage will not be less
than one hundred _________ percent (_____%) (or such lower percentage
specified in a Corporation Certificate delivered to the Trustee which, if
Unenhanced Class B Notes are Outstanding, shall not result in the lowering
or withdrawal of the outstanding rating assigned by any Rating Agency to
any of the Unenhanced Class B Notes Outstanding, as evidenced in writing to
the Trustee by each such Rating Agency, or if no Unenhanced Class B Notes
are Outstanding but Other Subordinate Obligations are Outstanding, is
acceptable to the Other Subordinate Beneficiaries holding such Outstanding
Other Subordinate Obligations, as evidenced in writing to the Trustee by
each such Other Subordinate Beneficiary); and provided, further, that
Balances in the Surplus Account may, to the extent provided in a
Supplemental Indenture, be applied to the purchase of Eligible Loans as
specified in the preceding clause (iii)(a) without satisfying any other
condition of this clause (iii).
Notwithstanding the foregoing (I) no amounts in the Surplus Fund shall be paid
out with respect to Costs of Issuance, Note Fees or Administrative Expenses, or
for any other use permitted by the preceding paragraph or clause (iii) above,
unless, after giving effect to such payment (taking into account, for this
purpose, all previous such payments from the Surplus Fund and all payments from
the Administration Fund with respect to Costs of Issuance, Note Fees and
Administrative Expenses), as to each series of Tax Exempt Notes, either (i) at
least ninety percent (90%) of the net proceeds of such series will, at the time
of such payment, have been used directly or indirectly to make or finance
student loans described in Section 144(b)(1)(A) of the Code, or (ii) at least
ninety-five percent (95%) of the net proceeds of such series will, at the time
of such payment, have been used directly or indirectly to make or finance
student loans described in Section 144(b)(1)(B) of the Code, as applicable, all
within the meaning of such Section 144(b) of the Code, and (II) any Student Loan
to be Financed from Balances in the Surplus Fund shall be described in Section
144(b)(1) (if Financed from the proceeds of Tax Exempt Notes) and Section 150(d)
(if Financed prior to the Section 150(d)(3) Transfer) of the Code.
The unpaid principal balance of Student Loans Financed with moneys in
the Surplus Account shall be included in the Balance of the Surplus Account
until such Financed Student Loans shall have been paid in full or sold as
hereinafter provided; provided that, to the extent provided in a Supplemental
Indenture, any such Student Loans so Financed and constituting Eligible Loans
shall, upon the financing thereof, be credited to, and included in the Balance
of, the Acquisition Fund and shall thereafter not be deemed to have been
Financed with
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moneys in the Surplus Account. Interest and principal payments, including
Insurance and Guarantee payments and similar payments made by any other Person,
and Special Allowance Payments (excluding any federal interest subsidy payments
and Special Allowance Payments that accrued prior to the date on which such
Student Loans were Financed) received with respect to Student Loans Financed
with moneys in the Surplus Account shall be credited to the Revenue Fund as
provided in Section 4.6 hereof.
The Trustee shall use its best efforts to sell Student Loans included
in the Balance of the Surplus Account at the best price available to the extent
necessary to make any transfer or payment therefrom as provided in the second
paragraph of this Section 4.8. In addition, the Corporation may, at any time,
sell to any purchaser (A) one or more Eligible Loans Financed with moneys in the
Surplus Account at a price not less than one hundred percent (100%) of the
Principal Balance thereof plus accrued noncapitalized interest thereon payable
by the Eligible Borrower, or (B) one or more Student Loans Financed with moneys
in the Surplus Account that are not Eligible Loans at a price not less than the
lesser of one hundred percent (100%) of the Principal Balance thereof or the
percentage of the Principal Balance thereof paid to finance such Student Loan
plus, in either case, accrued noncapitalized interest thereon payable by the
Eligible Borrower; provided that no such sale shall cause the Corporation to
breach any of its representations or covenants contained in the Tax Matters
Certificate furnished by the Corporation in connection with the issuance of any
series of Tax Exempt Notes.
Student Loans from time to time held in the Surplus Account may also
be purchased at any time with the proceeds of the Corporation's bonds, notes or
other evidences of indebtedness, at a purchase price equal to one hundred
percent (100%) of the Principal Balance of the Student Loans so purchased plus
accrued noncapitalized interest thereon payable by the Eligible Borrower, if
any.
Any money received by the Corporation in connection with a sale of
Financed Student Loans pursuant to the preceding two (2) paragraphs shall be
deposited to the credit of the Surplus Account.
Pending transfers from the Surplus Fund, the moneys therein shall be
invested in Investment Securities as provided in Section 4.11 hereof, and any
earnings on or income from such investments shall be deposited in the Revenue
Fund as provided in Section 4.6 hereof.
Section 4.9. Termination. When no Notes remain Outstanding and no
Other Obligations are Outstanding, the Trustee and any Deposit Agents shall
transfer to the Corporation, or to the order of the Corporation, the Balances in
all Funds and Accounts if, and to the extent that, such Balances are in excess
of amounts needed to pay principal of, premium, if any, and interest on, and any
Carry-Over Amounts (and accrued interest thereon) due and payable with respect
to the Notes, to make all payments to the United States Treasury or otherwise
required
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by Section 4.5 hereof, and to pay the fees, compensation and expenses of the
Trustee and any Authenticating Agent, Note Registrar, Remarketing Agents,
Depositaries, Auction Agents, Broker-Dealers, Deposit Agents and Paying Agents.
To the extent that such Balances are needed to pay such amounts or fees, the
Trustee shall retain such Balances hereunder and pay such amounts or fees to the
Persons to whom such amounts are due and payable as provided hereunder. In the
event that any portion or all of the Balances in the Funds and Accounts payable
to the Corporation pursuant to this Section consist of Investment Securities
which are payable solely to the Trustee and cannot be effectively transferred to
the Corporation, the Trustee shall continue to hold such Investment Securities
under this Indenture on behalf of the Corporation until such time as such
securities can be transferred to the Corporation or amounts payable thereunder
received, whether by acceleration at the option of the holder thereof, at
maturity or otherwise, all at the direction of an Authorized Officer of the
Corporation.
Section 4.10. Pledge. The Notes, including the principal thereof,
premium, if any, and interest thereon and any Carry-Over Amounts (and accrued
interest thereon) with respect thereto, and Other Obligations shall be limited
obligations of the Corporation specifically secured as provided in the Granting
Clauses hereof. Financed Student Loans purchased with the proceeds of the
Corporation's bonds, notes or other obligations as described in Section 4.8
hereof, or resold to a Lender pursuant to its repurchase obligation under a
Student Loan Purchase Agreement, or sold or exchanged for Eligible Loans in
accordance with the provisions of Section 4.2 or Section 4.8 hereof, shall,
contemporaneously with receipt by the Trustee of the purchase price thereof in
freely transferable funds, including any Eligible Loans to be received in
exchange therefor, no longer be pledged to nor serve as security for the
principal of, premium, if any, and interest on and any Carry-Over Amounts (and
accrued interest thereon) with respect to the Notes or any Other Obligations.
The Corporation pledges and agrees with the Beneficiaries that the
Corporation will not limit or alter its powers to fulfill the terms of any
agreements made in this Indenture or in any Notes or in any way impair the
rights and remedies of the Beneficiaries until the Notes, together with interest
thereon, including interest on any unpaid installments of interest, and all
costs and expenses in connection with any action or proceeding by or on behalf
of the Holders and all amounts owing to Other Beneficiaries, are fully met and
discharged.
The Notes, including the principal thereof, premium, if any, and
interest thereon and any Carry-Over Amounts (and accrued interest thereon) with
respect thereto, and any Other Obligations shall be secured hereunder by the
foregoing pledge of the Financed Student Loans, revenues, securities and other
moneys hereby made, and by a lien thereon, subject to the priorities expressly
provided in Section 3.12 or elsewhere herein. The pledge in the Granting Clauses
hereof shall constitute a prior and paramount lien and charge on such Financed
Student Loans, revenues, contract rights, securities and other moneys from time
to
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time held hereunder (subject only to the valid exercise of the constitutional
powers of the United States of America, valid bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights, and to
the provisions of this Indenture permitting the application of such Financed
Student Loans, revenues, securities and other moneys for the purposes and on the
terms and conditions hereof), over and ahead of any claims (whether in tort,
contract or otherwise irrespective of whether the parties possessing such claims
have notice of the foregoing pledges or charges), encumbrances or obligations of
any nature hereafter arising or incurred, and over and ahead of all other
indebtedness payable from or secured by such revenues which may hereafter be
created or incurred. The pledge of such Financed Student Loans, revenues,
securities and other moneys made herein and hereby shall be valid and binding
from the time of the delivery of and payment for the first series of Notes
issued hereunder, and such Financed Student Loans, revenues, securities and
other moneys shall thereupon be immediately subject to the lien, pledge and
charge hereof upon receipt thereof by the Corporation or any Lender, Servicer,
Trustee, Paying Agent, Deposit Agent, Remarketing Agent, Depositary, Auction
Agent or Broker-Dealer, or any agent thereof, without any physical delivery or
segregation thereof or further act.
No Beneficiary shall be required to see that the moneys derived from
any Note are applied to the purpose or purposes for which the Note is issued.
The validity of the Notes shall neither be dependent upon nor affected by the
validity or regularity of any proceedings or contracts relating to the Program,
nor the use and application of the proceeds of such Notes.
The pledge of the Financed Student Loans, revenues, securities and
other moneys made hereby includes the pledge of any contract or any evidence of
indebtedness or other rights of the Corporation to receive any of the same,
whether now existing or hereafter coming into existence, and whether now or
hereafter acquired, and the proceeds thereof.
Section 4.11. Investments. Moneys held by the Trustee or any Deposit
Agent for the credit of any Fund or Account shall be invested by the Trustee or
such Deposit Agent, in accordance with the Sections hereof relating to such
Funds and Accounts, as directed by the Corporation, to the fullest extent
practicable and reasonable, in Investment Securities which shall mature or be
redeemable at the option of the holder prior to the respective dates when the
moneys held for the credit of such Fund or Account will be required for the
purposes intended.
Subject to the provisions of Section 5.14 hereof and to the right of
the Corporation to direct the investment of funds hereunder, moneys in any Fund
or Account or any combination of Funds and Accounts shall be continuously
invested and reinvested or deposited and redeposited by the Trustee or any
Deposit Agent in the highest yield Investment Securities reasonably known to the
Trustee or such Deposit Agent, with a view toward maximizing yield (with proper
preservation of principal) and minimizing the instances of uninvested funds. The
Investment
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Securities purchased shall be held by the Trustee or any Deposit Agent and shall
be deemed at all times to be part of such Fund or Account or combination
thereof, and the Trustee or any Deposit Agent shall inform the Corporation of
the details of all such investments. The Trustee or any Deposit Agent shall sell
at the best price obtainable, or present for redemption, any Investment
Securities purchased by it as an investment whenever it shall be necessary to
provide moneys to meet any payment from such Fund or Account. The Trustee may
purchase from or sell to itself or an affiliate, as principal or agent, any
Investment Securities. The Trustee or any Deposit Agent shall advise the
Corporation in writing, on or before the fifth day of each calendar month, of
all investments held for the credit of each Fund or Account in its custody under
the provisions of this Indenture as of the end of the Code; and, to this end,
the Trustee and each Deposit Agent shall comply with all provisions with respect
to investment of moneys in the Funds and Accounts specified in the Tax Matters
Certificate furnished by the Corporation in connection with the issuance of each
series of Tax Exempt Notes.
If any Investment Securities include any "book-entry" securities, the
Trustee and any Deposit Agent shall have such Investment Securities held in the
name of the Trustee or such Deposit Agent at the appropriate Federal Reserve
Bank or other depository, and the Trustee or such Deposit Agent shall take such
other actions as are necessary to maintain a prior perfected security interest
in such "book-entry" Investment Securities in accordance with federal
regulations or applicable law regarding "book-entry" securities.
Section 4.12. Transfer of Investment Securities. Whenever any transfer
is required by this Indenture to be made from any Fund or Account to any other
Fund or Account, the Trustee may use Investment Securities, or allocable
portions thereof, included in the Balance of the former to the extent necessary
to make such transfer, but only to the extent such Investment Securities are
permissible investments for the Fund or Account to which they are to be
transferred. The amount of any such transfer of Investment Securities shall be
the Value of Investment Securities determined with respect thereto as of the
date of transfer.
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ARTICLE FIVE
COVENANTS TO SECURE NOTES; REPRESENTATIONS AND WARRANTIES
Section 5.1. Trustee to Hold Financed Student Loans. The Corporation
shall cause all Financed Student Loans to be endorsed and otherwise conveyed to
the Trustee on behalf of the Corporation in accordance with the provisions of
the applicable Student Loan Purchase Agreement or, in the case of any
origination of Financed Student Loans, shall cause such Student Loans to be
originated in the name of the Trustee. The Trustee shall be the legal owner of
all Financed Student Loans for all purposes of the Higher Education Act and each
Guarantee Program. The Trustee shall so hold such Financed Student Loans in its
capacity as trustee of an express trust created pursuant to this Indenture and,
in such capacity, shall be acting on behalf of the Corporation, as the
beneficial owner of such Student Loans, as well as the Holders of the Notes and
all Other Beneficiaries, as their interests may appear.
Section 5.2. Credit Enhancement Facilities, Demand Purchase Agreements
and Swap Agreements. The Corporation may from time to time enter into or obtain
the benefit of any Credit Enhancement Facility, any Demand Purchase Agreement or
any Swap Agreement with respect to any Class A Notes or Class B Notes of any
series; provided that (i) a Supplemental Indenture is entered into in accordance
with the provisions of Section 8.01(i) hereof, and (ii) any such Credit
Enhancement Facility, Demand Purchase Agreement or Swap Agreement satisfies any
conditions specified in a prior Supplemental Indenture.
No Supplemental Indenture shall authorize the execution of a Swap
Agreement unless, as of the date the Corporation enters into such Swap
Agreement, either the Swap Counterparty or the Person executing a Swap
Counterparty Guarantee relating thereto has outstanding obligations rated by
each Rating Agency not lower than in its third highest Specific Rating Category
(or each Rating Agency has a comparable other rating with respect to such Swap
Counterparty Guarantee, such as a comparable rating of claims paying ability or
deposits) and no such Swap Agreement shall be designated as a Senior Swap
Agreement unless, as of the date the Corporation enters into such Swap
Agreement, the Senior Asset Requirement will be met and, if Unenhanced Notes are
Outstanding, the Trustee shall have received written confirmation from each
Rating Agency that the execution and delivery of the Swap Agreement will not
cause the reduction or withdrawal of any rating or ratings then applicable to
any Unenhanced Notes.
Notwithstanding anything in this Indenture to the contrary, (1) any
Supplemental Indenture authorizing the execution by the Corporation of a Senior
Swap Agreement, Subordinate Swap Agreement, Senior Credit Enhancement Facility,
Subordinate Credit Enhancement Facility, Senior Demand Purchase Agreement or
Subordinate Demand Purchase Agreement may include provisions with respect to the
application and use of all amounts to be paid thereunder, (2) no
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amounts paid under any such Credit Enhancement Facility or Demand Purchase
Agreement shall be part of the Trust Estate except to the extent, if any,
specifically provided in such Supplemental Indenture and no Beneficiaries shall
have any rights with respect to any such amounts so paid except as may be
specifically provided in such Supplemental Indenture, (3) Notes of one or more
series or any portions thereof may be secured by a pledge of any or all amounts
payable pursuant to such Credit Enhancement Facility or Demand Purchase
Agreement, in the manner and to the extent provided in such Supplemental
Indenture, and such Notes may be either Class A Notes or Class B Notes for
purposes hereof, and (4) the Corporation's obligations under any such Credit
Enhancement Facility, Demand Purchase Agreement or Swap Agreement shall be
limited obligations, payable solely from the revenues and assets of the
Corporation pledged therefor under this Indenture.
Section 5.3. Enforcement and Amendment of Guarantee Agreements. So
long as any Notes or Other Obligations are Outstanding and Financed Eligible
Loans are Guaranteed by a Guarantee Agency, the Corporation (a) will, from and
after the date on which the Trustee on its behalf shall have either entered
into, or succeeded to the rights and interests of any Lender under, any
Guarantee Agreement covering Financed Eligible Loans, cause the Trustee to
maintain such Guarantee Agreement and diligently enforce the Trustee's rights
thereunder; (b) will cause the Trustee to enter into such other similar or
supplemental agreements as shall be required to maintain benefits for all
Financed Eligible Loans covered thereby, and (c) will not voluntarily consent to
or permit any rescission of or consent to any amendment to or otherwise take any
action under or in connection with any such Guarantee Agreement or any similar
or supplemental agreement which in any manner will materially adversely affect
the rights of the Holders from time to time of the Notes or Other Beneficiaries
hereunder.
Section 5.4. Enforcement and Amendment of Certificates of Insurance
and Contract of Insurance. So long as any Notes or Other Obligations are
Outstanding, the Corporation (a) will cause the Trustee to maintain all
Certificates of Insurance and the Contract of Insurance and diligently enforce
the Trustee's rights thereunder; (b) will cause the Trustee to enter into such
other similar or supplemental agreements as shall be required to maintain
benefits for all Financed Eligible Loans covered thereby, and (c) will not
voluntarily consent to or permit any rescission of or consent to any amendment
to or otherwise take any action under or in connection with any such
Certificates of Insurance or the Contract of Insurance or any similar or
supplemental agreement which in any manner will materially adversely affect the
rights of any Beneficiaries.
Section 5.5. Acquisition, Collection and Assignment of Student Loans.
The Corporation shall, except as provided in Section 4.8 with regard to the
Surplus Fund, cause the Trustee to originate or acquire only Eligible Loans with
moneys in any of the Funds and shall diligently cause to be collected all
principal and interest payments (subject to any adjustments described in Section
5.6 hereof) on all the
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Financed Student Loans and, subject to the following proviso, all Non-Delivery
Fees and other sums to which the Corporation is entitled pursuant to any Student
Loan Purchase Agreement, and all grants, subsidies, donations, insurance
payments, Special Allowance Payments and all defaulted payments Guaranteed or
Insured by any Guarantee Agency or by the Secretary of Education which relate to
such Financed Student Loans; provided that the Corporation may, in its
discretion, waive its right to receive any portion or all of the Non-Delivery
Fees to which the Corporation is otherwise entitled under the Student Loan
Purchase Agreements, as evidenced by a Corporation Certificate to that effect.
The Corporation shall also make, or cause to be made by Lenders or Servicers,
every effort to perfect the Corporation's, the Trustee's or such Lender's or
Servicer's claims for payment from the Secretary of Education or a Guarantee
Agency, as soon as possible, of all payments related to such Financed Student
Loans. The Corporation will cause the Trustee to assign such Financed Student
Loans for payment of guarantee or insurance benefits within the time required
under applicable law and regulations. The Corporation shall cause all United
States and applicable State statutes, rules and regulations which apply to the
Program and to Financed Student Loans to be complied with.
Section 5.6. Enforcement of Financed Student Loans. The Corporation
shall cause to be diligently enforced, and shall cause to be taken all steps,
actions and proceedings reasonably necessary for the enforcement of, all terms,
covenants and conditions of all Financed Student Loans and agreements in
connection therewith, including the prompt payment of all principal and interest
payments (as such payments may be adjusted to take into account (i) any discount
the Corporation may cause to be made available to borrowers who make payments on
Financed Student Loans through automatic withdrawals, and (ii) any reduction in
the interest payable on Financed Student Loans provided for in any special
program under which such loans were originated) and all other amounts due the
Trustee thereunder. The Corporation shall not permit the release of the
obligations of any borrower under any Financed Student Loan and shall at all
times, to the extent permitted by law, cause to be defended, enforced, preserved
and protected the rights and privileges of the Corporation, the Trustee and the
Beneficiaries under or with respect to each Financed Student Loan and agreement
in connection therewith. The Corporation shall not consent or agree to or permit
any amendment or modification of any Financed Student Loan or agreement in
connection therewith which will in any manner materially adversely affect the
rights or security of the Beneficiaries. Nothing in this Section 5.6 or in
Sections 5.5 and 5.7 hereof shall be construed to prevent the Corporation from
settling a default or curing a delinquency on any Financed Student Loan on such
terms as shall be required by law. Notwithstanding the foregoing, (1) the
Corporation may cause the Trustee to forgive the indebtedness on all or a
portion of the Financed Student Loans or take such other action as may be
provided in the written opinion of Bond Counsel, as provided in Section 4.5(B)
hereof, to the extent necessary to prevent interest on any series of Tax Exempt
Notes from being includable in the gross income of the owners thereof for
federal income tax purposes, and may cause the Trustee to forgive the remaining
indebtedness on
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any Financed Student Loan having a principal balance not in excess of $100 if,
in the reasonable judgment of the Corporation evidenced by a Corporation
Certificate delivered to the Trustee, the cost of collection of the remaining
indebtedness of such Financed Student Loan would exceed such remaining
indebtedness, and (2) the Corporation may amend the terms of a Financed Student
Loan to provide for a different rate of interest thereon to the extent required
by law or, if such Financed Student Loan is a Plus or SLS Loan, to effect a
reissuance of such Plus or SLS Loan at a variable rate.
Section 5.7. Servicing and Other Agreements. The Corporation 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
Trustee in a Corporation Certificate shall be deemed to be action taken by the
Corporation. The Corporation may, and prior to or contemporaneously with the
Section 150(d)(3) Transfer shall, enter into a Servicing Agreement providing for
the servicing of the Financed Student Loans and performance of certain of its
other obligations under this Indenture, including, without limitation, those
obligations described in this Section and Sections 5.5, 5.6 and 5.8 hereof.
The Corporation shall cause to be diligently enforced and taken all
reasonable steps, actions and proceedings necessary for the enforcement of all
terms, covenants and conditions of all Servicing Agreements, including the
prompt payment of all principal and interest payments and all other amounts due
the Corporation or the Trustee thereunder, including all grants, subsidies,
donations, insurance payments, Special Allowance Payments and all defaulted
payments Guaranteed and/or Insured by any Guarantee Agency and/or by the
Secretary of Education which relate to any Financed Student Loans. The
Corporation shall not permit the release of the obligations of any Servicer
under any Servicing Agreement and shall at all times, to the extent permitted by
law, cause to be defended, enforced, preserved and protected the rights and
privileges of the Corporation, the Trustee and the Beneficiaries under or with
respect to each Servicing Agreement. The Corporation shall not consent or agree
to or permit any amendment or modification of any Servicing Agreement which will
in any manner materially adversely affect the rights or security of the
Beneficiaries.
Any Servicing Agreement shall require the Servicer to administer and
collect all Financed Student Loans in the manner provided in this Section 5.7
and Section 5.8 hereof, and shall require the Servicer to prepare and furnish to
the Trustee, no later than the twenty-fifth day (or, if such twenty-fifth day is
not a Business Day, the next succeeding Business Day) of each calendar month a
Monthly Servicing Report with respect to the previous calendar month.
Section 5.8. Administration and Collection of Financed Student Loans.
All Financed Student Loans shall be administered and collected either by the
Corporation or by a Servicer selected by the Corporation (and, after the Section
150(d)(3) Transfer, shall be so administered and collected by a Servicer) in a
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competent, diligent and orderly fashion and in accordance with all requirements
of the Higher Education Act, the Secretary of Education, this Indenture, the
Contract of Insurance and each applicable Certificate of Insurance, the Federal
Reimbursement Contract, each Guarantee Program and each Guarantee Agreement.
Section 5.9. Books of Account; Annual Audit. The Corporation shall
cause to be kept and maintained proper books of account relating to the Program
in which full, true and correct entries will be made, in accordance with
generally accepted accounting principles, of all dealings or transactions of or
in relation to the business and affairs of the Corporation, and within one
hundred twenty (120) days after the end of each Fiscal Year shall cause such
books of account to be audited by an Accountant. A copy of each audit report,
annual balance sheet and income and expense statement showing in reasonable
detail the financial condition of the Corporation as at the close of each Fiscal
Year, and summarizing in reasonable detail the income and expenses for such
year, including the transactions relating to the Funds and Accounts, shall be
filed promptly with the Trustee and shall be available for inspection by any
Noteholder or Other Beneficiary.
Section 5.10. Punctual Payments. The Corporation shall duly and
punctually pay, or cause to be paid, the principal of, premium, if any, and
interest on and any Carry-Over Amount (and accrued interest thereon) due and
payable with respect to each and every Note and each Other Obligation from the
revenues and other assets pledged hereunder on the dates and at the places, and
in the manner provided, in the Notes and with respect to each Other Obligation
according to the true intent and meaning thereof, and the Corporation shall
faithfully do and perform and at all times fully observe and keep any and all of
its covenants, undertakings, stipulations and provisions contained in the Notes,
the Other Obligations and in this Indenture.
Section 5.11. Further Assurances. The Corporation shall at any and
all times, insofar as it may be authorized so to do, pass, make, do, execute,
acknowledge and deliver all and every such further resolutions, indentures,
acts, deeds, conveyances, assignments, transfers and assurances as may be
necessary or desirable for the better assuring, conveying, granting, assigning
and confirming any and all of the rights, revenues, securities and other moneys
hereby pledged or charged with or assigned to the payment of the Notes, any Swap
Agreement, Credit Enhancement Facility or Demand Purchase Agreement or intended
so to be, or which the Corporation may hereafter become bound to pledge or
charge or assign.
Section 5.12. Protection of Security; Power To Issue Notes and Pledge
Revenues and Other Funds. The Corporation is duly authorized under all
applicable law to create and issue the Notes, to enter into this Indenture, to
enter into Other Obligations and to pledge the revenues and other moneys,
Financed Student Loans, securities, properties, rights, interests and evidences
of indebtedness purported to be pledged by this Indenture in the manner and to
the extent provided in this Indenture. The revenues and other moneys,
securities, evidences of
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indebtedness and properties so pledged are and will be free and clear of any
pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or
of equal rank with, the pledge created by this Indenture, except as otherwise
expressly provided herein, and all action on the part of the Corporation to that
end has been duly and validly taken. The Notes and the provisions of this
Indenture, each Supplemental Indenture and each Other Obligation are and will be
valid and legally enforceable obligations of the Corporation in accordance with
their terms and the terms of this Indenture and each Supplemental Indenture. The
Corporation shall at all times, to the extent permitted by law, defend, preserve
and protect the pledge of the revenues and other moneys, Financed Student Loans,
securities, properties, rights, interests and evidences of indebtedness pledged
under this Indenture and each Supplemental Indenture and all the rights of the
Beneficiaries hereto against all claims and demands of all Persons whomsoever.
The pledge of the revenues and other moneys, Financed Student Loans,
securities, properties, rights, interests and evidences of indebtedness made
hereby includes the pledge of any contract or any evidence of indebtedness or
other rights of the Corporation to receive any of the same, whether now existing
or hereafter coming into existence, and whether now or hereafter acquired, and
the proceeds thereof.
In consideration of the purchase and acceptance of the Notes by those
who shall hold the same from time to time and the execution and delivery by
Other Beneficiaries of any Other Obligations, the provisions of this Indenture
shall be a part of the contract of the Corporation with the Beneficiaries and
shall be deemed to be and shall constitute a contract between the Corporation,
the Trustee and the Beneficiaries.
Section 5.13. No Encumbrances. The Corporation will not create, or
permit the creation of, any pledge, lien, charge or encumbrance upon the
Financed Student Loans or the revenues and other moneys, securities, properties,
rights, interests and evidences of indebtedness pledged under this Indenture,
except only as to a lien subordinate to the lien of this Indenture created by
any other indenture authorizing the issuance of bonds, notes or other evidences
of indebtedness of the Corporation the proceeds of which have been or will be
used to refund or otherwise retire all or a portion of the Outstanding Notes
(but only upon receipt by the Trustee of an opinion of Counsel that the creation
of such lien will not be prejudicial to the Trustee or the Holders of any
Outstanding Notes or any Other Beneficiary) or as otherwise provided in or
permitted by this Indenture. The Corporation will not issue any bonds or other
evidences of indebtedness, other than the Notes as permitted by this Indenture
and other than Swap Agreements, Credit Enhancement Facilities and Demand
Purchase Agreements relating to Notes as permitted by this Indenture, secured by
a pledge of the revenues and other moneys, securities, properties, rights,
interests
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and evidences of indebtedness herein pledged or held aside by the Corporation or
by a fiduciary under this Indenture, creating a lien or charge on such revenues
and other moneys, securities, properties, rights, interests and evidences of
indebtedness equal or superior to the lien of this Indenture; provided that
nothing in this Indenture shall prevent the Corporation from issuing obligations
secured by assets and revenues of the Corporation other than the revenues and
other moneys, securities, properties, rights, interests and evidences of
indebtedness pledged in this Indenture.
Section 5.14. Tax Covenant. The Corporation recognizes that the
Holders of Tax Exempt Notes from time to time will have accepted them on, and
paid therefor a price which reflects, the understanding that interest on such
Notes is excludable from the gross income of the owner thereof for federal
income tax purposes under laws in force at the time such Notes shall have been
delivered. In this connection the Corporation covenants that (a) it will not
take or omit to take any action which may render the interest on any of the Tax
Exempt Notes includable in gross income for purposes of federal income taxation,
(b) it will use the proceeds of the Notes and any other funds of the Corporation
in such a manner that the use thereof would not cause the Tax Exempt Notes to be
"arbitrage bonds" under Section 148 of the Code and the Treasury Regulations
pertaining thereto, and (c) it will not permit at any time any proceeds of the
Notes or any other funds of the Corporation to be used, directly or indirectly,
in a manner which would result in the inclusion of the interest on any Tax
Exempt Note in gross income for purposes of federal income taxation otherwise
afforded by the Code (including, without limitation, by reason of the violation
of any limitation imposed by Sections 141 through 150 of the Code). In
particular, the Corporation shall not use, or permit the use of, any proceeds of
Tax Exempt Notes or any other moneys attributable to Tax Exempt Notes in the
Funds and Accounts unless, after giving effect to such use, as to each series of
Tax Exempt Notes, either (i) at least ninety percent (90%) of the net proceeds
of such series will, at the time of such use, have been used directly or
indirectly to make or finance student loans described in Section 144(b)(1)(A) of
the Code, or (ii) at least ninety-five percent (95%) of the net proceeds of such
series will, at the time of such payment, have been used directly or indirectly
to make or finance student loans described in Section 144(b)(1)(B) of the Code,
as applicable, all within the meaning of such Section 144(b) of the Code. The
foregoing covenants shall remain in full force and effect notwithstanding the
defeasance of the Tax Exempt Notes of any series pursuant to Article Eleven
hereof and notwithstanding any other provision hereof. The president, the
secretary and other officers and employees of the Corporation shall execute and
deliver from time to time, on behalf of the Corporation, such certificates,
instruments and documents as shall be deemed necessary or advisable to evidence
compliance by the Corporation with said Section 148 and the regulations
thereunder with respect to the use of the proceeds of such Notes. Such
certificates, instruments and documents may contain such stipulations as shall
be necessary or advisable in connection with the stated purpose of this Section
5.14 and the foregoing provisions hereof, and the Corporation and Trustee hereby
covenant and agree to comply with the provisions of any such stipulation
throughout the term of the Tax Exempt Notes of such series.
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Section 5.15. Limitation on Administrative Expenses and Note Fees;
Reports. The Corporation covenants and agrees that the Administrative Expenses
and Note Fees will not, in any Fiscal Year, exceed those that are reasonable and
necessary in light of all circumstances then existing and will not, in any
event, be in such amounts as will materially adversely affect the ability of the
Corporation to pay or perform, as the case may be, all of its obligations under
this Indenture or the security of any Beneficiaries.
Section 5.16. Continuing Existence; Merger and Consolidation. The
Corporation will maintain its existence as a corporation and will not dispose of
all or substantially all of its assets (by sale, lease or otherwise), except as
otherwise specifically authorized under the last paragraph of this Section 5.16
or elsewhere in this Indenture or under comparable provisions of any future
indenture of the Corporation with respect to subsequent issues of bonds, notes
or other obligations of the Corporation, or consolidate with or merge into
another corporation or permit any other corporation to consolidate with or merge
into it unless:
A. the surviving, resulting or transferee corporation, as the case
may be, shall be organized under the laws of the United States or one of
the states thereof;
B. at least thirty (30) days before any merger, consolidation or
transfer of assets becomes effective, the Corporation shall give the
Trustee written notice of the proposed transaction;
C. immediately after giving effect to any merger, consolidation or
transfer of assets, no Event of Default shall have occurred and be
continuing;
D. the Rating Agency Condition shall have been satisfied with respect
to any merger, consolidation or transfer of assets;
E. prior to any merger, consolidation or transfer of assets, an
opinion of Bond Counsel shall be delivered to the Trustee stating that such
merger, consolidation or transfer of assets will not cause interest on any
series of Tax Exempt Notes to become includable in the gross income for
federal income tax purposes of recipients thereof; and
F. prior to or concurrently with any merger, consolidation or
transfer of assets, (1) any action as is necessary to maintain the lien and
security interest created in favor of the Trustee by this Indenture shall
have been taken, (2) the surviving, resulting or transferee corporation, as
the case may be, if other than the Corporation, shall deliver to the
Trustee an instrument assuming all of the obligations of the Corporation
under this Indenture, any Notes, any Swap Agreement, any Credit Enhancement
Facility, any Demand Purchase Agreement, any Remarketing Agreement, any
Depositary Agreement, any Auction Agent Agreement, the Student Loan
Purchase
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Agreements and any Servicing Agreement, together with the consent of the
other parties, if any, to each such instrument to such assumption, and (3)
the Corporation shall have delivered to the Trustee and each Rating Agency
a Corporation Certificate and an opinion of Counsel (which shall describe
the actions taken as required by clause (1) of this paragraph or that no
such action need be taken) each stating that all conditions precedent
herein provided for relating to such merger, consolidation or transfer of
assets have been compiled with (including any filing required by the
Exchange Act).
Anything elsewhere in this Section 5.16 to the contrary
notwithstanding, the Corporation and the Trustee are authorized to take all such
action as is necessary to consummate the Section 150(d)(3) Transfer, which
Section 150(d)(3) Transfer is hereby expressly authorized. Upon completion of
the Section 150(d)(3) Transfer, the predecessor Corporation shall be released
from all liability under this Indenture, and the Trustee is authorized to
execute an instrument to that effect.
Section 5.17. Fidelity Bonds. The Corporation shall obtain and
maintain in force fidelity bonds upon all personnel insuring against any loss or
damage which the Trustee or the Corporation might suffer as a consequence of any
act of such personnel in an amount required by any supervising agency of the
federal or any State government, or, if not so required, in such reasonable
amount as may be determined from time to time by the Corporation.
Section 5.18. Amendment of Student Loan Purchase Agreements. The
Corporation shall notify the Trustee in writing of any proposed amendments to
the Student Loan Purchase Agreements. No such amendment shall become effective
unless and until the Trustee consents in writing thereto, which consent shall
not be given unless the Trustee receives an opinion of Counsel that such
amendment is required by the Higher Education Act or is not to the prejudice of
the Holders of the Notes or Other Beneficiaries.
Section 5.19. Enforcement and Amendment of Guarantee Agreements,
Certificates of Insurance and Contract of Insurance. So long as any Notes are
Outstanding or other obligations to Other Beneficiaries are Outstanding and
Financed Eligible Loans are Guaranteed by a Guarantee Agency, the Trustee (a)
will maintain the Guarantee Agreements and will diligently enforce its rights
thereunder; (b) will enter into such other similar or supplemental agreements as
shall be required to maintain the benefits thereof for all Financed Eligible
Loans; and (c) will not voluntarily consent to or permit any rescission of or
consent to any amendment to or otherwise take any action under or in connection
with the Guarantee Agreements or any similar or supplemental agreements which in
any manner will adversely affect the rights of the Holders from time to time of
the Notes or Other Beneficiaries.
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So long as any Notes are Outstanding or Other Obligations are
Outstanding, the Trustee (a) will maintain all Certificates of Insurance and the
Contract of Insurance and diligently enforce its rights thereunder; (b) will
enter into such other similar or supplemental agreements as shall be required to
maintain the benefits thereof for all Financed Eligible Loans; (c) will not
voluntarily consent to or permit any rescission of or consent to any amendment
to or otherwise take any action under or in connection with any such
Certificates of Insurance or the Contract of Insurance or any similar or
supplemental agreement which in any manner will adversely affect the rights of
the Holders from time to time of the Notes; and (d) will maintain its status as
an "eligible lender" under the Higher Education Act.
Section 5.20. Amendment of Remarketing Agreements and Depositary
Agreements. The Corporation shall notify the Trustee and any related Credit
Facility Provider in writing of any proposed amendments to any Remarketing
Agreement or Depositary Agreement. No such amendment shall become effective
unless and until (1) the Trustee consents in writing thereto, which consent
shall not be given unless the Trustee receives an opinion of Counsel that such
amendment is required by a Credit Enhancement Facility, a Demand Purchase
Agreement or this Indenture or is not to the material prejudice of the Holders
of the Notes, and (2) any related Credit Facility Provider consents in writing
thereto, which consent shall not be unreasonably withheld, provided that no
consent of the Credit Facility Provider shall be required if the Credit Facility
Provider receives an opinion of Counsel that such amendment is required by this
Indenture.
Section 5.21. Additional Covenants of the Corporation After Section
150(d)(3) Transfer. The Corporation, after the Section 150(d)(3) Transfer,
agrees and covenants for the benefit of the Trustee, each Noteholder and each
Other Beneficiary, during the term of this Indenture, and to the fullest extent
permitted by applicable law, that:
(a) No Other Business. It shall not engage in any business other than
financing, originating, purchasing, owning, selling and managing Student
Loans in the manner contemplated by its certificate of incorporation and
this Indenture and activities incidental thereto.
(b) No Borrowing. It shall not issue, incur, assume, guarantee or
otherwise become liable, directly or indirectly, for any indebtedness
except for (i) the Notes and (ii) any Other Obligations or other
indebtedness arising under this Indenture or otherwise permitted by its
certificate of incorporation. The proceeds of the Notes shall be used
exclusively to fund the origination or purchase of Student Loans and for
such other purposes as are specified in this Indenture.
(c) Guarantees, Loans, Advances and Other Liabilities. Except as
contemplated by its certificate of incorporation and this Indenture, it
shall not
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make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuming 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, any other interest in, or make
any capital contribution to, any other Person.
(d) Restricted Payments. Except as permitted by its certificate of
incorporation and this Indenture, it shall not, directly or indirectly,
(i) make any distribution (by reduction of capital or otherwise), whether
in cash, property, securities or a combination thereof, with respect to any
ownership or equity interest or security in or of the Corporation,
(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. The Corporation will not,
directly or indirectly, make payments to or distributions from any of the
Funds or Accounts except in accordance with this Indenture.
(e) Non-petition. It shall not, for any reason, institute proceedings
for itself to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against itself, or file
a petition seeking or consenting to reorganization or relief under any
applicable Federal or state law relating to the bankruptcy of itself, or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of itself or a substantial part of
its assets or any part of the Trust Estate or cause or permit itself to
make any assignment for the benefit of creditors, or admit in writing its
inability to pay its debts generally as they become due, or declare or
effect a moratorium on its debt or take any action in furtherance of any
such action.
(f) Other Parties. It shall obtain from each counterparty to each
agreement entered into on or after the Section 150(d)(3) Transfer to which
it is a party, an agreement by each such counterparty that such
counterparty shall not institute against, or join any other Person in
instituting against, it, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceedings under
the laws of the United States or any state of the United States.
(g) Separate Business. It will:
(i) (A) maintain and prepare financial reports, financial
statements, books and records and bank accounts separate from those of
its Affiliates and any other person or entity and (B) not permit any
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Affiliate or any other person or entity independent access to its
bank accounts;
(ii) not commingle its funds and other assets with those of any
Affiliate, any guarantor of any of the obligations of the Corporation
(each, a "Guarantor"), any Affiliate of any Guarantor or any other
person or entity (other than any such commingling which might result
from the performance of the Servicer's duties in accordance with any
Servicing Agreement);
(iii) conduct its own business in its own name and will hold all
of its assets in its own name;
(iv) remain solvent and pay its debts and liabilities (including
employment and overhead expenses) from its assets as the same become
due;
(v) do all things necessary to observe corporate formalities, and
preserve its existence as a single-purpose, bankruptcy-remote entity
in accordance with the standards of the Rating Agencies providing
ratings on the Notes, as such standards are in effect on the date of
issuance of the Notes;
(vi) enter into transactions with Affiliates only if each such
transaction is commercially reasonable and on substantially similar
terms as a transaction that would be entered into on an arm's length
basis with a person or entity other than an Affiliate of the
Corporation;
(vii) pay the salaries of its own employees from its own funds
and maintain a sufficient number of employees in light of its
contemplated business operations;
(viii) compensate each of its consultants and agents from its own
funds for services provided to it and pay from its own assets all
obligations of any kind incurred;
(ix) not (i) acquire obligations or securities of any Affiliate
or any of the stockholders of the Corporation or (ii) buy or hold any
evidence of indebtedness issued by any other person or entity, other
than cash, Investment Securities, investment-grade securities and
Student Loans;
(x) allocate fairly and reasonably and pay from its own funds the
cost of (i) any overhead expenses (including paying for any office
space) shared with any Affiliate of the Corporation and (ii) any
services
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(such as asset management, legal and accounting) that are provided
jointly to the Corporation and one or more of its Affiliates;
(xi) maintain and utilize separate stationery, invoices and
checks bearing its own name and allocate separate office space (which
may be a separately identified area in office space shared with one or
more Affiliates of the Corporation) and maintain a separate sign in
the office directory of the building in which the Corporation
maintains its principal place of business;
(xii) not make any loans or advances to, or pledge its assets for
the benefit of, any other person or entity, including, without
limitation, any Affiliate or Guarantor or any Affiliate of any
Guarantor (except as contemplated by its certificate of incorporation
and this Indenture);
(xiii) be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other person or
entity;
(xiv) in the event that any authorized officer knows of any
misunderstanding regarding the separate identity of the Corporation,
correct such misunderstanding;
(xv) not identify itself or any of its Affiliates as a division
or part of any other entity; and
(xvi) maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in
light of its contemplated business operations.
Section 5.22. Representations and Warranties of the Corporation. By
execution of this Agreement, the Corporation makes the following representations
and warranties:
(a) Organization and Good Standing. It has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of South Dakota, with power and authority to own its properties and
to conduct its business as such properties are currently owned and as such
business is currently conducted and is proposed to be conducted pursuant to
this Indenture.
(b) Due Qualification. It is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of its property, the conduct of its business and the performance of
its obligations under this Indenture, the Notes and each Other Obligation
requires such qualification.
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(c) Power and Authority. It has the power and authority to execute
and deliver this Indenture and to perform its obligations pursuant thereto;
and the execution, delivery and performance of this Indenture, the Notes
and each Other Obligation have been duly authorized by all necessary
corporate action.
(d) No Consent Required. No consent, license, approval or
authorization of, or registration or declaration with, any Person or any
governmental authority, bureau or agency is required to be obtained by the
Corporation in connection with the execution, delivery or performance of
this Indenture, the Notes or any Other Obligation, except for such as have
been obtained, effected or made.
(e) No Violation. The consummation of the transactions contemplated
by this Indenture, the Notes and each Other Obligation and the fulfillment
of its obligations under this Indenture, the Notes and each Other
Obligation will not conflict with, result in any breach of any of the terms
and provisions of or constitute (with or without notice, lapse of time or
both) a default under, its articles or certificate of incorporation or by-
laws, or any indenture, agreement, mortgage, deed of trust or other
instrument to which it is a party or by which it is bound, or result in the
creation or imposition of any lien upon any of its properties pursuant to
the terms of any such indenture, agreement, mortgage, deed of trust or
other instrument, or violate any law, order, rule or regulation applicable
to it of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over it or any of its properties.
(f) No Proceedings. There are no proceedings or investigations
pending or, to its knowledge, threatened against it before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over it or its properties (A) asserting
the invalidity of this Indenture, any Note or any Other Obligation,
(B) seeking to prevent the issuance of the Notes or the consummation of any
of the transactions contemplated by this Indenture, any Note or any Other
Obligation, (C) seeking any determination or ruling that might materially
and adversely affect its performance of its obligations under, or the
validity or enforceability of, this Indenture, any Note or any Other
Obligation, or (D) seeking to adversely affect the Federal income tax or
other Federal, state or local tax attributes of any Note.
(g) Place of Business. The principal executive offices of the
Corporation are in Aberdeen, South Dakota, and the offices where the
Corporation keeps its records concerning the Financed Student Loans and
related documents are in Aberdeen, South Dakota.
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(h) Not an Investment Company. The Corporation is not an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended, or is exempt from all provisions of such Act.
(i) Binding Obligations. This Indenture, the Notes and each Other
Obligation constitutes the legal, valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its
terms, except (A) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect, affecting the enforcement of creditors' rights
in general, and (B) as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity).
Section 5.23. Trustee to Furnish Monthly Servicing Report. The
Trustee shall distribute to each Noteholder (and to each Person requesting a
copy thereof that is the beneficial owner of a Note, as evidenced to the
satisfaction of the Trustee, at such address as such beneficial owner shall
specify in writing to the Trustee) a copy of each Monthly Servicing Report
within two (2) Business Days after receipt thereof.
Section 5.24. Use of Trustee Eligible Lender Number. The Trustee
covenants and agrees not to hold any other student loans under the federal
eligible lender number under which it holds any Financed Student Loans without
(1) the express written consent of the Corporation and SLFC, and (2) having
caused the beneficial owner of any such student loans (and any other appropriate
Persons) to have entered into an agreement with the Corporation and the Trustee,
whereby the Corporation and such other beneficial owner covenant to indemnify
each other in respect of federal interest subsidies, Special Allowance Payments,
Insurance payments, Guarantee payments or any other payments by the Secretary of
Education or a Guarantee Agency (a) received by the Trustee on their behalf, (b)
later determined by the Secretary of Education or a Guarantee Agency to have
been incorrectly or inappropriately paid to the Trustee, and (c) for which the
Secretary of Education or a Guarantee Agency reimburses itself, in whole or in
part, by withholding payments to the Trustee, or otherwise seeks reimbursement
from the Trustee, with respect to student loans held by the Trustee on behalf of
the other party.
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ARTICLE SIX
DEFAULTS AND REMEDIES
Section 6.1. Events of Default. If any of the following events
occur, it is hereby defined as and declared to be and to constitute an Event of
Default, whatever the reason therefor and whether voluntary or involuntary or
effected by operation of law:
(A) default in the due and punctual payment of any interest on any
Class A Note; or
(B) default in the due and punctual payment of the principal of, or
premium, if any, on, any Class A Note, whether at the Stated Maturity
thereof, at the date fixed for redemption thereof (including, but not
limited to, Sinking Fund Payment Dates) or otherwise upon the maturity
thereof; or
(C) default by the Corporation in its obligation to purchase any
Class A Note on a Purchase Date or Mandatory Tender Date therefor; or
(D) default in the due and punctual payment of any amount owed by the
Corporation to any Other Senior Beneficiary under a Senior Swap Agreement,
Senior Credit Enhancement Facility or Senior Demand Purchase Agreement; or
(E) if no Senior Obligations are Outstanding, default in the due and
punctual payment of any interest on any Class B Note; or
(F) if no Senior Obligations are Outstanding, default in the due and
punctual payment of the principal of, or premium, if any, on, any Class B
Note, whether at the Stated Maturity thereof, at the date fixed for
redemption thereof (including, but not limited to, Sinking Fund Payment
Dates) or otherwise upon the maturity thereof; or
(G) if no Senior Obligations are Outstanding, default by the
Corporation in its obligation to purchase any Class B Note on a Purchase
Date or Mandatory Tender Date therefor; or
(H) if no Senior Obligations are Outstanding, default in the due and
punctual payment of any amount owed by the Corporation to any Other
Subordinate Beneficiary under a Subordinate Swap Agreement, Subordinate
Credit Enhancement Facility or Subordinate Demand Purchase Agreement; or
(I) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of any interest on any
Class C Note; or
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(J) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of the principal of,
or premium, if any, on, any Class C Note, whether at the Stated Maturity
thereof, at the date fixed for redemption thereof (including, but not
limited to, Sinking Fund Payment Dates) or otherwise upon the maturity
thereof; or
(K) default in the performance of any of the Corporation's
obligations with respect to the transmittal of moneys to be credited to the
Revenue Fund, the Rebate Fund, the Acquisition Fund or the Note Fund under
the provisions hereof and such default shall have continued for a period of
thirty (30) days; or
(L) default in the performance or observance of any other of the
covenants, agreements or conditions on the part of the Corporation in this
Indenture or in the Notes contained, and such default shall have continued
for a period of thirty (30) days after written notice thereof, specifying
such default, shall have been given by the Trustee to the Corporation,
which may give such notice in its discretion and shall give such notice at
the written request of the Acting Beneficiaries Upon Default, or by the
Holders of not less than ten percent (10%) in aggregate Principal Amount of
the Outstanding Notes to the Corporation and the Trustee; provided that,
except with respect to the Corporation's covenants contained in Section
5.14 hereof, if the default is such that it can be corrected, but not
within such thirty (30) days, it shall not constitute an Event of Default
if corrective action is instituted by the Corporation within such thirty
(30) days and is diligently pursued until the default is corrected; or
(M) if the Corporation shall
(1) admit in writing its inability to pay its debts generally as
they become due; or
(2) consent to the appointment of a custodian (as that term is
defined in the federal Bankruptcy Code) for or assignment to a
custodian of the whole or any substantial part of the Corporation's
property, or fail to stay, set aside or vacate within ninety (90) days
from the date of entry thereof any order or decree entered by a court
of competent jurisdiction ordering such appointment or assignment; or
(3) commence any proceeding or file a petition under the
provisions of the federal Bankruptcy Code for liquidation,
reorganization or adjustment of debts, or under any insolvency law or
other statute or law providing for the modification or adjustment of
the rights of creditors or fail to stay, set aside or vacate within
ninety (90) days from the date of entry thereof any order or decree
entered by a court of competent jurisdiction pursuant to an
involuntary proceeding,
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whether under federal or state law, providing for liquidation or
reorganization of the Corporation or modification or adjustment of the
rights of creditors.
Section 6.2. Acceleration. (A) (i) Whenever any Event of Default
described in subsection (A), (B), (C), (D), (E), (F), (G), (H), (I), (J), (K) or
(M) of Section 6.1 shall have occurred and be continuing, the Trustee may (and
upon the written request of the Acting Beneficiaries Upon Default, the Trustee
shall), by notice in writing delivered to the Corporation, declare the principal
of and interest accrued on all Notes then Outstanding due and payable. A copy
of such notice shall also be provided to any Depositary, any Remarketing Agent,
any Auction Agent and any Broker-Dealer.
(ii) Whenever any Event of Default described in subsection (L) of
Section 6.1 shall have occurred and be continuing, (1) the Trustee may, by
notice in writing delivered to the Corporation, declare the principal of and
interest accrued on all Notes then Outstanding due and payable; and (2) the
Trustee shall, upon the written request of the Acting Beneficiaries Upon
Default, by notice in writing delivered to the Corporation, declare the
principal of and accrued interest on all Notes then Outstanding due and payable.
A copy of such notice shall also be provided to any Depositary, any Remarketing
Agent, any Auction Agent and any Broker-Dealer.
(B) In the event that the Trustee shall declare the principal of and
interest accrued on all Notes then Outstanding due and payable in accordance
with subsection (A) of this Section 6.2, such principal and interest shall
become immediately due and payable on the date of declaration. At any time
after such a declaration of acceleration has been made, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the Acting
Beneficiaries Upon Default may, by written notice to the Corporation and the
Trustee, rescind and annul such declaration and its consequences if:
(1) There has been paid to or deposited with the Trustee by or for
the account of the Corporation, or provision satisfactory to the Trustee
has been made for the payment of, a sum sufficient to pay:
(a) if Senior Obligations are Outstanding:
(i) all overdue installments of interest on all Class A
Notes;
(ii) the principal of (and premium, if any, on) any Class
A Notes which have become due otherwise than by such declaration
of acceleration, together with interest thereon at the rate or
rates borne by such Class A Notes;
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(iii) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest on the
Class A Notes at the rate or rates borne by such Class A Notes;
(iv) all Other Senior Obligations which have become due
other than as a direct result of such declaration of
acceleration;
(v) all other sums required to be paid to satisfy the
Corporation's obligations with respect to the transmittal of
moneys to be credited to the Revenue Fund, the Rebate Fund, the
Acquisition Fund and the Interest Account under the provisions of
this Indenture; and
(vi) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel
and any Paying Agents, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers; or
(b) if no Senior Obligations are Outstanding but Subordinate
Obligations are Outstanding:
(i) all overdue installments of interest on all Class B
Notes;
(ii) the principal of (and premium, if any, on) any Class
B Notes which have become due other than by such declaration of
acceleration, together with interest thereon at the rate or rates
borne by such Class B Notes;
(iii) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest on the
Class B Notes at the rate or rates borne by such Class B Notes;
(iv) all Other Subordinate Obligations which have become
due otherwise as a direct result of such declaration of
acceleration;
(v) all other sums required to be paid to satisfy the
Corporation's obligations with respect to the transmittal of
moneys to be credited to the Revenue Fund, the Rebate Fund, the
Acquisition Fund and the Interest Account under the provisions of
this Indenture; and
(vi) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses,
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disbursements and advances of the Trustee, its agents and counsel
and any Paying Agents, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers; or
(c) if no Senior Obligations or Subordinate Obligations are
Outstanding:
(i) all overdue installments of interest on all Class C
Notes and all overdue sinking fund installments for the
retirement of Class C Term Notes;
(ii) the principal of (and premium, if any, on) any Class
C Notes which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates borne
by such Class C Notes;
(iii) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest on the
Class C Notes at the rate or rates borne by such Class C Notes;
(iv) all other sums required to be paid to satisfy the
Corporation's obligations with respect to the transmittal of
moneys to be credited to the Revenue Fund, the Rebate Fund and
the Acquisition Fund under the provisions of this Indenture; and
(v) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel
and any Paying Agents, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers.
(2) All Events of Default, other than the non-payment of the
principal of Notes or Other Obligations which have become due solely by, or
as a direct result of, such declaration of acceleration, have been cured or
waived as provided in Section 6.13 hereof.
No such rescission and annulment shall affect any subsequent default or impair
any right consequent thereon.
Section 6.3. Other Remedies; Rights of Beneficiaries. If an Event of
Default has occurred and is continuing, the Trustee may (a) institute judicial
proceedings in its own name and as or on behalf of a trustee of an express trust
for the collection of all amounts then payable on the Notes and any Other
Obligations or under this Indenture with respect thereto, whether by declaration
or otherwise, enforce any judgment obtained, and collect from the Corporation
and any other
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obligor upon such Notes and Other Obligations moneys adjudged due, and (b)
pursue any other available remedy by suit at law or in equity to enforce the
covenants of the Corporation herein, including, without limitation, any remedy
of a secured party under the South Dakota Uniform Commercial Code, foreclosure
and mandamus, and may pursue such appropriate judicial proceedings as the
Trustee shall deem most effective to protect and enforce, or aid in the
protection and enforcement of, the covenants and agreements herein.
If an Event of Default shall have occurred and is continuing, and if
it shall have been requested so to do by the Holders of not less than twenty-
five percent (25%) in aggregate Principal Amount of all Notes then Outstanding
or any Other Beneficiary and shall have been indemnified as provided in Section
7.1 hereof, the Trustee shall be obliged to exercise such one or more of the
rights and powers conferred by this Section 6.3 as the Trustee, being advised by
its Counsel, shall deem most expedient in the interests of the Beneficiaries;
provided, however, that the Trustee shall have the right to decline to comply
with any such request if the Trustee shall be advised by Counsel that the action
so requested may not lawfully be taken or if the Trustee receives, before
exercising such right or power, contrary instructions from the Holders of not
less than a majority in aggregate Principal Amount of the Notes then Outstanding
or from any Other Beneficiary.
Notwithstanding any other provisions of this Article Six, if an "Event
of Default" (as defined therein) occurs under a Swap Agreement, a Credit
Enhancement Facility or a Demand Purchase Agreement and, as a result, the Other
Beneficiary that is a party thereto is entitled to exercise one or more remedies
thereunder, such Other Beneficiary may exercise such remedies, including,
without limitation, the termination of such agreement, as provided therein, in
its own discretion; provided that the exercise of any such remedy shall not
adversely affect the legal ability of the Trustee or Acting Beneficiaries Upon
Default to exercise any remedy available hereunder.
No remedy by the terms of this Indenture conferred upon or reserved to
the Trustee or to the Beneficiaries is intended to be exclusive of any other
remedy, but each and every such remedy shall be cumulative and shall be in
addition to any other remedy given to the Trustee or to the Beneficiaries
hereunder or now or hereafter existing at law or in equity or by statute. The
assertion or employment of any right or remedy hereunder shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
No delay or omission to exercise any right or power accruing upon any
Event of Default shall impair any such right or power or shall be construed to
be a waiver of any such Event of Default or acquiescence therein; and every such
right and power may be exercised from time to time and as often as may be deemed
expedient by the Trustee or the Acting Beneficiaries Upon Default, as the case
may be.
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Section 6.4. Direction of Proceedings by Acting Beneficiaries Upon
Default. The Acting Beneficiaries Upon Default shall have the right, at any
time, by an instrument or instruments in writing executed and delivered to the
Trustee, to direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions of this
Indenture; provided that (a) such direction shall not be otherwise than in
accordance with the provisions of law and of this Indenture; (b) the Trustee
shall not determine that the action so directed would be unjustly prejudicial to
the Holders of Notes or Other Beneficiaries not taking part in such direction,
other than by effect of the subordination of any of their interests hereunder;
and (c) the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction.
Section 6.5. Waiver of Stay or Extension Laws. To the extent that
such rights may lawfully be waived, neither the Corporation nor anyone claiming
through it or under it shall or will set up, claim, or seek to take advantage of
any stay or extension laws now or hereafter in force, which may affect the
covenants or agreements contained in this Indenture, or in the Notes, and the
Corporation, for itself and all who may claim through or under it, hereby
waives, to the extent that it lawfully may do so, the benefit of all such laws.
Section 6.6. Application of Moneys. All moneys received by the
Trustee pursuant to any right given or action taken under the provisions of this
Article Six shall, after, except as otherwise provided in a Supplemental
Indenture, payment of the cost and expenses of the proceedings resulting in the
collection of such moneys and of the expenses, liabilities and advances incurred
or made by the Trustee with respect thereto (provided that any moneys or
Investment Securities held pursuant to Section 11.1 hereof with respect to Notes
no longer deemed Outstanding hereunder shall not be available for, nor be
applied to, the payment of any such costs, expenses, liabilities or advances),
be applied as follows:
(A) Unless the principal of all the Outstanding Notes shall have
become or shall have been declared due and payable, all such moneys shall
be applied:
FIRST: To the payment to the Senior Beneficiaries of all installments
of principal and interest then due on the Class A Notes and all Other
Senior Obligations, and if the amount available shall not be sufficient to
pay all such amounts in full, then to the payment ratably, in proportion to
the amounts due, without regard to due date, to the Class A Noteholders and
to each Other Senior Beneficiary, without any discrimination or preference;
(the Trustee shall apply the amount so apportioned to the Class A
Noteholders, as follows:
first, to the payment of the Holders of the Class A Notes of all
installments of interest (other than interest
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on overdue principal) then due and payable in the order in which such
installments became due and payable, and if the amount available shall
not be sufficient to pay in full any particular installment, then to
the payment, ratably, according to the amounts due on such installment
and other amounts, to the Persons entitled thereto, without any
discrimination or preference, and
second, to the payment to the Holders of the Class A Notes of the
unpaid principal of any of the Class A Notes which shall have become
due and payable (other than Class A Notes called for redemption for
the payment of which money is held pursuant to the provisions of this
Indenture) in the order of their stated payment dates, with interest
on the Principal Amount of such Notes at the respective rates
specified therein from the respective dates upon which such Class A
Notes became due and payable, and, if the amount available shall not
be sufficient to pay in full the principal of the Class A Notes by
their stated terms due and payable on any particular date, then to the
payment of such principal, ratably, according to the amount of such
principal then due on such date, to the Persons entitled thereto
without any discrimination or preference;)
SECOND: To the payment to the Subordinate Beneficiaries of all
installments of principal and interest then due on the Class B Notes and
all Other Subordinate Obligations, and if the amount available shall not be
sufficient to pay all such amounts in full, then to the payment ratably, in
proportion to the amounts due, without regard to due date, to the Class B
Noteholders and to each Other Subordinate Beneficiary, without any
discrimination or preference;
(the Trustee shall apply the amount so apportioned to the Class B
Noteholders, as follows:
first, to the payment of the Holders of the Class B Notes of all
installments of interest (other than interest on overdue principal)
then due and payable in the order in which such installments became
due and payable, and if the amount available shall not be sufficient
to pay in full any particular installment, then to the payment,
ratably, according to the amounts due on such installment and other
amounts, to the Persons entitled thereto, without any discrimination
or preference, and
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second, to the payment to the Holders of the Class B Notes of the
unpaid principal of any of the Class B Notes which shall have become
due and payable (other than Class B Notes called for redemption for
the payment of which money is held pursuant to the provisions of this
Indenture) in the order of their stated payment dates, with interest
on the Principal Amount of such Notes at the respective rates
specified therein from the respective dates upon which such Class B
Notes became due and payable, and, if the amount available shall not
be sufficient to pay in full the principal of the Class B Notes by
their stated terms due and payable on any particular date, then to the
payment of such principal, ratably, according to the amount of such
principal then due on such date, to the Persons entitled thereto
without any discrimination or preference;)
THIRD, to the payment of the Holders of the Class C Notes of all
installments of interest (other than interest on overdue principal) then
due and payable in the order in which such installments became due and
payable, and if the amount available shall not be sufficient to pay in full
any particular installment, then to the payment, ratably, according to the
amounts due on such installment and other amounts, to the Persons entitled
thereto, without any discrimination or preference; and
FOURTH, to the payment to the Holders of the Class C Notes of the
unpaid principal of any of the Class C Notes which shall have become due
and payable (other than Class C Notes called for redemption for the payment
of which money is held pursuant to the provisions of this Indenture) in the
order of their stated payment dates, with interest on the Principal Amount
of such Class C Notes at the respective rates specified therein from the
respective dates upon which such Class C Notes became due and payable, and,
if the amount available shall not be sufficient to pay in full the
principal of the Class C Notes by their stated terms due and payable on any
particular date, then to the payment of such principal, ratably, according
to the amount of such principal then due on such date, to the Persons
entitled thereto without any discrimination or preference.
(B) If the principal of all Outstanding Notes shall have become due
or shall have been declared due and payable and such declaration has not
been annulled and rescinded under the provisions of this Article Six, all
such moneys shall be applied, as follows:
FIRST, to the payment to the Senior Beneficiaries of the principal and
interest then due and unpaid upon the Class A Notes and all Other Senior
Obligations, without preference or priority of principal over interest or
of
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interest over principal, or of any installment of interest over any other
installment of interest, or of any Senior Beneficiary over any other Senior
Beneficiary, ratably, according to the amounts due, to the Persons entitled
thereto without any discrimination or preference; and
SECOND, to the payment to the Subordinate Beneficiaries of the
principal and interest then due and unpaid upon the Class B Notes and all
Other Subordinate Obligations, without preference or priority of principal
over interest or of interest over principal, or of any installment of
interest over any other installment of interest, or of any Subordinate
Beneficiary over any other Subordinate Beneficiary, ratably, according to
the amounts due, to the Persons entitled thereto without any discrimination
or preference, and
THIRD, to the payment of the principal and premium, if any, and
interest then due and unpaid upon the Class C Notes, without preference or
priority of principal over interest or of interest over principal, or of
any installment of interest over any other installment of interest, or of
any Class C Note over any other Class C Note, ratably, according to the
amounts due respectively for principal and interest, and other amounts
owing, to the Persons entitled thereto without any discrimination or
preference.
(C) If the principal of all the Outstanding Notes shall have been
declared due and payable and if such declaration shall thereafter have been
rescinded and annulled under the provisions of Section 6.2 hereof, then
(subject to the provisions of paragraph (B) of this Section 6.6, in the
event that the principal of all the Outstanding Notes shall later become or
be declared due and payable) the money held by the Trustee hereunder shall
be applied in accordance with the provisions of paragraph (A) of this
Section 6.6.
Whenever moneys are to be applied by the Trustee pursuant to the
provisions of this Section 6.6, such moneys shall be applied by it at such
times, and from time to time, as the Trustee shall determine, having due regard
to the amount of such moneys available for application and the likelihood of
additional moneys becoming available for such application in the future.
Whenever the Trustee shall apply such funds, it shall fix the date (which shall
be an Interest Payment Date unless it shall deem another date more suitable)
upon which such application is to be made and upon such date interest on the
amounts of principal to be paid shall cease to accrue. The Trustee shall give
such notice as it may deem appropriate of the deposits with it of any such
moneys and of the fixing of any such date, and shall not be required to make
payment to the Holder of any unpaid Note until such Note shall be presented to
the Trustee for appropriate endorsement or for cancellation if fully paid.
Whenever all Notes and interest thereon and all Other Obligations have
been fully paid under the provisions of this Section 6.6, and all expenses and
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charges of the Trustee have been paid, the Corporation and the Trustee shall be
restored to their former positions hereunder.
Section 6.7. Remedies Vested in Trustee. All rights of action,
including the right to file proof of claims under this Indenture or under any of
the Notes may be enforced by the Trustee without the possession of any of the
Notes or the production thereof in any trial or other proceedings relating
thereto, and any such suit or proceeding instituted by the Trustee shall be
brought in its name as Trustee without the necessity of joining as plaintiffs or
defendants any Beneficiaries, and any recovery of judgment shall be for the
equal benefit of all Beneficiaries in respect of which such judgment has been
recovered.
Section 6.8. Limitation on Suits by Beneficiaries. Except as may be
permitted in a Supplemental Indenture with respect to an Other Beneficiary, no
Holder of any Note or Other Beneficiary shall have any right to institute any
suit, action or proceeding in equity or at law for the enforcement of this
Indenture or for the execution of any trust hereof or for the appointment of a
receiver or any other remedy hereunder unless (1) an Event of Default shall have
occurred and be continuing, (2) the Holders of not less than twenty-five percent
(25%) in aggregate Principal Amount of Notes then Outstanding or any Other
Beneficiary shall have made written request to the Trustee, (3) such Beneficiary
or Beneficiaries shall have offered to the Trustee indemnity, as provided in
Section 7.1 hereof, (4) the Trustee shall have thereafter failed for a period of
sixty (60) days after the receipt of the request and indemnification or refused
to exercise the powers hereinbefore granted or to institute such action, suit or
proceeding in its own name and (5) no direction inconsistent with such written
request shall have been given to the Trustee during such sixty (60)-day period
by the Holders of not less than a majority in aggregate Principal Amount of the
Notes then Outstanding or by any Other Beneficiary; it being understood and
intended that no one or more Holders of the Notes or any Other Beneficiary shall
have any right in any manner whatsoever to affect, disturb or prejudice the lien
of this Indenture by its, his, her or their action or to enforce any right
hereunder except in the manner herein provided, and that all proceedings at law
or in equity shall be instituted, had and maintained in the manner herein
provided and for the benefit of the Holders of all Outstanding Notes and Other
Beneficiaries hereunder as their interests may appear hereunder; provided,
however, that, notwithstanding the foregoing provisions of this Section 6.8, the
Acting Beneficiaries Upon Default may institute any such suit, action or
proceeding in their own names for the benefit of the Holders of all Outstanding
Notes and Other Beneficiaries hereunder.
Section 6.9. Unconditional Right of Noteholders To Enforce Payment.
Notwithstanding any other provision in this Indenture, the Holder of any Note
shall have the right, which is absolute and unconditional, to receive payment of
the principal of, premium, if any, and interest on such Note in accordance with
the terms thereof and hereof and, upon the occurrence of an Event of Default
with
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respect thereto, to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 6.10. Trustee May File Proofs of Claims. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Corporation or the property of the Corporation, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Corporation for the
payment of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
A. to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Notes then
Outstanding and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and Counsel and any Paying Agents,
Authenticating Agents, Note Registrar, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers) and of the Beneficiaries
allowed in such judicial proceeding, and
B. to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Noteholder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses and
disbursements of the Trustee, its agents and Counsel and any Paying Agents,
Authenticating Agents, Note Registrar, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers.
Nothing herein shall affect the right of any Paying Agent,
Authenticating Agent, Note Registrar, Deposit Agent, Remarketing Agent,
Depositary, Auction Agent or Broker-Dealer or to file proofs of claim on their
own behalf in any such proceeding.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder or Other
Beneficiary any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof or Other Beneficiary, or
to authorize the Trustee to vote in respect of the claim of any Noteholder in
any such proceeding.
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Section 6.11. Undertaking for Costs. The Corporation and the Trustee
agree, and each Holder of any Note by his acceptance thereof 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 Trustee for any action taken or omitted by it as 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 6.11 shall not apply to (a) any
suit instituted by the Trustee, (b) any suit instituted by any Noteholder, or
group of Noteholders, in each case holding in the aggregate more than ten
percent (10%) of the Outstanding Principal Amount of the Notes or (c) any suit
instituted by any Noteholder for the enforcement of the payment of the principal
of, premium, if any, or interest on any Note in accordance with Section 6.9
hereof.
Section 6.12. Termination of Proceedings. In case the Trustee or any
Beneficiary shall have proceeded to enforce any right under this Indenture by
the appointment of a receiver, or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or such Beneficiary, then and in every such case the
Corporation and the Trustee or such Beneficiary shall, subject to any final
determination in such proceedings, be restored to their former positions and
rights hereunder with respect to this Indenture, and all rights, remedies and
powers of the Trustee and the Beneficiaries shall continue as if no such
proceedings had been taken.
Section 6.13. Waiver of Defaults and Events of Default. The Trustee
shall, unless the Trustee has declared the principal of and interest on all
Outstanding Notes immediately due and payable in accordance with Section 6.2
hereof and a judgment or decree for payment of the money due has been obtained
by the Trustee, waive any default or Event of Default hereunder and its
consequences but only upon written request of the Acting Beneficiaries Upon
Default; provided, however, that there shall not be waived (a) any Event of
Default arising from the acceleration of the maturity of the Notes, except upon
the rescission and annulment of such declaration as described in Section 6.2
hereof; (b) any Event of Default in the payment when due of any amount owed to
any Beneficiary (including payment of principal of or interest on any Note)
except with the consent of such Beneficiary or unless, prior to such waiver, the
Corporation has paid or deposited (or caused to be paid or deposited) with the
Trustee a sum sufficient to pay all amounts owed to such Beneficiary (including,
to the extent permitted by law, interest upon overdue installments of interest);
(c) any Event of Default arising from the failure of the Corporation to pay
unpaid expenses of the Trustee, its agents and counsel, and any Authenticating
Agent, Paying Agents, Note Registrar, Deposit Agents, Remarketing Agents,
Depositaries, Auction Agents and Broker-Dealers as required by this Indenture,
unless, prior to such waiver, the Corporation has paid or deposited (or caused
to be paid or deposited) with the Trustee sums required to
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satisfy such obligations of the Corporation under the provisions of this
Indenture; or (d) any default in respect of a covenant or provision hereof
which, under Article Eight hereof, cannot be modified or amended without the
consent of the Holder of each Note affected thereby. No such waiver shall extend
to any subsequent or other default or Event of Default, or impair any right
consequent thereon.
Section 6.14. Inspection of Books and Records. The Corporation
covenants that if an Event of Default shall have happened and shall not have
been remedied, the books of record and account of the Corporation relating to
the Program shall at all times be subject to the inspection and use of the
Trustee and any Holder of at least twenty five percent (25%) of the Principal
Amount of any series of Notes any of which are then Outstanding and of their
respective agents and attorneys.
The Corporation covenants that if an Event of Default shall have
happened and shall not have been remedied, the Corporation will continue to
account, as a trustee of an express trust, for all other money, securities and
property pledged under this Indenture.
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ARTICLE SEVEN
FIDUCIARIES
Section 7.1. Acceptance of the Trustee. The Trustee hereby accepts
the trusts imposed upon it by this Indenture, and agrees to perform said trusts,
but only upon and subject to the following terms and conditions:
(A) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provisions hereof are specifically required to
be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture.
(B) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of 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 man would exercise or use under the circumstances in the conduct
of his own affairs.
(C) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that
(1) this subsection (C) shall not be construed to limit the
effect of subsection (A) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Acting Beneficiaries Upon Default relating to the
time, method and place of conducting any proceeding for any remedy
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available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(D) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section 7.1 and to the provisions of the TIA.
(E) The Trustee may execute any of the trusts or powers hereof and
perform any of its duties by or through attorneys, agents, receivers, or
employees but shall be answerable for the conduct of the same in accordance
with the standard specified in subsection (B) above, and shall be entitled
to advice of Counsel concerning all matters of trusts hereof and duties
hereunder, and may in all cases pay such reasonable compensation to any
attorney, agent, receiver or employee retained or employed by it in
connection herewith. The Trustee may act upon the opinion or advice of any
attorney or accountant selected by it in the exercise of reasonable care.
The Trustee shall not be responsible for any loss or damage resulting from
any action or nonaction based on its good faith reliance upon such opinion
or advice.
(F) The Trustee shall not be responsible for any recital herein or in
the Notes (except with respect to the certificate of the Trustee endorsed
on the Notes), or for the investment of moneys or for the filing or
refiling of this Indenture, or the filing of financing statements, or for
the validity of the execution by the Corporation of this Indenture, or of
any Supplemental Indenture or instrument of further assurance, or for the
sufficiency of the security for the Notes issued hereunder or intended to
be secured hereby.
(G) The Trustee shall not be accountable for the use or application
by the Corporation of any of the Notes or the proceeds thereof or for the
use or application of any money paid over by the Trustee in accordance with
the provisions of this Indenture or for the use and application of money
received by any Paying Agent. The Trustee may become the Holder of Notes
secured hereby with the same rights it would have if not Trustee.
(H) The Trustee shall be protected in acting upon any notice, order,
requisition, request, consent, certificate, order, opinion (including an
opinion of Counsel), affidavit, letter, telegram or other paper or document
in good
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faith deemed by it to be genuine and correct and to have been signed or
sent by the proper person or persons. Any action taken by the Trustee
pursuant to this Indenture upon the request or authority or consent of any
person who at the time of making such request or giving such authority or
consent is the Holder of any Note shall be conclusive and binding upon all
future Holders of the same Note and Notes issued in exchange therefor or in
place thereof.
(I) As to the existence or nonexistence of any fact or as to the
sufficiency or authenticity of any instrument, paper or proceeding, the
Trustee shall be entitled to rely upon a Corporation Certificate as
sufficient evidence of the facts stated therein.
(J) At any and all reasonable times, the Trustee, and its duly
authorized agents, attorneys, experts, engineers, accountants and
representatives, shall have the right fully to inspect all books, papers
and records of the Corporation pertaining to the Program, and to take such
memoranda from and in regard thereto as may be desired.
(K) The Trustee shall not be required to give any bond or surety in
respect of the execution of the said trusts and powers or otherwise in
respect of the premises.
(L) Notwithstanding anything elsewhere in this Indenture contained,
the Trustee, in respect to the authentication of any Notes, the withdrawal
of any cash or any action whatsoever within the purview of this Indenture,
and any Authenticating Agent, in respect of the authentication of Notes,
shall have the right, but shall not be required, to demand any showings,
certificates, opinions (including opinions of Counsel), appraisals or other
information, or corporate action or evidence thereof, in addition to that
by the terms hereof required as a condition of such action by the Trustee
or the Authenticating Agent, as the case may be, deemed desirable for the
purpose of establishing the right of the Corporation to the authentication
of any Notes, the withdrawal of any cash, or the taking of any other action
by the Trustee or the Authenticating Agent, as the case may be.
(M) Before taking any action hereunder requested by Noteholders or by
any Other Beneficiary, the Trustee may require that it be furnished an
indemnity bond or other indemnity satisfactory to it for the reimbursement
of all expenses to which it may be put and to protect it against all
liability, except liability which results from the negligence or willful
misconduct of the Trustee, by reason of any action so taken by the Trustee.
(N) The Trustee shall periodically file Uniform Commercial Code
continuation statements and take such other actions described in Section
4.11 hereof as required to maintain and continue the perfection of any
security
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interests granted by the Corporation as debtor to the Trustee as secured
party hereunder.
(O) So long as the Trustee shall act as holder of Financed Student
Loans, the Trustee (i) shall, upon receipt of a Corporation Order, take all
necessary actions to receive all benefits to which such Financed Student
Loans are entitled under the provisions of the Higher Education Act;
provided, however, that the Trustee shall not be required to take any
actions that may be performed by the Corporation or by a Servicer; (ii)
shall not consent to any amendment to the Contract of Insurance or any
Guarantee Agreement relating to any Financed Student Loans prior to
receiving a Corporation Consent to such amendment (unless such amendment is
required by the Higher Education Act); and (iii) shall, upon receipt of a
Corporation Order, take all reasonable steps, actions and proceedings
necessary or appropriate for the enforcement of the Contract of Insurance
and each Guarantee Agreement.
Section 7.2. Fees, Charges and Expenses of the Trustee, Paying
Agents, Note Registrar, Authenticating Agents, Deposit Agents, Remarketing
Agents, Depositaries, Auction Agents and Broker-Dealers. The Trustee and each
Paying Agent, Note Registrar, Authenticating Agent, Deposit Agent, Remarketing
Agent, Depositary, Auction Agent and Broker-Dealer shall be entitled to payment
and/or reimbursement for reasonable fees for services rendered hereunder and all
advances, legal fees and other expenses reasonably and necessarily made or
incurred by it in and about the execution of the trusts created by this
Indenture and in and about the exercise and performance of the powers and duties
of the Trustee and each Paying Agent, Note Registrar, Authenticating Agent,
Deposit Agent, Remarketing Agent, Depositary, Auction Agent and Broker-Dealer
hereunder and for the reasonable and necessary costs and expenses incurred in
defending any liability in the premises of any character whatsoever (unless such
liability is adjudicated to have resulted from the negligence or willful
misconduct of the Trustee, the Paying Agent, the Note Registrar, the
Authenticating Agent, the Deposit Agent, the Remarketing Agent, the Depositary,
the Auction Agent or the Broker-Dealer); provided that any moneys or Investment
Securities held pursuant to Section 11.1 hereof with respect to Notes no longer
deemed Outstanding hereunder, shall not be available for, nor be applied to, the
payment of any such fees, advances, costs or expenses.
Section 7.3. Notice to Beneficiaries if Default Occurs. The Trustee
shall give to all Beneficiaries, in the manner provided in Section 13.4 hereof,
notice of all Events of Default, and of all events which, with the passage of
time or the giving of notice, or both, would become an Event of Default, known
to the Trustee, within ninety (90) days after the occurrence of such Event of
Default or other event unless such Event of Default or other event shall have
been cured before the giving of such notice; provided that, except in the case
of Events of Default in the payment of the principal of, premium, if any, or
interest on any of the Notes, the Trustee shall be protected in withholding such
notice if and so long as a trust committee of the
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Trustee in good faith determines that the withholding of such notice is in the
interest of the Beneficiaries.
Section 7.4. Intervention by Trustee. In any judicial proceeding to
which the Corporation is a party and which in the opinion of the Trustee and its
Counsel has a substantial bearing on the interest of the Beneficiaries, the
Trustee may intervene on behalf of Beneficiaries and shall do so if requested in
writing by the Holders of at least twenty-five percent (25%) of the aggregate
Principal Amount of the Outstanding Notes or any Other Beneficiary. The rights
and obligations of the Trustee under this Section 7.4 are subject to the
approval of a court of competent jurisdiction in the premises.
Section 7.5. Successor Trustee, Paying Agents, Authenticating Agents,
Deposit Agents and Depositaries. Any corporation, association or agency into
which the Trustee and any Paying Agent, any Authenticating Agent, any Deposit
Agent or any Depositary may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its trust business and assets
as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion, sale, merger, consolidation or transfer to
which it is a party, ipso facto, shall be and become successor trustee, paying
agent, note registrar, authenticating agent, deposit agent or depositary
hereunder and vested with all of the trusts, powers, discretions, immunities,
privileges and all other matters as was its predecessor, without the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided that no such merger, conversion or consolidation shall relieve the
Trustee of its obligation to comply with Section 7.13 hereof.
Section 7.6. Resignation by Trustee, Paying Agents, Authenticating
Agents, Deposit Agents and Depositaries. The Trustee, any Paying Agent, any
Authenticating Agent, any Deposit Agent and any Depositary may at any time
resign from the trusts and be discharged of the duties and obligations hereby
created by giving sixty (60) days' written notice to the Corporation and, in the
case of the Trustee, a Paying Agent, an Authenticating Agent or a Depositary, by
first-class mail to all Noteholders and Other Beneficiaries and such resignation
shall take effect upon the appointment of a successor trustee, paying agent,
authenticating agent or depositary. No such resignation of the Trustee shall
become effective until the acceptance of appointment by a successor trustee
under Section 7.8 hereof. Upon the appointment and acceptance of a successor
trustee, authenticating agent, paying agent, deposit agent or depositary, the
Trustee shall promptly cause written notice of such appointment to be given to
all Noteholders and Other Beneficiaries in the manner provided in Section 13.4
hereof, which notice shall include the address of the Principal Office of such
successor. If an instrument of acceptance by a successor trustee, paying agent,
authenticating agent, deposit agent or depositary shall not have been delivered
to the resigning Trustee, Paying Agent, Authenticating Agent, Deposit Agent or
Depositary within sixty (60) days after the giving of such notice of
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resignation, the resigning Trustee, Paying Agent, Authenticating Agent, Deposit
Agent or Depositary may petition any court of competent jurisdiction for the
appointment of a successor and any attorneys' fees incurred in connection with
any such petition shall be payable by the Corporation.
Section 7.7. Removal of Trustee. The Trustee shall be removed by the
Corporation if at any time so requested by an instrument or concurrent
instruments in writing, filed with the Trustee and the Corporation, and signed
by the Holders of a majority in Principal Amount of the Notes then Outstanding
or their attorneys- in-fact duly authorized, excluding any Notes held by or for
the account of the Corporation. Notwithstanding the foregoing, the Trustee may
not be removed during the existence of an Event of Default. No such removal of
the Trustee shall become effective until the acceptance of appointment by a
successor trustee under Section 7.8 hereof.
Section 7.8. Appointment of Successor Trustee. In case the Trustee
shall be dissolved, fail to comply with Section 7.13 hereof or otherwise become
incapable of acting hereunder, or in case it shall be taken under the control of
any public officer or officers, or of a receiver appointed by a court, the
Corporation, by a Board Resolution, may remove the Trustee. If the Trustee
fails to comply with Section 7.13 hereof, any Noteholder may petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee. No resignation or removal of the Trustee, and no
appointment of a successor trustee, pursuant to the provisions of this Article
Seven shall become effective until the acceptance of appointment by the
successor trustee under Section 7.9 hereof. If the Trustee shall resign, be
removed or become incapable of acting, or if a vacancy shall occur in the office
of Trustee for any cause, the Corporation, by a Board Resolution, shall promptly
appoint a successor trustee. If, within one (1) year of such resignation,
removal or incapability, or the occurrence of such vacancy, the Holders of a
majority in aggregate Principal Amount of the then Outstanding Notes, by an
instrument or concurrent instruments in writing signed by such Holders, or by
their attorney-in-fact duly authorized, appoint a successor, such successor
shall, upon its acceptance of such appointment, supersede the successor
appointed by the Corporation. If no successor trustee has been appointed and
accepted appointment as herein provided after sixty (60) days from the mailing
of notice of resignation by the Trustee under Section 7.6 hereof, or from the
date the Trustee is removed or otherwise incapable of acting hereunder, any
Beneficiary may petition a court of competent jurisdiction to appoint a
successor trustee. No appointment of a successor Trustee shall be effective
without the written consent of all Other Beneficiaries, which consent shall not
be unreasonably withheld.
The Corporation shall promptly notify any Paying Agent, Authenticating
Agent, Deposit Agent, Remarketing Agent and Depositary as to the appointment of
any successor trustee and shall promptly cause written notice of such
appointment to be given to all Noteholders and Other Beneficiaries in the
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manner provided in Section 13.4 hereof, which notice shall include the address
of the Principal Office of the successor trustee.
Section 7.9. Concerning any Successor Trustee. Every successor
trustee appointed hereunder shall execute, acknowledge and deliver to its
predecessor, and to the Corporation, an instrument in writing accepting such
appointment hereunder, and thereupon such successor, without any further act,
assignment or conveyance, shall become fully vested with all the estates,
properties, rights, powers, trusts, duties and obligations of its predecessor as
trustee; but such predecessor shall, nevertheless, on the written request of the
Corporation, or of its successor trustee, execute and deliver an instrument
transferring to such successor trustee all the estates, properties, rights,
powers and trusts of such predecessor hereunder, and every predecessor trustee
shall deliver all securities and moneys and Balances held by it as trustee
hereunder to its successor together with an accounting of the Balances held by
it hereunder. Should any instrument in writing from the Corporation be required
by any successor trustee for more fully and certainly vesting in such successor
the estates, rights, powers and duties hereby vested or intended to be vested in
the predecessor trustee, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Corporation. The
resignation of any trustee and the instrument or instruments removing any
trustee and appointing a successor hereunder, together with all other
instruments provided for in this Article shall be forthwith filed and/or
recorded by the successor trustee in each recording office where this Indenture
shall have been filed and/or recorded.
Section 7.10. Trustee Protected in Relying Upon Resolutions, Etc.
The resolutions, orders, requisitions, opinions, certificates and other
instruments conforming to the requirements of this Indenture may be accepted by
the Trustee as conclusive evidence of the facts and conclusions stated therein
and shall be full warrant, protection and authority to the Trustee for the
withdrawal of cash hereunder.
Section 7.11. Successor Trustee as Custodian of Funds. In the event
of a change in the office of trustee the predecessor trustee which has resigned
or been removed shall cease to be custodian of the Funds and Accounts, and the
successor trustee shall be and become such custodian.
Section 7.12. Co-Trustee. At any time or times, for the purpose of
(a) meeting any legal requirements of any state in which the Trustee determines
it necessary to take any action hereunder or (b) establishing the eligibility of
any Financed Student Loans for receipt of federal payments with respect thereto,
the Trustee shall have power to appoint, and, upon the request of the Trustee or
of the Holders of at least twenty-five percent (25%) in aggregate Principal
Amount of Notes Outstanding or of any Other Beneficiary, the Corporation shall
for such purpose join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to appoint one
or more Persons approved by the Trustee either to act as co-trustee or co-
trustees, jointly with the Trustee of all or any
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part of the trust estate, or to act as separate trustee or separate trustees of
all or any part of the trust estate, and to vest in such person or persons, in
such capacity, such title to the trust estate or any part thereof, and such
rights, powers, duties, trusts or obligations as the Trustee may consider
necessary or desirable, subject to the remaining provisions of this Section
7.12. No co-trustee or separate trustee hereunder shall be required to meet the
terms of eligibility as a successor Trustee under Section 7.13 hereof and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 7.8 hereof.
If the Corporation shall not have joined in such appointment within
fifteen (15) days after the receipt by it of a request so to do, or in case an
Event of Default shall have occurred and be continuing, the Trustee alone shall
have power to make such appointment.
The Corporation shall execute, acknowledge and deliver all such
instruments as may be required by any such co-trustee or separate trustee.
Every co-trustee or separate trustee shall, to the extent permitted by
law but to such extent only, be appointed subject to the following terms,
namely:
(A) The Notes shall be authenticated and delivered, and all rights,
powers, trusts, duties and obligations by this Indenture conferred upon the
Trustee in respect of the custody, control and management of moneys,
papers, securities and other personal property shall be exercised solely by
the Trustee.
(B) All rights, powers, trusts, duties and obligations conferred or
imposed upon the trustees shall be conferred or imposed upon and exercised
or performed by the Trustee, or by the Trustee and such co-trustee or co-
trustees or separate trustee or separate trustees jointly, as shall be
provided in the instrument appointing such co-trustee or co-trustees or
separate trustee or separate trustees, except to the extent that, under the
law of any jurisdiction in which any particular act or acts are to be
performed, the Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such act or acts shall be performed by such co-
trustee or co-trustees or separate trustee or separate trustees.
(C) Any request in writing by the Trustee to any co-trustee or
separate trustee to take or to refrain from taking any action hereunder
shall be sufficient warrant for the taking, or the refraining from taking,
of such action by such co-trustee or separate trustee.
(D) Any co-trustee or separate trustee may delegate to the Trustee
the exercise of any right, power, trust, duty or obligations, discretionary
or otherwise.
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(E) The Trustee at any time, by any instrument in writing, may accept
the resignation of or remove any co-trustee or separate trustee appointed
under this Section 7.12. Upon the request of the Trustee, the Corporation
shall join with the Trustee in the execution, delivery and performance of
all instruments and agreements necessary or proper to effectuate such
resignation or removal.
(F) No trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder.
(G) Any demand, request, direction, appointment, removal, notice,
consent, waiver or other action in writing delivered to the Trustee shall
be deemed to have been delivered to each such co-trustee or separate
trustee.
(H) Any moneys, papers, securities or other items of personal
property received by any such co-trustee or separate trustee hereunder
shall forthwith, so far as may be permitted by law, be turned over to the
Trustee.
Upon the acceptance in writing of such appointment by any such co-
trustee or separate trustee, it or he or she shall be vested with such title to
the trust estate or any part thereof, and with such rights, powers, duties or
obligations, as shall be specified in the instrument of appointment jointly with
the Trustee (except insofar as local law makes it necessary for any such co-
trustee or separate trustee to act alone) subject to all the terms of this
Indenture. Every such acceptance shall be filed with the Trustee. Any co-
trustee or separate trustee may, at any time by an instrument in writing,
constitute the Trustee, its or his attorney-in-fact and agent, with full power
and authority to do all acts and things and to exercise all discretion on its or
his behalf and in its or his name.
In case any co-trustee or separate trustee shall die, become incapable
of acting, resign or be removed, the title to the trust estate, and all rights,
powers, trusts, duties and obligations of said co-trustee or separate trustee
shall, so far as permitted by law, vest in and be exercised by the Trustee
unless and until a successor co-trustee or separate trustee shall be appointed
in the manner herein provided.
Section 7.13. Corporate Trustee Required; Eligibility;
Disqualification. There shall at all times be a Trustee hereunder which shall
be a corporation organized and doing business under the laws of the United
States of America or of any state, authorized under such laws to exercise
corporate trust powers, and shall be an "eligible lender" under the Higher
Education Act, having a combined capital stock, capital surplus and undivided
profits of at least $25,000,000, subject to supervision or examination by a
federal or state authority. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 7.13,
the combined capital stock, capital surplus and undivided profits of such
corporation shall be deemed to be its combined capital
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stock, capital surplus and undivided profits as set forth in its most recent
report of condition so published.
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a). The Trustee shall comply with TIA (S) 310(b), including the optional
provision permitted by the second sentence of TIA (S) 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
any indenture or indentures under which other securities of the Corporation are
outstanding if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met.
Section 7.14. Preferential Collection of Claims Against Corporation.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
Section 7.15. Statement by Trustee of Funds and Accounts and Other
Matters. Not more than thirty (30) days after the close of each Fiscal Year the
Trustee shall furnish the Corporation and any Noteholder or Other Beneficiary
filing with the Trustee a written request for a copy, a statement setting forth
(to the extent applicable) in respect to such Fiscal Year, (a) all transactions
relating to the receipt, disbursement and application of all moneys received by
the Trustee pursuant to all terms of this Indenture, (b) the Balances held by
the Trustee and any Deposit Agent at the end of such Fiscal Year to the credit
of each Fund and Account, (c) a brief description of all moneys, Student Loans
and Investment Securities held by the Trustee and any Deposit Agent as part of
the Balance of each Fund and Account as of the end of such Fiscal Year, (d) the
Principal Amount of Notes of each series purchased by the Trustee during such
Fiscal Year from moneys available therefor in any Fund pursuant to the
provisions of this Indenture and the respective purchase price of such Notes,
(e) the Principal Amount of Notes of each series retired, at their Stated
Maturity or by redemption, during such Fiscal Year and the Redemption Prices
thereof, if any, and (f) any other information which the Corporation may
reasonably request.
In addition, the Trustee shall furnish the Corporation on the fifth
day of each calendar month a brief description of all moneys, Student Loans and
Investment Securities to the credit of each Fund and Account as of the last
Monthly Payment Date prior thereto.
Section 7.16. Trustee, Authenticating Agent, Note Registrar, Paying
Agents, Deposit Agents, Remarketing Agents, Depositaries, Auction Agents and
Broker-Dealers May Buy, Hold, Sell or Deal in Notes. The Trustee, the
Authenticating Agent, any Note Registrar, any Paying Agent, any Deposit Agent,
any Remarketing Agent, any Depositary, any Auction Agent or any Broker-Dealer
and its directors, officers, employees or agents may, in good faith, buy, sell,
own, hold and deal in any of the Notes and may join in any action which any
Holder of a Note may be entitled to take, with like effect as if such Trustee,
Authenticating
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Agent, Note Registrar, Paying Agent, Deposit Agent, Remarketing Agent,
Depositary, Auction Agent or Broker-Dealer were not the Trustee, the
Authenticating Agent, a Note Registrar, a Paying Agent, a Deposit Agent, a
Remarketing Agent, a Depositary, an Auction Agent or a Broker-Dealer, as the
case may be, under this Indenture. However, the Trustee is required to comply
with Sections 7.13 and 7.14.
Section 7.17. Authenticating Agent and Paying Agents; Paying Agents
To Hold Moneys in Trust. Any Paying Agent shall be appointed by or pursuant to
a Supplemental Indenture providing for the issuance of such series of Notes.
Each Paying Agent shall hold in trust for the benefit of the Holders of the
Notes and the Trustee any sums held by such Paying Agent for the payment of the
principal of, premium, if any, and interest on and any Carry-Over Amounts (and
accrued interest thereon) with respect to the Notes. Anything in this paragraph
to the contrary notwithstanding, the Corporation may, at any time, for the
purpose of obtaining a satisfaction and discharge of this Indenture, or for any
other reason, cause to be paid to the Trustee all sums held in trust by any
Paying Agent hereunder as required by this paragraph, such sums to be held by
the Trustee upon the trusts herein contained, and such Paying Agent shall
thereupon be released from all further liability with respect to such sums.
Any Authenticating Agent shall be appointed by or pursuant to a
Supplemental Indenture providing for the issuance of such series of Notes. The
Authenticating Agent shall have the power to act in the receipt, authentication
and delivery of Notes in connection with transfers, exchanges and registrations
hereunder.
Each Authenticating Agent and Paying Agent other than the Trustee
shall designate its Principal Office and signify its acceptance of the duties
and obligations imposed upon it by this Indenture by executing and delivering to
the Corporation a written acceptance thereof under which, in the case of the
Paying Agent, the Paying Agent will agree particularly:
(1) to hold all sums held by it pursuant to this Indenture in trust
for the benefit of the Holders of the Notes until such sums shall be paid
to such Holders or otherwise disposed of as herein provided;
(2) at any time during the continuance of any Event of Default, upon
the written request of the Trustee, to forthwith pay to the Trustee all
sums so held in trust by such Paying Agent; and
(3) in the event of the resignation or removal of such Paying Agent,
pay over, assign and deliver any moneys, records or securities held by it
as Paying Agent to its successor or, if there be no successor, to the
Trustee.
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No Paying Agent shall be obligated to expend its own funds in paying
Debt Service on, or Carry-Over Amounts (including accrued interest thereon) with
respect to, the Notes.
Section 7.18. Removal of Authenticating Agent and Paying Agents;
Successors. Any Authenticating Agent and any Paying Agent may be removed at any
time by an instrument filed with such Authenticating Agent or Paying Agent, as
the case may be, and the Trustee and signed by the Corporation. Any successor
authenticating agent or paying agent shall be appointed by the Corporation and
shall be a bank having trust powers or trust company duly organized under the
laws of any state of the United States or a national banking association having
trust powers, having, in the case of a successor paying agent, a capital stock
and surplus aggregating at least $25,000,000, and, in the case of a successor
authenticating agent, its Principal Office for the performance of its functions
as Authenticating Agent under this Indenture in the City of New York, New York,
and willing and able to accept the office on reasonable and customary terms and
authorized by law to perform all the duties imposed upon it by this Indenture
and any Supplemental Indenture. Upon the appointment and acceptance of a
successor authenticating agent or paying agent, the Corporation shall promptly
give written notice of such appointment to the Trustee and the Trustee shall
promptly cause written notice thereof to be given to all Beneficiaries in the
manner provided in Section 13.4 hereof, which notice shall include the address
of the Principal Office of such successor.
In the event of the resignation or removal of any Authenticating Agent
or any Paying Agent, such Authenticating Agent or Paying Agent shall pay over,
assign and deliver any moneys, records or securities held by it as
Authenticating Agent (and Note Registrar, if appropriate) or Paying Agent, as
the case may be, to its successors or, if there be no successor, to the Trustee.
Section 7.19. Appointment and Qualifications of Deposit Agents. A.
The Corporation may, in a Supplemental Indenture, appoint one or more Deposit
Agents for any part or all of one or more of the following Funds: the Revenue
Fund, the Acquisition Fund or the Administration Fund. Each Deposit Agent shall
signify its acceptance of the duties imposed upon it hereunder by written
acceptance filed with the Corporation and the Trustee. Any Deposit Agent may be
removed at any time by the Corporation by Board Resolution and by instrument
signed by an Authorized Officer of the Corporation filed with such Deposit
Agent.
B. Each Deposit Agent appointed by the Corporation shall be an
incorporated bank having trust powers or trust company organized under the laws
of the State, or a national banking association having trust powers, having its
principal office in the State of South Dakota and having a combined capital and
surplus of at least $5,000,000.
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C. The Corporation will cause each Deposit Agent to execute and
deliver to the Trustee an instrument in which such Deposit Agent shall agree
with the Trustee that such Deposit Agent will
(1) hold all sums held by it pursuant to this Indenture in trust for
the benefit of the Beneficiaries until such sums shall be paid to such
Beneficiaries or otherwise disposed of as herein provided;
(2) at any time during the continuance of any Event of Default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Deposit Agent; and
(3) in the event of the resignation or removal of such Deposit Agent,
pay over, assign and deliver any moneys or securities held by it as Deposit
Agent to its successor or, if there be no successor, to the Trustee.
D. The Corporation may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Corporation Order direct any Deposit Agent to pay to the Trustee all sums held
in trust by such Deposit Agent such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Deposit Agent, and, upon
such payment by any Deposit Agent to the Trustee, such Deposit Agent shall be
released from all further liability with respect to such sums.
Section 7.20. Appointment and Qualifications of Depositaries. The
Corporation may, in a Supplemental Indenture, appoint a Depositary with respect
to one or more series of Notes. The Depositary shall, by entering into a
Depositary Agreement, designate to the Trustee its Principal Offices for the
purposes of its functions as Depositary and, if applicable, Authenticating Agent
and Note Registrar hereunder and signify its acceptance of the duties and
obligations imposed upon it hereunder (including, if applicable, those of
Authenticating Agent and Note Registrar) and under the Depositary Agreement, and
under which the Depositary will agree, particularly:
(a) to hold all Notes delivered to it hereunder in trust for the
benefit of the respective Noteholders which shall have so delivered such
Notes until moneys representing the purchase price of such Notes shall have
been delivered to or for the account of or to the order of such
Noteholders;
(b) to hold all moneys delivered to it hereunder for the purchase of
Notes in trust for the benefit of the person or entity which shall have so
delivered such moneys until the Notes purchased with such moneys shall have
been delivered to or for the account of such person or entity; and
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(c) to keep such books and records as shall be consistent with
prudent industry practice and to make such books and records available for
inspection by the Corporation and the Trustee at all reasonable times.
The Corporation shall cooperate with the Depositary and the Trustee to
cause the necessary arrangements to be made and to be thereafter continued
whereby funds from the sources specified herein will be made available for the
purchase of the Notes which are Deemed Tendered and whereby Notes, executed by
the Corporation and authenticated by the Trustee or the Authenticating Agent,
shall be made available to the Remarketing Agent, the Trustee or the Depositary
to the extent necessary for delivery pursuant the applicable provisions of the
related Supplemental Indenture.
The Depositary shall be a commercial bank or trust company duly
organized under the laws of the United States or any state or territory thereof,
having its Principal Office for the performance of its functions as Depositary
hereunder located in New York, New York, having a combined capital stock,
surplus and undivided profits of at least $100,000,000 and authorized by law to
perform all the duties imposed upon it by this Indenture (including, if
applicable, those of Authenticating Agent and Note Registrar) and the Depositary
Agreement. The Depositary may at any time resign and be discharged of the
duties and obligations created by this Indenture and the Depositary Agreement
(including such duties and obligations as Note Registrar and Authenticating
Agent hereunder) by giving at least sixty (60) days' notice to the Corporation,
the Trustee and any related Credit Facility Provider, provided that such
resignation shall not be effective until the appointment of a successor
depositary by the Corporation. The Depositary may be replaced at any time, at
the direction of the Corporation, by an instrument, signed by an Authorized
Officer of the Corporation, filed with the Remarketing Agent, the Depositary,
the Trustee and any related Credit Facility Provider at least sixty (60) days
prior to the effective date of such replacement, provided that such replacement
shall not be effective until the appointment of a successor depositary by the
Corporation. Upon the appointment and acceptance of a successor depositary, the
Corporation shall promptly give written notice of such appointment to the
Trustee and the Trustee shall promptly cause written notice thereof to be given
to all Noteholders in the manner provided in Section 13.4 hereof, which notice
shall include the address of the Principal Office of such successor.
In the event of the resignation or removal of the Depositary, the
Depositary shall pay over, assign and deliver any moneys, Notes and records held
by it in such capacity (including any such moneys, Notes and records held by it
as Authenticating Agent and Note Registrar) to its successor or, if there be no
successor, to the Trustee.
In the event that the Depositary shall be removed or be dissolved, or
if the property or affairs of the Depositary shall be taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for
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any other reason, and the Corporation shall not have appointed its successor as
Depositary, the Trustee, notwithstanding the foregoing provisions of this
Section 7.20, shall ipso facto be deemed to be the Depositary for all purposes
of this Indenture until the appointment by the Corporation of the successor
depositary, and the Trustee shall be required to perform the functions of the
Depositary (and, if applicable, of Note Registrar and Authenticating Agent) as
set forth in this Indenture and the Depositary Agreement.
Section 7.21. Remarketing Agents. The Corporation may, in a
Supplemental Indenture, appoint a Remarketing Agent with respect to one or more
series of Notes. The Remarketing Agent shall designate its Principal Office and
signify its acceptance of the duties and obligations imposed upon it hereunder
by entering into a Remarketing Agreement under which the Remarketing Agent will
agree, particularly:
(a) to determine any variable interest rate in accordance with the
applicable provisions of the related Supplemental Indenture;
(b) to determine any fixed interest rate in accordance with the
applicable provisions of the related Supplemental Indenture;
(c) to hold all Notes delivered to it hereunder in trust for the
benefit of the respective Noteholders which shall have so delivered such
Notes until moneys representing the purchase price of such Notes shall have
been delivered to or for the account of or to the order of such
Noteholders;
(d) to hold all moneys delivered to it hereunder for the purchase of
Notes in trust for the benefit of the person or entity which shall have so
delivered such moneys until the Notes purchased with such moneys shall have
been delivered to or for the account of such person or entity; and
(e) to keep such books and records as shall be consistent with
prudent industry practice and to make such books and records available for
inspection by the Corporation and the Trustee at all reasonable times.
Section 7.22. Qualifications of Remarketing Agents. The Remarketing
Agent shall be a member of the National Association of Securities Dealers, Inc.,
have a capitalization of at least $50,000,000 and be authorized by law to
perform all the duties imposed upon it by this Indenture and the Remarketing
Agreement. The Remarketing Agent may at any time resign and be discharged of
the duties and obligations created by this Indenture and the Remarketing
Agreement (i) by giving at least sixty (60) days' notice to the Corporation, the
Trustee, the Depositary and any related Credit Facility Provider, provided that
such resignation shall not be effective until a successor Remarketing Agent has
been appointed by the Corporation and any related Credit Facility Provider has
consented in writing thereto, which consent shall not be unreasonably withheld,
or (ii) by giving notice to the Corporation, the
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Trustee and the Depositary under the circumstances set forth in the Remarketing
Agreement. The Remarketing Agent may be replaced at any time, at the direction
of the Corporation, by an instrument signed by an Authorized Officer of the
Corporation, filed with the Remarketing Agent, the Trustee, the Depositary and
any related Credit Facility Provider, at least sixty (60) days prior to the
effective date of such replacement, provided that such replacement shall not be
effective until a successor Remarketing Agent has been appointed by the
Corporation and any related Credit Facility Provider has consented in writing
thereto, which consent shall not be unreasonably withheld.
In the event of the resignation or removal of the Remarketing Agent,
the Remarketing Agent shall pay over, assign and deliver any moneys and Notes
held by it in such capacity to its successor or, if there be no successor, to
the Trustee.
In the event that the Remarketing Agent shall resign, be removed or be
dissolved, or if the property or affairs of the Remarketing Agent shall be taken
under the control of any state or federal court or administrative body because
of bankruptcy or insolvency, or for any other reason, and the Corporation shall
not have appointed its successor as Remarketing Agent, the Trustee,
notwithstanding the provisions of the first paragraph of this Section 7.22,
shall ipso facto be deemed to be the Remarketing Agent for all purposes of this
Indenture until the appointment by the Corporation of the successor Remarketing
Agent; provided, however, that the Trustee, in its capacity as Remarketing
Agent, shall not be required to sell Notes or to determine the interest rate on
the Notes. Nothing in this Section shall be construed as conferring on the
Trustee additional duties other than as set forth herein.
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ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
Section 8.1. Supplemental Indentures Not Requiring Consent of
Beneficiaries. The Corporation and the Trustee may, from time to time and at
any time, without the consent of, or notice to, any of the Noteholders or any
Other Beneficiary (except to the extent, if any, required pursuant to a
Supplemental Indenture authorizing the issuance of a series of Notes), and when
so required by this Indenture shall, enter into an indenture or indentures
supplemental to this Indenture as shall not be inconsistent with the terms and
provisions hereof (which Supplemental Indenture or Indentures shall thereafter
form a part hereof), so as to thereby (a) cure any ambiguity or formal defect or
omission in this Indenture or in any Supplemental Indenture, (b) grant to or
confer upon the Trustee for the benefit of the Beneficiaries any additional
rights, remedies, powers, authority or security that may lawfully be granted to
or conferred upon the Beneficiaries or the Trustee, (c) describe or identify
more precisely any part of the Trust Estate or subject additional revenues,
properties or collateral to the lien and pledge of this Indenture, (d) evidence
the appointment of a separate trustee or a co-trustee or the succession of a new
Trustee hereunder, (e) authorize issuance of a series of Notes, subject to the
requirements of Article Three hereof, (f) modify, eliminate and/or add to the
provisions of this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the Trust Indenture Act of 1939, as then
amended, or under any similar Federal statute enacted after July 1, 1997, and to
add to this Indenture such other provisions as may be expressly permitted by
said Trust Indenture Act of 1939, excluding, however, the provisions referred to
in Section 316(a)(2) of said Trust Indenture Act of 1939, (g) modify, eliminate
and/or add to the provisions of this Indenture to such extent as shall be
necessary or advisable in order to comply with the requirements of Section 148
or any other provision of the Code and the Treasury Regulations pertaining
thereto with respect to the exclusion of interest on any Tax Exempt Notes from
gross income for purposes of federal income taxation, (h) amend the assumptions
contained in the definition of "Cash Flow Projection" in Section 1.1 hereof
(upon receipt by the Trustee from each Rating Agency of written confirmation
that the outstanding ratings on any of the Unenhanced Outstanding Notes will not
be reduced or withdrawn as a result of such amendment or, if no Unenhanced Notes
are then Outstanding, but Other Obligations are Outstanding, the Other
Beneficiaries holding such Outstanding Other Obligations consent to the
amendment of such assumptions, as evidenced in writing to the Trustee by each
such Other Beneficiary), (i) modify this Indenture (including deletions of or
changes to provisions of this Indenture or additions to this Indenture or any
combination of deletions, changes and additions) as required by any Credit
Facility Provider or Swap Counterparty, or otherwise necessary to give effect to
any Credit Enhancement Facility, Demand Purchase Agreement, Swap Agreement or
Swap Counterparty Guarantee authorized to be issued under Section 5.2 hereof, at
the time of issuance of a series of Notes to which such agreements relate, if
the Trustee shall have received written confirmation from each Rating
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Agency that such modifications will not cause the outstanding rating assigned by
such Rating Agency to any of the Notes to be lowered, withdrawn or otherwise
impaired; provided that no such modifications shall be effective (1) if the
consent of any Noteholders would be required therefor under the proviso
contained in Section 8.2 hereof and such consent has not been obtained, or (2)
the Trustee shall determine that such modifications are to the prejudice of any
Class C Noteholder or to any Other Beneficiary, or (j) make any other change in
this Indenture which, in the judgment of the Trustee, is not to the prejudice of
the Trustee or the Holders of any Notes or any Other Beneficiary.
Section 8.2. Supplemental Indentures Requiring Consent of
Beneficiaries. Exclusive of Supplemental Indentures covered by Section 8.1
hereof and subject to the terms and provisions contained in this Section 8.2,
and not otherwise, the Trustee (upon receipt of an instrument evidencing the
consent to the below-mentioned Supplemental Indenture by: (i) if they are
affected thereby, the Holders of not less than two-thirds of the aggregate
Principal Amount of the Outstanding Class A Notes not held by the Corporation or
a related person, (ii) if they are affected thereby, the Holders of not less
than two-thirds of the aggregate Principal Amount of the Outstanding Class B
Notes not held by the Corporation or a related person, and (iii) each other
Person which must consent to such Supplemental Indenture as provided in any then
outstanding Supplemental Indenture authorizing the issuance of a series of
Notes) shall join with the Corporation in the execution of such other indenture
or indentures supplemental hereto as shall be deemed necessary and desirable for
the purpose of modifying, altering, amending, adding to or rescinding, in any
particular, any of the terms or provisions contained in this Indenture;
provided, however, that nothing contained in this Article Eight shall permit or
be construed as permitting without the consent of the Holder of each Note and
each Other Beneficiary which would be affected thereby (a) an extension of the
maturity of the principal of or the interest on any Note, whether at the Stated
Maturity thereof, on a Sinking Fund Payment Date or otherwise, or (b) a
reduction in the Principal Amount, Redemption Price or purchase price of any
Note or the rate of interest thereon, or (c) a privilege or priority of any
Senior Obligation over any other Senior Obligation, (d) a privilege or priority
of any Subordinate Obligation over any other Subordinate Obligation, or (e) a
privilege or priority of any Class C Note or Class C Notes over any other Class
C Note or Class C Notes, or (f) a privilege of any Class A Notes over any Class
B Notes or Class C Notes, or of any Class B Notes over any Class C Notes, other
than as provided herein, or (g) the surrendering of a privilege or a priority
granted hereby if, in the judgment of the Trustee, to the detriment of another
Beneficiary hereunder, or (h) a reduction or an increase in the aggregate
Principal Amount of the Notes required for consent to such Supplemental
Indenture, or (i) the creation of any lien ranking prior to or on a parity with
the lien of this Indenture on the Trust Estate or any part thereof, except as
hereinbefore expressly permitted, or (j) any Beneficiary to be deprived of the
lien hereby created on the rights, title, interest, privileges, revenues, moneys
and securities pledged hereunder, or (k) the modification of any of the
provisions of this Section 8.2, or (l) the modification of any provision of a
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Supplemental Indenture which states that it may not be modified without the
consent of the Holders of Notes issued pursuant thereto or any Notes of the same
class or any Beneficiary that has provided a Credit Enhancement Facility, Demand
Purchase Agreement or Swap Agreement of such class.
For purposes of this Indenture, Notes are deemed "affected" by an
amendment if such amendment adversely affects or diminishes the rights of the
Holders thereof to be assured of the payment of principal of, premium, if any,
and interest on and any Carry-Over Amount (and accrued interest thereon) with
respect to such Notes, taking into account the priorities between classes of
Notes theretofore prescribed hereby. The Trustee may in its discretion
determine whether any Notes would be affected by any amendment and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered under this Indenture. The
Trustee shall not be liable for any such determination made in good faith.
If at any time the Corporation shall request the Trustee to enter into
any such Supplemental Indenture for any of the purposes of this Section, the
Trustee shall, upon being satisfactorily indemnified with respect to expenses,
cause notice of the proposed execution of such Supplemental Indenture to be
mailed to each Holder of an Outstanding Note in accordance with the provisions
of Section 13.4 hereof and to each Other Beneficiary. Such notice shall briefly
set forth the nature of the proposed Supplemental Indenture and shall state that
copies thereof are on file at the Principal Office of the Trustee for inspection
by all Beneficiaries. The Trustee shall not, however, be subject to any
liability to any Noteholder or any Other Beneficiary by reason of its failure to
mail such notice, and any such failure shall not affect the validity of such
Supplemental Indenture when consented to and approved as provided in this
Section 8.2. If, at the time of the execution of any such Supplemental
Indenture, the Holders of Notes and each other Beneficiary shall have consented
to and approved the execution thereof as herein provided, no Beneficiary shall
have any right to object to any of the terms and provisions contained therein,
or the operation thereof, or in any manner to question the propriety of the
execution thereof, or to enjoin or restrain the Trustee or the Corporation from
executing the same or from taking any action pursuant to the provisions thereof.
Upon the execution of any such Supplemental Indenture as in this Section 8.2
permitted and provided this Indenture shall be and be deemed to be modified and
amended in accordance therewith.
Section 8.3. Rights of Trustee. If, in the opinion of the Trustee,
any Supplemental Indenture provided for in this Article Eight adversely affects
the rights, duties or immunities of the Trustee under this Indenture or
otherwise, the Trustee may, in its discretion, decline to execute such
Supplemental Indenture, except to the extent that this may be required in the
case of a Supplemental Indenture entered into under Section 8.1 hereof. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an opinion of its Counsel as
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conclusive evidence that any such Supplemental Indenture conforms to the
requirements of this Indenture.
Section 8.4. Opinion and Rating Agency Approval Required Prior to
Execution of Supplemental Indenture. No Supplemental Indenture shall be
executed unless, prior to the execution thereof: (1) if any Tax Exempt Notes
have previously been issued, the Corporation shall have provided to the Trustee
an opinion of Bond Counsel to the effect that the execution and delivery of such
Supplemental Indenture will not adversely affect the exclusion from the gross
income of the owners thereof for federal income tax purposes pursuant to Section
103 of the Code of interest on any of such Tax Exempt Notes; and (2) the Trustee
shall have received written evidence from each Rating Agency that execution and
delivery of such Supplemental Indenture will not adversely affect any rating or
ratings then applicable to any of the Outstanding Notes.
Section 8.5. Consent of Depositaries. So long as any Depositary
Agreement is in effect, (i) no Supplemental Indenture which materially adversely
affects the rights, duties or immunities of the Depositary created by this
Indenture or the Depositary Agreement (including, if applicable, such duties and
obligations as Note Registrar and Authenticating Agent hereunder) shall become
effective unless and until delivery to the Trustee of a written consent of the
Depositary to such Supplemental Indenture, and (ii) the Trustee shall promptly
furnish to the Depositary a copy of each Supplemental Indenture.
Section 8.6. Consent of Remarketing Agents. So long as any
Remarketing Agreement is in effect, (i) no Supplemental Indenture which
materially adversely affects the rights, duties or immunities of the Remarketing
Agent created by this Indenture or the Remarketing Agreement shall become
effective unless and until delivery to the Trustee of a written consent of the
Remarketing Agent to such Supplemental Indenture, and (ii) the Trustee shall
promptly furnish to the Remarketing Agent a copy of each Supplemental Indenture.
Section 8.7. Consent of Auction Agents. So long as any Auction Agent
Agreement is in effect, (i) no Supplemental Indenture which materially adversely
affects the rights, duties or immunities of the Auction Agent created by this
Indenture or the Auction Agent Agreement shall become effective unless and until
delivery to the Trustee of a written consent of the Auction Agent to such
Supplemental Indenture, and (ii) the Trustee shall promptly furnish to the
Auction Agent a copy of each Supplemental Indenture.
Section 8.8. Consent of Broker-Dealers. So long as any Broker-Dealer
Agreement is in effect, (i) no Supplemental Indenture which materially adversely
affects the rights, duties or immunities of the Broker-Dealer created by this
Indenture or the Broker-Dealer Agreement shall become effective unless and until
delivery to the Trustee of a written consent of the Broker-Dealer to such
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Supplemental Indenture, and (ii) the Trustee shall promptly furnish to the
Broker-Dealer a copy of each Supplemental Indenture.
Section 8.9. Conformity With Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article VIII 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.
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ARTICLE NINE
NOTEHOLDERS' MEETINGS
Section 9.1. Purposes for Which Noteholders' Meetings May Be Called.
A meeting of Noteholders may be called at any time and from time to time
pursuant to this Article Nine for any of the following purposes:
A. to give any notice to the Trustee or the Corporation, or to give
any directions to the Trustee, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to
be taken by Noteholders pursuant to Article Six hereof;
B. to remove the Trustee and appoint a successor trustee pursuant to
Article Seven hereof;
C. to consent to the execution of any Supplemental Indenture pursuant
to Article Eight hereof; or
D. to take any other action authorized to be taken by or on behalf of
the Holders of any specified aggregate Principal Amount of the Notes under
any other provision of this Indenture or under applicable law.
Section 9.2. Place of Meetings of Noteholders. Meetings of
Noteholders may be held at such place or places as the Trustee or, in case of
its failure to act, the Corporation or the Noteholders calling the meeting,
shall from time to time determine.
Section 9.3. Call and Notice of Noteholders' Meetings.
A. The Trustee may at any time call a meeting of Noteholders to be
held at such time and at such place as the Trustee shall determine. Notice of
every meeting of Noteholders, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be mailed to each Noteholder in accordance with the provisions of Section
13.4 hereof and to each Other Beneficiary not less than twenty (20) nor more
than one hundred eighty (180) days prior to the date fixed for the meeting. Any
failure of the Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such meeting.
B. In case at any time the Corporation, pursuant to a Corporation
Request, the Holders of at least ten percent (10%) in aggregate Principal Amount
of the Notes then Outstanding or any Other Beneficiary, shall have requested the
Trustee to call a meeting of the Noteholders, by written request setting forth
in reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the first notice of such meeting within twenty
days after
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receipt of such request, then the Corporation, the Holders of Notes in the
amount above specified or such Other Beneficiary may determine the time, place
and location for such meeting and may call such meeting to take any action
authorized in Section 9.1 hereof by giving notice thereof as provided in
subsection A of this Section 9.3.
Section 9.4. Persons Entitled To Vote at Noteholders' Meetings. To be
entitled to vote at any meeting of Noteholders, a person shall be (i) a Holder
of one or more Notes, or (ii) a person appointed by an instrument in writing as
proxy for a Holder or Holders of Notes by such Holder or Holders. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel, any representatives of the Trustee and its counsel, any representatives
of any Other Beneficiary and their counsel and any representatives of the
Corporation and its counsel.
Section 9.5. Determination of Voting Rights; Conduct and Adjournment
of Meetings.
A. Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Noteholders in regard to proof of the ownership of Notes and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Notes shall be proved in the
manner specified in Section 13.1 hereof and the appointment of any proxy shall
be proved in the manner specified in Section 13.1 hereof or by having the
signature of the person executing the proxy witnessed or guaranteed by any bank,
banker or trust company. Such regulations may provide that written instruments
appointing proxies, regular on their face, may be presumed valid and genuine
without the proof specified in Section 13.1 hereof or other proof.
B. The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Noteholders or the Corporation as provided in subsection B of Section 9.3
hereof, in which case the Noteholders calling the meeting or the Corporation
shall in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the Holders of a
majority in aggregate Principal Amount of the Notes represented at the meeting
and entitled to vote.
C. At any meeting each Noteholder or proxy shall be entitled to one
vote for each $1.00 Principal Amount of Outstanding Notes held or represented by
him; provided, however, that no vote shall be cast or counted at any meeting in
respect of any Note challenged as not Outstanding and ruled by the chairman of
the
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meeting to be not Outstanding. The chairman of the meeting shall have no right
to vote, except as a Noteholder or proxy.
D. At any meeting of Noteholders, the presence of persons holding or
representing Notes in an aggregate Principal Amount sufficient under the
appropriate provision of this Indenture to take action upon the business for the
transaction of which such meeting was called shall constitute a quorum. Any
meeting of Noteholders duly called pursuant to Section 9.3 hereof may be
adjourned from time to time by vote of the Holders (or proxies for the Holders)
of a majority in aggregate Principal Amount of the Notes represented at the
meeting and entitled to vote, whether or not a quorum shall be present; and the
meeting may be held as so adjourned without further notice.
Section 9.6. Counting Votes and Recording Action of Meetings. The
vote upon any resolution submitted to any meeting of Noteholders shall be by
written ballots on which shall be subscribed the signatures of the Holders of
Notes or of their representatives by proxy and the serial number or numbers of
the Notes held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record, at least in duplicate, of the proceedings
of each meeting of Noteholders shall be prepared by the secretary of the meeting
and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the facts setting forth a copy of the notice of
the meeting and showing that said notice was published or mailed as provided in
Section 9.3 hereof. Each copy shall be signed and verified by the affidavits of
the permanent chairman and secretary of the meeting and one such copy shall be
delivered to the Corporation and another to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the matters
therein stated.
Section 9.7. Revocation by Noteholders. At any time prior to (but not
after) the evidencing to the Trustee, in the manner provided in Section 13.1
hereof, of the taking of any action by the Holders of the percentage in
aggregate Principal Amount of the Notes specified in this Indenture in
connection with such action, any Holder of a Note, the serial number of which is
included in the Note, the Holders of which have consented to such action may, by
filing written notice with the Trustee at its Principal Office and upon proof of
holding as provided in Section 13.1 hereof, revoke such consent so far as
concerns such Note. Except as aforesaid any such consent given by the Holder of
any Note shall be conclusive and binding upon such Holder and upon all future
Holders and owners of such Note and of any Note issued in exchange therefor or
in lieu thereof, irrespective of whether or not any notation in regard thereto
is made upon such Note. Any action taken by the Holders of the percentage in
aggregate Principal Amount of the Notes specified in
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this Indenture in connection with such action shall be conclusively binding upon
the Corporation, the Trustee and the Holders of all the Notes.
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ARTICLE TEN
REDEMPTION AND PREPAYMENT
Section 10.1. Right of Redemption and Prepayment. The Notes of any
series are subject to redemption and prepayment as provided in this Article Ten
and in the Supplemental Indenture creating such series.
Notes which are redeemable or may be prepaid before their Stated
Maturity shall be redeemed or prepaid in accordance with their terms, this
Indenture and (except as otherwise provided with respect to the Notes of any
particular series by the provisions of the Supplemental Indenture creating such
series) in accordance with this Article Ten.
Section 10.2. Election To Redeem, Prepay or Purchase; Notice to
Trustee; Senior Asset Requirement. The election of the Corporation to redeem or
prepay any Notes or cause any Notes then subject to redemption to be purchased
by the Trustee (other than on a Purchase Date or Mandatory Tender Date) shall be
evidenced by a Corporation Order, received by the Trustee no later than the
sixtieth (60th) day prior to the applicable Redemption Date, Prepayment Date or
such other date prior to the applicable Redemption Date or Prepayment Date
established with respect to a series of Notes in the Supplemental Indenture
authorizing the issuance of the Notes of such series, stating the Redemption
Date or Prepayment Date, as the case may be, the Principal Amount, the series of
Notes, and, if applicable, the Stated Maturity within a series, to be redeemed
or prepaid.
Notwithstanding any provision hereof to the contrary but apart from
the redemption of Notes which are no longer Outstanding by reason of Section
11.1 hereof or the redemption of Class A Notes on a Sinking Fund Payment Date,
no redemption, prepayment or purchase (other than on a Purchase Date or
Mandatory Tender Date) of Notes by the Trustee shall be effected hereunder
unless prior to the Trustee giving notice of redemption, transferring moneys to
the Retirement Account to make such prepayment or soliciting such purchase, the
Corporation furnishes the Trustee a Corporation Certificate to the effect that,
as of the date Notes are to be selected for redemption or purchase or such
determination to prepay is made, (1) if Class A Notes are to be redeemed,
prepaid or purchased, either (A) after giving effect to such redemption,
prepayment or purchase, the Senior Asset Requirement will be met, or (B) (i)
prior to such redemption, prepayment or purchase, the Senior Asset Requirement
was not being met, (ii) no Class B Notes or Class C Notes will be redeemed on
the Redemption Date, prepaid on the Prepayment Date or purchased on the purchase
date for the Class A Notes then proposed to be redeemed, prepaid or purchased,
and (iii) after giving effect to such redemption, prepayment or purchase, the
Senior Percentage will be greater than it would have been without such
redemption, prepayment or purchase; (2) if Class B Notes are to be redeemed,
prepaid or purchased, after giving effect to such redemption, prepayment or
purchase, the Senior Asset Requirement will be met;
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and (3) if Class C Notes are to be redeemed, prepaid or purchased, after giving
effect to such redemption, prepayment or purchase, the Senior Asset Requirement
will be met and there shall be no deficiency then existing in the Note Fund, the
Reserve Fund or the Rebate Fund. Such Notes may be redeemed on the Redemption
Date, prepaid on the Prepayment Date or purchased on the purchase date therefor
if the foregoing conditions are met on the date such Notes are selected for
redemption or purchase or as of the date on which moneys are transferred to the
Retirement Account to make any prepayment, whether or not such conditions are
met on the Redemption Date, the Prepayment Date or the date of purchase. Any
election to redeem Notes of a series may also be conditioned upon such
additional requirements as may be set forth in the Supplemental Indenture
authorizing the issuance of such Notes.
Section 10.3. Selection by Trustee of Notes To Be Redeemed. Except as
may be otherwise specified in a Supplemental Indenture with respect to a series
of Notes thereby created, if less than all of the Outstanding Notes of any
series are to be redeemed, the particular Notes to be redeemed shall be selected
by the Trustee from the Outstanding Notes of that series not previously called
for redemption so that, to the maximum extent possible taking into account
redemption of Notes in $5,000 increments approximately equal percentages of each
Stated Maturity of Notes of such series will be redeemed.
If less than all Notes of a series and a Stated Maturity are to be
redeemed, the Trustee shall select by lot or in such other manner as the Trustee
shall deem fair and appropriate the particular Notes of such Stated Maturity and
series to be redeemed. The Trustee may provide for the selection for redemption
of portions of the principal of Notes in the denomination larger than $5,000 or
the smallest authorized denomination of the Notes of that series or an integral
multiple thereof.
The Trustee shall promptly notify the Corporation and any Paying Agent
in writing of the Notes selected for redemption and, in the case of any Note
selected for partial redemption, the Principal Amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Note redeemed or to be redeemed only in part, to the portion of
the principal of such Note which has been or is to be redeemed.
Section 10.4. Notice of Redemption. Except as otherwise provided with
respect to the Notes of any particular series by the provisions of the
Supplemental Indenture creating such series, notice of redemption shall be given
by first-class mail, postage prepaid, mailed not more than sixty (60) days nor
less than thirty (30) days prior to the Redemption Date to each Holder of Notes
to be redeemed at the address of such Holder appearing in the Note Register; but
neither failure to give such notice nor any defect in any notice so given shall
affect the
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validity of the proceedings for redemption of any Note not affected by such
failure or defect.
In addition to the notice prescribed by the foregoing paragraph, the
Trustee shall also give notice of the redemption of any Note or Notes or
portions thereof at least thirty (30) days before the Redemption Date by
certified mail or telecopy to all registered securities depositories then in the
business of holding substantial amounts of obligations of the character of the
Notes (such depositories now being The Depository Trust Company, of New York,
New York; Midwest Securities Trust Company, of Chicago, Illinois; and
Philadelphia Depository Trust Company, of Philadelphia, Pennsylvania) and to two
(2) or more national information services that disseminate information regarding
municipal bond redemptions; provided that any defect in or any failure to give
any notice of redemption prescribed by this paragraph shall not affect the
validity of the proceedings for the redemption of any Note.
All notices of redemption shall state:
a. the Redemption Date,
b. the Redemption Price,
c. the name (including series designation), Stated Maturity and CUSIP
numbers of the Notes to be redeemed, the Principal Amount of Notes of each
series to be redeemed, and, if less than all outstanding Notes of a series
are to be redeemed, the identification (and, in the case of partial
redemption, the respective Principal Amounts) of the Notes of each series
to be redeemed,
d. that, on the Redemption Date, the Redemption Price of and accrued
interest on each such Note will become due and payable and that interest on
each such Note shall cease to accrue on and after such date,
e. the place or places where such Notes are to be surrendered for
payment of the Redemption Price thereof and accrued interest thereon, and
f. if it be the case, that such Notes are to be redeemed by the
application of certain specified trust moneys and for certain specified
reasons.
Within sixty (60) days after any Redemption Date, a second notice of
redemption shall be given, in the manner described above, to the Holder of any
Note that was not presented for redemption within thirty (30) days after the
Redemption Date.
Section 10.5. Notes Payable on Redemption Date and Sinking Fund
Payment Date. Notice of redemption having been given as aforesaid, the Notes so
to be redeemed shall, on the Redemption Date, become due and payable at the
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Redemption Price specified plus accrued interest thereon to the Redemption Date
and on and after such date (unless the Corporation shall default in the payment
of the Redemption Price and accrued interest) such Notes shall cease to bear
interest. Upon surrender of any such Note for redemption in accordance with such
notice, such Note shall be paid at the Redemption Price thereof plus (unless the
Redemption Date is a regularly scheduled Interest Payment Date) accrued interest
to the Redemption Date. Installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall continue to be payable to the applicable
Noteholder.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price and, to the extent lawful, interest
thereon shall, until paid, bear interest from the Redemption Date at the rate
borne by the Note.
Section 10.6. Notes Redeemed or Prepaid in Part. Any Note which is to
be redeemed only in part shall be surrendered to the Paying Agent (with, if the
Paying Agent so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Paying Agent duly executed by, the Holder
thereof or his attorney duly authorized in writing) and the appropriate officers
of the Corporation shall execute and the Trustee or an Authenticating Agent
shall authenticate and deliver to the Holder of such Note, without service
charge, a new Note or Notes of the same series, of any authorized denomination
or denominations, having the same Stated Maturity and interest rate as requested
by such Holder, in aggregate Principal Amount equal to and in exchange for the
unredeemed portion of the principal of the Note so surrendered.
Any Note which is to be prepaid only in part shall remain Outstanding
in the then current Principal Amount. The Trustee shall retain a record of the
Principal Amount of each Note any portion of the principal of which has been
prepaid in part and shall give the Note Registrar (if other than the Trustee)
prompt written notice of the current Principal Amount of each such Note as of
the end of each calendar month.
Section 10.7. Purchase of Notes. The Corporation may at any time,
but subject to Section 10.2 hereof, authorize and direct the Trustee to purchase
Notes in the open market out of any funds available for such purpose, such
purchases to be made at a price not in excess of the amount specified in this
Indenture or, if no amount is specified, the Principal Amount thereof plus
accrued interest and any applicable redemption premium. In addition, the
Corporation may, from time to time, direct the Trustee to request the submission
of tenders following published notice requesting such submission prior to making
the purchases authorized pursuant to this Section 10.7. The Corporation may
specify the maximum and minimum period of time which shall transpire between the
date upon which such notice is to be given and the date upon which such tenders
are to be accepted or may authorize the Trustee to determine the same in its
discretion. No tenders shall be considered or accepted at any price exceeding
the maximum price specified by the
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Corporation for the purchase of Notes. The Trustee shall accept bids with the
lowest price and, in the event the moneys available for purchase pursuant to
such tenders are not sufficient to permit acceptance of all tenders and if there
shall be tenders at an equal price above the amounts of moneys available for
purchase, then the Trustee shall, determine in its discretion, the Notes
tendered which shall be purchased. All Notes purchased by the Trustee pursuant
to this Section 10.7 shall be canceled and not reissued.
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ARTICLE ELEVEN
DEFEASANCE; MONEYS HELD FOR
PAYMENT OF DEFEASED NOTES
Section 11.1. Discharge of Liens and Pledges; Notes No Longer
Outstanding and Deemed To Be Paid Hereunder. The obligations of the Corporation
under this Indenture, and the liens, pledges, charges, trusts, covenants and
agreements of the Corporation herein made or provided for, shall be fully
discharged and satisfied as to any Note and such Note shall no longer be deemed
to be Outstanding hereunder:
(i) when such Note shall have been canceled, or shall have been
purchased by the Trustee from moneys held by it under this Indenture; or
(ii) as to any Note not canceled or so purchased, when payment of the
principal of and the applicable redemption premium, if any, on such Note,
plus interest on such principal to the due date thereof (whether such due
date be by reason of Stated Maturity or upon redemption or prepayment, or
otherwise), either (a) shall have been made or caused to be made in
accordance with the terms hereof, or (b) shall have been provided for by
irrevocably depositing with the Trustee and irrevocably appropriating and
setting aside exclusively for such payment, (1) moneys sufficient to make
such payment or (2) Government Obligations maturing as to principal and
interest in such amount and at such times as will ensure the availability
of sufficient moneys to make such payment and, if payment of all then
Outstanding Notes of an issue (as defined in the Arbitrage Regulations) is
to be so provided for, all payments required to be made to the United
States Treasury or otherwise with respect to Rebate Amounts and Excess
Earnings under Section 4.5 hereof, and all necessary and proper fees,
compensation and expenses of the Trustee, any Deposit Agents, any
Remarketing Agents, any Depositaries, any Auction Agents, any Broker-
Dealers, any Authenticating Agents, the Note Registrar and any Paying
Agents pertaining to the Note with respect to which such deposit is made
shall have been paid or the payment thereof provided for to the
satisfaction of the Trustee, said Deposit Agents, said Remarketing Agents,
said Depositaries, said Auction Agents, said Broker-Dealers, said
Authenticating Agents, said Note Registrar and said Paying Agents.
Any deposit under the preceding clause (b) shall be accompanied by a Corporation
Certificate certifying that the moneys and Government Obligations so
appropriated and set aside are sufficient, and will mature as needed, to pay the
principal, premium, if any, and interest due on the Note with respect to which
such deposit has been made on the Stated Maturity or Redemption Date thereof and
on each Interest Payment Date on and prior to such Stated Maturity or Redemption
Date. At such time as a Note shall be deemed to be no longer Outstanding
hereunder, as aforesaid, such Note shall cease to draw interest from the due
date thereof (whether
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such due date be by reason of maturity, or upon redemption or prepayment or by
declaration as aforesaid, or otherwise) and, except for the purposes of any such
payment from such moneys or Investment Securities, shall no longer be secured by
or entitled to the benefits of this Indenture.
Notwithstanding the foregoing, (A) in the case of Notes which by their
terms may be redeemed or otherwise prepaid prior to their Stated Maturities, no
deposit under clause (b) of subparagraph (ii) above shall constitute such
payment, discharge and satisfaction as aforesaid, as to all such Notes which are
to be redeemed prior to their respective Stated Maturities, until proper notice
of such redemption shall have been previously given in accordance with Section
10.4 hereof or provision satisfactory to the Trustee shall have been irrevocably
made for the giving of such notice, and (B) in the case of Notes which may be
required to be purchased on a Purchase Date, no deposit under clause (b)(2) of
subparagraph (ii) above shall constitute such payment, discharge and
satisfaction as aforesaid.
Any such moneys so deposited with the Trustee as provided in this
Section 11.1 may at the direction of the Corporation also be invested and
reinvested in Government Obligations maturing in the amounts and time as
hereinbefore set forth, and all income from all Government Obligations in the
hands of the Trustee pursuant to this Section 11.1 which is not required for the
payment of the Notes and interest and premium thereon with respect to which such
moneys shall have been so deposited shall be deposited in the Rebate Fund, to
the extent required by Section 4.5 hereof, and thereafter (A) if any Notes are
then Outstanding, be deposited in the Revenue Fund as and when realized and
collected, for use and application as are other moneys credited to such Fund,
and (B) if no Notes are then Outstanding and no amounts are owed to any Other
Beneficiaries hereunder, be paid to the Corporation.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to any Note, the right to transfer and exchange such Note pursuant to
Section 3.7 shall survive.
Notwithstanding any provision of any other Section of this Indenture
which may be contrary to the provisions of this Section 11.1, all moneys or
Investment Securities set aside and held in trust pursuant to the provisions of
this Section 11.1 for the payment of the principal of, premium, if any, and
interest on Notes shall be applied to and used solely for the payment of the
principal of, premium, if any, and interest on the particular Note with respect
to which such moneys and Investment Securities have been so set aside in trust.
Anything in Article Eight hereof to the contrary notwithstanding, if
moneys or Government Obligations have been deposited or set aside with the
Trustee pursuant to this Section 11.1 for the payment of Notes and such Notes
shall be deemed to have been paid and to be no longer Outstanding hereunder as
provided in this Section 11.1, but such Notes shall not have in fact been
actually
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paid in full, no amendment to the provisions of this Article Eleven shall be
made without the consent of the Holder of each Note affected thereby.
The Corporation may at any time cause to be canceled any Notes
previously executed and delivered, which the Corporation may have acquired in
any manner whatever, and such Notes upon such surrender for cancellation shall
be deemed to be paid and no longer Outstanding hereunder.
The obligations of the Corporation under this Indenture, and the
liens, pledges, charges, trusts, covenants and agreements of the Corporation
herein made or provided for, shall be fully discharged and satisfied as to any
Demand Purchase Agreement, Credit Enhancement Facility or Swap Agreement in the
manner and with the effect provided in the Supplemental Indenture providing for
such Demand Purchase Agreement, Credit Enhancement Facility or Swap Agreement.
Notwithstanding the foregoing provisions of this Section 11.1, no Note
shall be defeased hereunder if, after giving effect to the defeasance, the
requirements in Section 10.2 hereof are not met on the date such Note is to be
defeased, treating, for purposes of said Section 10.2, any Note that is to be
defeased as being redeemed on the date it is to be defeased at an assumed
redemption price equal to the Principal Amount thereof with interest accrued
thereon to the date of defeasance, plus, if the Note is to be redeemed under
this Section 11.1 at a Redemption Price greater than the Principal Amount
thereof, a premium equal to the amount by which the Redemption Price exceeds
such Principal Amount.
Section 11.2. Notes Not Presented for Payment When Due; Moneys Held
for the Notes after Due Date of Notes. Subject to the provisions of the next
sentence of this paragraph, if any Note shall not be presented for payment when
the principal thereof shall become due, whether at Stated Maturity, at the date
fixed for redemption or otherwise, and if moneys or Investment Securities
described in subdivision 1 of the definition thereof in Section 1.1 hereof shall
at such due date be held by the Trustee, or a Paying Agent therefor, in trust
for that purpose sufficient and available to pay the principal of and premium,
if any, on such Note, together with all interest due on such principal to the
due date thereof or to the date fixed for redemption thereof, all liability of
the Corporation for such payment shall forthwith cease, determine and be
completely discharged, and thereupon it shall be the duty of the Trustee, or
such Paying Agent, to hold said moneys or Investment Securities without
liability to the Holder of such Note for interest thereon, in trust for the
benefit of the Holder of such Note, who thereafter shall be restricted
exclusively to said moneys or Investment Securities for any claim of whatever
nature on his part on or with respect to said Note, including any claim for the
payment thereof. In the event any such moneys or Investment Securities, or any
other moneys or Investment Securities with respect to interest due and payable
on any Note prior to the Maturity thereof, held by the Trustee or any Paying
Agent for the Holders of such Notes remain unclaimed as of (a) fifty-five (55)
days after the principal of or interest on the respective Notes with respect to
which such moneys or Investment
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<PAGE>
Securities have been so set aside has become due and payable (whether at Stated
Maturity, upon call for redemption or otherwise), the Trustee shall, within five
(5) days thereafter, give notice thereof to the Holders of such Notes in the
same manner as a notice of redemption given in accordance with Section 10.4
hereof, and (b) two (2) years after the principal of or interest on such Notes
has become due and payable as aforesaid, the Trustee or such Paying Agent, as
the case may be, shall, without further request by the Corporation, pay such
moneys and Investment Securities, to the extent permitted by law, to the
Corporation against a written receipt therefor, and otherwise hold or dispose of
such moneys and Investment Securities as required by law; provided that, if
applicable law requires the Trustee or any Paying Agent to dispose of any such
moneys or Investment Securities prior to the end of the period described in the
preceding clause (b), disposition of such moneys and Investment Securities shall
be made at the time and otherwise in accordance with such law.
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<PAGE>
ARTICLE TWELVE
NOTEHOLDERS' LISTS AND REPORTS
Section 12.1. Note Registrar To Furnish Trustee Names and Addresses
to Noteholders. The Note Registrar will furnish or cause to be furnished to the
Trustee (a) not more than five (5) 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 Trustee may reasonably require, of the names and addresses of the Holders of
Notes as of such Record Date, (b) at such other times as the Trustee may request
in writing, within thirty (30) days after receipt by the Note Registrar of any
such request, a list of similar form and content as of a date not more than ten
(10) days prior to the time such list is furnished; provided, however, that so
long as the Trustee is the Note Registrar, no such list shall be required to be
furnished.
Section 12.2. Preservation of Information; Communications to
Noteholders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Notes contained in the
most recent list furnished to the Trustee as provided in Section 12.1 and the
names and addresses of Holders of Notes received by the Trustee in its capacity
as Note Registrar. The Trustee may destroy any list furnished to it as provided
in such Section 12.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA (S) 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Corporation, the Trustee and the Note Registrar shall have the
protection of TIA (S) 312(c).
Section 12.3. Reports by Corporation.
(a) The Corporation shall:
(i) file with the Trustee, within fifteen (15) days after the
Corporation 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 Corporation may
be required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act;
(ii) file with the Trustee and the Commission in accordance with rules
and regulations prescribed from time to time by the Commission such
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additional information, documents and reports with respect to compliance by
the Corporation with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(iii) supply to the Trustee a sufficient number of copies (and the
Trustee shall transmit by mail to all Noteholders described in TIA (S)
313(c)) of such summaries of any information, documents and reports
required to be filed by the Corporation pursuant to clauses (i) and (ii) of
this paragraph as may be required by rules and regulations prescribed from
time to time by the Commission.
(b) Unless the Corporation otherwise determines, the Fiscal Year of
the Corporation shall end on June 30 of each year. In the event the Corporation
changes its Fiscal Year, it shall promptly notify the Trustee.
Section 12.4. Reports by Trustee. If required by TIA (S) 313(a),
within sixty (60) days after each June 30 beginning with June 30, 1998, the
Trustee shall mail to each Noteholder as required by TIA (S) 313(c) a brief
report dated as of such date that complies with TIA (S) 313(a). The Trustee also
shall comply with TIA (S) 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Trustee with the Commission and each other stock exchange, if
any, on which the Notes are listed. The Corporation shall notify the Trustee if
and when the Notes are listed on any stock exchange.
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<PAGE>
ARTICLE THIRTEEN
MISCELLANEOUS
Section 13.1. Consent, Etc., of Noteholders. Any consent, request,
direction, approval, objection or other instrument required by this Indenture to
be signed and executed by Noteholders may be in any number of writings of
similar tenor and may be signed or executed by such Noteholders in person or by
agent appointed in writing. Proof of the execution of any such consent, request,
direction, approval, objection or other instrument or of the writing appointing
any such agent and of the ownership of Notes, if made in the following manner,
shall be sufficient for any of the purposes of this Indenture, and shall be
conclusive in favor of the Corporation, any Paying Agent, any Deposit Agent, any
Remarketing Agent, any Depositary, any Auction Agent, any Broker-Dealer or the
Trustee with regard to any action taken by it under such consent, request,
direction, approval, objection or other instrument, namely:
(A) The fact and date of the execution by any person of any such
writing may be proved by the certificate of any officer in any jurisdiction
who by law has power to take acknowledgements within such jurisdiction that
the person signing such writing acknowledged before him the execution
thereof, or by an affidavit of any witness to such execution.
(B) The fact of ownership of Notes, the numbers and other
identification of such Notes, and the date of holding the same shall be
proved by the Note Register.
Section 13.2. Limitation of Rights. With the exception of rights
herein conferred, nothing expressed or mentioned in or to be implied from this
Indenture or the Notes is intended or shall be construed to give to any Person
other than the parties hereto, any Authenticating Agent, each Paying Agent, each
Deposit Agent, each Remarketing Agent, each Depositary, each Auction Agent, each
Broker-Dealer and the Beneficiaries, any legal or equitable right, remedy, or
claim under or in respect to this Indenture or any covenants, conditions and
provisions herein contained; this Indenture and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto, any Authenticating Agent, each Paying Agent, each
Deposit Agent, each Remarketing Agent, each Depositary, each Auction Agent, each
Broker-Dealer and the Beneficiaries as herein provided.
Section 13.3. Severability. If any provision of this Indenture shall
be held or deemed to be or shall, in fact, be inoperative or unenforceable as
applied in any particular case in any jurisdiction or jurisdictions or in all
jurisdictions or in all cases because it conflicts with any provisions of any
constitution or statute or rule of public policy, or for any other reason, such
circumstances shall not have the effect of rendering the provision in question
inoperative or unenforceable in any other case
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or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatever.
The invalidity of any one or more phrases, sentences, clauses or
paragraphs in this Indenture contained shall not affect the remaining portions
of this Indenture or part thereof.
Section 13.4. Notices. A. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed given
when mailed by certified mail, postage prepaid, with proper address as indicated
below or, as to Other Beneficiaries, to a proper address specified in or
pursuant to a Supplemental Indenture. The Corporation, the Trustee and any
Rating Agency may, by written notice given by each to the others, designate any
other address or addresses to which notices, certificates or other
communications to them shall be sent when required as contemplated by this
Indenture. Until otherwise provided by the respective parties, all notices,
certificates and communications to each of them shall be addressed as follows:
To the Corporation: Education Loans Incorporated
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attn: President
To the Trustee: First Bank National Association
141 North Main Avenue
Sioux Falls, South Dakota 57117
Attn: Corporate Trust Department
To Fitch: Fitch Investors Service, Inc.
One State Street Plaza
New York, New York 10004
Attn: Asset-Backed Group
To Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attn: Public Finance Department--
Structured Finance Group
B. Except as is otherwise provided in this Indenture, any provision
in this Indenture for the mailing of notice or other instrument to Holders of
Notes shall be fully complied with if it is mailed by first-class mail, postage
prepaid, to each Holder of Notes outstanding at the address appearing on the
Note Register. In addition, whenever notice is to be mailed under this Indenture
to the Holders of Notes, the Trustee shall also, upon request, mail a copy of
such notice to (1) any Holder of at least $1,000,000 in aggregate Principal
Amount of the Notes (or, in the
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<PAGE>
event less than $1,000,000 in aggregate Principal Amount of Notes is
outstanding, the Holder of all outstanding Notes), in addition to the copy
mailed to such Holder's address appearing on the Note Register, at such other
address as such Holder shall specify in writing to the Trustee, and (2) any
Person that is the beneficial owner of a Note, as evidenced to the satisfaction
of the Trustee, at such address as such beneficial owner shall specify in
writing to the Trustee; provided that any defect in or failure to mail any such
notice prescribed by this sentence shall not affect the validity of any
proceedings to be taken (including, without limitation, for the redemption of
Notes) pursuant to such notice.
Section 13.5. Counterparts. This Indenture 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.
Section 13.6. Indenture Constitutes a Security Agreement. An
executed counterpart or certified copy of this Indenture delivered to and
accepted by the Trustee shall constitute a security agreement pursuant to and
for all purposes of the Uniform Commercial Code of the State of South Dakota and
of any other state or jurisdiction.
Section 13.7. Payments Due on Non-Business Days. Except as may be
otherwise provided in a Supplemental Indenture, in any case where the principal
of, premium, if any, or interest on the Notes or amounts due to any Beneficiary
shall be due on a day other than a Business Day, then payment of such principal,
premium and interest may be made on the next succeeding Business Day with the
same force and effect as if made on the date due and no interest shall accrue
for the intervening period.
Section 13.8. Notices to Rating Agencies. So long as any Outstanding
Notes are rated by a Rating Agency, the Trustee agrees to give the Rating Agency
prompt written notice of the appointment of any successor Trustee.
Section 13.9. Governing Law. This Indenture shall be governed by and
be construed in accordance with the laws of the State of South Dakota without
giving effect to the conflicts-of-laws principles thereof.
Section 13.10. Rights of Other Beneficiaries. All rights of any
Other Beneficiary under this Indenture to consent to or direct certain remedies,
waivers, actions and amendments hereunder shall cease for so long as such Other
Beneficiary is in default of any of its obligations or agreements under the Swap
Agreement, the Credit Enhancement Facility or the Demand Purchase Agreement by
reason of which such Person is an Other Beneficiary.
Section 13.11. Conflict with Trust Indenture Act. If any provision of
hereof limits, qualifies or conflicts with another provision hereof that is
required to
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<PAGE>
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA (S)(S) 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 13.12. Opinions as to Trust Estate.
(a) On the date of issuance and delivery of the Initial Notes, the
Corporation shall furnish to the 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 security interest in favor of the Trustee, for
the benefit of the Trustee, 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 make such lien and security interest effective.
(b) On or before June 30 in each calendar year, beginning in 1998,
the Corporation shall furnish to the Trustee an opinion of Counsel with respect
to each jurisdiction in which the Financed Student Loans are located or a
Uniform Commercial Code financing statement has been filed by the Corporation
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 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 June 30 in the following calendar year.
Section 13.13. Recording of Indenture. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Corporation and at its expense accompanied by an opinion of
Counsel (which may be counsel to the Trustee or any other Counsel reasonably
acceptable to the Trustee) to the effect that such recording is necessary either
for the protection of the Noteholders or any other Person secured hereunder or
for the enforcement of any right or remedy granted to the Trustee under this
Indenture.
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<PAGE>
Section 13.14. No Petition. The Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Corporation or join in any
institution against the Corporation of, any bankruptcy, reorganization,
arrangement, insolvency 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 the Servicing
Agreement.
Section 13.15. Income Tax Characterization. The Corporation has
structured this Indenture and the Notes with the intention that the Notes will
qualify under applicable federal, state, local and foreign tax law as
indebtedness of the Corporation secured by the Trust Estate. The Corporation,
the Trustee, the Servicer and each Noteholder agree to treat and to take no
action inconsistent with the treatment of the Notes as such indebtedness for
purposes of federal, state, local and foreign income or franchise taxes and any
other tax imposed on or measured by income. Each Noteholder, by acceptance of
its Note, agrees to be bound by the provisions of this Section. Each Noteholder
agrees that it will cause any Person acquiring an interest in a Note through it
to comply with this Indenture as to treatment as indebtedness under applicable
tax law, as described in this Section.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
EDUCATION LOANS INCORPORATED
(SEAL)
By -----------------------------
President
Attest:
- -----------------------------
Secretary
FIRST BANK NATIONAL ASSOCIATION,
as Trustee
(SEAL)
By
--------------------------------
Its
-----------------------------
Attest:
- -----------------------------
Its -------------------------
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<PAGE>
EXHIBIT A
---------
Addressed to Trustee
ELIGIBLE LOAN ACQUISITION CERTIFICATE
-------------------------------------
This Eligible Loan Acquisition Certificate is submitted pursuant to
the provisions of Section 4.2 of the Indenture of Trust, dated as of July 1,
1997 (as amended and supplemented from time to time in accordance with its
terms, the "Indenture"), between the Education Loans Incorporated (the
"Corporation") and First Bank National Association, Minneapolis, Minnesota, as
Trustee. All capitalized terms used in this Certificate and not otherwise
defined herein shall have the respective meanings given to such terms in the
Indenture. In your capacity as Trustee, you are hereby authorized and requested
to disburse to the Lenders identified in the schedule attached hereto the
amounts specified in such schedule from the Series ________ Acquisition Account
(or, in the case of an exchange pursuant to Section 4.2 of the Indenture, the
Student Loans listed in Annex 1 hereto) for the acquisition of Eligible Loans.
With respect to the Eligible Loans so to be acquired, the Corporation hereby
certifies as follows:
1. The Eligible Loans to be acquired (the "Acquired Eligible Loans")
will be further described in an updating certificate as required by Section 4.2
of the Indenture.
2. The amount to be disbursed pursuant to this Certificate does not
exceed the purchase price of the Acquired Eligible Loans specified in the
applicable Supplemental Indenture (or, if a Financed Student Loan is being sold
in exchange for an Acquired Eligible Loan under the provisions of Section 4.2 of
the Indenture, the aggregate Principal Balance of, and accrued noncapitalized
borrower interest on, such Financed Student Loan does not exceed the aggregate
Principal Balance of, and accrued noncapitalized borrower interest on, such
Acquired Eligible Loan plus any moneys deposited with the Trustee under the
Indenture as part of the sale price of such Financed Student Loan).
3. Each Acquired Eligible Loan is an Eligible Loan authorized so to
be acquired by the Indenture.
4. You have been previously, or are herewith, provided with the
following items:
(a) with respect to each Acquired Eligible Loan, a copy of the
Student Loan Purchase Agreement between the Corporation and the Lender
relating thereto;
(b) with respect to each Insured Loan included among the Acquired
Eligible Loans, the Certificate of Insurance relating thereto;
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<PAGE>
(c) with respect to each Guaranteed Loan included among the Acquired
Eligible Loans, a certified copy of the Guarantee Agreement relating
thereto;
(d) a copy of the opinion of counsel for the Lender referred to in
paragraph 6E of the related Student Loan Purchase Agreement;
(e) an opinion of Counsel to the Corporation specifying each action
necessary to perfect a security interest in all Eligible Loans to be
acquired by the Corporation pursuant to the Student Loan Purchase
Agreements in favor of the Trustee in the manner provided for by the
provisions of 20 U.S.C. (S) 1087-2(d)(3);
(f) evidence that the promissory notes evidencing each Acquired
Eligible Loan have had stamped thereon or affixed thereto a notice
specifying that they have been assigned to the Trustee and that Uniform
Commercial Code Financing Statements with respect thereto have been filed
in such place or places specified by the opinion of the counsel for the
Corporation pursuant to paragraph 4(e) hereof;
(g) evidence in form satisfactory to the Trustee that each action
necessary to perfect a first security interest in each of the Acquired
Eligible Loans in favor of the Trustee has been accomplished; and
(h) instruments duly assigning the Acquired Eligible Loans to the
Trustee.
5. The Corporation is not, on the date hereof, in default under the
Indenture or any Student Loan Purchase Agreement relating to the Acquired
Eligible Loans, and, to the best knowledge of the Corporation, no Lender is in
default under any Student Loan Purchase Agreement relating to the Acquired
Eligible Loans. The Corporation is not aware of any default existing on the date
hereof under any of the other documents referred to in paragraph 4 hereof, nor
of any circumstances which would reasonably prevent reliance upon the opinions
of counsel referred to in paragraphs 4(d) and 4(e) hereof.
6. All of the conditions specified in the Student Loan Purchase
Agreements relating to the Acquired Eligible Loans and the Indenture for the
acquisition of the Acquired Eligible Loans and the disbursement hereby
authorized and requested have been satisfied.
7. The undersigned is authorized to sign and submit this Certificate
on behalf of the Corporation.
A-2
<PAGE>
WITNESS my hand this _________ day of ______________________, _____.
EDUCATION LOANS INCORPORATED
By _______________________
Its ___________________
A-3
<PAGE>
EXHIBIT B
---------
Addressed to Trustee
ELIGIBLE LOAN ORIGINATION CERTIFICATE
-------------------------------------
This Eligible Loan Origination Certificate is submitted pursuant to
the provisions of Section 4.2 of the Indenture of Trust, dated as of July 1,
1997 (as amended and supplemented from time to time in accordance with its
terms, the "Indenture"), between the Education Loans Incorporated (the
"Corporation") and First Bank National Association, Minneapolis, Minnesota, as
Trustee. All capitalized terms used in this Certificate and not otherwise
defined herein shall have the respective meanings given to such terms in the
Indenture. In your capacity as Trustee, you are hereby authorized and requested
to disburse to __________________ the sums set forth in the schedule attached
hereto (the "Eligible Loan Origination Schedule") from the Series _________
Acquisition Account for the origination of Eligible Loans. With respect to the
Eligible Loans so to be originated, the Corporation hereby certifies as follows:
1. The Eligible Loans to be originated are those specified in the
Eligible Loan Origination Schedule (the "Originated Eligible Loans"). The
original principal amount of each Originated Eligible Loan is as shown on the
Eligible Loan Origination Schedule.
2. The amount to be disbursed pursuant to this Certificate does not
exceed the aggregate Principal Balance of, and accrued noncapitalized borrower
interest on, the Originated Eligible Loans.
3. Each Originated Eligible Loan is an Eligible Loan authorized so to
be originated by the Indenture.
4. You have been previously, or are herewith, provided with the
following items:
(a) with respect to each Insured Loan included among the Originated
Eligible Loans, the Certificate of Insurance relating thereto;
(b) with respect to each Guaranteed Loan included among the
Originated Eligible Loans, a certified copy of the Guarantee Agreement
relating thereto;
(c) an opinion of Counsel to the Corporation specifying each action
necessary to perfect a security interest in all Eligible Loans to be
originated by the Corporation in favor of the Trustee in the manner
provided for by the provisions of 20 U.S.C. (S) 1087-2(d)(3);
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<PAGE>
(d) evidence that the promissory notes evidencing each Originated
Eligible Loan have had stamped thereon or affixed thereto a notice
specifying that they have been assigned to the Trustee and that Uniform
Commercial Code Financing Statements with respect thereto have been filed
in such place or places specified by the opinion of the counsel for the
Corporation pursuant to paragraph 4(c) hereof;
(e) evidence in form satisfactory to the Trustee that each action
necessary to perfect a first security interest in each of the Originated
Eligible Loans in favor of the Trustee has been accomplished; and
(f) instruments duly assigning the Originated Eligible Loans to the
Trustee.
5. The Corporation is not, on the date hereof, in default under the
Indenture. The Corporation is not aware of any default existing on the date
hereof under any of the other documents referred to in paragraph 4 hereof, nor
of any circumstances which would reasonably prevent reliance upon the opinions
of counsel referred to in paragraph 4(c) hereof.
6. All of the conditions specified in the Indenture for the
origination of the Originated Eligible Loans and the disbursement hereby
authorized and requested have been satisfied.
7. The undersigned is authorized to sign and submit this Certificate
on behalf of the Corporation.
WITNESS my hand this _________ day of ______________________, _____.
EDUCATION LOANS INCORPORATED
By ___________________
Its ___________________
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<PAGE>
EXHIBIT C
Addressed to Trustee
STUDENT LOAN ACQUISITION CERTIFICATE
This Student Loan Acquisition Certificate is submitted pursuant to the
provisions of Section 4.8 of the Indenture of Trust, dated as of July 1, 1997
(as amended or supplemented from time to time in accordance with its terms, the
"Indenture"), between the Education Loans Incorporated (the "Corporation") and
First Bank National Association, Minneapolis, Minnesota, as Trustee. All
capitalized terms used in this Certificate and not otherwise defined herein
shall have the respective meanings given to such terms in the Indenture. In your
capacity as Trustee, you are hereby authorized and requested to disburse to the
Lenders identified in the schedule attached hereto (the "Student Loan
Acquisition Schedule") the amounts specified in such Schedule from the Series
________ Surplus Account for the acquisition of Student Loans meeting the
requirements of clauses (A)(1) and (2) or (B) of the definition of "Eligible
Loans" in Section 1.1 of the Indenture. With respect to the Student Loans so to
be acquired, the Corporation hereby certifies as follows:
1. The Student Loans to be acquired are those specified in the
Student Loan Acquisition Schedule (the "Acquired Student Loans").
2. The amount to be disbursed pursuant to this Certificate does not
exceed the aggregate of the remaining Principal Balance of the Acquired Student
Loans plus accrued noncapitalized interest thereon payable by the Eligible
Borrower.
3. Each Acquired Student Loan is a Student Loan (and, except as
permitted by the provisions of Section 4.8 of the Indenture, is an Eligible
Loan) authorized so to be acquired by the Indenture.
4. You have been previously, or are herewith, provided with the
following items:
(a) with respect to each Acquired Student Loan, a copy of the Student
Loan Purchase Agreement between the Corporation and the Lender relating
thereto;
(b) with respect to each Insured Loan included among the Acquired
Student Loans, the Certificate of Insurance relating thereto;
(c) with respect to each Guaranteed Loan included among the Acquired
Student Loans, a certified copy of the Guarantee Agreement relating
thereto;
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<PAGE>
(d) a copy of the opinion of counsel for the Lender referred to in
paragraph 6E of the related Student Loan Purchase Agreement;
(e) an opinion of Counsel to the Corporation specifying each action
necessary to perfect a security interest in all Student Loans to be
acquired by the Corporation pursuant to the Student Loan Purchase
Agreements in favor of the Trustee in the manner provided for by the
provisions of 20 U.S.C. (S) 1087-2(d)(3);
(f) evidence that the promissory notes evidencing each Acquired
Student Loan have had stamped thereon or affixed thereto a notice
specifying that they have been assigned to the Trustee and that Uniform
Commercial Code Financing Statements with respect thereto have been filed
in such place or places specified by the opinion of the counsel for the
Corporation pursuant to paragraph 4(e) hereof;
(g) evidence in form satisfactory to the Trustee that each action
necessary to perfect a first security interest in each of the Acquired
Student Loans in favor of the Trustee has been accomplished;
(h) instruments duly assigning the Acquired Student Loans to the
Trustee; and
(i) the certifications required by Section 4.8 of the Indenture.
5. The Corporation is not, on the date hereof, in default under the
Indenture or any Student Loan Purchase Agreement relating to the Acquired
Student Loans, and, to the best knowledge of the Corporation, no Lender is in
default under any Student Loan Purchase Agreement relating to the Acquired
Student Loans. The Corporation is not aware of any default existing on the date
hereof under any of the other documents referred to in paragraph 4 hereof, nor
of any circumstances which would reasonably prevent reliance upon the opinions
of counsel referred to in paragraphs 4(d) and 4(e) hereof.
6. All of the conditions specified in the Student Loan Purchase
Agreements relating to the Acquired Student Loans and the Indenture for the
acquisition of the Acquired Student Loans and the disbursement hereby authorized
and requested have been satisfied.
7. The undersigned is authorized to sign and submit this Certificate
on behalf of the Corporation.
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<PAGE>
WITNESS my hand this ________ day of ________________________, ______.
EDUCATION LOANS INCORPORATED
By ______________________________
Its __________________________
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<PAGE>
EXHIBIT D
Addressed to Trustee
UPDATING ELIGIBLE LOAN ACQUISITION CERTIFICATE
This Updating Eligible Loan Acquisition Certificate is submitted
pursuant to the provisions of Section 4.2 of the Indenture of Trust, dated as of
July 1, 1997 (as amended and supplemented from time to time in accordance with
its terms, the "Indenture"), between the Education Loans Incorporated (the
"Corporation") and First Bank National Association, Minneapolis, Minnesota, as
Trustee. All capitalized terms used in this Certificate and not otherwise
defined herein shall have the respective meanings given to such terms in the
Indenture. In your capacity as Trustee, you have, pursuant to an Eligible Loan
Acquisition Certificate, dated _________________, been previously authorized and
requested to disburse to ____________________ the sum of $______________ from
the Series ________ Acquisition Account (or, in the case of an exchange pursuant
to Section 4.2 of the Indenture, the Student Loans listed in Annex 1 hereto) for
the acquisition of Eligible Loans. With respect to the Eligible Loans so
acquired, the Corporation hereby certifies as follows:
1. The Eligible Loans acquired with such moneys or upon such
exchange are those specified in Schedule A attached hereto (the "Acquired
Eligible Loans").
2. The remaining Principal Balance of each Acquired Eligible Loan is
as shown on such Schedule A.
3. The undersigned is authorized to sign and submit this Certificate
on behalf of the Corporation.
WITNESS my hand this ________ day of ________________________, ______.
EDUCATION LOANS INCORPORATED
By _________________________________
Its ________________________________
D-1
<PAGE>
EXHIBIT C
---------
NOTICE OF A PAYMENT DEFAULT
---------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT [TAXABLE] AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and not
been cured with respect to the Series 1997-1_____ Notes. Determination of the
Auction Rate Series 1997-1 Note Interest Rate on the Tax Exempt [Taxable]
Auction Rate Series 1997-1 Notes pursuant to the Auction Procedures will be
suspended. The Auction Rate Series 1997-1 Note Interest Rate on each series of
the Tax Exempt [Taxable] Auction Rate Series 1997-1 Notes for each Auction
Period commencing after the date of Payment Default will equal the Non-Payment
Rate (as to each such series with respect to which a Payment Default exists) or
the Maximum Auction Rate [Net Loan Rate] (as to all other series), as the case
may be, as it is determined by the Trustee on the first day of such Auction
Period.
Terms used herein have the meanings set forth in the First
Supplemental Indenture of Trust relating to the above-referenced Notes.
Dated: FIRST BANK NATIONAL
------------- ASSOCIATION, as Trustee
By:
----------------------
C-1
<PAGE>
EXHIBIT D
---------
NOTICE OF CURE OF PAYMENT DEFAULT
---------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT [TAXABLE] AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1
NOTICE IS HEREBY GIVEN that a Payment Default with respect to the
Auction Rate Series 1997-1 Notes has been waived or cured. The next Auction Date
is ________________________ with respect to the Series 1997-1A Notes,
________________________ with respect to the Series 1997-1B Notes,
________________________ with respect to the Series 1997-1C Notes,
________________________ with respect to the Series 1997-1D Notes, and
________________________ with respect to the Series 1997-1E Notes
[________________________ with respect to the Series 1997-1G Notes, and
________________________ with respect to the Series 1997-1H Notes].
Terms used herein have the meanings set forth in the First
Supplemental Indenture of Trust relating to the above-referenced Notes.
Dated: FIRST BANK NATIONAL
----------------- ASSOCIATION, as Trustee
By:
--------------------------------
D-1
<PAGE>
EXHIBIT E
---------
NOTICE OF PROPOSED AUCTION PERIOD ADJUSTMENT
--------------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT [TAXABLE] AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1___
Notice is hereby given that Education Loans Incorporated proposes to
change the length of one or more Auction Periods with respect to the Notes
identified above, pursuant to the First Supplemental Indenture of Trust relating
to such Notes (the "First Supplemental Indenture"), as follows:
1. The change will take effect on the Interest Rate Adjustment Date
for the next Auction Period (the "Effective Date").
2. For Auction Periods occurring after the Auction Period commencing
on the Effective Date, the Interest Rate Adjustment Dates will be
[_______________________].
3. The Auction Period Adjustment in Paragraph 2 shall take place only
if (A) the Trustee and the Auction Agent receive, by 11:00 a.m., New York City
time, on the Business Day before the Auction Date for the Auction Period
commencing on the Effective Date, a Corporation Certificate authorizing the
Auction Period Adjustment, along with [a copy of the opinion of Bond Counsel,]
the written consent of the Market Agent and the Rating Agency confirmations and,
if applicable, the written statement of the Trustee, the Auction Agent and the
Securities Depository, all as required by the First Supplemental Indenture, and
(B) Sufficient Bids exist on the Auction Date for the Auction Period commencing
on the Effective Date.
4. If the condition referred to in (A) above is not met, the Auction
Rate for the Auction Period commencing on the Effective Date will be determined
pursuant to the Auction Procedures and the Auction Period shall be the Auction
Period determined without reference to the proposed change. If the condition
referred to in (A) is met but the condition referred to in (B) above is not met,
the Auction Rate for the Auction Period commencing on the Effective Date shall
be the Maximum Auction Rate [lesser of the Maximum Auction Rate and the Net Loan
Rate] and the Auction Period shall be the Auction Period determined without
reference to the proposed change.
5. It is hereby represented, upon advice of the Auction Agent for the
Notes described herein, that there were Sufficient Bids for such Notes at the
Auction immediately preceding the date of this Notice.
E-1
<PAGE>
Terms used herein have the meanings set forth in the First
Supplemental Indenture.
Dated: EDUCATION LOANS INCORPORATED
---------------
By:
-------------------------
E-2
<PAGE>
EXHIBIT F
---------
NOTICE ESTABLISHING AUCTION PERIOD ADJUSTMENT
---------------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT [TAXABLE] AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1___
Notice is hereby given that Education Loans Incorporated hereby
establishes new lengths for one or more Auction Periods with respect to the
Notes identified above pursuant to the First Supplemental Indenture of Trust
relating to such Notes (the "First Supplemental Indenture"):
1. The change shall take effect on_______________________, the
Interest Rate Adjustment Date for the next Auction Period (the "Effective
Date").
2. For Auction Periods occurring after the Auction Period commencing
on the Effective Date, the Interest Rate Adjustment Dates shall be
[______________________________ ]; provided, however, that the length of
subsequent Auction Periods shall be subject to further change hereafter as
provided in Sections 3 and 10 of the First Supplemental Indenture.
3. The changes described in Paragraph 2 shall take place only upon
delivery of this Notice and the satisfaction of other conditions set forth in
the First Supplemental Indenture and our prior notice dated
___________________________________ regarding the proposed change.
Terms used herein have the meanings set forth in the First
Supplemental Indenture.
Dated: EDUCATION LOANS INCORPORATED
-------------------
By:
---------------------------
F-1
<PAGE>
EXHIBIT G
---------
NOTICE OF CHANGE IN AUCTION DATE
--------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT [TAXABLE] AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1___
Notice is hereby given by Smith Barney Inc., as Market Agent for the
Notes identified above, that, with respect to such Notes, the Auction Date is
hereby changed as follows:
1. With respect to such Notes, the definition of "Auction Date" shall
be deemed amended by substituting "___________________________________ (number)
Business Day" in the seventh line thereof and by substituting
"___________________________________ (number) Business Days" for "two (2)
Business Days" in subsection (C) thereof.
2. This change shall take effect on
___________________________________, which shall be the Auction Date for the
Auction Period commencing on ___________________________________.
3. The Auction Date for such Notes shall be subject to further change
hereafter as provided in the First Supplemental Indenture of Trust relating to
such Notes (the "First Supplemental Indenture").
Terms used herein have the meanings set forth in the First
Supplemental Indenture.
SMITH BARNEY INC., as
Dated: Market Agent
-----------------
By:
---------------------------
G-1
<PAGE>
EXHIBIT H-1
-----------
[List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from the Series 1979 Trustee]
H-1-1
<PAGE>
EXHIBIT H-2
-----------
[List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from Series 1989 Trustee]
H-2-1
<PAGE>
EXHIBIT H-3
-----------
[List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from Series 1994 Trustee
and financed from proceeds of Series 1996-1 Notes]
H-3-1
<PAGE>
EXHIBIT H-4
-----------
[List of Student Loan Purchase Agreements relating to
Eligible Loans to be financed from proceeds of Tax
Exempt Series 1997-1 Notes, Series 1989, 1991-A, 1994-A and
1997-A Bonds and Series 1996-1 Notes]
H-4-1
<PAGE>
EXHIBIT H-5
-----------
[List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from Series 1994 Trustee and
financed from proceeds of Series 1994-1, 1995-1 and 1995-2 Notes]
H-5-1
<PAGE>
EXHIBIT H-6
-----------
[List of Student Loan Purchase Agreements relating to
Eligible Loans to be financed from proceeds of Taxable
Series 1997-1 Notes]
H-6-1
<PAGE>
EXHIBIT I
---------
NOTICE OF PROPOSED ADJUSTMENT TO PERCENTAGE USED IN
DETERMINING [MAXIMUM AUCTION RATE]
[ALL HOLD RATE] [NON-PAYMENT RATE]
-----------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1____
Notice is hereby given that Smith Barney Inc., as Market Agent for the
Notes identified above, proposes to change the percentage used in determining
the [Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate] with respect to
such Notes, pursuant to the First Supplemental Indenture of Trust relating to
such Notes (the "First Supplemental Indenture"), as follows:
1. The change shall take effect on the date of commencement of the
next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, and each
Auction Period thereafter, it is proposed that the percentage used in
determining the [Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate] shall
be ____________________.
3. The adjustment to the percentage used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] in Paragraph 2 shall take place
only if (A) the Trustee, the Auction Agent and the Corporation receive, by 11:00
a.m., New York City time, on the Business Day immediately preceding the
Effective Date, a Corporation Certificate authorizing the adjustment of such
percentage as specified in such certificate, together with a copy of the
Corporation Consent thereto and the opinion of Bond Counsel as required by the
First Supplemental Indenture; and (B) the Trustee and the Corporation have
received written confirmation from each of the Rating Agencies then rating the
Series 1997-1 Notes that such proposed adjustment will not adversely affect its
ratings then applicable to any of the Series 1997-1 Notes.
4. If any of the conditions referred to in Paragraph 3(A) and (B)
above are not met, the existing percentage used to determine the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] shall remain in effect, and the
rate of interest on the above Notes for the next succeeding Interest Period
shall be determined in accordance with the Auction Procedures.
Terms used herein have the meanings set forth in the First
Supplemental Indenture.
I-1
<PAGE>
Dated:__________________________ SMITH BARNEY INC.
By: __________________________
I-2
<PAGE>
EXHIBIT J
---------
NOTICE ESTABLISHING NEW PERCENTAGE USED IN DETERMINING
[MAXIMUM AUCTION RATE] [ALL HOLD RATE] [NON-PAYMENT RATE]
---------------------------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1____
Notice is hereby given that Smith Barney Inc., as Market Agent for the
Notes identified above, hereby establishes a new percentage to be used in
determining the [Maximum Auction Rate] [All Hold Rate] [Non-Payment Rate] with
respect to such Notes pursuant to the First Supplemental Indenture of Trust
relating to such Notes (the "First Supplemental Indenture"):
1. The change shall take effect on _______________, the commencement
of the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date, and each
Auction Period thereafter, the percentage used in determining the [Maximum
Auction Rate] [All Hold Rate] [Non-Payment Rate] shall be __________________.
3. The change described in Paragraph 2 above shall take place only
upon delivery of this Notice and the satisfaction of other conditions set forth
in the First Supplemental Indenture and our prior notice dated _______________
regarding the proposed change.
Terms used herein have the meanings set forth in the First
Supplemental Indenture.
Dated:__________________________ SMITH BARNEY INC.
By:_______________________________
J-1
<PAGE>
EXHIBIT A-1
-----------
FORM OF TAX EXEMPT AUCTION RATE SERIES 1997-1 NOTES
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTE
SENIOR SERIES 1997-1A [B][C][D][E]
CLASS A
No. R______ $________________
<TABLE>
<CAPTION>
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ----------------- -------- -----
<S> <C> <C> <C>
June 1, 2020 November __, 1997 Variable ____
</TABLE>
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to, including, upon completion of the Section 150(d)(3)
Transfer, EdLinc), acknowledges itself indebted and hereby promises to pay to
the registered holder specified above, or registered assigns (the "Registered
Holder"), but solely from the revenues and receipts hereinafter specified and
not otherwise, the Principal Amount specified above on the Stated Maturity Date
specified above (subject to the right of prior redemption hereinafter
mentioned), upon presentation and surrender of this Note at the Principal Office
of the Trustee (as hereinafter defined), as Paying Agent for the Series 1997-1
Notes (as hereinafter defined), or a
A-1-1
<PAGE>
duly appointed successor Paying Agent, and to pay interest on said Principal
Amount, but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Holder hereof from the date hereof until the
payment of said Principal Amount has been made or duly provided for, payable
semiannually on the first day of June and December in each year, commencing
December 1, 1997, at the Auction Rate Series 1997-1 Note Interest Rate (as
hereinafter described), and at the same rate per annum (to the extent that the
payment of such interest shall be legally enforceable) on overdue installments
of interest. Payment of interest on this Note on each regularly scheduled
Interest Payment Date shall be made by check or draft drawn upon the Paying
Agent and mailed to the Person who is the Registered Holder hereof as of
5:00 p.m. in the city in which the Principal Office of the Note Registrar is
located on the applicable Regular Record Date at the address of such Registered
Holder as it appears on the Note Register maintained by the Note Registrar, or,
if the Registered Holder of this Note is the Registered Holder of Series 1997-1
Notes in the aggregate Principal Amount of $1,000,000 or more (or, if less than
$1,000,000 in Principal Amount of Series 1997-1 Notes is outstanding, the
Registered Holder of all outstanding Series 1997-1 Notes), at the direction of
such Registered Holder received by the Paying Agent by 5:00 p.m. in the city in
which the Principal Office of the Paying Agent is located on the last Business
Day preceding the applicable Regular Record Date, by electronic transfer by the
Paying Agent in immediately available funds to an account designated by such
Registered Holder. In addition, interest on this Note is payable at the Maturity
hereof in the same manner as the principal hereof, unless the date of such
Maturity is a regularly scheduled Interest Payment Date, in which event interest
is payable in the manner set forth in the preceding sentence. Any interest not
so timely paid or duly provided for shall cease to be payable to the Person who
is the Registered Holder hereof at the close of business on the Regular Record
Date and shall be payable to the Person who is the Registered Holder hereof at
the close of business on a special record date for the payment of any such
defaulted interest. Such special record date shall be fixed by the Trustee
whenever moneys become available for payment of the defaulted interest, and
notice of the special record date shall be given to the Registered Holder hereof
not less than ten days prior thereto by first-class mail to such Registered
Holder as shown on the Note Register on a date selected by the Trustee, stating
the date of the special record date and the date fixed for the payment of such
defaulted interest. The principal of and interest on this Note are payable in
lawful money of the United States of America.
This Note is one of an authorized issue of Notes (the "Notes"), issued
and to be issued by the Corporation in one or more series pursuant to an
Indenture of Trust, dated as of July 1, 1997 (as supplemented and amended, the
"Indenture"), as supplemented by a First Supplemental Indenture of Trust, dated
as of July 1, 1997 (the "First Supplemental Indenture"), each between the
Corporation and First Bank National Association, Minneapolis, Minnesota, as
Trustee (the "Trustee," which term includes any successor trustee under the
Indenture). As provided in the Indenture, the Notes are issuable in series which
may vary as in the Indenture provided or permitted. This Note is one of a series
issued in an aggregate Principal
A-1-2
<PAGE>
Amount of $_________________(the "Series 1997-1A [B][C][D][E] Notes"). The
Series 1997-1A [B][C][D][E] Notes are issued simultaneously with nine other
series of Class A Notes issued in the aggregate Principal Amount of
$_______________ (together with the Series 1997-1A [B][C][D][E] Notes,
collectively referred to herein as the "Series 1997-1 Senior Notes"), and two
series of Class B Notes issued in the aggregate Principal Amount of
$_____________________ (the "Series 1997-1 Subordinate Notes" and, together with
the Series 1997-1 Senior Notes, collectively referred to herein as the "Series
1997-1 Notes"). The proceeds of the Series 1997-1 Notes will be used by the
Corporation to (a) acquire student loan notes incurred under the Higher
Education Act and (b) fund the Reserve Fund.
Reference is hereby made to the Indenture, copies of which are on file
in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
secured thereunder; the student loan acquisition program being financed by the
issuance of the Notes; the revenues and other moneys pledged to the payment of
the principal of, premium, if any, and interest on the Notes and the Other
Obligations; the nature and extent and manner of enforcement of the pledge; the
conditions upon which Notes may be issued or Other Obligations may be incurred
by the Corporation thereunder, payable from such revenues and other moneys
thereunder as Senior Obligations, Subordinate Obligations or Class C Notes; the
conditions upon which the Indenture may be amended or supplemented with or
without the consent of the Holders of the Notes; the rights and remedies of the
Registered Holder hereof with respect hereto and thereto, including the
limitations upon the right of a Registered Holder hereof to institute any suit,
action or proceeding in equity or at law with respect hereto and thereto; the
rights, duties and obligations of the Corporation and the Trustee thereunder;
the terms and provisions upon which the liens, pledges, charges, trusts and
covenants made therein may be discharged at or prior to the Maturity or
redemption of this Note, and this Note thereafter no longer be secured by the
Indenture, or be deemed to be Outstanding thereunder; and for the other terms
and provisions thereof. Terms used with initial capital letters but not defined
in this Note have the respective meanings given such terms in the Indenture. The
Series 1997-1A [B][C][D][E] Notes are being issued as, and will constitute, Tax
Exempt Class A Notes under the Indenture. Four other series of the Series 1997-1
Senior Notes also are Tax Exempt Class A Notes which, like the Series 1997-1A
[B][C][D][E] Notes, bear interest at an Auction Rate Series 1997-1 Note Interest
Rate, and, together with the Series 1997-1A [B][C][D][E] Notes, are collectively
referred to herein as the "Tax Exempt Auction Rate Series 1997-1 Notes."
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture, including certain notes evidencing Student
Loans and the proceeds of the Corporation's bonds, notes or other evidences of
indebtedness, if any, issued with respect to the Notes.
A-1-3
<PAGE>
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture and such Note that such Noteholder will
not at any time institute against the Corporation, or join in any institution
against the Corporation, any bankruptcy, reorganization, arrangement, insolvency
or liquidation 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 Servicing Agreement.
The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
Interest payable on this Note shall be computed on the basis of actual
days elapsed and accrue daily from the date hereof (on the basis of a 360-day
year), and is payable on each regularly scheduled Interest Payment Date prior to
the Maturity of this Note and at the Maturity of this Note. The interest payable
on each Interest Payment Date for this Note shall be [calculated on a per unit
basis, based on a unit of $100,000, and shall be] that interest which has
accrued through the last day preceding such Interest Payment Date or, in the
case of the Maturity of this Note, the last day preceding the date of such
Maturity. The Auction Rate Series 1997-1 Note Interest Rate shall be effective
as of and on the first day (whether or not a Business Day) of the applicable
Interest Period and be in effect thereafter through the end of such Interest
Period.
The unpaid Principal Amount hereof from time to time outstanding shall
bear interest at an Auction Rate Series 1997-1 Note Interest Rate, as described
below, payable on each Interest Payment Date and at the Maturity hereof, such
interest to accrue from the later of the date hereof or the date through which
interest has been paid or duly provided for.
During the Initial Interest Period, this Note shall bear interest at
the Auction Rate Series 1997-1 Note Initial Interest Rate for the Series 1997-1A
[B][C][D][E] Notes. Thereafter, until an Auction Period Adjustment, if any, this
Note shall bear interest at an Auction Rate Series 1997-1 Note Interest Rate
based on an Auction Period that shall generally consist of 35 days, all as
determined in accordance with the applicable provisions of the First
Supplemental Indenture.
A-1-4
<PAGE>
In no event shall the Auction Rate Series 1997-1 Note Interest Rate on
this Note exceed 14% per annum (the "Auction Rate Series 1997-1 Note Interest
Rate Limitation").
The Auction Period (which shall be the Interest Period), the
applicable Auction Rate Series 1997-1 Note Interest Rate, the method of
determining the applicable Auction Rate Series 1997-1 Note Interest Rate on each
of the Series 1997-1A [B][C][D][E] Notes and the Auction Procedures related
thereto, including, without limitation, required notices thereof and any changes
therein to the Holders or Existing Holders of the Auction Rate Series 1997-1
Notes, will be determined in accordance with the terms, conditions and
provisions of the First Supplemental Indenture and the Auction Agent Agreement
(Tax Exempt Auction Rate Series 1997-1 Notes), dated as of July 1, 1997 (which,
together with any substitute therefor, is herein referred to as the "Auction
Agent Agreement"), between the Trustee and Bankers Trust Company (which,
together with any substitute therefor, is herein referred to as the "Auction
Agent"), to which terms, conditions and provisions specific reference is hereby
made, and all of which terms, conditions and provisions are hereby specifically
incorporated herein by reference.
By purchasing Series 1997-1A [B][C][D][E] Notes, whether in an Auction
or otherwise, each purchaser of the Series 1997-1A [B][C][D][E] Notes, or its
Broker-Dealer, must agree and shall be deemed by such purchase to have agreed
(i) to participate in Auctions on the terms described in the First Supplemental
Indenture, (ii) to have its beneficial ownership of the Series 1997-1A
[B][C][D][E] Notes maintained at all times in Book-Entry Form for the account of
its Participant, which in turn will maintain records of such beneficial
ownership, and (iii) to authorize such Participant to disclose to the Auction
Agent such information with respect to such beneficial ownership as the Auction
Agent may request. So long as the ownership of Series 1997-1A [B][C][D][E] Notes
is maintained in Book-Entry Form by the Securities Depository, an Existing
Holder may sell, transfer or otherwise dispose of Series 1997-1A [B][C][D][E]
Notes only pursuant to a Bid or Sell Order placed in an Auction or otherwise
sell, transfer or dispose of Series 1997-1A [B][C][D][E] Notes through a Broker-
Dealer, provided that, in the case of all transfers other than pursuant to
Auctions, such Existing Holder, its Broker-Dealer or its Participant advises the
Auction Agent of such transfer.
The determination of an Auction Rate Series 1997-1 Note Interest Rate
by the Auction Agent or any other authorized Person pursuant to the provisions
of the First Supplemental Indenture shall be conclusive and binding on the
Holders of the Series 1997-1A [B][C][D][E] Notes to which such Auction Rate
Series 1997-1 Note Interest Rate applies, and the Corporation and the Trustee
may rely thereon for all purposes.
Notwithstanding any provision of this Note to the contrary, in no
event shall the cumulative amount of interest paid or payable on this Note
(including interest calculated as provided herein, plus any other amounts that
A-1-5
<PAGE>
constitute interest on this Note under applicable law, which are contracted for,
charged, reserved, taken or received pursuant to this Note or related documents)
calculated from the date of issuance of this Note through any subsequent day
during the term of this Note or otherwise prior to payment in full of this Note
exceed the amount permitted by applicable law. If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Note or related documents or otherwise contracted for, charged, reserved, taken
or received in connection with this Note, or if the redemption or acceleration
of the Maturity of this Note results in payment to or receipt by the Registered
Holder or any former Registered Holder hereof of any interest in excess of that
permitted by applicable law, then notwithstanding any provision of this Note or
related documents to the contrary all excess amounts theretofore paid or
received with respect to this Note shall be credited on the Principal Amount of
this Note (or, if this Note has been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of this Note and related
documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for under this
Note and under the related documents.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Series 1997-1 Notes may, at the option of the
Corporation, be redeemed, in whole but not in part, at a Redemption Price equal
to 100% of the Principal Amount of Series 1997-1 Notes to be so redeemed plus
accrued interest thereon to the Redemption Date, on any date after the remaining
aggregate Principal Balance of Student Loans Financed with proceeds of the
Series 1997-1 Notes is less than 10% of the amounts initially deposited to the
credit of the Acquisition Fund.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Tax Exempt Auction Rate Series 1997-1
Notes of any series may be redeemed, in whole or in part, on any Interest Rate
Adjustment Date or regularly scheduled Interest Payment Date for such series, at
a Redemption Price equal to 100% of the Principal Amount thereof so redeemed,
from proceeds of the Tax Exempt Series 1997-1 Notes constituting a portion of
the Balance of the Series 1997-1 Tax Exempt Acquisition Account that have not
been used to acquire Eligible Loans and from that portion of the Series 1997-1
Tax Exempt Reserve Account would cause the Balance in the Reserve Fund to exceed
the Reserve Fund Requirement, calculated giving effect to such redemption. Such
redemption shall be required on June 1, 2001 (to the extent the proceeds in the
Series 1997-1 Tax Exempt Acquisition Account not so used as of April 15, 2001,
exceed $59,725,000) and on June 1, 2002 (from such proceeds not so used as of
April 15, 2002), unless the Corporation delivers to the Trustee: (i) an opinion
of Bond Counsel stating in effect that such redemption is not required pursuant
to the Code and that failure to so redeem Tax Exempt Series 1997-1 Notes will
not adversely affect the tax exempt status of interest on any Tax Exempt Series
1997-1 Notes for federal income
A-1-6
<PAGE>
tax purposes, (ii) a Corporation Certificate certifying that, based on a Cash
Flow Projection, the failure to so redeem Tax Exempt Series 1997-1 Notes will
not materially adversely affect the Corporation's ability to pay Debt Service on
the Outstanding Notes and the Outstanding Other Obligations, Carry-Over Amounts
(including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees or to make required deposits to the Rebate
Fund, and (iii) written confirmation from each of the Rating Agencies then
rating the Series 1997-1 Notes to the effect that the failure to so redeem Tax
Exempt Series 1997-1 Notes will not result in a reduction or withdrawal of the
rating of the Series 1997-1 Notes.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Tax Exempt Auction Rate Series 1997-1
Notes of any series may, at the option of the Corporation, be redeemed on any
Interest Rate Adjustment Date or regularly scheduled Interest Payment Date for
such series occurring on or after December 1, 1998, in whole or in part, at a
Redemption Price equal to 100% of the Principal Amount thereof to be redeemed,
from amounts credited to the Series 1997-1 Tax Exempt Retirement Subaccount from
the Series 1997-1 Tax Exempt Surplus Subaccount for such purpose in accordance
with the Indenture and from that portion of the Series 1997-1 Tax Exempt Reserve
Account which exceeds the Reserve Fund Requirement (calculated after giving
effect to such redemption). If the Trustee shall have first certified that no
deficiencies exist in any of the Rebate Fund, the Note Fund, the Reserve Fund or
the Special Redemption and Prepayment Account, the Trustee shall, upon
Corporation Order, transfer to the Series 1997-1 Tax Exempt Retirement Account
any Balances in the Series 1997-1 Tax Exempt Surplus Subaccount (other than
those consisting of Student Loans) which a Corporation Certificate states are
not reasonably expected to be needed for the payment of scheduled Debt Service
on the Outstanding Notes and Outstanding Other Obligations, Carry-Over Amounts
(including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees, or for transfer to the Rebate Fund.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements and certain other requirements, Outstanding Tax
Exempt Auction Rate Series 1997-1 Notes of any series may, at the option of the
Corporation, be redeemed on any Interest Rate Adjustment Date or regularly
scheduled Interest Payment Date for such series, in whole or in part, at a
Redemption Price equal to 100% of the Principal Amount thereof to be redeemed,
from amounts credited to the Retirement Account for such purpose.
If not all Series 1997-1 Notes subject to redemption are to be
redeemed, the particular Series 1997-1 Notes to be redeemed are to be selected
as provided in the Indenture.
Notice of redemption shall be given by first-class mail mailed at
least 15 days before the Redemption Date to each Holder of Series 1997-1A
[B][C][D][E] Notes
A-1-7
<PAGE>
to be redeemed at his last address appearing on the Note Register; but no defect
in or failure to give such notice of redemption shall affect the validity of
proceedings for redemption of any Series 1997-1A [B][C][D][E] Notes not affected
by such defect or failure. All Series 1997-1A [B][C][D][E] Notes so called for
redemption will cease to bear interest on such Redemption Date, provided funds
for their redemption have been duly deposited, and, except for the purpose of
payment, shall no longer be protected by the Indenture and shall not be deemed
Outstanding thereunder.
It is provided in the Indenture that Series 1997-1A [B][C][D][E] Notes
of a denomination larger than $100,000 may be redeemed in part ($100,000 or an
integral multiple thereof) and that upon any partial redemption of any such
Series 1997-1A [B][C][D][E] Note the same shall be surrendered in exchange for
one or more new Notes of the same series in authorized form for the unredeemed
portion of principal.
If provision is made for the payment of principal of and interest on
this Note in accordance with the Indenture, this Note shall no longer be deemed
Outstanding under the Indenture, shall cease to be entitled to the benefits of
the Indenture and shall thereafter be payable solely from the funds provided for
such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and the consent of the
Holders of two-thirds of the aggregate Principal Amount of Class B Notes at the
time Outstanding, if affected thereby. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate Principal Amount of
the Class A Notes at the time Outstanding or Other Senior Beneficiaries or, if
no Senior Obligations are Outstanding, the Holders of specified percentages in
aggregate Principal Amount of the Class B Notes at the time Outstanding or Other
Subordinate Beneficiaries, on behalf of the Holders of all the Notes, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon the Registered Holder of
this Note and upon all future Registered Holders hereof and of any Note issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar
A-1-8
<PAGE>
(which shall be the Trustee unless and until an Authenticating Agent becomes the
Note Registrar under the Indenture) or at the Principal Office of a duly
appointed Authenticating Agent (the "Authenticating Agent," which term includes
any successor Authenticating Agent under the Indenture), duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the Note
Registrar or such Authenticating Agent, as the case may be, and executed by the
Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or such Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more other
Notes of the same series upon surrender hereof at the Principal Office of the
Note Registrar or the Principal Office of an Authenticating Agent. Thereupon the
Corporation shall execute and the Trustee or the Authenticating Agent, as the
case may be, shall authenticate and deliver, in exchange for this Note, one or
more new fully registered Notes in the name of the transferee, of an authorized
denomination, in aggregate Principal Amount equal to the Principal Amount of
this Note, of the same series and bearing interest at the same rate. No
Authenticating Agent will be initially appointed with respect to the Series
1997-1A [B][C][D][E] Notes. Notwithstanding the foregoing provisions of this
paragraph, no Series 1997-1A [B][C][D][E] Note shall be required to be
transferred, (i) during a period beginning at the opening of business fifteen
days before any selection of Series 1997-1A [B][C][D][E] Notes for redemption
and ending at the close of business on the day of such selection, or (ii) if
such Series 1997-1A [B][C][D][E] Note has been selected for redemption in whole
or in part.
The Corporation may require payment by the Registered Holder hereof of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of this Note, other than
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
Person in whose name this Note is registered on the Note Register as the
absolute owner hereof for all purposes, whether or not this Note is overdue, and
neither the Corporation, the Trustee, any Paying Agent, any Authenticating
Agent, the Note Registrar nor any other such agent shall be affected by notice
to the contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
A-1-9
<PAGE>
Authenticating Agent by the manual signature of one of its authorized
representatives.
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the manual signatures of its President and Secretary,
and its corporate seal to be impressed hereon.
Dated: _________________ EDUCATION LOANS INCORPORATED
__________________________
President
(SEAL)
__________________________
Secretary
_____________________________
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By_____________________________
Authorized Representative
A-1-10
<PAGE>
--------------------------------
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto ________________________ the within Note and irrevocably appoints
____________________________, attorney-in-fact, to transfer the within Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated
------------------------
PLEASE INSERT SOCIAL SECURITY -------------------------------------------
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this assignment
OF ASSIGNEE must correspond with the name as it appears
upon the face of the within Note in every
- ------------------------------- particular, without any alteration
whatsoever.
SIGNATURE GUARANTEED:
- -------------------------------
A-1-11
<PAGE>
EXHIBIT A-2
-----------
FORM OF SERIES 1997-1F NOTES
-----------------------------
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
EDUCATION LOANS INCORPORATED
TAX EXEMPT FIXED RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTE
SENIOR SERIES 1997-1F
CLASS A
No. R________ $_________________
<TABLE>
<CAPTION>
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ----------------- ------------ -----
<S> <C> <C> <C> <C>
October 15, 1997 ______
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
</TABLE>
FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to, including, upon completion of the Section 150(d)(3)
Transfer, EdLinc), acknowledges itself indebted and hereby promises to pay to
the registered holder specified above, or registered assigns (the "Registered
Holder"), but solely from the revenues and receipts hereinafter specified and
not otherwise, the Principal Amount specified above on the Stated Maturity Date
specified above (subject to the right of prior redemption hereinafter
mentioned), upon presentation and surrender of this Note at the Principal Office
of the Trustee (as hereinafter defined), as Paying Agent for the Series 1997-1
Notes (as hereinafter defined), or a
A-2-1
<PAGE>
duly appointed successor Paying Agent, and to pay interest on said Principal
Amount, but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Holder hereof from the date hereof until the
payment of said Principal Amount has been made or duly provided for, at the rate
per annum specified above, payable semiannually on the first day of June and
December in each year, commencing December 1, 1997, and at the same rate per
annum (to the extent that the payment of such interest shall be legally
enforceable) on overdue installments of interest. Payment of interest on this
Note on each regularly scheduled Interest Payment Date shall be made by check or
draft drawn upon the Paying Agent and mailed to the Person who is the Registered
Holder hereof as of 5:00 p.m. in the city in which the Principal Office of the
Note Registrar is located on the applicable Regular Record Date at the address
of such Registered Holder as it appears on the Note Register maintained by the
Note Registrar, or, if the Registered Holder of this Note is the Registered
Holder of Series 1997-1 Notes in the aggregate Principal Amount of $1,000,000 or
more (or, if less than $1,000,000 in Principal Amount of Series 1997-1 Notes is
outstanding, the Registered Holder of all outstanding Series 1997-1 Notes), at
the direction of such Registered Holder received by the Paying Agent by 5:00
p.m. in the city in which the Principal Office of the Paying Agent is located on
the last Business Day preceding the applicable Regular Record Date, by
electronic transfer by the Paying Agent in immediately available funds to an
account designated by such Registered Holder. In addition, premium, if any, and
interest on this Note are payable at the Maturity hereof in the same manner as
the principal hereof, unless the date of such Maturity is a regularly scheduled
Interest Payment Date, in which event interest is payable in the manner set
forth in the preceding sentence. Any interest not so timely paid or duly
provided for shall cease to be payable to the Person who is the Registered
Holder hereof at the close of business on the Regular Record Date and shall be
payable to the Person who is the Registered Holder hereof at the close of
business on a special record date for the payment of any such defaulted
interest. Such special record date shall be fixed by the Trustee whenever moneys
become available for payment of the defaulted interest, and notice of the
special record date shall be given to the Registered Holder hereof not less than
ten days prior thereto by first-class mail to such Registered Holder as shown on
the Note Register on a date selected by the Trustee, stating the date of the
special record date and the date fixed for the payment of such defaulted
interest. The principal of, premium, if any, and interest on this Note are
payable in lawful money of the United States of America.
This Note is one of an authorized issue of Notes (the "Notes"), issued
and to be issued by the Corporation in one or more series pursuant to an
Indenture of Trust, dated as of July 1, 1997 (as supplemented and amended, the
"Indenture"), as supplemented by a First Supplemental Indenture of Trust, dated
as of July 1, 1997 (the "First Supplemental Indenture"), each between the
Corporation and First Bank National Association, Minneapolis, Minnesota, as
Trustee (the "Trustee," which term includes any successor trustee under the
Indenture). As provided in the Indenture, the Notes are issuable in series which
may vary as in the Indenture provided or permitted. This Note is one of a series
of Class A Notes issued in an
A-2-2
<PAGE>
aggregate Principal Amount of $______________________ (the "Series 1997-1F
Notes"). The Series 1997-1F Notes are issued simultaneously with nine other
series of Class A Notes issued in the aggregate Principal Amount of
$_______________ (together with the Series 1997-1F Notes, collectively referred
to herein as the "Series 1997-1 Senior Notes"), and two series of Class B Notes
issued in the aggregate Principal Amount of $_____________________ (the "Series
1997-1 Subordinate Notes" and, together with the Series 1997-1 Senior Notes,
collectively referred to herein as the "Series 1997-1 Notes"). The proceeds of
the Series 1997-1 Notes will be used by the Corporation to (a) acquire student
loan notes incurred under the Higher Education Act and (b) fund the Reserve
Fund.
Reference is hereby made to the Indenture, copies of which are on file
in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
secured thereunder; the student loan acquisition program being financed by the
issuance of the Notes; the revenues and other moneys pledged to the payment of
the principal of, premium, if any, and interest on the Notes and the Other
Obligations; the nature and extent and manner of enforcement of the pledge; the
conditions upon which Notes may be issued or Other Obligations may be incurred
by the Corporation thereunder, payable from such revenues and other moneys
thereunder as Senior Obligations, Subordinate Obligations or Class C Notes; the
conditions upon which the Indenture may be amended or supplemented with or
without the consent of the Holders of the Notes; the rights and remedies of the
Registered Holder hereof with respect hereto and thereto, including the
limitations upon the right of a Registered Holder hereof to institute any suit,
action or proceeding in equity or at law with respect hereto and thereto; the
rights, duties and obligations of the Corporation and the Trustee thereunder;
the terms and provisions upon which the liens, pledges, charges, trusts and
covenants made therein may be discharged at or prior to the Maturity or
redemption of this Note, and this Note thereafter no longer be secured by the
Indenture, or be deemed to be Outstanding thereunder; and for the other terms
and provisions thereof. Terms used with initial capital letters but not defined
in this Note have the respective meanings given such terms in the Indenture. The
Series 1997-1F Notes are being issued as, and will constitute, Tax Exempt Class
A Notes under the Indenture.
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture, including certain notes evidencing Student
Loans and the proceeds of the Corporation's bonds, notes or other evidences of
indebtedness, if any, issued with respect to the Notes.
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture and such Note that such Noteholder will
not at any time institute against the Corporation, or join in any institution
against the
A-2-3
<PAGE>
Corporation, any bankruptcy, reorganization, arrangement, insolvency or
liquidation 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 Servicing Agreement.
The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Series 1997-1F Notes may, at the option
of the Corporation (and at such time as no Tax Exempt Auction Rate Series 1997-1
Notes are Outstanding), be redeemed, in whole or in part, on any date, at a
Redemption Price equal to 100% of the Principal Amount thereof so redeemed, from
proceeds of the Tax Exempt Series 1997-1 Notes constituting a portion of the
Balance of the Series 1997-1 Tax Exempt Acquisition Account that have not been
used to acquire Eligible Loans and from that portion of the Series 1997-1 Tax
Exempt Reserve Account which, if left in the Reserve Fund upon such redemption,
would cause the Balance in the Reserve Fund to exceed the Reserve Fund
Requirement, calculated giving effect to such redemption. Such redemption shall
be required on June 1, 2001 (to the extent the proceeds in the Series 1997-1 Tax
Exempt Acquisition Account not so used as of April 15, 2001, exceed $59,725,000)
and on June 1, 2002 (from such proceeds not so used as of April 15, 2002),
unless the Corporation delivers to the Trustee: (i) an opinion of Bond Counsel
stating in effect that such redemption is not required pursuant to the Code and
that failure to so redeem Tax Exempt Series 1997-1 Notes will not adversely
affect the tax exempt status of interest on any Tax Exempt Series 1997-1 Notes
for federal income tax purposes, (ii) a Corporation Certificate certifying that,
based on a Cash Flow Projection, the failure to so redeem Tax Exempt Series
1997-1 Notes will not materially adversely affect the Corporation's ability to
pay Debt Service on the Outstanding Notes and the Outstanding Other Obligations,
Carry-Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes, Administrative Expenses or Note Fees or to make required
deposits to the Rebate Fund, and (iii) written confirmation from each of the
Rating Agencies then rating the Series 1997-1 Notes to the effect that the
failure to so redeem Tax Exempt Series 1997-1 Notes will not result in a
reduction or withdrawal of the rating of the Series 1997-1 Notes.
A-2-4
<PAGE>
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Series 1997-1F Notes may, at the option
of the Corporation, be redeemed on December 1, 1998, and on any date thereafter,
in whole or in part, at a Redemption Price equal to 100% of the Principal Amount
thereof to be redeemed, from amounts credited to the Series 1997-1 Tax Exempt
Retirement Subaccount from the Series 1997-1 Tax Exempt Surplus Subaccount for
such purpose in accordance with the Indenture and from that portion of the
Series 1997-1 Tax Exempt Reserve Account which exceeds the Reserve Fund
Requirement (calculated after giving effect to such redemption). If the Trustee
shall have first certified that no deficiencies exist in any of the Rebate Fund,
the Note Fund, the Reserve Fund or the Special Redemption and Prepayment
Account, the Trustee shall, upon Corporation Order, transfer to the Series 1997-
1 Tax Exempt Retirement Account any Balances in the Series 1997-1 Tax Exempt
Surplus Subaccount (other than those consisting of Student Loans) which a
Corporation Certificate states are not reasonably expected to be needed for the
payment of scheduled Debt Service on the Outstanding Notes and Outstanding Other
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees, or for
transfer to the Rebate Fund.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements and certain other requirements, Outstanding Series
1997-1F Notes may, at the option of the Corporation and from amounts credited to
the Retirement Account for such purpose, be redeemed on June 1, 2007, and on any
date thereafter, in whole or in part, at the Redemption Prices (expressed as a
percentage of Principal Amount) set forth below plus accrued interest to the
Redemption Date:
<TABLE>
<CAPTION>
Redemption
Redemption Period Price
----------------- ------
<S> <C>
December 1, 2007, through November 30, 2008 102%
December 1, 2008, through November 30, 2009 101%
December 1, 2009, and thereafter 100%
</TABLE>
Series 1997-1 Notes may, at the option of the Corporation, be
redeemed, in whole but not in part, at a Redemption Price equal to 100% of the
Principal Amount of Series 1997-1 Notes to be so redeemed plus accrued interest
thereon to the Redemption Date, on any date after the remaining aggregate
Principal Balance of Student Loans Financed with proceeds of the Series 1997-1
Notes is less than 10% of the amounts initially deposited to the credit of the
Acquisition Fund.
If not all Series 1997-1 Notes subject to redemption are to be
redeemed, the particular Series 1997-1 Notes to be redeemed are to be selected
as provided in the Indenture.
Notice of redemption shall be given by first-class mail mailed at
least 30 days before the Redemption Date to each Holder of Series 1997-1F Notes
to be
A-2-5
<PAGE>
redeemed at his last address appearing on the Note Register; but no defect in or
failure to give such notice of redemption shall affect the validity of
proceedings for redemption of any Note not affected by such defect or failure.
All Series 1997-1F Notes so called for redemption will cease to bear interest on
such Redemption Date, provided funds for their redemption have been duly
deposited, and, except for the purpose of payment, shall no longer be protected
by the Indenture and shall not be deemed Outstanding thereunder.
It is provided in the Indenture that Series 1997-1F Notes of a
denomination larger than $5,000 may be redeemed in part ($5,000 or an integral
multiple thereof) and that upon any partial redemption of any such Series 1997-
1F Note the same shall be surrendered in exchange for one or more new Notes of
the same series in authorized form for the unredeemed portion of principal.
If provision is made for the payment of principal of, premium, if any,
and interest on this Note in accordance with the Indenture, this Note shall no
longer be deemed Outstanding under the Indenture, shall cease to be entitled to
the benefits of the Indenture and shall thereafter be payable solely from the
funds provided for such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and with the consent of
the Holders of two-thirds of the aggregate Principal Amount of Class B Notes at
the time Outstanding, if affected thereby. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
Principal Amount of the Class A Notes at the time Outstanding or Other Senior
Beneficiaries or, if no Senior Obligations are Outstanding, the Holders of
specified percentages in aggregate Principal Amount of the Class B Notes at the
time Outstanding or Other Subordinate Beneficiaries, on behalf of the Holders of
all the Notes, to waive certain past defaults under the Indenture and their
consequences. Any such consent or waiver shall be conclusive and binding upon
the Registered Holder of this Note and upon all future Registered Holders hereof
and of any Note issued in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar (which shall be the Trustee unless and until an Authenticating Agent
becomes the
A-2-6
<PAGE>
Note Registrar under the Indenture) or at the Principal Office of a duly
appointed Authenticating Agent (the "Authenticating Agent," which term includes
any successor Authenticating Agent under the Indenture), duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the Note
Registrar or the Authenticating Agent, as the case may be, and executed by the
Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or the Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more other
Notes of the same series upon surrender hereof at the Principal Office of the
Note Registrar or the Principal Office of an Authenticating Agent. Thereupon the
Corporation shall execute and the Trustee or the Authenticating Agent, as the
case may be, shall authenticate and deliver, in exchange for this Note, one or
more new fully registered Notes in the name of the transferee, of an authorized
denomination, in aggregate Principal Amount equal to the Principal Amount of
this Note, of the same series and bearing interest at the same rate. Thereupon
the Corporation shall execute and the Trustee or the Authenticating Agent, as
the case may be, shall authenticate and deliver, in exchange for this Note, one
or more new fully registered Notes in the name of the transferee, of an
authorized denomination, in aggregate Principal Amount equal to the Principal
Amount of this Note, of the same series and bearing interest at the same rate.
No Authenticating Agent will be initially appointed with respect to the Series
1997-1F Notes. Notwithstanding the foregoing provisions of this paragraph, no
Series 1997-1F Note shall be required to be transferred, (i) during a period
beginning at the opening of business fifteen days before any selection of Series
1997-1F Notes for redemption and ending at the close of business on the day of
such selection, or (ii) if such Series 1997-1F Note has been selected for
redemption in whole or in part.
The Corporation may require payment by the Registered Holder hereof of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of this Note, other than
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
Person in whose name this Note is registered on the Note Register as the
absolute owner hereof for all purposes, whether or not this Note is overdue, and
neither the Corporation, the Trustee, any Paying Agent, any Authenticating
Agent, the Note Registrar nor any other such agent shall be affected by notice
to the contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
A-2-7
<PAGE>
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
Authenticating Agent by the manual signature of one of its authorized
representatives.
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the manual signatures of its President and Secretary,
and its corporate seal to be impressed hereon.
Dated: EDUCATION LOANS INCORPORATED
------------------
---------------------------
President
(SEAL)
---------------------------
Secretary
-------------------------------
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By
-------------------------
Authorized Representative
A-2-8
<PAGE>
--------------------------------
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto ________________________ the within Note and irrevocably appoints
____________________________, attorney-in-fact, to transfer the within Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated
------------------------
PLEASE INSERT SOCIAL SECURITY --------------------------------------------
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this assignment
OF ASSIGNEE must correspond with the name as it appears
upon the face of the within Note in every
- ------------------------------- particular, without any alteration
whatsoever.
SIGNATURE GUARANTEED:
- -------------------------------
A-2-9
<PAGE>
EXHIBIT A-3
-----------
FORM OF TAXABLE AUCTION RATE SERIES 1997-1 NOTES
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTE
SENIOR SERIES 1997-G [H]
CLASS A
No. R______ $________________
<TABLE>
<CAPTION>
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ------------------- -------- -----
<S> <C> <C> <C>
June 1, 2020 November _____, 1997 Variable ____
</TABLE>
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to, including, upon completion of the Section 150(d)(3)
Transfer, EdLinc), acknowledges itself indebted and hereby promises to pay to
the registered holder specified above, or registered assigns (the "Registered
Holder"), but solely from the revenues and receipts hereinafter specified and
not otherwise, the Principal Amount specified above on the Stated Maturity Date
specified above (subject to the right of prior redemption hereinafter
mentioned), upon presentation and surrender of this Note at the Principal Office
of the Trustee (as hereinafter defined), as Paying Agent for the Series 1997-1
Notes (as hereinafter defined), or a
A-3-1
<PAGE>
duly appointed successor Paying Agent, and to pay interest on said Principal
Amount, but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Holder hereof from the date hereof until the
payment of said Principal Amount has been made or duly provided for, payable on
each Interest Payment Date, commencing December 1, 1997, at the Auction Rate
Series 1997-1 Note Interest Rate (as hereinafter described), and at the same
rate per annum (to the extent that the payment of such interest shall be legally
enforceable) on overdue installments of interest. Payment of interest on this
Note on each regularly scheduled Interest Payment Date shall be made by check or
draft drawn upon the Paying Agent and mailed to the Person who is the Registered
Holder hereof as of 5:00 p.m. in the city in which the Principal Office of the
Note Registrar is located on the applicable Regular Record Date at the address
of such Registered Holder as it appears on the Note Register maintained by the
Note Registrar, or, if the Registered Holder of this Note is the Registered
Holder of Series 1997-1 Notes in the aggregate Principal Amount of $1,000,000 or
more (or, if less than $1,000,000 in Principal Amount of Series 1997-1 Notes is
outstanding, the Registered Holder of all outstanding Series 1997-1 Notes), at
the direction of such Registered Holder received by the Paying Agent by 5:00
p.m. in the city in which the Principal Office of the Paying Agent is located on
the last Business Day preceding the applicable Regular Record Date, by
electronic transfer by the Paying Agent in immediately available funds to an
account designated by such Registered Holder. In addition, interest on this Note
is payable at the Maturity hereof in the same manner as the principal hereof,
unless the date of such Maturity is a regularly scheduled Interest Payment Date,
in which event interest is payable in the manner set forth in the preceding
sentence. Any interest not so timely paid or duly provided for shall cease to be
payable to the Person who is the Registered Holder hereof at the close of
business on the Regular Record Date and shall be payable to the Person who is
the Registered Holder hereof at the close of business on a special record date
for the payment of any such defaulted interest. Such special record date shall
be fixed by the Trustee whenever moneys become available for payment of the
defaulted interest, and notice of the special record date shall be given to the
Registered Holder hereof not less than ten days prior thereto by first-class
mail to such Registered Holder as shown on the Note Register on a date selected
by the Trustee, stating the date of the special record date and the date fixed
for the payment of such defaulted interest. The principal of and interest on
this Note are payable in lawful money of the United States of America.
INTEREST ON THIS NOTE IS SUBJECT TO FEDERAL INCOME TAXATION PURSUANT
TO AN ELECTION MADE BY THE CORPORATION UNDER SECTION 625(c) OF THE TAX REFORM
ACT OF 1984 AND 26 CFR (S)301.9100-6T(d).
This Note is one of an authorized issue of Notes (the "Notes"), issued
and to be issued by the Corporation in one or more series pursuant to an
Indenture of Trust, dated as of July 1, 1997 (as supplemented and amended, the
"Indenture"), as supplemented by a First Supplemental Indenture of Trust, dated
as of July 1, 1997
A-3-2
<PAGE>
(the "First Supplemental Indenture"), each between the Corporation and First
Bank National Association, Minneapolis, Minnesota, as Trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). As provided in
the Indenture, the Notes are issuable in series which may vary as in the
Indenture provided or permitted. This Note is one of a series issued in an
aggregate Principal Amount of $_________________ (the "Series 1997-G [H]
Notes"). The Series 1997-G [H] Notes are issued simultaneously with nine other
series of Class A Notes issued in the aggregate Principal Amount of
$_______________ (together with the Series 1997-G [H] Notes, collectively
referred to herein as the "Series 1997-1 Senior Notes"), and two series of Class
B Notes issued in the aggregate Principal Amount of $_____________________ (the
"Series 1997-1 Subordinate Notes" and, together with the Series 1997-1 Senior
Notes, collectively referred to herein as the "Series 1997-1 Notes"). The
proceeds of the Series 1997-1 Notes will be used by the Corporation to (a)
acquire student loan notes incurred under the Higher Education Act and (b) fund
the Reserve Fund.
Reference is hereby made to the Indenture, copies of which are on file
in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
secured thereunder; the student loan acquisition program being financed by the
issuance of the Notes; the revenues and other moneys pledged to the payment of
the principal of, premium, if any, and interest on the Notes and the Other
Obligations; the nature and extent and manner of enforcement of the pledge; the
conditions upon which Notes may be issued or Other Obligations may be incurred
by the Corporation thereunder, payable from such revenues and other moneys
thereunder as Senior Obligations, Subordinate Obligations or Class C Notes; the
conditions upon which the Indenture may be amended or supplemented with or
without the consent of the Holders of the Notes; the rights and remedies of the
Registered Holder hereof with respect hereto and thereto, including the
limitations upon the right of a Registered Holder hereof to institute any suit,
action or proceeding in equity or at law with respect hereto and thereto; the
rights, duties and obligations of the Corporation and the Trustee thereunder;
the terms and provisions upon which the liens, pledges, charges, trusts and
covenants made therein may be discharged at or prior to the Maturity or
redemption of this Note, and this Note thereafter no longer be secured by the
Indenture, or be deemed to be Outstanding thereunder; and for the other terms
and provisions thereof. Terms used with initial capital letters but not defined
in this Note have the respective meanings given such terms in the Indenture.
The Series 1997-G [H] Notes are being issued as, and will constitute, taxable
Class A Notes under the Indenture. One other series of the Series 1997-1 Senior
Notes also is a series of taxable Class A Notes which, like the Series 1997-G
[H] Notes, bears interest at an Auction Rate Series 1997-1 Note Interest Rate,
and, together with the Series 1997-G [H] Notes, are collectively referred to
herein as the "Taxable Auction Rate Series 1997-1 Notes."
A-3-3
<PAGE>
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture, including certain notes evidencing Student
Loans and the proceeds of the Corporation's bonds, notes or other evidences of
indebtedness, if any, issued with respect to the Notes.
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture and such Note that such Noteholder will
not at any time institute against the Corporation, or join in any institution
against the Corporation, any bankruptcy, reorganization, arrangement, insolvency
or liquidation 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 Servicing Agreement.
The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
Interest payable on this Note shall be computed on the basis of actual
days elapsed and accrue daily from the date hereof (on the basis of a 360-day
year), and is payable on each regularly scheduled Interest Payment Date prior to
the Maturity of this Note and at the Maturity of this Note. The interest payable
on each Interest Payment Date for this Note shall be [calculated on a per unit
basis, based on a unit of $100,000, and shall be] that interest which has
accrued through the last day preceding such Interest Payment Date or, in the
case of the Maturity of this Note, the last day preceding the date of such
Maturity. The Auction Rate Series 1997-1 Note Interest Rate shall be effective
as of and on the first day (whether or not a Business Day) of the applicable
Interest Period and be in effect thereafter through the end of such Interest
Period.
The unpaid Principal Amount hereof from time to time outstanding shall
bear interest at an Auction Rate Series 1997-1 Note Interest Rate, as described
below, payable on each Interest Payment Date and at the Maturity hereof, such
interest to accrue from the later of the date hereof or the date through which
interest has been paid or duly provided for.
During the Initial Interest Period, this Note shall bear interest at
the Auction Rate Series 1997-1 Note Initial Interest Rate for the Series 1997-G
[H] Notes.
A-3-4
<PAGE>
Thereafter, until an Auction Period Adjustment, if any, this Note shall bear
interest at an Auction Rate Series 1997-1 Note Interest Rate based on an Auction
Period that shall generally consist of 28 days, all as determined in accordance
with the applicable provisions of the First Supplemental Indenture.
In no event shall the Auction Rate Series 1997-1 Note Interest Rate on
this Note exceed 18% per annum (the "Auction Rate Series 1997-1 Note Interest
Rate Limitation").
The Auction Period (which shall be the Interest Period), the
applicable Auction Rate Series 1997-1 Note Interest Rate, the method of
determining the applicable Auction Rate Series 1997-1 Note Interest Rate on each
of the Series 1997-G [H] Notes and the Auction Procedures related thereto,
including, without limitation, required notices thereof and any changes therein
to the Holders or Existing Holders of the Auction Rate Series 1997-1 Notes, will
be determined in accordance with the terms, conditions and provisions of the
First Supplemental Indenture and the Auction Agent Agreement (Taxable Auction
Rate Series 1997-1 Notes), dated as of July 1, 1997 (which, together with any
substitute therefor, is herein referred to as the "Auction Agent Agreement"),
between the Trustee and Bankers Trust Company (which, together with any
substitute therefor, is herein referred to as the "Auction Agent"), to which
terms, conditions and provisions specific reference is hereby made, and all of
which terms, conditions and provisions are hereby specifically incorporated
herein by reference.
If the Auction Rate for the Series 1997-1G [H] Notes is greater than
the Net Loan Rate, then the Auction Rate Series 1997-1 Note Interest Rate
applicable to the Taxable Auction Rate Series 1997-1 Notes for that Interest
Period will be the Net Loan Rate. If the Auction Rate Series 1997-1 Note
Interest Rate applicable to the Series 1997-1G [H] Notes for any Interest Period
is the Net Loan Rate, the Trustee shall determine the Carry-Over Amount, if any,
with respect to the Series 1997-1G [H] Notes for such Interest Period. Such
Carryover Amount shall bear interest calculated at a rate equal to One-Month
LIBOR from the Interest Payment Date for the Interest Period with respect to
which such Carry-Over Amount was calculated until paid. For purposes of this
Note, any reference to "principal" or "interest" herein shall not include within
the meaning of such words Carry-Over Amount or any interest accrued on any such
Carry-Over Amount. Such Carry-Over Amount shall be separately calculated for
each Series 1997-1G [H] Note by the Trustee during such Interest Period in
sufficient time for the Trustee to give notice to each Holder of such Carry-Over
Amount as required in the next succeeding sentence. On the Interest Payment Date
for an Interest Period with respect to which such Carry-Over Amount has been
calculated by the Trustee, the Trustee shall give written notice to each Holder
of the Carry-Over Amount applicable to each Holder's Series 1997-1G [H] Note,
which written notice may accompany the payment of interest by check made to each
such Holder on such Interest Payment Date or otherwise shall be mailed on such
Interest Payment Date by first class mail, postage prepaid, to each such Holder
at such Holder's address as it appears on the registration books
A-3-5
<PAGE>
maintained by the Note Registrar. Such notice shall state, in addition to such
Carry-Over Amount, that, unless and until a Series 1997-1G [H] Note has been
redeemed or has been deemed no longer Outstanding under the First Supplemental
Indenture (after which no Carry-Over Amount shall be paid with respect to a
Series 1997-1G [H] Note), (i) the Carry-Over Amount (and interest accrued
thereon) shall be paid by the Trustee on such Series 1997-1G [H] Note on the
first occurring Interest Payment Date for a subsequent Interest Period if and to
the extent that (l) the Eligible Carry-Over Make-Up Amount with respect to such
Interest Period is greater than zero, and (2) moneys are available pursuant to
the terms of the First Supplemental Indenture to pay such Carry-Over Amount (and
interest accrued thereon), and (ii) interest shall accrue on the Carry-Over
Amount at a per annum rate equal to One-Month LIBOR until such Carry-Over Amount
is paid in full or is canceled.
The Carry-Over Amount for the Series 1997-1G [H] Notes shall be paid
by the Trustee on Outstanding Series 1997-1G [H] Notes on the first occurring
Interest Payment Date for a subsequent Interest Period if and to the extent that
(i) the Eligible Carry-Over Make-Up Amount with respect to such Interest Period
is greater than zero, and (ii) moneys in the Surplus Account are available on
such Interest Payment Date for transfer to the Interest Account for such purpose
in accordance with the applicable provisions of the Indenture, after taking into
account all other amounts payable from the Surplus Fund on such Interest Payment
Date. Any Carry-Over Amount (and any interest accrued thereon) which is unpaid
as of an Interest Payment Date with respect to any Series 1997-1G [H] Note,
which Series 1997-1G [H] Note is to be redeemed or deemed no longer Outstanding
under the First Supplemental Indenture on such Interest Payment Date, shall be
paid to the Holder thereof on such Interest Payment Date to the extent that
moneys are available therefor in accordance with the provisions of the preceding
clause (b); provided, however, that any Carry-Over Amount (and any interest
accrued thereon) which is not so paid on such Interest Payment Date shall be
canceled with respect to such Series 1997-1G [H] Note on such Interest Payment
Date and shall not be paid on any succeeding Interest Payment Date. To the
extent that any portion of the Carry-Over Amount (and any interest accrued
thereon) remains unpaid after payment of a portion thereof, such unpaid portion
shall be paid in whole or in part as required hereunder until fully paid by the
Trustee on the next occurring Interest Payment Date or Dates, as necessary, for
a subsequent Interest Period or Periods, if and to the extent that the
conditions in the first sentence of this paragraph are satisfied. On any
Interest Payment Date on which the Trustee pays less than all of the Carry-Over
Amount (and any interest accrued thereon) with respect to a Series 1997-1G [H]
Note, the Trustee shall give written notice in the manner set forth in the
immediately preceding paragraph to the Holder of such Series 1997-1G [H] Note of
the Carry-Over Amount remaining unpaid on such Series 1997-1G [H] Note.
The Interest Payment Date in such subsequent Interest Period on which
such Carry-Over Amount for the Series 1997-1G [H] Notes shall be paid shall be
determined by the Trustee in accordance with the provisions of the immediately
preceding paragraph, and the Trustee shall make payment of the Carry-Over
A-3-6
<PAGE>
Amount in the same manner as, and from the same Account from which, it pays
interest on the Series 1997-1G [H] Notes on an Interest Payment Date.
By purchasing Series 1997-G [H] Notes, whether in an Auction or
otherwise, each purchaser of the Series 1997-G [H] Notes, or its Broker-Dealer,
must agree and shall be deemed by such purchase to have agreed (i) to
participate in Auctions on the terms described in the First Supplemental
Indenture, (ii) to have its beneficial ownership of the Series 1997-G [H] Notes
maintained at all times in Book-Entry Form for the account of its Participant,
which in turn will maintain records of such beneficial ownership, and (iii) to
authorize such Participant to disclose to the Auction Agent such information
with respect to such beneficial ownership as the Auction Agent may request. So
long as the ownership of Series 1997-G [H] Notes is maintained in Book-Entry
Form by the Securities Depository, an Existing Holder may sell, transfer or
otherwise dispose of Series 1997-G [H] Notes only pursuant to a Bid or Sell
Order placed in an Auction or otherwise sell, transfer or dispose of Series
1997-G [H] Notes through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Holder, its Broker-
Dealer or its Participant advises the Auction Agent of such transfer.
The determination of an Auction Rate Series 1997-1 Note Interest Rate
by the Auction Agent or any other authorized Person pursuant to the provisions
of the First Supplemental Indenture shall be conclusive and binding on the
Holders of the Series 1997-G [H] Notes to which such Auction Rate Series 1997-1
Note Interest Rate applies, and the Corporation and the Trustee may rely thereon
for all purposes.
Notwithstanding any provision of this Note to the contrary, in no
event shall the cumulative amount of interest paid or payable on this Note
(including interest calculated as provided herein, plus any other amounts that
constitute interest on this Note under applicable law, which are contracted for,
charged, reserved, taken or received pursuant to this Note or related documents)
calculated from the date of issuance of this Note through any subsequent day
during the term of this Note or otherwise prior to payment in full of this Note
exceed the amount permitted by applicable law. If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Note or related documents or otherwise contracted for, charged, reserved, taken
or received in connection with this Note, or if the redemption or acceleration
of the Maturity of this Note results in payment to or receipt by the Registered
Holder or any former Registered Holder hereof of any interest in excess of that
permitted by applicable law, then notwithstanding any provision of this Note or
related documents to the contrary all excess amounts theretofore paid or
received with respect to this Note shall be credited on the Principal Amount of
this Note (or, if this Note has been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of this Note and related
documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with
A-3-7
<PAGE>
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for under this Note and under the related documents.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Series 1997-1 Notes may, at the option of the
Corporation, be redeemed, in whole but not in part, at a Redemption Price equal
to 100% of the Principal Amount of Series 1997-1 Notes to be so redeemed plus
accrued interest thereon to the Redemption Date, on any date after the remaining
aggregate Principal Balance of Student Loans Financed with proceeds of the
Series 1997-1 Notes is less than 10% of the amounts initially deposited to the
credit of the Acquisition Fund.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Taxable Auction Rate Series 1997-1 Notes
of any series may be redeemed, in whole or in part, on any any regularly
scheduled Interest Payment Date, at a Redemption Price equal to 100% of the
Principal Amount thereof so redeemed, from proceeds of the Taxable Series 1997-1
Notes constituting a portion of the Balance of the Series 1997-1 Taxable
Acquisition Account that have not been used to acquire Eligible Loans and from
that portion of the Series 1997-1 Taxable Reserve Account which, if left in the
Reserve Fund upon such redemption, would cause the Balance in the Reserve Fund
to exceed the Reserve Fund Requirement, calculated giving effect to such
redemption. Such redemption shall be required on the regularly scheduled
Interest Payment Date occurring in December, 1998 (from such proceeds not so
used as of November 1, 1998), unless the Corporation delivers to the Trustee:
(i) a Corporation Certificate certifying that, based on a Cash Flow Projection,
the failure to redeem such Taxable Auction Rate Series 1997-1 Notes will not
materially adversely affect the Corporation's ability to pay Debt Service on the
Outstanding Notes and the Outstanding Other Obligations, Carry-Over Amounts
(including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees or to make required deposits to the Rebate
Fund, and (ii) written confirmation from each of the Rating Agencies then rating
the Series 1997-1 Notes to the effect that the failure to redeem such Taxable
Auction Rate Series 1997-1 Notes will not result in a reduction or withdrawal of
the rating of the Series 1997-1 Notes.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Taxable Auction Rate Series 1997-1 Notes
of any series may, at the option of the Corporation, be redeemed on any
regularly scheduled Interest Payment Date for such series occurring on or after
December 1, 1998, in whole or in part, at a Redemption Price equal to 100% of
the Principal Amount thereof to be redeemed, from amounts credited to the Series
1997-1 Taxable Retirement Subaccount from the Series 1997-1 Taxable Surplus
Subaccount for such purpose in accordance with the Indenture and from that
portion of the Series 1997-1 Taxable Reserve Account which exceeds the Reserve
Fund Requirement (calculated after giving effect to such redemption). If the
Trustee shall have first certified that no deficiencies exist in any of the
Rebate Fund, the Note Fund, the Reserve Fund or
A-3-8
<PAGE>
the Special Redemption and Prepayment Account, the Trustee shall, upon
Corporation Order, transfer to the Series 1997-1 Taxable Retirement Account any
Balances in the Series 1997-1 Taxable Surplus Subaccount (other than those
consisting of Student Loans) which a Corporation Certificate states are not
reasonably expected to be needed for the payment of scheduled Debt Service on
the Outstanding Notes and Outstanding Other Obligations, Carry-Over Amounts
(including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees, or for transfer to the Rebate Fund.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements and certain other requirements, Outstanding Taxable
Auction Rate Series 1997-1 Notes of any series may, at the option of the
Corporation, be redeemed on any regularly scheduled Interest Payment Date for
such series, in whole or in part, at a Redemption Price equal to 100% of the
Principal Amount thereof to be redeemed, from amounts credited to the Retirement
Account for such purpose.
If not all Series 1997-1 Notes subject to redemption are to be
redeemed, the particular Series 1997-1 Notes to be redeemed are to be selected
as provided in the Indenture.
Notice of redemption shall be given by first-class mail mailed at
least 15 days before the Redemption Date to each Holder of Series 1997-G [H]
Notes to be redeemed at his last address appearing on the Note Register; but no
defect in or failure to give such notice of redemption shall affect the validity
of proceedings for redemption of any Series 1997-G [H] Notes not affected by
such defect or failure. All Series 1997-G [H] Notes so called for redemption
will cease to bear interest on such Redemption Date, provided funds for their
redemption have been duly deposited, and, except for the purpose of payment,
shall no longer be protected by the Indenture and shall not be deemed
Outstanding thereunder.
It is provided in the Indenture that Series 1997-G [H] Notes of a
denomination larger than $100,000 may be redeemed in part ($100,000 or an
integral multiple thereof) and that upon any partial redemption of any such
Series 1997-G [H] Note the same shall be surrendered in exchange for one or more
new Notes of the same series in authorized form for the unredeemed portion of
principal.
If provision is made for the payment of principal of and interest on
this Note in accordance with the Indenture, this Note shall no longer be deemed
Outstanding under the Indenture, shall cease to be entitled to the benefits of
the Indenture and shall thereafter be payable solely from the funds provided for
such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
A-3-9
<PAGE>
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and the consent of the
Holders of two-thirds of the aggregate Principal Amount of Class B Notes at the
time Outstanding, if affected thereby. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate Principal Amount of
the Class A Notes at the time Outstanding or Other Senior Beneficiaries or, if
no Senior Obligations are Outstanding, the Holders of specified percentages in
aggregate Principal Amount of the Class B Notes at the time Outstanding or Other
Subordinate Beneficiaries, on behalf of the Holders of all the Notes, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon the Registered Holder of
this Note and upon all future Registered Holders hereof and of any Note issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar (which shall be the Trustee unless and until an Authenticating Agent
becomes the Note Registrar under the Indenture) or at the Principal Office of a
duly appointed Authenticating Agent (the "Authenticating Agent," which term
includes any successor Authenticating Agent under the Indenture), duly endorsed
or accompanied by a written instrument of transfer in form satisfactory to the
Note Registrar or such Authenticating Agent, as the case may be, and executed by
the Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or such Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more other
Notes of the same series upon surrender hereof at the Principal Office of the
Note Registrar or the Principal Office of an Authenticating Agent. Thereupon the
Corporation shall execute and the Trustee or the Authenticating Agent, as the
case may be, shall authenticate and deliver, in exchange for this Note, one or
more new fully registered Notes in the name of the transferee, of an authorized
denomination, in aggregate Principal Amount equal to the Principal Amount of
this Note, of the same series and bearing interest at the same rate. No
Authenticating Agent will be initially appointed with respect to the Series
1997-G [H] Notes. Notwithstanding the foregoing provisions of this paragraph, no
Series 1997-G [H] Note shall be required to be transferred, (i) during a period
beginning at the opening of business fifteen days before any selection of Series
1997-G [H] Notes for redemption and ending at the close of business on the day
of such selection, or (ii) if such Series 1997-G [H] Note has been selected for
redemption in whole or in part.
The Corporation may require payment by the Registered Holder hereof of
a sum sufficient to cover any tax or other governmental charge that may be
A-3-10
<PAGE>
imposed in connection with any transfer or exchange of this Note, other than
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
Person in whose name this Note is registered on the Note Register as the
absolute owner hereof for all purposes, whether or not this Note is overdue, and
neither the Corporation, the Trustee, any Paying Agent, any Authenticating
Agent, the Note Registrar nor any other such agent shall be affected by notice
to the contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
Authenticating Agent by the manual signature of one of its authorized
representatives.
A-3-11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the manual signatures of its President and Secretary,
and its corporate seal to be impressed hereon.
Dated: ______________________ EDUCATION LOANS INCORPORATED
____________________________
President
(SEAL)
____________________________
Secretary
-----------------------------
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By__________________________________
Authorized Representative
A-3-12
<PAGE>
____________________
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto ________________________ the within Note and irrevocably appoints
____________________________, attorney-in-fact, to transfer the within Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated _______________________
PLEASE INSERT SOCIAL SECURITY ___________________________
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this assignment
OF ASSIGNEE must correspond with the name as it appears
upon the face of the within Note in every
______________________________ particular, without any alteration
whatsoever.
SIGNATURE GUARANTEED:
- ------------------------------
A-3-13
<PAGE>
EXHIBIT A-4
-----------
FORM OF LIBOR RATE SERIES 1997-1 SENIOR NOTES
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
EDUCATION LOANS INCORPORATED
TAXABLE LIBOR RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTE
SENIOR SERIES 1997-I [J]
CLASS A
No. R______ $_________
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ---------------- -------- -----
June 1, __________ November _____, 1997 Variable _____
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to, including, upon completion of the Section 150(d)(3)
Transfer, EdLinc), acknowledges itself indebted and hereby promises to pay to
the registered holder specified above, or registered assigns (the "Registered
Holder"), but solely from the revenues and receipts hereinafter specified and
not otherwise, the Principal Amount specified above on the Stated Maturity Date
specified above (subject to the right of prior redemption hereinafter
mentioned), upon presentation and surrender of this Note at the Principal Office
of the Trustee (as hereinafter defined), as Paying Agent for the Series 1997-1
Notes (as hereinafter defined), or a
A-4-1
<PAGE>
duly appointed successor Paying Agent, and to pay interest on said Principal
Amount, but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Holder hereof from the date hereof until the
payment of said Principal Amount has been made or duly provided for, payable on
each Interest Payment Date, commencing December 1, 1997, at the LIBOR Rate
Series 1997-1 Note Interest Rate (as hereinafter described), and at the same
rate per annum (to the extent that the payment of such interest shall be legally
enforceable) on overdue installments of interest. Payment of interest on this
Note on each regularly scheduled Interest Payment Date shall be made by check or
draft drawn upon the Paying Agent and mailed to the Person who is the Registered
Holder hereof as of 5:00 p.m. in the city in which the Principal Office of the
Note Registrar is located on the applicable Regular Record Date at the address
of such Registered Holder as it appears on the Note Register maintained by the
Note Registrar, or, if the Registered Holder of this Note is the Registered
Holder of Series 1997-1 Notes in the aggregate Principal Amount of $1,000,000 or
more (or, if less than $1,000,000 in Principal Amount of Series 1997-1 Notes is
outstanding, the Registered Holder of all outstanding Series 1997-1 Notes), at
the direction of such Registered Holder received by the Paying Agent by 5:00
p.m. in the city in which the Principal Office of the Paying Agent is located on
the last Business Day preceding the applicable Regular Record Date, by
electronic transfer by the Paying Agent in immediately available funds to an
account designated by such Registered Holder. In addition, interest on this Note
is payable at the Maturity hereof in the same manner as the principal hereof,
unless the date of such Maturity is a regularly scheduled Interest Payment Date,
in which event interest is payable in the manner set forth in the preceding
sentence. Any interest not so timely paid or duly provided for shall cease to be
payable to the Person who is the Registered Holder hereof at the close of
business on the Regular Record Date and shall be payable to the Person who is
the Registered Holder hereof at the close of business on a special record date
for the payment of any such defaulted interest. Such special record date shall
be fixed by the Trustee whenever moneys become available for payment of the
defaulted interest, and notice of the special record date shall be given to the
Registered Holder hereof not less than ten days prior thereto by first-class
mail to such Registered Holder as shown on the Note Register on a date selected
by the Trustee, stating the date of the special record date and the date fixed
for the payment of such defaulted interest. The principal of and interest on
this Note are payable in lawful money of the United States of America.
INTEREST ON THIS NOTE IS SUBJECT TO FEDERAL INCOME TAXATION PURSUANT
TO AN ELECTION MADE BY THE CORPORATION UNDER SECTION 625(c) OF THE TAX REFORM
ACT OF 1984 AND 26 CFR (S)301.9100-6T(d).
This Note is one of an authorized issue of Notes (the "Notes"), issued
and to be issued by the Corporation in one or more series pursuant to an
Indenture of Trust, dated as of July 1, 1997 (as supplemented and amended, the
"Indenture"), as supplemented by a First Supplemental Indenture of Trust, dated
as of July 1, 1997
A-4-2
<PAGE>
(the "First Supplemental Indenture"), each between the Corporation and First
Bank National Association, Minneapolis, Minnesota, as Trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). As provided in
the Indenture, the Notes are issuable in series which may vary as in the
Indenture provided or permitted. This Note is one of a series issued in an
aggregate Principal Amount of $_________________ (the "Series 1997-I [J]
Notes"). The Series 1997-I [J] Notes are issued simultaneously with nine other
series of Class A Notes issued in the aggregate Principal Amount of
$_______________ (together with the Series 1997-I [J] Notes, collectively
referred to herein as the "Series 1997-1 Senior Notes"), and two series of Class
B Notes issued in the aggregate Principal Amount of $_____________________ (the
"Series 1997-1 Subordinate Notes" and, together with the Series 1997-1 Senior
Notes, collectively referred to herein as the "Series 1997-1 Notes"). The
proceeds of the Series 1997-1 Notes will be used by the Corporation to (a)
acquire student loan notes incurred under the Higher Education Act and (b) fund
the Reserve Fund.
Reference is hereby made to the Indenture, copies of which are on file
in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
secured thereunder; the student loan acquisition program being financed by the
issuance of the Notes; the revenues and other moneys pledged to the payment of
the principal of, premium, if any, and interest on the Notes and the Other
Obligations; the nature and extent and manner of enforcement of the pledge; the
conditions upon which Notes may be issued or Other Obligations may be incurred
by the Corporation thereunder, payable from such revenues and other moneys
thereunder as Senior Obligations, Subordinate Obligations or Class C Notes; the
conditions upon which the Indenture may be amended or supplemented with or
without the consent of the Holders of the Notes; the rights and remedies of the
Registered Holder hereof with respect hereto and thereto, including the
limitations upon the right of a Registered Holder hereof to institute any suit,
action or proceeding in equity or at law with respect hereto and thereto; the
rights, duties and obligations of the Corporation and the Trustee thereunder;
the terms and provisions upon which the liens, pledges, charges, trusts and
covenants made therein may be discharged at or prior to the Maturity or
redemption of this Note, and this Note thereafter no longer be secured by the
Indenture, or be deemed to be Outstanding thereunder; and for the other terms
and provisions thereof. Terms used with initial capital letters but not defined
in this Note have the respective meanings given such terms in the Indenture. The
Series 1997-I [J] Notes are being issued as, and will constitute, taxable Class
A Notes under the Indenture. One other series of the Series 1997-1 Senior Notes
also is a series of taxable Class A Notes which, like the Series 1997-I [J]
Notes, bears interest at a LIBOR Rate Series 1997-1 Note Interest Rate, and,
together with the Series 1997-I [J] Notes, are collectively referred to herein
as the "LIBOR Rate Series 1997-1 Senior Notes."
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged
A-4-3
<PAGE>
therefor under the Indenture, including certain notes evidencing Student Loans
and the proceeds of the Corporation's bonds, notes or other evidences of
indebtedness, if any, issued with respect to the Notes.
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture and such Note that such Noteholder will
not at any time institute against the Corporation, or join in any institution
against the Corporation, any bankruptcy, reorganization, arrangement, insolvency
or liquidation 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 Servicing Agreement.
The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
Interest payable on this Note shall be computed on the basis of actual
days elapsed and accrue daily from the date hereof (on the basis of a 360-day
year), and is payable on each regularly scheduled Interest Payment Date prior to
the Maturity of this Note and at the Maturity of this Note. The interest payable
on each Interest Payment Date for this Note shall be [calculated on a per unit
basis, based on a unit of $100,000, and shall be] that interest which has
accrued through the last day preceding such Interest Payment Date or, in the
case of the Maturity of this Note, the last day preceding the date of such
Maturity. The LIBOR Rate Series 1997-1 Note Interest Rate shall be effective as
of and on the first day (whether or not a Business Day) of the applicable
Interest Period and be in effect thereafter through the end of such Interest
Period.
The unpaid Principal Amount hereof from time to time outstanding shall
bear interest at a LIBOR Rate Series 1997-1 Note Interest Rate, as described
below, payable on each Interest Payment Date and at the Maturity hereof, such
interest to accrue from the later of the date hereof or the date through which
interest has been paid or duly provided for.
During the Initial Interest Period, this Note shall bear interest at
the LIBOR Rate Series 1997-1 Note Initial Interest Rate for the Series 1997-I
[J] Notes. The interest rate to be borne by this Note during each Interest
Period thereafter shall be determined on the related Interest Rate Determination
Date and shall be equal to
A-4-4
<PAGE>
the lesser of (i) the sum of One-Month LIBOR determined with respect to such
Interest Rate Determination Date plus _____% (which is herein referred to as the
"LIBOR Rate Series 1997-1 Note LIBOR-Based Rate"), and (ii) the Net Loan Rate
determined with respect to such Interest Rate Determination Date. The Trustee
shall determine such interest rate on each Interest Rate Determination Date.
Notwithstanding any other provision of this Note or the First
Supplemental Indenture, interest payable on this Note for an Interest Period
shall never exceed for such Interest Period the amount of interest payable at
the Net Loan Rate in effect for such Interest Period.
If the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate for the Series
1997-1I [J] Notes is greater than the Net Loan Rate, then the LIBOR Rate Series
1997-1 Note Interest Rate applicable to the Series 1997-1I [J] Notes for that
Interest Period will be the Net Loan Rate. If the LIBOR Rate Series 1997-1 Note
Interest Rate applicable to the Series 1997-1I [J] Notes for any Interest Period
is the Net Loan Rate, the Trustee shall determine the Carry-Over Amount, if any,
with respect to the Series 1997-1I [J] Notes for such Interest Period. Such
Carryover Amount shall bear interest calculated at a rate equal to the LIBOR
Rate Series 1997-1 Note LIBOR-Based Rate (as determined by the Trustee) from the
Interest Payment Date for the Interest Period with respect to which such Carry-
Over Amount was calculated until paid. For purposes of this Note, any reference
to "principal" or "interest" herein shall not include within the meaning of such
words Carry-Over Amount or any interest accrued on any such Carry-Over Amount.
Such Carry-Over Amount shall be separately calculated for each Series 1997-1I
[J] Note by the Trustee during such Interest Period in sufficient time for the
Trustee to give notice to each Holder of such Carry-Over Amount as required in
the next succeeding sentence. On the Interest Payment Date for an Interest
Period with respect to which such Carry-Over Amount has been calculated by the
Trustee, the Trustee shall give written notice to each Holder of the Carry-Over
Amount applicable to each Holder's Series 1997-1I [J] Note, which written notice
may accompany the payment of interest by check made to each such Holder on such
Interest Payment Date or otherwise shall be mailed on such Interest Payment Date
by first class mail, postage prepaid, to each such Holder at such Holder's
address as it appears on the registration books maintained by the Note
Registrar. Such notice shall state, in addition to such Carry-Over Amount, that,
unless and until a Series 1997-1I [J] Note has been redeemed or has been deemed
no longer Outstanding under the First Supplemental Indenture (after which no
Carry-Over Amount shall be paid with respect to a Series 1997-1I [J] Note), (i)
the Carry-Over Amount (and interest accrued thereon) shall be paid by the
Trustee on such Series 1997-1I [J] Note on the first occurring Interest Payment
Date for a subsequent Interest Period if and to the extent that (l) the Eligible
Carry-Over Make-Up Amount with respect to such Interest Period is greater than
zero, and (2) moneys are available pursuant to the terms of the First
Supplemental Indenture to pay such Carry-Over Amount (and interest accrued
thereon), and (ii) interest shall accrue on the Carry-Over Amount at a per annum
rate equal to the LIBOR Rate
A-4-5
<PAGE>
Series 1997-1 Note LIBOR-Based Rate until such Carry-Over Amount is paid in full
or is canceled.
The Carry-Over Amount for the Series 1997-1I [J] Notes shall be paid
by the Trustee on Outstanding Series 1997-1I [J] Notes on the first occurring
Interest Payment Date for a subsequent Interest Period if and to the extent that
(i) the Eligible Carry-Over Make-Up Amount with respect to such Interest Period
is greater than zero, and (ii) moneys in the Surplus Account are available on
such Interest Payment Date for transfer to the Interest Account for such purpose
in accordance with the applicable provisions of the Indenture, after taking into
account all other amounts payable from the Surplus Fund on such Interest Payment
Date. Any Carry-Over Amount (and any interest accrued thereon) which is unpaid
as of an Interest Payment Date with respect to any Series 1997-1I [J] Note,
which Series 1997-1I [J] Note is to be redeemed or deemed no longer Outstanding
under the First Supplemental Indenture on such Interest Payment Date, shall be
paid to the Holder thereof on such Interest Payment Date to the extent that
moneys are available therefor in accordance with the provisions of the preceding
clause (b); provided, however, that any Carry-Over Amount (and any interest
accrued thereon) which is not so paid on such Interest Payment Date shall be
canceled with respect to such Series 1997-1I [J] Note on such Interest Payment
Date and shall not be paid on any succeeding Interest Payment Date. To the
extent that any portion of the Carry-Over Amount (and any interest accrued
thereon) remains unpaid after payment of a portion thereof, such unpaid portion
shall be paid in whole or in part as required hereunder until fully paid by the
Trustee on the next occurring Interest Payment Date or Dates, as necessary, for
a subsequent Interest Period or Periods, if and to the extent that the
conditions in the first sentence of this paragraph are satisfied. On any
Interest Payment Date on which the Trustee pays less than all of the Carry-Over
Amount (and any interest accrued thereon) with respect to a Series 1997-1I [J]
Note, the Trustee shall give written notice in the manner set forth in the
immediately preceding paragraph to the Holder of such Series 1997-1I [J] Note of
the Carry-Over Amount remaining unpaid on such Series 1997-1I [J] Note.
The Interest Payment Date in such subsequent Interest Period on which
such Carry-Over Amount for the Series 1997-1I [J] Notes shall be paid shall be
determined by the Trustee in accordance with the provisions of the immediately
preceding paragraph, and the Trustee shall make payment of the Carry-Over Amount
in the same manner as, and from the same Account from which, it pays interest on
the Series 1997-1I [J] Notes on an Interest Payment Date.
In the event that the Trustee no longer determines, or fails to
determine, when required, the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate
with respect to the Series 1997-1I [J] Notes, or if, for any reason, such manner
of determination shall be held to be invalid or unenforceable, the LIBOR Rate
Series 1997-1 Note LIBOR-Based Rate for each succeeding Interest Period shall be
the Net Loan Rate as determined by or on behalf of the Corporation with respect
to the related Interest Rate Determination Date, and if the Corporation shall
fail or refuse
A-4-6
<PAGE>
to determine such Net Loan Rate, the Net Loan Rate shall be determined by a
securities dealer appointed by the Trustee capable of making such a
determination in accordance with the provisions hereof and written notice of
such determination shall be given by such securities dealer to the Trustee.
The determination of a LIBOR Rate Series 1997-1 Note Interest Rate by
the Trustee or any other authorized Person pursuant to the provisions of the
First Supplemental Indenture shall be conclusive and binding on the Holders of
the Series 1997-I [J] Notes to which such LIBOR Rate Series 1997-1 Note Interest
Rate applies, and the Corporation and the Trustee may rely thereon for all
purposes.
Notwithstanding any provision of this Note to the contrary, in no
event shall the cumulative amount of interest paid or payable on this Note
(including interest calculated as provided herein, plus any other amounts that
constitute interest on this Note under applicable law, which are contracted for,
charged, reserved, taken or received pursuant to this Note or related documents)
calculated from the date of issuance of this Note through any subsequent day
during the term of this Note or otherwise prior to payment in full of this Note
exceed the amount permitted by applicable law. If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Note or related documents or otherwise contracted for, charged, reserved, taken
or received in connection with this Note, or if the redemption or acceleration
of the Maturity of this Note results in payment to or receipt by the Registered
Holder or any former Registered Holder hereof of any interest in excess of that
permitted by applicable law, then notwithstanding any provision of this Note or
related documents to the contrary all excess amounts theretofore paid or
received with respect to this Note shall be credited on the Principal Amount of
this Note (or, if this Note has been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of this Note and related
documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for under this
Note and under the related documents.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding LIBOR Rate Series 1997-1 Notes shall
receive prepayments of principal on any Interest Payment Date from moneys
available therefor in the Series 1997-1 Taxable Special Redemption and
Prepayment Subaccount in accordance with the provisions of the First
Supplemental Indenture. All prepayments of principal in accordance with the
preceding sentence shall, subject to satisfying the asset requirements of the
Indenture, be allocated between the LIBOR Rate Series 1997-1 Senior Notes and
the Series 1997-1L Notes pro rata based upon their respective aggregate
Principal Amounts. All such prepayments of principal allocated to the LIBOR
Rate Series 1997-1 Senior Notes shall be applied to the Series 1997-1I Notes so
long as any such Notes remain Outstanding, and thereafter to the Series 1997-1J
Notes. All such prepayments of principal applied to
A-4-7
<PAGE>
the Series 1997-I [J] Notes shall be allocated pro rata, based upon their
respective Principal Amounts, to the reduction of the Principal Amount of all
Series 1997-I [J] Notes.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Series 1997-1 Notes may, at the option of the
Corporation, be redeemed, in whole but not in part, at a Redemption Price equal
to 100% of the Principal Amount of Series 1997-1 Notes to be so redeemed plus
accrued interest thereon to the Redemption Date, on any date after the remaining
aggregate Principal Balance of Student Loans Financed with proceeds of the
Series 1997-1 Notes is less than 10% of the amounts initially deposited to the
credit of the Acquisition Fund.
Notice of redemption shall be given by first-class mail mailed at
least 30 days before the Redemption Date to each Holder of Series 1997-I [J]
Notes to be redeemed at his last address appearing on the Note Register; but no
defect in or failure to give such notice of redemption shall affect the validity
of proceedings for redemption of any Series 1997-I [J] Notes not affected by
such defect or failure. All Series 1997-I [J] Notes so called for redemption
will cease to bear interest on such Redemption Date, provided funds for their
redemption have been duly deposited, and, except for the purpose of payment,
shall no longer be protected by the Indenture and shall not be deemed
Outstanding thereunder.
It is provided in the Indenture that Series 1997-I [J] Notes of an
Authorized Denomination larger than $100,000 may be redeemed in part ($100,000
in original Principal Amount or an integral multiple thereof) and that upon any
partial redemption of any such Series 1997-I [J] Note the same shall be
surrendered in exchange for one or more new Notes of the same series in
authorized form for the unredeemed portion of principal.
If provision is made for the payment of principal of and interest on
this Note in accordance with the Indenture, this Note shall no longer be deemed
Outstanding under the Indenture, shall cease to be entitled to the benefits of
the Indenture and shall thereafter be payable solely from the funds provided for
such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and the consent of the
Holders of
A-4-8
<PAGE>
two-thirds of the aggregate Principal Amount of Class B Notes at the time
Outstanding, if affected thereby. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate Principal Amount of
the Class A Notes at the time Outstanding or Other Senior Beneficiaries or, if
no Senior Obligations are Outstanding, the Holders of specified percentages in
aggregate Principal Amount of the Class B Notes at the time Outstanding or Other
Subordinate Beneficiaries, on behalf of the Holders of all the Notes, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon the Registered Holder of
this Note and upon all future Registered Holders hereof and of any Note issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar (which shall be the Trustee unless and until an Authenticating Agent
becomes the Note Registrar under the Indenture) or at the Principal Office of a
duly appointed Authenticating Agent (the "Authenticating Agent," which term
includes any successor Authenticating Agent under the Indenture), duly endorsed
or accompanied by a written instrument of transfer in form satisfactory to the
Note Registrar or such Authenticating Agent, as the case may be, and executed by
the Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or such Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more
other Notes of the same series upon surrender hereof at the Principal Office of
the Note Registrar or the Principal Office of an Authenticating Agent.
Thereupon the Corporation shall execute and the Trustee or the Authenticating
Agent, as the case may be, shall authenticate and deliver, in exchange for this
Note, one or more new fully registered Notes in the name of the transferee, of
an authorized denomination, in aggregate Principal Amount equal to the Principal
Amount of this Note, of the same series and bearing interest at the same rate.
No Authenticating Agent will be initially appointed with respect to the Series
1997-I [J] Notes. Notwithstanding the foregoing provisions of this paragraph,
no Series 1997-I [J] Note shall be required to be transferred, (i) during a
period beginning at the opening of business fifteen days before any selection of
Series 1997-I [J] Notes for redemption and ending at the close of business on
the day of such selection, or (ii) if such Series 1997-I [J] Note has been
selected for redemption in whole or in part.
The Corporation may require payment by the Registered Holder hereof of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of this Note, other than
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
A-4-9
<PAGE>
Person in whose name this Note is registered on the Note Register as the
absolute owner hereof for all purposes, whether or not this Note is overdue, and
neither the Corporation, the Trustee, any Paying Agent, any Authenticating
Agent, the Note Registrar nor any other such agent shall be affected by notice
to the contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
Authenticating Agent by the manual signature of one of its authorized
representatives.
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the manual signatures of its President and Secretary,
and its corporate seal to be impressed hereon.
Dated: __________________ EDUCATION LOANS INCORPORATED
__________________________
President
(SEAL)
__________________________
Secretary
-----------------------------
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By_____________________________
Authorized Representative
A-4-10
<PAGE>
-----------------------------
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto ________________________ the within Note and irrevocably appoints
____________________________, attorney-in-fact, to transfer the within Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated _______________________
PLEASE INSERT SOCIAL SECURITY ____________________________________
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this
OF ASSIGNEE assignment must correspond with the
name as it appears upon the face of
____________________________ the within Note in every particular,
without any alteration whatsoever.
SIGNATURE GUARANTEED:
____________________________
A-4-11
<PAGE>
EXHIBIT B-1
FORM OF SERIES 1997-1K NOTES
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
EDUCATION LOANS INCORPORATED
TAX EXEMPT FIXED RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTE
SUBORDINATE SERIES 1997-1K
CLASS B
No. R________ $________
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ---------------- -------- -----
June 1, 2020 October 15, 1997 _____
</TABLE>
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to, including, upon completion of the Section 150(d)(3)
Transfer, EdLinc), acknowledges itself indebted and hereby promises to pay to
the registered holder specified above, or registered assigns (the "Registered
Holder"), but solely from the revenues and receipts hereinafter specified and
not otherwise, the Principal Amount specified above on the Stated Maturity Date
specified above (subject to the right of prior redemption hereinafter
mentioned), upon presentation and surrender of this Note at the Principal Office
of the Trustee (as hereinafter defined), as Paying Agent for the Series 1997-1
Notes (as hereinafter defined), or a
B-1-1
<PAGE>
duly appointed successor Paying Agent, and to pay interest on said Principal
Amount, but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Holder hereof from the date hereof until the
payment of said Principal Amount has been made or duly provided for, at the rate
per annum specified above, payable semiannually on the first day of June and
December in each year, commencing December 1, 1997, and at the same rate per
annum (to the extent that the payment of such interest shall be legally
enforceable) on overdue installments of interest. Payment of interest on this
Note on each regularly scheduled Interest Payment Date shall be made by check or
draft drawn upon the Paying Agent and mailed to the Person who is the Registered
Holder hereof as of 5:00 p.m. in the city in which the Principal Office of the
Note Registrar is located on the applicable Regular Record Date at the address
of such Registered Holder as it appears on the Note Register maintained by the
Note Registrar, or, if the Registered Holder of this Note is the Registered
Holder of Series 1997-1 Notes in the aggregate Principal Amount of $1,000,000 or
more (or, if less than $1,000,000 in Principal Amount of Series 1997-1 Notes is
outstanding, the Registered Holder of all outstanding Series 1997-1 Notes), at
the direction of such Registered Holder received by the Paying Agent by 5:00
p.m. in the city in which the Principal Office of the Paying Agent is located on
the last Business Day preceding the applicable Regular Record Date, by
electronic transfer by the Paying Agent in immediately available funds to an
account designated by such Registered Holder. In addition, premium, if any, and
interest on this Note are payable at the Maturity hereof in the same manner as
the principal hereof, unless the date of such Maturity is a regularly scheduled
Interest Payment Date, in which event interest is payable in the manner set
forth in the preceding sentence. Any interest not so timely paid or duly
provided for shall cease to be payable to the Person who is the Registered
Holder hereof at the close of business on the Regular Record Date and shall be
payable to the Person who is the Registered Holder hereof at the close of
business on a special record date for the payment of any such defaulted
interest. Such special record date shall be fixed by the Trustee whenever moneys
become available for payment of the defaulted interest, and notice of the
special record date shall be given to the Registered Holder hereof not less than
ten days prior thereto by first-class mail to such Registered Holder as shown on
the Note Register on a date selected by the Trustee, stating the date of the
special record date and the date fixed for the payment of such defaulted
interest. The principal of, premium, if any, and interest on this Note are
payable in lawful money of the United States of America.
This Note is one of an authorized issue of Notes (the "Notes"), issued
and to be issued by the Corporation in one or more series pursuant to an
Indenture of Trust, dated as of July 1, 1997 (as supplemented and amended, the
"Indenture"), as supplemented by a First Supplemental Indenture of Trust, dated
as of July 1, 1997 (the "First Supplemental Indenture"), each between the
Corporation and First Bank National Association, Minneapolis, Minnesota, as
Trustee (the "Trustee," which term includes any successor trustee under the
Indenture). As provided in the Indenture, the Notes are issuable in series which
may vary as in the Indenture provided or permitted. This Note is one of a series
of Class B Notes issued in an
B-1-2
<PAGE>
aggregate Principal Amount of $____________ (the "Series 1997-1K Notes"). The
Series 1997-1K Notes are issued simultaneously with one other series of Class B
Notes issued in the aggregate Principal Amount of $_________ (together with the
Series 1997-1K Notes, collectively referred to herein as the "Series 1997-1
Subordinate Notes") and ten series of Class A Notes issued in the aggregate
Principal Amount of $_________ (the "Series 1997-1 Senior Notes" and, together
with the Series 1997-1 Subordinate Notes, collectively referred to herein as the
"Series 1997-1 Notes"). The proceeds of the Series 1997-1 Notes will be used by
the Corporation to (a) acquire student loan notes incurred under the Higher
Education Act and (b) fund the Reserve Fund.
Reference is hereby made to the Indenture, copies of which are on file
in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
secured thereunder; the student loan acquisition program being financed by the
issuance of the Notes; the revenues and other moneys pledged to the payment of
the principal of, premium, if any, and interest on the Notes and the Other
Obligations; the nature and extent and manner of enforcement of the pledge; the
conditions upon which Notes may be issued or Other Obligations may be incurred
by the Corporation thereunder, payable from such revenues and other moneys
thereunder as Senior Obligations, Subordinate Obligations or Class C Notes; the
conditions upon which the Indenture may be amended or supplemented with or
without the consent of the Holders of the Notes; the rights and remedies of the
Registered Holder hereof with respect hereto and thereto, including the
limitations upon the right of a Registered Holder hereof to institute any suit,
action or proceeding in equity or at law with respect hereto and thereto; the
rights, duties and obligations of the Corporation and the Trustee thereunder;
the terms and provisions upon which the liens, pledges, charges, trusts and
covenants made therein may be discharged at or prior to the Maturity or
redemption of this Note, and this Note thereafter no longer be secured by the
Indenture, or be deemed to be Outstanding thereunder; and for the other terms
and provisions thereof. Terms used with initial capital letters but not defined
in this Note have the respective meanings given such terms in the Indenture. The
Series 1997-1K Notes are being issued as, and will constitute, Tax Exempt Class
B Notes under the Indenture.
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture, including certain notes evidencing Student
Loans and the proceeds of the Corporation's bonds, notes or other evidences of
indebtedness, if any, issued with respect to the Notes.
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture and such Note that such Noteholder will
not at any time institute against the Corporation, or join in any institution
against the
B-1-3
<PAGE>
Corporation, any bankruptcy, reorganization, arrangement, insolvency or
liquidation 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 Servicing Agreement.
The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
The Series 1997-1K Notes constitute Class B Notes under the Indenture
which are subordinated in right of payment, the direction of remedies and
certain other matters in accordance with the terms of the Indenture to the
rights of the Holders of Class A Notes issued from time to time under the
Indenture (including, without limitation the Series 1997-1 Senior Notes) and
Other Senior Beneficiaries thereunder. A failure to pay principal of, premium,
if any, or interest on this Class B Note will not constitute an Event of Default
under the Indenture if any Senior Obligation is Outstanding.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Series 1997-1K Notes may, at the option
of the Corporation (and at such time as no Tax Exempt Auction Rate Series 1997-1
Notes are Outstanding), be redeemed, in whole or in part, on any date, at a
Redemption Price equal to 100% of the Principal Amount thereof so redeemed, from
proceeds of the Tax Exempt Series 1997-1 Notes constituting a portion of the
Balance of the Series 1997-1 Tax Exempt Acquisition Account that have not been
used to acquire Eligible Loans and from that portion of the Series 1997-1 Tax
Exempt Reserve Account which, if left in the Reserve Fund upon such redemption,
would cause the Balance in the Reserve Fund to exceed the Reserve Fund
Requirement, calculated giving effect to such redemption. Such redemption shall
be required on June 1, 2001 (to the extent the proceeds in the Series 1997-1 Tax
Exempt Acquisition Account not so used as of April 15, 2001, exceed
$________________) and on June 1, 2002 (from such proceeds not so used as of
April 15, 2002), unless the Corporation delivers to the Trustee: (i) an opinion
of Bond Counsel stating in effect that such redemption is not required pursuant
to the Code and that failure to so redeem Tax Exempt Series 1997-1 Notes will
not adversely affect the tax exempt status of interest on any Tax Exempt Series
1997-1 Notes for federal income tax purposes, (ii) a Corporation Certificate
certifying that, based on a Cash Flow Projection, the failure to so redeem Tax
Exempt Series 1997-1 Notes will not materially adversely affect the
B-1-4
<PAGE>
Corporation's ability to pay Debt Service on the Outstanding Notes and the
Outstanding Other Obligations, Carry-Over Amounts (including accrued interest
thereon) with respect to Outstanding Notes, Administrative Expenses or Note Fees
or to make required deposits to the Rebate Fund, and (iii) written confirmation
from each of the Rating Agencies then rating the Series 1997-1 Notes to the
effect that the failure to so redeem Tax Exempt Series 1997-1 Notes will not
result in a reduction or withdrawal of the rating of the Series 1997-1 Notes.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding Series 1997-1K Notes may, at the option
of the Corporation, be redeemed on December 1, 1998, and on any date thereafter,
in whole or in part, at a Redemption Price equal to 100% of the Principal Amount
thereof to be redeemed, from amounts credited to the Series 1997-1 Tax Exempt
Retirement Subaccount from the Series 1997-1 Tax Exempt Surplus Subaccount for
such purpose in accordance with the Indenture and from that portion of the
Series 1997-1 Tax Exempt Reserve Account which exceeds the Reserve Fund
Requirement (calculated after giving effect to such redemption). If the Trustee
shall have first certified that no deficiencies exist in any of the Rebate Fund,
the Note Fund, the Reserve Fund or the Special Redemption and Prepayment
Account, the Trustee shall, upon Corporation Order, transfer to the Series 1997-
1 Tax Exempt Retirement Account any Balances in the Series 1997-1 Tax Exempt
Surplus Subaccount (other than those consisting of Student Loans) which a
Corporation Certificate states are not reasonably expected to be needed for the
payment of scheduled Debt Service on the Outstanding Notes and Outstanding Other
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees, or for
transfer to the Rebate Fund.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements and certain other requirements, Outstanding Series
1997-1K Notes may, at the option of the Corporation and from amounts credited to
the Retirement Account for such purpose, be redeemed on June 1, 2007, and on any
date thereafter, in whole or in part, at the Redemption Prices (expressed as a
percentage of Principal Amount) set forth below plus accrued interest to the
Redemption Date:
Redemption
Redemption Period Price
----------------- -----
December 1, 2007, through November 30, 2008 102%
December 1, 2008, through November 30, 2009 101%
December 1, 2009, and thereafter 100%
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Series 1997-1 Notes may, at the option of the
Corporation, be redeemed, in whole but not in part, at a Redemption Price equal
to 100% of the Principal Amount of Series 1997-1 Notes to be so redeemed plus
accrued interest thereon to the Redemption Date, on any date after the remaining
aggregate
B-1-5
<PAGE>
Principal Balance of Student Loans Financed with proceeds of the Series 1997-1
Notes is less than 10% of the amounts initially deposited to the credit of the
Acquisition Fund.
If not all Series 1997-1 Notes subject to redemption are to be
redeemed, the particular Series 1997-1 Notes to be redeemed are to be selected
as provided in the Indenture.
Notice of redemption shall be given by first-class mail mailed at
least 30 days before the Redemption Date to each Holder of Series 1997-1K Notes
to be redeemed at his last address appearing on the Note Register; but no defect
in or failure to give such notice of redemption shall affect the validity of
proceedings for redemption of any Note not affected by such defect or failure.
All Series 1997-1K Notes so called for redemption will cease to bear interest on
such Redemption Date, provided funds for their redemption have been duly
deposited, and, except for the purpose of payment, shall no longer be protected
by the Indenture and shall not be deemed Outstanding thereunder.
It is provided in the Indenture that Series 1997-1K Notes of a
denomination larger than $5,000 may be redeemed in part ($5,000 or an integral
multiple thereof) and that upon any partial redemption of any such Series 1997-
1K Note the same shall be surrendered in exchange for one or more new Notes of
the same series in authorized form for the unredeemed portion of principal.
If provision is made for the payment of principal of, premium, if any,
and interest on this Note in accordance with the Indenture, this Note shall no
longer be deemed Outstanding under the Indenture, shall cease to be entitled to
the benefits of the Indenture and shall thereafter be payable solely from the
funds provided for such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and with the consent of
the Holders of two-thirds of the aggregate Principal Amount of Class B Notes at
the time Outstanding, if affected thereby. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
Principal Amount of the Class A Notes at the time Outstanding or Other Senior
Beneficiaries or, if no Senior Obligations are Outstanding, the Holders of
specified percentages in aggregate Principal Amount of the Class B Notes at the
time Outstanding or Other
B-1-6
<PAGE>
Subordinate Beneficiaries, on behalf of the Holders of all the Notes, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon the Registered Holder of
this Note and upon all future Registered Holders hereof and of any Note issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar (which shall be the Trustee unless and until an Authenticating Agent
becomes the Note Registrar under the Indenture) or at the Principal Office of a
duly appointed Authenticating Agent (the "Authenticating Agent," which term
includes any successor Authenticating Agent under the Indenture), duly endorsed
or accompanied by a written instrument of transfer in form satisfactory to the
Note Registrar or the Authenticating Agent, as the case may be, and executed by
the Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or the Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more other
Notes of the same series upon surrender hereof at the Principal Office of the
Note Registrar or the Principal Office of an Authenticating Agent. Thereupon the
Corporation shall execute and the Trustee or the Authenticating Agent, as the
case may be, shall authenticate and deliver, in exchange for this Note, one or
more new fully registered Notes in the name of the transferee, of an authorized
denomination, in aggregate Principal Amount equal to the Principal Amount of
this Note, of the same series and bearing interest at the same rate. Thereupon
the Corporation shall execute and the Trustee or the Authenticating Agent, as
the case may be, shall authenticate and deliver, in exchange for this Note, one
or more new fully registered Notes in the name of the transferee, of an
authorized denomination, in aggregate Principal Amount equal to the Principal
Amount of this Note, of the same series and bearing interest at the same rate.
No Authenticating Agent will be initially appointed with respect to the Series
1997-1K Notes. Notwithstanding the foregoing provisions of this paragraph, no
Series 1997-1K Note shall be required to be transferred, (i) during a period
beginning at the opening of business fifteen days before any selection of Series
1997-1K Notes for redemption and ending at the close of business on the day of
such selection, or (ii) if such Series 1997-1K Note has been selected for
redemption in whole or in part.
The Corporation may require payment by the Registered Holder hereof of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of this Note, other than
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
Person in whose name this Note is registered on the Note Register as the
absolute
B-1-7
<PAGE>
owner hereof for all purposes, whether or not this Note is overdue, and neither
the Corporation, the Trustee, any Paying Agent, any Authenticating Agent, the
Note Registrar nor any other such agent shall be affected by notice to the
contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
Authenticating Agent by the manual signature of one of its authorized
representatives.
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the manual signatures of its President and Secretary,
and its corporate seal to be impressed hereon.
Dated: _____________ EDUCATION LOANS INCORPORATED
----------------------------
President
(SEAL)
----------------------------
Secretary
-----------------------------
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By
-----------------------------
Authorized Representative
B-1-8
<PAGE>
---------------------
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto __________________ the within Note and irrevocably appoints _____________,
attorney-in-fact, to transfer the within Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated _______________________
PLEASE INSERT SOCIAL SECURITY _______________________________________
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this
OF ASSIGNEE assignment must correspond with the
name as it appears upon the face of the
______________________________ within Note in every particular,
without any alteration whatsoever.
SIGNATURE GUARANTEED:
- -----------------------------
B-1-9
<PAGE>
EXHIBIT B-2
-----------
FORM OF SERIES 1997-1L NOTES
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
EDUCATION LOANS INCORPORATED
TAXABLE LIBOR RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTE
SUBORDINATE SERIES 1997-L
CLASS B
No. R______ $_____
Stated Date of Original Interest
Maturity Date Issue Rate CUSIP
------------- ---------------- -------- -----
June 1, 2020 November _____, 1997 Variable _____
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
FOR VALUE RECEIVED, EDUCATION LOANS INCORPORATED, a nonprofit
corporation organized under the laws of the State of South Dakota (the
"Corporation," which term includes any successor corporation under the Indenture
hereinafter referred to, including, upon completion of the Section 150(d)(3)
Transfer, EdLinc), acknowledges itself indebted and hereby promises to pay to
the registered holder specified above, or registered assigns (the "Registered
Holder"), but solely from the revenues and receipts hereinafter specified and
not otherwise, the Principal Amount specified above on the Stated Maturity Date
specified above (subject to the right of prior redemption hereinafter
mentioned), upon presentation and surrender of this Note at the Principal Office
of the Trustee (as hereinafter defined), as Paying Agent for the Series 1997-1
Notes (as hereinafter defined), or a
B-2-1
<PAGE>
duly appointed successor Paying Agent, and to pay interest on said Principal
Amount, but solely from the revenues and receipts hereinafter specified and not
otherwise, to the Registered Holder hereof from the date hereof until the
payment of said Principal Amount has been made or duly provided for, payable on
each Interest Payment Date, commencing December 1, 1997, at the LIBOR Rate
Series 1997-1 Note Interest Rate (as hereinafter described), and at the same
rate per annum (to the extent that the payment of such interest shall be legally
enforceable) on overdue installments of interest. Payment of interest on this
Note on each regularly scheduled Interest Payment Date shall be made by check or
draft drawn upon the Paying Agent and mailed to the Person who is the Registered
Holder hereof as of 5:00 p.m. in the city in which the Principal Office of the
Note Registrar is located on the applicable Regular Record Date at the address
of such Registered Holder as it appears on the Note Register maintained by the
Note Registrar, or, if the Registered Holder of this Note is the Registered
Holder of Series 1997-1 Notes in the aggregate Principal Amount of $1,000,000 or
more (or, if less than $1,000,000 in Principal Amount of Series 1997-1 Notes is
outstanding, the Registered Holder of all outstanding Series 1997-1 Notes), at
the direction of such Registered Holder received by the Paying Agent by 5:00
p.m. in the city in which the Principal Office of the Paying Agent is located on
the last Business Day preceding the applicable Regular Record Date, by
electronic transfer by the Paying Agent in immediately available funds to an
account designated by such Registered Holder. In addition, interest on this Note
is payable at the Maturity hereof in the same manner as the principal hereof,
unless the date of such Maturity is a regularly scheduled Interest Payment Date,
in which event interest is payable in the manner set forth in the preceding
sentence. Any interest not so timely paid or duly provided for shall cease to be
payable to the Person who is the Registered Holder hereof at the close of
business on the Regular Record Date and shall be payable to the Person who is
the Registered Holder hereof at the close of business on a special record date
for the payment of any such defaulted interest. Such special record date shall
be fixed by the Trustee whenever moneys become available for payment of the
defaulted interest, and notice of the special record date shall be given to the
Registered Holder hereof not less than ten days prior thereto by first-class
mail to such Registered Holder as shown on the Note Register on a date selected
by the Trustee, stating the date of the special record date and the date fixed
for the payment of such defaulted interest. The principal of and interest on
this Note are payable in lawful money of the United States of America.
INTEREST ON THIS NOTE IS SUBJECT TO FEDERAL INCOME TAXATION PURSUANT
TO AN ELECTION MADE BY THE CORPORATION UNDER SECTION 625(c) OF THE TAX REFORM
ACT OF 1984 AND 26 CFR (S)301.9100-6T(d).
This Note is one of an authorized issue of Notes (the "Notes"), issued
and to be issued by the Corporation in one or more series pursuant to an
Indenture of Trust, dated as of July 1, 1997 (as supplemented and amended, the
"Indenture"), as supplemented by a First Supplemental Indenture of Trust, dated
as of July 1, 1997
B-2-2
<PAGE>
(the "First Supplemental Indenture"), each between the Corporation and First
Bank National Association, Minneapolis, Minnesota, as Trustee (the "Trustee,"
which term includes any successor trustee under the Indenture). As provided in
the Indenture, the Notes are issuable in series which may vary as in the
Indenture provided or permitted. This Note is one of a series of Class B Notes
issued in an aggregate Principal Amount of $_________________ (the "Series 1997-
1L Notes"). The Series 1997-1L Notes are issued simultaneously with one other
series of Class B Notes issued in the aggregate Principal Amount of
$__________________ (together with the Series 1997-1L Notes, collectively
referred to herein as the "Series 1997-1 Subordinate Notes") and ten series of
Class A Notes issued in the aggregate Principal Amount of $__________________
(the "Series 1997-1 Senior Notes" and, together with the Series 1997-1
Subordinate Notes, collectively referred to herein as the "Series 1997-1
Notes"). The proceeds of the Series 1997-1 Notes will be used by the Corporation
to (a) acquire student loan notes incurred under the Higher Education Act and
(b) fund the Reserve Fund.
Reference is hereby made to the Indenture, copies of which are on file
in the principal corporate trust office of the Trustee, and to all of the
provisions of which any Registered Holder of this Note by his acceptance hereof
hereby assents, for definitions of terms; the description of and the nature and
extent of the security for the various classes of Notes and Other Obligations
secured thereunder; the student loan acquisition program being financed by the
issuance of the Notes; the revenues and other moneys pledged to the payment of
the principal of, premium, if any, and interest on the Notes and the Other
Obligations; the nature and extent and manner of enforcement of the pledge; the
conditions upon which Notes may be issued or Other Obligations may be incurred
by the Corporation thereunder, payable from such revenues and other moneys
thereunder as Senior Obligations, Subordinate Obligations or Class C Notes; the
conditions upon which the Indenture may be amended or supplemented with or
without the consent of the Holders of the Notes; the rights and remedies of the
Registered Holder hereof with respect hereto and thereto, including the
limitations upon the right of a Registered Holder hereof to institute any suit,
action or proceeding in equity or at law with respect hereto and thereto; the
rights, duties and obligations of the Corporation and the Trustee thereunder;
the terms and provisions upon which the liens, pledges, charges, trusts and
covenants made therein may be discharged at or prior to the Maturity or
redemption of this Note, and this Note thereafter no longer be secured by the
Indenture, or be deemed to be Outstanding thereunder; and for the other terms
and provisions thereof. Terms used with initial capital letters but not defined
in this Note have the respective meanings given such terms in the Indenture. The
Series 1997-L Notes are being issued as, and will constitute, taxable Class B
Notes under the Indenture.
The Notes and Other Obligations are limited obligations of the
Corporation, payable solely from the revenues and assets of the Corporation
pledged therefor under the Indenture, including certain notes evidencing Student
Loans and
B-2-3
<PAGE>
the proceeds of the Corporation's bonds, notes or other evidences of
indebtedness, if any, issued with respect to the Notes.
Each Noteholder, by acceptance of a Note, covenants and agrees that by
accepting the benefits of the Indenture and such Note that such Noteholder will
not at any time institute against the Corporation, or join in any institution
against the Corporation, any bankruptcy, reorganization, arrangement, insolvency
or liquidation 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 Servicing Agreement.
The Corporation has structured the Indenture and the Notes with the
intention that the Notes will qualify under applicable federal, state, local and
foreign tax law as indebtedness of the Corporation secured by the Trust Estate.
The Corporation, the Trustee, the Servicer and each Noteholder agree to treat
and to take no action inconsistent with the treatment of the Notes as such
indebtedness for purposes of federal, state, local and foreign income or
franchise taxes and any other tax imposed on or measured by income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
this paragraph. Each Noteholder agrees that it will cause any Person acquiring
an interest in a Note through it to comply with the Indenture as to treatment as
indebtedness under applicable tax law, as described in this paragraph.
The Series 1997-1L Notes constitute Class B Notes under the Indenture
which are subordinated in right of payment, the direction of remedies and
certain other matters in accordance with the terms of the Indenture to the
rights of the Holders of Class A Notes issued from time to time under the
Indenture (including, without limitation the Series 1997-1 Senior Notes) and
Other Senior Beneficiaries thereunder. A failure to pay principal of, premium,
if any, or interest on this Class B Note will not constitute an Event of Default
under the Indenture if any Senior Obligation is Outstanding.
Interest payable on this Note shall be computed on the basis of actual
days elapsed and accrue daily from the date hereof (on the basis of a 360-day
year), and is payable on each regularly scheduled Interest Payment Date prior to
the Maturity of this Note and at the Maturity of this Note. The interest payable
on each Interest Payment Date for this Note shall be [calculated on a per unit
basis, based on a unit of $100,000, and shall be] that interest which has
accrued through the last day preceding such Interest Payment Date or, in the
case of the Maturity of this Note, the last day preceding the date of such
Maturity. The LIBOR Rate Series 1997-1 Note Interest Rate shall be effective as
of and on the first day (whether or not a Business Day) of the applicable
Interest Period and be in effect thereafter through the end of such Interest
Period.
The unpaid Principal Amount hereof from time to time outstanding shall
bear interest at a LIBOR Rate Series 1997-1 Note Interest Rate, as described
B-2-4
<PAGE>
below, payable on each Interest Payment Date and at the Maturity hereof, such
interest to accrue from the later of the date hereof or the date through which
interest has been paid or duly provided for.
During the Initial Interest Period, this Note shall bear interest at
the LIBOR Rate Series 1997-1 Note Initial Interest Rate for the Series 1997-L
Notes. The interest rate to be borne by this Note during each Interest Period
thereafter shall be determined on the related Interest Rate Determination Date
and shall be equal to the lesser of (i) the sum of One-Month LIBOR determined
with respect to such Interest Rate Determination Date plus _____% (which is
herein referred to as the "LIBOR Rate Series 1997-1 Note LIBOR-Based Rate"), and
(ii) the Net Loan Rate determined with respect to such Interest Rate
Determination Date. The Trustee shall determine such interest rate on each
Interest Rate Determination Date.
Notwithstanding any other provision of this Note or the First
Supplemental Indenture, interest payable on this Note for an Interest Period
shall never exceed for such Interest Period the amount of interest payable at
the Net Loan Rate in effect for such Interest Period.
If the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate for the Series
1997-1L Notes is greater than the Net Loan Rate, then the LIBOR Rate Series
1997-1 Note Interest Rate applicable to the Series 1997-1L Notes for that
Interest Period will be the Net Loan Rate. If the LIBOR Rate Series 1997-1 Note
Interest Rate applicable to the Series 1997-1L Notes for any Interest Period is
the Net Loan Rate, the Trustee shall determine the Carry-Over Amount, if any,
with respect to the Series 1997-1L Notes for such Interest Period. Such
Carryover Amount shall bear interest calculated at a rate equal to the LIBOR
Rate Series 1997-1 Note LIBOR-Based Rate (as determined by the Trustee) from the
Interest Payment Date for the Interest Period with respect to which such Carry-
Over Amount was calculated until paid. For purposes of this Note, any reference
to "principal" or "interest" herein shall not include within the meaning of such
words Carry-Over Amount or any interest accrued on any such Carry-Over Amount.
Such Carry-Over Amount shall be separately calculated for each Series 1997-1L
Note by the Trustee during such Interest Period in sufficient time for the
Trustee to give notice to each Holder of such Carry-Over Amount as required in
the next succeeding sentence. On the Interest Payment Date for an Interest
Period with respect to which such Carry-Over Amount has been calculated by the
Trustee, the Trustee shall give written notice to each Holder of the Carry-Over
Amount applicable to each Holder's Series 1997-1L Note, which written notice may
accompany the payment of interest by check made to each such Holder on such
Interest Payment Date or otherwise shall be mailed on such Interest Payment Date
by first class mail, postage prepaid, to each such Holder at such Holder's
address as it appears on the registration books maintained by the Note
Registrar. Such notice shall state, in addition to such Carry-Over Amount, that,
unless and until a Series 1997-1L Note has been redeemed or has been deemed no
longer Outstanding under the First Supplemental Indenture (after which no Carry-
Over Amount shall be paid with respect to a Series 1997-1L Note), (i) the Carry-
Over
B-2-5
<PAGE>
Amount (and interest accrued thereon) shall be paid by the Trustee on such
Series 1997-1L Note on the first occurring Interest Payment Date for a
subsequent Interest Period if and to the extent that (l) the Eligible Carry-Over
Make-Up Amount with respect to such Interest Period is greater than zero, and
(2) moneys are available pursuant to the terms of the First Supplemental
Indenture to pay such Carry-Over Amount (and interest accrued thereon), and (ii)
interest shall accrue on the Carry-Over Amount at a per annum rate equal to the
LIBOR Rate Series 1997-1 Note LIBOR-Based Rate until such Carry-Over Amount is
paid in full or is canceled.
The Carry-Over Amount for the Series 1997-1L Notes shall be paid by
the Trustee on Outstanding Series 1997-1L Notes on the first occurring Interest
Payment Date for a subsequent Interest Period if and to the extent that (i) the
Eligible Carry-Over Make-Up Amount with respect to such Interest Period is
greater than zero, and (ii) moneys in the Surplus Account are available on such
Interest Payment Date for transfer to the Interest Account for such purpose in
accordance with the applicable provisions of the Indenture, after taking into
account all other amounts payable from the Surplus Fund on such Interest Payment
Date. Any Carry-Over Amount (and any interest accrued thereon) which is unpaid
as of an Interest Payment Date with respect to any Series 1997-1L Note, which
Series 1997-1L Note is to be redeemed or deemed no longer Outstanding under the
First Supplemental Indenture on such Interest Payment Date, shall be paid to the
Holder thereof on such Interest Payment Date to the extent that moneys are
available therefor in accordance with the provisions of the preceding clause
(b); provided, however, that any Carry-Over Amount (and any interest accrued
thereon) which is not so paid on such Interest Payment Date shall be canceled
with respect to such Series 1997-1L Note on such Interest Payment Date and shall
not be paid on any succeeding Interest Payment Date. To the extent that any
portion of the Carry-Over Amount (and any interest accrued thereon) remains
unpaid after payment of a portion thereof, such unpaid portion shall be paid in
whole or in part as required hereunder until fully paid by the Trustee on the
next occurring Interest Payment Date or Dates, as necessary, for a subsequent
Interest Period or Periods, if and to the extent that the conditions in the
first sentence of this paragraph are satisfied. On any Interest Payment Date on
which the Trustee pays less than all of the Carry-Over Amount (and any interest
accrued thereon) with respect to a Series 1997-1L Note, the Trustee shall give
written notice in the manner set forth in the immediately preceding paragraph to
the Holder of such Series 1997-1L Note of the Carry-Over Amount remaining unpaid
on such Series 1997-1L Note.
The Interest Payment Date in such subsequent Interest Period on which
such Carry-Over Amount for the Series 1997-1L Notes shall be paid shall be
determined by the Trustee in accordance with the provisions of the immediately
preceding paragraph, and the Trustee shall make payment of the Carry-Over Amount
in the same manner as, and from the same Account from which, it pays interest on
the Series 1997-1L Notes on an Interest Payment Date.
B-2-6
<PAGE>
In the event that the Trustee no longer determines, or fails to
determine, when required, the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate
with respect to the Series 1997-1L Notes, or if, for any reason, such manner of
determination shall be held to be invalid or unenforceable, the LIBOR Rate
Series 1997-1 Note LIBOR-Based Rate for each succeeding Interest Period shall be
the Net Loan Rate as determined by or on behalf of the Corporation with respect
to the related Interest Rate Determination Date, and if the Corporation shall
fail or refuse to determine such Net Loan Rate, the Net Loan Rate shall be
determined by a securities dealer appointed by the Trustee capable of making
such a determination in accordance with the provisions hereof and written notice
of such determination shall be given by such securities dealer to the Trustee.
The determination of a LIBOR Rate Series 1997-1 Note Interest Rate by
the Trustee or any other authorized Person pursuant to the provisions of the
First Supplemental Indenture shall be conclusive and binding on the Holders of
the Series 1997-L Notes to which such LIBOR Rate Series 1997-1 Note Interest
Rate applies, and the Corporation and the Trustee may rely thereon for all
purposes.
Notwithstanding any provision of this Note to the contrary, in no
event shall the cumulative amount of interest paid or payable on this Note
(including interest calculated as provided herein, plus any other amounts that
constitute interest on this Note under applicable law, which are contracted for,
charged, reserved, taken or received pursuant to this Note or related documents)
calculated from the date of issuance of this Note through any subsequent day
during the term of this Note or otherwise prior to payment in full of this Note
exceed the amount permitted by applicable law. If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Note or related documents or otherwise contracted for, charged, reserved, taken
or received in connection with this Note, or if the redemption or acceleration
of the Maturity of this Note results in payment to or receipt by the Registered
Holder or any former Registered Holder hereof of any interest in excess of that
permitted by applicable law, then notwithstanding any provision of this Note or
related documents to the contrary all excess amounts theretofore paid or
received with respect to this Note shall be credited on the Principal Amount of
this Note (or, if this Note has been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of this Note and related
documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for under this
Note and under the related documents.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Outstanding LIBOR Rate Series 1997-1 Notes shall
receive prepayments of principal on any Interest Payment Date from moneys
available therefor in the Series 1997-1 Taxable Special Redemption and
Prepayment Subaccount in accordance with the provisions of the First
Supplemental Indenture.
B-2-7
<PAGE>
All prepayments of principal in accordance with the preceding sentence shall,
subject to satisfying the asset requirements of the Indenture, be allocated
between the LIBOR Rate Series 1997-1 Senior Notes and the Series 1997-1L Notes
pro rata based upon their respective aggregate Principal Amounts. All such
prepayments of principal applied to the Series 1997-L Notes shall be allocated
pro rata, based upon their respective Principal Amounts, to the reduction of the
Principal Amount of all Series 1997-L Notes.
Subject to compliance with the provisions of the Indenture relating to
certain asset requirements, Series 1997-1 Notes may, at the option of the
Corporation, be redeemed, in whole but not in part, at a Redemption Price equal
to 100% of the Principal Amount of Series 1997-1 Notes to be so redeemed plus
accrued interest thereon to the Redemption Date, on any date after the remaining
aggregate Principal Balance of Student Loans Financed with proceeds of the
Series 1997-1 Notes is less than 10% of the amounts initially deposited to the
credit of the Acquisition Fund.
Notice of redemption shall be given by first-class mail mailed at
least 30 days before the Redemption Date to each Holder of Series 1997-L Notes
to be redeemed at his last address appearing on the Note Register; but no defect
in or failure to give such notice of redemption shall affect the validity of
proceedings for redemption of any Series 1997-L Notes not affected by such
defect or failure. All Series 1997-L Notes so called for redemption will cease
to bear interest on such Redemption Date, provided funds for their redemption
have been duly deposited, and, except for the purpose of payment, shall no
longer be protected by the Indenture and shall not be deemed Outstanding
thereunder.
It is provided in the Indenture that Series 1997-L Notes of an
Authorized Denomination larger than $100,000 may be redeemed in part ($100,000
in original Principal Amount or an integral multiple thereof) and that upon any
partial redemption of any such Series 1997-L Note the same shall be surrendered
in exchange for one or more new Notes of the same series in authorized form for
the unredeemed portion of principal.
If provision is made for the payment of principal of and interest on
this Note in accordance with the Indenture, this Note shall no longer be deemed
Outstanding under the Indenture, shall cease to be entitled to the benefits of
the Indenture and shall thereafter be payable solely from the funds provided for
such payment.
If an Event of Default shall occur, the principal of all the
Outstanding Notes may and, under certain circumstances, shall be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
B-2-8
<PAGE>
Corporation and the rights of the Holders of the Notes and Other Beneficiaries
under the Indenture at any time by the Corporation with, among other things, the
consent of the Holders of two-thirds of the aggregate Principal Amount of Class
A Notes at the time Outstanding, if affected thereby, and the consent of the
Holders of two-thirds of the aggregate Principal Amount of Class B Notes at the
time Outstanding, if affected thereby. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate Principal Amount of
the Class A Notes at the time Outstanding or Other Senior Beneficiaries or, if
no Senior Obligations are Outstanding, the Holders of specified percentages in
aggregate Principal Amount of the Class B Notes at the time Outstanding or Other
Subordinate Beneficiaries, on behalf of the Holders of all the Notes, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver shall be conclusive and binding upon the Registered Holder of
this Note and upon all future Registered Holders hereof and of any Note issued
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Note.
This Note is transferable by the Registered Holder hereof upon
surrender of this Note for transfer at the Principal Office of the Note
Registrar (which shall be the Trustee unless and until an Authenticating Agent
becomes the Note Registrar under the Indenture) or at the Principal Office of a
duly appointed Authenticating Agent (the "Authenticating Agent," which term
includes any successor Authenticating Agent under the Indenture), duly endorsed
or accompanied by a written instrument of transfer in form satisfactory to the
Note Registrar or such Authenticating Agent, as the case may be, and executed by
the Registered Holder hereof or his attorney duly authorized in writing, with
signature guarantees satisfactory to the Note Registrar or such Authenticating
Agent, as the case may be. This Note may also be exchanged for one or more other
Notes of the same series upon surrender hereof at the Principal Office of the
Note Registrar or the Principal Office of an Authenticating Agent. Thereupon the
Corporation shall execute and the Trustee or the Authenticating Agent, as the
case may be, shall authenticate and deliver, in exchange for this Note, one or
more new fully registered Notes in the name of the transferee, of an authorized
denomination, in aggregate Principal Amount equal to the Principal Amount of
this Note, of the same series and bearing interest at the same rate. No
Authenticating Agent will be initially appointed with respect to the Series
1997-L Notes. Notwithstanding the foregoing provisions of this paragraph, no
Series 1997-L Note shall be required to be transferred, (i) during a period
beginning at the opening of business fifteen days before any selection of Series
1997-L Notes for redemption and ending at the close of business on the day of
such selection, or (ii) if such Series 1997-L Note has been selected for
redemption in whole or in part.
The Corporation may require payment by the Registered Holder hereof of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of this Note, other than
B-2-9
<PAGE>
certain exchanges specifically exempted under the Indenture and not involving
any transfer.
The Corporation, the Trustee, each Paying Agent, any Authenticating
Agent, the Note Registrar and any other agent of the Corporation may treat the
Person in whose name this Note is registered on the Note Register as the
absolute owner hereof for all purposes, whether or not this Note is overdue, and
neither the Corporation, the Trustee, any Paying Agent, any Authenticating
Agent, the Note Registrar nor any other such agent shall be affected by notice
to the contrary.
IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND DECLARED that all
acts, conditions and things required to have happened, to exist and to have been
performed precedent to and in the issuance of this Note have happened, do exist,
and have been performed in regular and due time, form and manner as so required.
This Note shall not be valid or become obligatory for any purpose or
be entitled to any security or benefit under the Indenture until the Certificate
of Authentication hereon shall have been signed by the Trustee or by the
Authenticating Agent by the manual signature of one of its authorized
representatives.
B-2-10
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Note to be
executed in its name by the manual signatures of its President and Secretary,
and its corporate seal to be impressed hereon.
Dated: EDUCATION LOANS INCORPORATED
-----------
----------------------------
President
(SEAL)
----------------------------
Secretary
-------------------------------
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes of the series designated therein and
issued under the provisions of the within-mentioned Indenture.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By
-------------------------------
Authorized Representative
B-2-11
<PAGE>
_____________________________________
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto ________________________ the within Note and irrevocably appoints
____________________________, attorney-in-fact, to transfer the within Note on
the books kept for registration thereof, with full power of substitution in the
premises.
Dated
----------------------------
PLEASE INSERT SOCIAL SECURITY _______________________________________
OR OTHER IDENTIFYING NUMBER NOTICE: The signature to this
OF ASSIGNEE assignment must correspond with the
name as it appears upon the face of the
within Note in every particular,
- ----------------------------------- without any alteration whatsoever.
SIGNATURE GUARANTEED:
- -----------------------------------
B-2-12
<PAGE>
Draft of 10/16/97
-----------------
EXHIBIT 4.2
================================================================================
FIRST SUPPLEMENTAL INDENTURE OF TRUST
between
EDUCATION LOANS INCORPORATED
and
FIRST BANK NATIONAL ASSOCIATION
as Trustee
-----------------------------------
Dated as of July 1, 1997
-----------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PARTIES.......................................................................... 1
RECITALS......................................................................... 1
Section 1. Definitions......................................................... 1
Section 2. Authorization and Terms of Series 1997-1 Notes...................... 20
Section 3. Interest Payable on Auction Rate Series 1997-1 Notes and
LIBOR Rate Series 1997-1 Notes.................................... 24
Section 4. Determining the Auction Rate Series 1997-1 Note Interest Rate....... 31
Section 5. Determination of Payment Defaults and Payment of
Auction Agent and Broker-Dealer Fees.............................. 42
Section 6. Calculation of Maximum Auction Rate, All Hold
Rate, One-Month LIBOR, Three-Month
LIBOR, Non-Payment Rate, After-Tax Equivalent,
"AA" Composite Commercial Paper Rate, Index,
Applicable Percentage and Net Loan Rate........................... 42
Section 7. Notification of Rates, Amounts and Payment Dates.................... 44
Section 8. Auction Agent....................................................... 44
Section 9. Broker-Dealers...................................................... 46
Section 10. Changes in Auction Period or Periods and
Certain Percentages............................................... 46
Section 11. Changes in the Auction Date......................................... 49
Section 12. Additional Provisions Regarding the Auction Rate
Series 1997-1 Note Interest Rate.................................. 49
Section 13. Qualifications of Market Agent...................................... 50
Section 14. Purposes of Issuance of Series 1997-1 Notes......................... 51
Section 15. Deposit of Series 1997-1 Note Proceeds.............................. 51
Section 16. Redemption and Prepayment of
Series 1997-1 Notes............................................... 53
Section 17. Book-Entry Series 1997-1 Notes...................................... 59
Section 18. Series 1997-1 Accounts and Subaccounts.............................. 62
Section 19. Deposits to Series 1997-1 Rebate Subaccount and
Series 1997-1 Excess Earnings Subaccount.......................... 65
Section 20. Obligors Not To Make Certain Purchases of Tax Exempt
Series 1997-1 Notes............................................... 66
Section 21. Arbitrage Provisions................................................ 66
Section 22. Purchase of Eligible Loans From Series 1997-1 Tax Exempt
and Taxable Acquisition Accounts and Series 1997-1
Tax Exempt and Taxable Surplus Subaccounts........................ 67
Section 23. Limitation on Costs of Issuance, Administrative Expenses
and Note Fees..................................................... 68
Section 24. Proceeds of Sales of Certain Student Loans To Be
Deposited in the Acquisition Fund................................. 68
Section 25. Limitation on Acquisition of Consolidation Loans and
Special Program Loans............................................... 68
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 26. Certain Findings, Determinations and Designations............................ 70
Section 27. Governing Law................................................................ 71
Section 28. Section Headings; Table of Contents.......................................... 71
Section 29. Severability................................................................. 71
Section 30. Counterparts................................................................. 71
Section 31. Effect of First Supplemental Indenture....................................... 71
SIGNATURE ............................................................................... 72
Exhibit A-1 -- Form of Tax Exempt Auction Rate
Series 1997-1 Notes.................................................... A-1-1
Exhibit A-2 -- Form of Series 1997-1F Notes........................................... A-2-1
Exhibit A-3 -- Form of Taxable Auction Rate Series 1997-1 Notes....................... A-3-1
Exhibit A-4 -- Form of LIBOR Rate Series 1997-1 Senior Notes.......................... A-4-1
Exhibit B-1 -- Form of Series 1997-1K Notes........................................... B-1-1
Exhibit B-2 -- Form of Series 1997-1L Notes........................................... B-2-1
Exhibit C -- Form of Notice of A Payment Default.................................... C-1
Exhibit D -- Form of Notice of Cure of Payment Default.............................. D-1
Exhibit E -- Form of Notice of Proposed Auction Period
Adjustment............................................................. E-1
Exhibit F -- Form of Notice Establishing Auction Period
Adjustment............................................................. F-1
Exhibit G -- Form of Notice of Change in Auction Date............................... G-1
Exhibit H-1 -- List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from the Series 1979 Trustee................... H-1-1
Exhibit H-2 -- List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from Series 1989 Trustee....................... H-2-1
Exhibit H-3 -- List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from Series 1994 Trustee
and financed from proceeds of Series 1996-1 Notes...................... H-3-1
Exhibit H-4 -- List of Student Loan Purchase Agreements relating to
Eligible Loans to be financed from proceeds of Tax
Exempt Series 1997-1 Notes, Series 1989, 1991-A, 1994-A
and 1997-A Bonds and Series 1996-1 Notes............................... H-4-1
Exhibit H-5 -- List of Student Loan Purchase Agreements relating to
Eligible Loans acquired from Series 1994 Trustee and
financed from proceeds of Series 1994-1, 1995-1 and
1995-2 Notes........................................................... H-5-1
Exhibit H-6 -- List of Student Loan Purchase Agreements relating to
Eligible Loans to be financed from proceeds of Taxable
Series 1997-1 Notes.................................................... H-6-1
Exhibit I -- Form of Notice of Proposed Adjustment
to Certain Percentages................................................. I-1
Exhibit J -- Form of Notice Establishing Adjustment
to Certain Percentages................................................. J-1
</TABLE>
-ii-
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE OF TRUST, dated as of July 1, 1997,
between EDUCATION LOANS INCORPORATED, a nonprofit corporation duly organized and
existing under the laws of the State of South Dakota (the "Corporation"), and
FIRST BANK NATIONAL ASSOCIATION, a national banking association duly
established, existing and authorized to accept and execute trusts of the
character herein set out under and by virtue of the laws of the United States
(the "Trustee");
W I T N E S S E T H:
WHEREAS, the Corporation and the Trustee, as trustee, have heretofore
executed and delivered an Indenture of Trust, dated as July 1, 1997 (the
"Original Indenture"); and
WHEREAS, the Original Indenture prescribes the terms and conditions
upon which the Corporation may from time to time authorize and issue series of
Notes (as defined in the Original Indenture); and
WHEREAS, the Corporation has, by proper action of its Board,
authorized and determined to issue twelve series of Notes in the respective
aggregate principal amounts of $______________ (the "Series 1997-1A Notes"),
$_________________ (the "Series 1997-1B Notes"), $_____________ (the "Series
1997-1C Notes"), $_____________ (the "Series 1997-1D Notes"), $_____________
(the "Series 1997-1E Notes"), $_____________ (the "Series 1997-1F Notes"),
$_____________ (the "Series 1997-1G Notes"), $_____________ (the "Series 1997-1H
Notes"), $_____________ (the "Series 1997-1I Notes") and $_____________ (the
"Series 1997-1J Notes"), each of which will be a series of Class A Notes, and
$______________ (the "Series 1997-1K Notes") and $_______________ (the "Series
1997-1L Notes," and, together with the Series 1997-1A Notes, the Series 1997-1B
Notes, the Series 1997-1C Notes, the Series 1997-1D Notes, the Series 1997-1E
Notes, the Series 1997-1F Notes, the Series 1997-1G Notes, the Series 1997-1H
Notes, the Series 1997-1I Notes, the Series 1997-1J Notes and the Series 1997-1K
Notes, the "Series 1997-1 Notes"), each of which will be a series of Class B
Notes; and
WHEREAS, the Corporation desires by this First Supplemental Indenture
to prescribe the terms and provisions of the Series 1997-1 Notes, all as more
fully set forth herein; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture and the issuance of the Series 1997-1 Notes have been in all respects
duly and validly authorized by the Corporation;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
Section 1. Definitions. In this First Supplemental Indenture, the
terms defined in the Original Indenture shall, except as otherwise provided in
this Section 1, have the same meaning when used herein unless the context or use
<PAGE>
thereof indicates another or different meaning or intent. In addition, the
following terms shall have the following respective meanings unless the context
hereof clearly requires otherwise:
"'AA' Composite Commercial Paper Rate" shall mean, with respect to a
series of Tax Exempt Auction Rate Series 1997-1 Notes, (i) the interest
equivalent of the 30-day rate on commercial paper placed on behalf of issuers
whose corporate bonds are rated "AA" by S&P, or the equivalent of such rating by
S&P, as such 30-day rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date of determination, or (ii) if the Federal Reserve Bank of New York does
not make available any such rate, then the arithmetic average of the interest
equivalent of the 30-day rate on commercial paper placed on behalf of such
issuers, as quoted to the Auction Agent on a discount basis or otherwise by the
Commercial Paper Dealers, as of the close of business on the Business Day
immediately preceding the date of determination. If, at the time quotations are
required, any Commercial Paper Dealer does not quote a commercial paper rate
required to determine the "'AA' Composite Commercial Paper Rate," or if less
than three Commercial Paper Dealers are then serving as such for any reason, the
"'AA' Composite Commercial Paper Rate" shall be determined on the basis of such
quotation or quotations furnished by the Commercial Paper Dealer or Commercial
Paper Dealers then serving as such and providing a quotation. For purposes of
this definition, the "interest equivalent" of a rate stated on a discount basis
(a "discount rate") for commercial paper of a given day's maturity shall be
equal to the product of (a) 100, times (b) the quotient (rounded upward to the
next higher .00001) of (1) the discount rate (expressed in decimals) divided by
(2) the difference between (A) 1.00, and (B) a fraction, the numerator of which
shall be the product of the discount rate (expressed in decimals) times the
number of days from (and including) the date of determination to, but excluding,
the date on which such commercial paper matures, and the denominator of which
shall be 360.
"Administrative Cost and Note Fee Rate" shall mean a rate per annum
equal to the sum of (i) 1.275%, (ii) the Auction Agent Fee Rate and (iii) the
Broker-Dealer Fee Rate.
"After-Tax Equivalent" shall mean, with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Notes, the interest rate per annum equal to
the product of (i) 1.00 minus the Statutory Corporate Tax Rate and (ii) the "AA"
Composite Commercial Paper Rate.
"All Hold Rate" shall mean (i) with respect to a series of Tax Exempt
Auction Rate Series 1997-1 Notes, the interest rate per annum equal to 85% (as
such percentage may be adjusted pursuant to Section 10 hereof) of the lesser of
(a) the After-Tax Equivalent and (b) the Index; provided that in no event shall
the All Hold Rate be greater than the Maximum Auction Rate, and (ii) with
respect to a series of Taxable Auction Rate Series 1997-1 Notes, One-Month LIBOR
less .20%.
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<PAGE>
"Applicable Percentage" shall mean, with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Notes, the percentage determined (as such
percentage may be adjusted pursuant to Section 10 hereof) based on the ratings
of Moody's and Fitch of the Tax Exempt Auction Rate Series 1997-1 Notes as set
forth below:
<TABLE>
<CAPTION>
Moody's Fitch's
Credit Rating Credit Rating Applicable Percentage
- ------------- ------------- ----------------------
<S> <C> <C>
"Aaa" "AAA" 175%
"Aa" "AA" 175%
"A" "A" 175%
"Baa" "BBB" 200%
Below "Baa" Below "BBB" 265%
</TABLE>
provided that if the Tax Exempt Auction Rate Series 1997-1 Notes are not then
rated by both Moody's and Fitch, the "Applicable Percentage" shall be 265%. In
the event that one such Rating Agency has assigned a lower credit rating to the
Tax Exempt Auction Rate Series 1997-1 Notes than the other Rating Agency, the
"Applicable Percentage" shall be based upon such lower credit rating. All
ratings referred to above shall be without regard to the gradations within each
rating category. For purposes of the Auction Agent and the Auction Procedures,
the ratings referred to in this definition shall be the last ratings of which
the Auction Agent shall have been given notice pursuant to the Auction Agent
Agreement.
"Auction" shall mean the implementation of the Auction Procedures on
an Auction Date.
"Auction Agent" shall mean the Initial Auction Agent under the Initial
Auction Agent Agreement unless and until a Substitute Auction Agent Agreement
becomes effective, after which "Auction Agent" shall mean the Substitute Auction
Agent.
"Auction Agent Agreement" shall mean the applicable Initial Auction
Agent Agreement unless and until a Substitute Auction Agent Agreement is entered
into, after which "Auction Agent Agreement" shall mean such Substitute Auction
Agent Agreement.
"Auction Agent Fee" shall have the meaning ascribed to such term in
the Auction Agent Agreement.
"Auction Agent Fee Rate" shall have the meaning ascribed to such term
in the Auction Agent Agreement.
"Auction Date" shall mean, initially, with respect to the Series 1997-
1A Notes, December 3, 1997, with respect to the Series 1997-1B Notes,
December 10, 1997,
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<PAGE>
with respect to the Series 1997-1C Notes, December 17, 1997, with respect to the
Series 1997-1D Notes, December 29, 1997, with respect to the Series 1997-1E
Notes, January 5, 1998, with respect to the Series 1997-1G Notes, December 5,
1997, and with respect to the Series 1997-1H Notes, December 12, 1997, and,
thereafter, with respect to each such series of Auction Rate Series 1997-1
Notes, the Business Day immediately preceding the first day of each Auction
Period for such series, other than:
(A) an Auction Period commencing after the ownership of such series is no
longer maintained in Book-Entry Form by the Securities Depository;
(B) an Auction Period commencing after and during the continuance of a
Payment Default; or
(C) an Auction Period commencing less than two (2) Business Days after the
cure of a Payment Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to Section 11 of this First Supplemental Indenture.
"Auction Period" shall mean the Interest Period applicable to each
series of the Auction Rate Series 1997-1 Notes, which Auction Period (after the
Initial Interest Period for each such series) initially shall consist generally
of (i) in the case of the Tax Exempt Auction Rate Series 1997-1 Notes, thirty-
five (35) days, as the same may be adjusted pursuant to Section 3(A) or Section
10 hereof, and (ii) in the case of the Taxable Exempt Auction Rate Series 1997-1
Senior Notes, twenty-eight (28) days, as the same may be adjusted pursuant to
Section 3(A) or Section 10 hereof.
"Auction Period Adjustment" shall mean an adjustment to the Auction
Period as provided in Section 10 hereof.
"Auction Procedures" shall mean the procedures set forth in Sections 4
through 11 hereof by which the Auction Rate is determined.
"Auction Rate" shall mean the rate of interest per annum that results
from implementation of the Auction Procedures and is determined as described in
Section 4(c)(ii) hereof.
"Auction Rate Series 1997-1 Note Initial Interest Rate" shall mean
________% per annum for the Series 1997-1A Notes, ________% per annum for the
Series 1997-1B Notes, ________% per annum for the Series 1997-1C Notes,
________% per annum for the Series 1997-1D Notes, ________% per annum for the
Series 1997-1E Notes, ________% per annum for the Series 1997-1G Notes and
________% per annum for the Series 1997-1H Notes.
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<PAGE>
"Auction Rate Series 1997-1 Note Interest Rate" shall mean the rate of
interest per annum borne from time to time by a series of the Auction Rate
Series 1997-1 Notes, which shall be (i) during the Initial Interest Period for
such series, the Auction Rate Series 1997-1 Note Initial Interest Rate, and (ii)
during each Interest Period thereafter, the rate of interest determined in
accordance with the provisions of Sections 4 through 12 hereof; provided,
however, that in the event of a Payment Default with respect to a series, the
Auction Rate Series 1997-1 Note Interest Rate for such series shall equal the
Non-Payment Rate; and provided, further, that such Auction Rate Series 1997-1
Note Interest Rate shall in no event exceed the Auction Rate Series 1997-1 Note
Interest Rate Limitation.
"Auction Rate Series 1997-1 Note Interest Rate Limitation" shall mean
(i) with respect to a series of Tax Exempt Auction Rate Series 1997-1 Notes, a
rate per annum equal to 14% or, if less than such rate, the highest rate the
Corporation may legally pay, from time to time, as interest on the Tax Exempt
Auction Rate Series 1997-1 Notes, and (ii) with respect to a series of Taxable
Auction Rate Series 1997-1 Notes, a rate per annum equal to 18% or, if less than
such rate, the highest rate the Corporation may legally pay, from time to time,
as interest on the Taxable Auction Rate Series 1997-1 Notes.
"Auction Rate Series 1997-1 Notes" shall mean the Tax Exempt Auction
Rate Series 1997-1 Notes and the Taxable Auction Rate Series 1997-1 Notes.
"Authorized Denominations" shall mean (i) with respect to the Auction
Rate Series 1997-1 Notes and the LIBOR Rate Series 1997-1 Notes, $100,000 in
original Principal Amount and any integral multiple thereof, and (ii) with
respect to the Series 1997-1F Notes and the Series 1997-1K Notes, $5,000 in
original Principal Amount and any integral multiple thereof.
"Available Auction Rate Series 1997-1 Notes" shall have the meaning
ascribed to such term in Section 4(c)(i)(A) hereof.
"Beneficial Owner" shall mean, in respect of a Series 1997-1 Note, the
Person which (i) has the power, directly or indirectly, to vote or consent with
respect to, or to dispose of ownership of, such Series 1997-1 Note (including
Persons holding Series 1997-1 Notes through nominees, depositories or other
intermediaries), or (b) is treated as the owner of the Series 1997-1 Note for
federal income tax purposes. A Beneficial Owner must provide the Trustee with
evidence satisfactory to the Trustee that it is a Beneficial Owner holding
Series 1997-1 Notes by nominee or through a Participant.
"Bid" shall have the meaning ascribed to such term in Section 4(a)(i)
hereof.
"Bid Auction Rate" shall have the meaning ascribed to such term in
Section 4(c)(i)(C) hereof.
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<PAGE>
"Bidder" shall have the meaning ascribed to such term in Section
4(a)(i) hereof.
"Book-Entry Form" or "Book-Entry System" shall mean a form or system
under which (i) the beneficial right to principal and interest may be
transferred only through a book entry, (ii) physical securities in registered
form are issued only to a Securities Depository or its nominee as registered
holder, with the securities "immobilized" to the custody of the Securities
Depository, and (iii) the book entry is the record that identifies the owners of
beneficial interests in that principal and interest.
"Broker-Dealer" shall mean Smith Barney Inc. or any other broker or
dealer (each as defined in the Securities Exchange Act of 1934, as amended),
commercial bank or other entity permitted by law to perform the functions
required of a Broker-Dealer set forth in the Auction Procedures that (a) is a
Participant (or an affiliate of a Participant), (b) has been appointed as such
by the Corporation pursuant to Section 9 hereof and (c) has entered into a
Broker-Dealer Agreement that is in effect on the date of reference.
"Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent and a Broker-Dealer, and approved by the Corporation, pursuant to
which the Broker-Dealer agrees to participate in Auctions as set forth in the
Auction Procedures, as from time to time amended or supplemented. Each Broker-
Dealer Agreement relating to the Tax Exempt Auction Rate Series 1997-1 Notes
shall be in substantially the form of the Broker-Dealer Agreement (Tax Exempt
Auction Rate Series 1997-1 Notes), dated as of July 1, 1997, between Bankers
Trust Company, as Auction Agent, and Smith Barney Inc., as Broker-Dealer. Each
Broker-Dealer Agreement relating to the Taxable Auction Rate Series 1997-1 Notes
shall be in substantially the form of the Broker-Dealer Agreement (Taxable
Auction Rate Series 1997-1 Notes), dated as of July 1, 1997, between Bankers
Trust Company, as Auction Agent, and Smith Barney Inc., as Broker-Dealer.
"Broker-Dealer Fee" shall have the meaning ascribed to such term in
the Auction Agent Agreement.
"Broker-Dealer Fee Rate" shall have the meaning ascribed to such term
in the Auction Agent Agreement.
"Business Day" shall mean a day of the year on which (i) banks located
in the city in which the Principal Office of the Trustee is located are not
required or authorized to remain closed, (ii) banks located in the city in which
the Principal Office of the Auction Agent, as set forth in and for purposes of
the Auction Agent Agreement, is located are not required or authorized to remain
closed, (iii) banks located in the city in which the Principal Office of each
Broker-Dealer, as set forth in and for purposes of the applicable Broker-Dealer
Agreement, is located are not required or authorized to remain closed and (iv)
The New York Stock Exchange is
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<PAGE>
not closed. The Trustee shall provide to the Auction Agent on the Closing Date,
and on each November 1 thereafter, a list of all legal holidays in the state in
which the Principal Office of the Trustee is located during the ensuing twelve-
month period.
"Carry-Over Amount" shall mean (i) with respect to a Taxable Auction
Rate Series 1997-1 Note, the excess, if any, of (a) the amount of interest on
such Note that would have accrued with respect to the related Interest Period at
the Auction Rate over (b) the amount of interest on such Note actually accrued
with respect to such Interest Period based on the Net Loan Rate, together with
the unpaid portion of any such excess from prior Interest Periods, and (ii) with
respect to a LIBOR Rate Series 1997-1 Note, the excess, if any, of (a) the
amount of interest on such Note that would have accrued with respect to the
related Interest Period at the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate
over (b) the amount of interest on such Note actually accrued with respect to
such Interest Period based on the Net Loan Rate, together with the unpaid
portion of any such excess from prior Interest Periods; provided that any
reference to "principal" or "interest" in this First Supplemental Indenture, in
the Indenture, in the Taxable Auction Rate Series 1997-1 Notes and in the LIBOR
Rate Series 1997-1 Notes shall not include, within the meanings of such words,
any Carry-Over Amount or any interest accrued on any Carry-Over Amount.
"Change of Tax Law" shall mean, with respect to the Tax Exempt Auction
Rate Series 1997-1 Notes, any amendment to the Code or other statute enacted by
the Congress of the United States, or any temporary, proposed or final
regulation promulgated by the United States Treasury, after the Closing Date,
which (i) changes or would change any deduction, credit or other allowance
allowable in computing liability for any federal tax with respect to, or (ii)
imposes or would impose or reduces or would reduce or increases or would
increase any federal tax (including, but not limited to, preference or excise
taxes) upon, any interest earned by the owner of a Tax Exempt Auction Rate
Series 1997-1 Note the interest on which is excludable from gross income for
federal income tax purposes under Section 103 of the Code.
"Closing Cash Flow Projection" shall mean the Cash Flow Projection
delivered in conjunction with the issuance of the Series 1997-1 Notes.
"Closing Date" shall mean, with respect to the Auction Rate Series
1997-1 Notes and the LIBOR Rate Series 1997-1 Notes, November ______, 1997, the
date of initial issuance and delivery of such Notes hereunder.
"Commercial Paper Dealer" shall mean Smith Barney Inc., its successors
and assigns, and any other commercial paper dealer appointed as provided in
Section 6 hereof.
"Deposit Agent" shall mean, with respect to the Revenue Fund, Norwest
Bank South Dakota, N.A., Aberdeen, South Dakota, and its successor or
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<PAGE>
successors and any other bank or banking association having trust powers or
trust company at any time substituted in its place pursuant to the Indenture.
"Effective Interest Rate" shall mean, with respect to any Financed
Student Loan, the interest rate per annum borne by such Financed Student Loan
after giving effect to all applicable interest subsidy payments, Special
Allowance Payments, rebate fees on Consolidation Loans and reductions pursuant
to borrower incentives. For this purpose, the Special Allowance Payment rate
shall be computed based upon the average of the bond equivalent rates of 91-day
United States Treasury Bills auctioned during that portion of the then current
calendar quarter which ends on the date as of which the "Effective Interest
Rate" is determined.
"Eligible Carry-Over Make-Up Amount" shall mean, (i) with respect to
each Interest Period relating to a series of Taxable Auction Rate Series 1997-1
Notes as to which, as of the first day of such Interest Period, there is any
unpaid Carry-Over Amount, an amount equal to the lesser of (a) interest computed
on the principal balance of such series in respect of such Interest Period at a
per annum rate equal to the excess, if any, of the Net Loan Rate over the
Auction Rate Series 1997-1 Note Interest Rate, and (b) the aggregate Carry-Over
Amount remaining unpaid as of the first day of such Interest Period together
with interest accrued and unpaid thereon through the end of such Interest
Period, and (ii) with respect to each Interest Period relating to a series of
LIBOR Rate Series 1997-1 Notes as to which, as of the first day of such Interest
Period, there is any unpaid Carry-Over Amount, an amount equal to the lesser of
(a) interest computed on the principal balance of such series in respect of such
Interest Period at a per annum rate equal to the excess, if any, of the Net Loan
Rate over the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate, and (b) the
aggregate Carry-Over Amount remaining unpaid as of the first day of such
Interest Period together with interest accrued and unpaid thereon through the
end of such Interest Period. The Eligible Carry-Over Make-Up Amount shall be
$0.00 for any Interest Period with respect to which the Net Loan Rate equals or
exceeds (1) the Taxable Auction Rate Series 1997-1 Note Auction Rate, in the
case of a series of Taxable Auction Rate Series 1997-1 Notes, or (2) the LIBOR
Rate Series 1997-1 Note Interest Rate, in the case of a series of LIBOR Rate
Series 1997-1 Notes.
"Existing Holder" shall mean (i) with respect to and for the purpose
of dealing with the Auction Agent in connection with an Auction, a Person who is
a Broker-Dealer listed in the Existing Holder Registry at the close of business
on the Business Day immediately preceding such Auction and (ii) with respect to
and for the purpose of dealing with the Broker-Dealer in connection with an
Auction, a Person who is a beneficial owner of Auction Rate Series 1997-1 Notes.
"Existing Holder Registry" shall mean the registry of Persons who are
owners of the Auction Rate Series 1997-1 Notes, maintained by the Auction Agent
as provided in the Auction Agent Agreement.
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<PAGE>
"First Supplemental Indenture" shall mean this First Supplemental
Indenture of Trust, as amended or supplemented in accordance with the terms
hereof and of the Indenture.
"Hold Order" shall have the meaning ascribed to such term in Section
4(a)(i) hereof.
"Index" shall mean, with respect to a series of Tax Exempt Auction
Rate Series 1997-1 Notes on any Interest Rate Determination Date, (i) for
Auction Periods of sixty (60) days or less, the PSA Index, or, if such rate is
not published by PSA, the Index so determined by the Market Agent, which shall
equal the prevailing rate for bonds rated in the highest short-term rating
category by Moody's and Fitch in respect of issuers most closely resembling the
"high grade" component issuers selected by PSA that are subject to tender by the
holders thereof for purchase on not more than seven (7) days' notice and the
interest on which is (a) variable on a weekly basis, (b) excludable from gross
income for federal income tax purposes, and (c) not subject to an "alternative
minimum tax" or similar tax under the Code, unless all tax exempt bonds are
subject to such tax, and (ii) for Auction Periods of more than sixty (60) days,
the Index so determined by the Market Agent, which shall equal the average yield
on no less than three publicly offered securities selected by the Market Agent
which are offered at par, have substantially the same underlying security, bear
interest determined for approximately the same period as the relevant Interest
Period on the Tax Exempt Auction Rate Series 1997-1 Notes, bear interest not
subject to the alternative minimum tax, and are rated no lower than "Aa" by
Moody's or "AA" by Fitch. If the Index cannot be determined as provided above, a
comparable substitute index selected by the Market Agent with the approval of an
Authorized Officer of the Corporation may be used.
"Initial Auction Agent" shall mean (i) with respect to the Tax Exempt
Auction Rate Series 1997-1 Notes, Bankers Trust Company, a New York banking
corporation, its successors and assigns, in its capacity as auction agent under
the Initial Auction Agent Agreement relating to the Tax Exempt Auction Rate
Series 1997-1 Notes, and (ii) with respect to the Taxable Auction Rate Series
1997-1 Notes, Bankers Trust Company, a New York banking corporation, its
successors and assigns, in its capacity as auction agent under the Initial
Auction Agent Agreement relating to the Taxable Auction Rate Series 1997-1
Notes.
"Initial Auction Agent Agreement" shall mean (i) with respect to the
Tax Exempt Auction Rate Series 1997-1 Notes, the Auction Agent Agreement (Tax
Exempt Auction Rate Series 1997-1 Notes), dated as of July 1, 1997, by and among
the Corporation, the Trustee and the Initial Auction Agent, including any
amendment thereof or supplement thereto, and (ii) with respect to the Taxable
Auction Rate Series 1997-1 Notes, the Auction Agent Agreement (Taxable Auction
Rate Series 1997-1 Notes), dated as of July 1, 1997, by and among the
Corporation, the Trustee and the Initial Auction Agent, including any amendment
thereof or supplement thereto.
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<PAGE>
"Initial Interest Period" shall mean, as to a series of Auction Rate
Series 1997-1 Notes or LIBOR Rate Series 1997-1 Notes, the period commencing on
the Closing Date and continuing through the day immediately preceding the
Initial Interest Rate Adjustment Date for such series.
"Initial Interest Rate Adjustment Date" shall mean (i) with respect to
the Series 1997-1A Notes, December 4, 1997, (ii) with respect to the Series
1997-1B Notes, December 11, 1997, (iii) with respect to the Series 1997-1C
Notes, December 18, 1997, (iv) with respect to the Series 1997-1D Notes,
December 30, 1997, (v) with respect to the Series 1997-1E Notes, January 6,
1998, (vi) with respect to the Series 1997-1G Notes, December 8, 1997, (vii)
with respect to the Series 1997-1H Notes, December 15, 1997, and (viii) with
respect to the LIBOR Rate Series 1997-1 Notes, December 1, 1997.
"Interest Payment Date" shall mean (i) each regularly scheduled
interest payment date on the Series 1997-1 Notes, which shall be (a) with
respect to a series of Taxable Auction Rate Series 1997-1 Notes, the Business
Day immediately following the expiration of the Initial Interest Period for such
series and each related Auction Period thereafter, (b) with respect to a series
of LIBOR Rate Series 1997-1 Notes, the first day of each calendar month,
commencing December 1, 1997, and (c) with respect to all other Series 1997-1
Notes, June 1 and December 1 of each year, commencing December 1, 1997; or (ii)
with respect to the payment of interest upon redemption or acceleration of a
Series 1997-1 Note or the payment of Defaulted Interest, such date on which such
interest is payable under the Indenture.
"Interest Period" shall mean, with respect to a series of Auction Rate
Series 1997-1 Notes or LIBOR Rate Series 1997-1 Notes, the Initial Interest
Period and each period commencing on an Interest Rate Adjustment Date for such
series and ending on the last day before (i) the next Interest Rate Adjustment
Date for such series or (ii) the Stated Maturity of such series, as applicable.
"Interest Rate Adjustment Date" shall mean the date on which the
interest rate on a series of Auction Rate Series 1997-1 Notes or LIBOR Rate
Series 1997-1 Notes is effective, which shall be (i) with respect to a series of
Auction Rate Series 1997-1 Notes, the date of commencement of each Auction
Period, and (ii) with respect to a series of LIBOR Rate Series 1997-1 Notes,
each Interest Payment Date.
"Interest Rate Determination Date" shall mean (i) with respect to a
series of Auction Rate Series 1997-1 Notes, the Auction Date, or, if no Auction
Date is applicable to such series, the Business Day immediately preceding the
date of commencement of an Auction Period, and (ii) with respect to a series of
LIBOR Rate Series 1997-1 Notes, the second Business Day immediately preceding
the date of commencement of an Interest Period (other than the Initial Interest
Period).
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<PAGE>
"LIBOR Rate Series 1997-1 Note Initial Interest Rate" shall mean
________% per annum for the Series 1997-1I Notes, ________% per annum for the
Series 1997-1J Notes and ________% per annum for the Series 1997-1L Notes.
"LIBOR Rate Series 1997-1 Note Interest Rate" shall mean the rate of
interest per annum borne from time to time by a series of the LIBOR Rate Series
1997-1 Notes, which shall be (i) during the Initial Interest Period for such
series, the LIBOR Rate Series 1997-1 Note Initial Interest Rate, and (ii) during
each Interest Period thereafter, the rate of interest determined in accordance
with the provisions of Section 3(B) hereof.
"LIBOR Rate Series 1997-1 Note LIBOR-Based Rate" shall mean, with
respect to a series of LIBOR Rate Series 1997-1 Notes, the variable rate of
interest per annum determined with respect to such series on the basis of One-
Month LIBOR plus the LIBOR Rate Series 1997-1 Note Spread, as such rate of
interest is determined in accordance with the provisions of Section 3(B) hereof.
"LIBOR Rate Series 1997-1 Note Spread" shall mean (i) with respect to
the Series 1997-1I Notes, ________% per annum, (ii) with respect to the Series
1997-1J Notes, ________% per annum, and (iii) with respect to the Series 1997-1L
Notes, ________% per annum,
"LIBOR Rate Series 1997-1 Notes" shall mean the LIBOR Rate Series
1997-1 Senior Notes and the Series 1997-1L Notes.
"LIBOR Rate Series 1997-1 Senior Notes" shall mean the Series 1997-1I
Notes and the Series 1997-1J Notes.
"Market Agent" shall mean Smith Barney Inc., New York, New York, in
such capacity hereunder, or any successor to it in such capacity hereunder.
"Maximum Auction Rate" shall mean (i) with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Notes, the interest rate per annum equal to
the lesser of (a) the product of the Applicable Percentage and the greater of
(1) the After-Tax Equivalent and (2) the Index, and (b) 14%, and (ii) with
respect to a series of Taxable Auction Rate Series 1997-1 Notes: (a) for Auction
Periods of thirty-five (35) days or less, either (1) One-Month LIBOR plus 1.50%
(if the ratings assigned by Moody's and Fitch to the Taxable Auction Rate Series
1997-1 Notes are at least "Aa3" and "AA-," respectively), (2) One-Month LIBOR
plus 2.50% (if any one of the ratings assigned by Moody's and Fitch to the
Taxable Auction Rate Series 1997-1 Notes is less than "Aa3" or "AA-,"
respectively, but is at least "A") or (c) One-Month LIBOR plus 3.50% (if any one
of the ratings assigned by Moody's and Fitch to the Taxable Auction Rate Series
1997-1 Notes is less than "A"); or (b) for Auction Periods of greater than
thirty-five (35) days, either (1) the greater of One-Month LIBOR or Three-Month
LIBOR, plus, in either case, 1.50% (if the ratings assigned by Moody's and Fitch
to the Taxable Auction Rate Series 1997-1 Notes are at least "Aa3" and
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<PAGE>
"AA-," respectively), (2) the greater of One-Month LIBOR or Three-Month LIBOR,
plus, in either case, 2.50% (if any one of the ratings assigned by Moody's and
Fitch to the Taxable Auction Rate Series 1997-1 Notes is less than "Aa3" or
"AA-," respectively, but is at least "A") or (3) the greater of One-Month LIBOR
or Three-Month LIBOR, plus, in either case, 3.50% (if any one of the ratings
assigned by Moody's and Fitch to the Taxable Auction Rate Series 1997-1 Notes is
less than "A"). For purposes of the Auction Agent and the Auction Procedures,
the ratings referred to in this definition shall be the last ratings of which
the Auction Agent shall have been given notice pursuant to the Auction Agent
Agreement.
"Net Loan Rate" shall mean, with respect to any Interest Period for a
series of Taxable Auction Rate Series 1997-1 Notes or LIBOR Rate Series 1997-1
Notes commencing during a given calendar month, the rate of interest per annum
(rounded to the next highest .01%) equal to (i) the weighted average Effective
Interest Rate of Student Loans credited to the Series 1997-1 Taxable Acquisition
Account, determined as of the last day of the second preceding calendar month,
less (ii) the Administrative Cost and Note Fee Rate.
"Non-Payment Rate" shall mean (i) with respect to a series of Tax
Exempt Auction Rate Series 1997-1 Notes, the interest rate per annum equal to
the lesser of (a) 265% (as such percentage may be adjusted pursuant to Section
10 hereof) of the Index and (b) 14%, and (ii) with respect to a series of
Taxable Auction Rate Series 1997-1 Notes, the interest rate per annum equal to
the lesser of (a) One-Month LIBOR plus 1.50% and (b) 18%.
"Note Registrar" shall mean, with respect to the Series 1997-1 Notes,
the Trustee.
"Note Year," when used with respect to the Series 1997-1 Notes, shall
mean the period beginning on November _____, 1997, and ending on the next
succeeding May 31, and each subsequent one-year period, commencing on June 1 and
ending on the next succeeding May 31, or shorter period ending on the date all
Series 1997-1 Notes are paid or become payable; provided that the Corporation
may, prior to November _____, 2002, select a different one-year period as "Note
Year" that is consistent with the definition of "Note Year" in Section 1.148-1
of the Arbitrage Regulations.
"Notice of Fee Rate Change" shall mean a notice of a change in the
Auction Agent Fee Rate or the Broker-Dealer Fee Rate substantially in the form
of Exhibit E to the Auction Agent Agreement.
"One-Month LIBOR" shall mean, with respect to a series of Taxable
Auction Rate Series 1997-1 Notes or LIBOR Rate Series 1997-1 Notes and any
Interest Rate Determination Date, the rate of interest per annum equal to the
London interbank offered rate for deposits in U.S. dollars having a maturity of
one month (commencing on such Interest Rate Determination Date) which appears on
Telerate
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Page 3750 as of 11:00 a.m., London time, on such Interest Rate Determination
Date. If such rate does not appear on Telerate Page 3750, One-Month LIBOR for
such Interest Rate Determination Date will be determined on the basis of the
rates at which deposits in U.S. dollars having a maturity of one month 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 Interest Rate Determination Date to prime banks
in the London interbank market by the Reference Banks. The Auction Agent or the
Trustee, as applicable, will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, One-Month LIBOR will be the arithmetic mean (rounded
upwards, if necessary, to the nearest .01%) of such offered rates. If fewer than
two such quotations are provided, One-Month LIBOR will be the arithmetic mean
(rounded upwards, if necessary, to the nearest .01%) of the rates quoted at
approximately 11:00 a.m., New York City time, on such Interest Rate
Determination Date by three major banks in New York, New York, selected by the
Auction Agent, after consultation with the Trustee, or by the Trustee, as
applicable, for loans in United States dollars to leading European banks having
a maturity of one month and in a principal amount of not less than U.S.
$1,000,000; provided, however, that if the banks selected as aforesaid are not
quoting as mentioned in this sentence, One-Month LIBOR will be the One-Month
LIBOR in effect for the immediately preceding Interest Period.
"Order" shall have the meaning ascribed to such term in Section
4(a)(i) hereof.
"Original Indenture" shall mean the Indenture of Trust, dated as of
July 1, 1997, between the Corporation and the Trustee, as originally executed.
"Participant" shall mean a member of, or participant in, the
Securities Depository.
"Paying Agent" shall mean, with respect to the Series 1997-1 Notes,
the Trustee and its successor or successors or any other commercial bank
designated in accordance herewith as a place at which principal of, premium, if
any, or interest on the Series 1997-1 Notes is payable.
"Payment Default" shall mean, with respect to a series of Auction Rate
Series 1997-1 Notes, (i) a default in the due and punctual payment of any
installment of interest on such series, or (ii) a default in the due and
punctual payment of any interest on and principal of such series at Maturity.
"Potential Holder" shall mean any Person (including an Existing Holder
that is (i) a Broker-Dealer when dealing with the Auction Agent and (ii) a
potential beneficial owner when dealing with a Broker-Dealer) who may be
interested in acquiring Auction Rate Series 1997-1 Notes (or, in the case of an
Existing Holder thereof, an additional Principal Amount of Auction Rate Series
1997-1 Notes).
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"PSA" shall mean the Public Securities Association, its successors and
assigns.
"PSA Index" shall mean, with respect to a series of the Tax Exempt
Auction Rate Series 1997-1 Notes, a rate determined on the basis of the seven-
day high grade market index of tax exempt variable rate demand obligations, as
produced by Municipal Market Data and published or made available by the PSA or
any Person acting in cooperation with or under the sponsorship of PSA and
acceptable to the Market Agent.
"Reference Banks" shall mean four leading banks, selected by the
Auction Agent, after consultation with the Trustee, or by the Trustee, as
applicable, engaged in transactions in Eurodollar deposits in the international
Eurocurrency market and having an established place of business in London.
"Refunded Obligations" shall mean the Series 1989 Bonds, the Series
1991-A Bonds, the Series 1994-A Bonds, the Series 1997-A Bonds, the Series
1994-1 Notes, the Series 1995-1 Notes, the Series 1995-2 Notes and the Series
1996-1 Notes.
"Regular Record Date" shall mean (i) with respect to any regularly
scheduled Interest Payment Date occurring with respect to a series of the
Auction Rate Series 1997-1 Notes or the LIBOR Rate Series 1997-1 Notes, the last
Business Day preceding such Interest Payment Date, and (ii) with respect to any
regularly scheduled Interest Payment Date occurring with respect to the Series
1997-1F Notes or the Series 1997-1K Notes, the fifteenth day (whether or not a
Business Day) of the calendar month immediately preceding such Interest Payment
Date.
"Reuters Screen LIBOR Page" shall mean the display designated as page
"LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBOR page for the purposes of displaying London interbank offered
rates of major banks).
"S&P" shall mean Standard & Poor's, a division of McGraw-Hill Inc.,
its successors and assigns.
"Securities Depository" shall mean The Depository Trust Company, New
York, New York, and its successors and assigns, or, if (i) the then-existing
Securities Depository resigns from its functions as depository of the Series
1997-1 Notes or (ii) the Corporation discontinues use of the Securities
Depository pursuant to Section 17(c) hereof, then any other securities
depository which agrees to follow the procedures required to be followed by a
securities depository in connection with the Series 1997-1 Notes and which is
selected by the Corporation with the consent of the Trustee.
"Sell Order" shall have the meaning ascribed to such term in Section
4(a)(i) hereof.
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"Series 1979 Trustee" shall mean First Bank National Association
(successor by merger to First Bank of South Dakota (National Association)), in
its capacity as trustee under the Series 1979 Indenture.
"Series 1979 Indenture" shall mean the Indenture of Trust, dated as of
August 1, 1979, between the Corporation and the Series 1979 Trustee, as amended
and supplemented.
"Series 1989 Bonds" shall mean the Student Loan Revenue Bonds, Series
1989-B and 1989-C, issued under the Series 1989 Indenture.
"Series 1989 Trustee" shall mean First Bank National Association
(successor by merger to First Bank of South Dakota (National Association)), in
its capacity as trustee under the Series 1989 Indenture.
"Series 1989 Indenture" shall mean the Series 1989-B and C Student
Loan Revenue Bond Indenture of Trust, dated as of August 1, 1989, between the
Corporation and the Series 1989 Trustee, as amended and supplemented.
"Series 1991-A Bonds" shall mean the Student Loan Revenue Bonds,
Series 1991-A, issued under the Series 1979 Indenture.
"Series 1994 Trustee" shall mean First Bank National Association
(successor by merger to First Bank of South Dakota (National Association)), in
its capacity as trustee under the Series 1994 Indenture.
"Series 1994 Indenture" shall mean the Indenture of Trust, dated as of
March 1, 1994, between the Corporation and the Series 1994 Trustee, as amended
and supplemented.
"Series 1994-A Bonds" shall mean the Student Loan Revenue Bonds,
Series 1994-A, issued under the Series 1979 Indenture.
"Series 1995-1 Notes" shall mean the Student Loan Asset-Backed Notes,
Series 1995-1, issued under the Series 1994 Indenture.
"Series 1995-2 Notes" shall mean the Student Loan Asset-Backed Notes,
Series 1995-2, issued under the Series 1994 Indenture.
"Series 1996-1 Notes" shall mean the Tax Exempt Student Loan Asset-
Backed Notes, Series 1996-1, issued under the Series 1994 Indenture.
"Series 1997 Trustee" shall mean First Bank National Association
(successor by merger to First Bank of South Dakota (National Association)), in
its capacity as trustee under the Series 1997 Indenture.
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<PAGE>
"Series 1997 Indenture" shall mean the Indenture of Trust, dated as of
July 1, 1997, between the Corporation and the Series 1997 Trustee, as amended
and supplemented.
"Series 1997-A Bonds" shall mean the Student Loan Revenue Bonds,
Series 1997-A, issued under the Series 1997 Indenture.
"Series 1997-1 Notes" shall mean the Series 1997-1 Senior Notes and
the Series 1997-1 Subordinate Notes.
"Series 1997-1 Senior Notes" shall mean the Auction Rate Series 1997-1
Notes, the LIBOR Rate Series 1997-1 Senior Notes and the Series 1997-1F Notes.
"Series 1997-1 Subordinate Notes" shall mean the Series 1997-1K Notes
and the Series 1997-1L Notes.
"Series 1997-1A Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1A."
"Series 1997-1B Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1B."
"Series 1997-1C Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1C."
"Series 1997-1D Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1D."
"Series 1997-1E Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1E."
"Series 1997-1F Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1F."
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"Series 1997-1G Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Taxable Auction Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1G."
"Series 1997-1H Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Taxable Auction Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1H."
"Series 1997-1I Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Taxable LIBOR Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1I."
"Series 1997-1J Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Taxable LIBOR Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1J."
"Series 1997-1K Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Tax Exempt Fixed Rate
Student Loan Asset-Backed Callable Notes, Subordinate Series 1997-1K."
"Series 1997-1L Notes" shall mean the Notes created and to be issued
under this First Supplemental Indenture in the original Principal Amount of
$___________________________ and designated as the "Taxable LIBOR Rate Student
Loan Asset-Backed Callable Notes, Subordinate Series 1997-1L."
"Special Prepayment Determination Date" shall mean, with respect to
the LIBOR Rate Series 1997-1 Notes, the twenty-fifth day of each month (or, if
such twenty-fifth day is not a Business Day, the next succeeding Business Day).
"Special Redemption and Prepayment Account Requirement" shall mean,
(A) with respect to the LIBOR Rate Series 1997-1 Notes and any Special
Prepayment Determination Date, an amount, as of the last day of the preceding
month, equal to the excess, if any, of (i) the sum of (a) all payments received
as of such last day with respect to principal of Financed Student Loans credited
to the Series 1997-1 Taxable Acquisition Account, plus (b) the amount of any
Balances theretofore transferred from the Series 1997-1 Taxable Acquisition
Account to the Retirement Account to redeem Taxable Auction Rate Series 1997-1
Notes pursuant to Section 16(B) hereof, less (c) the aggregate amount of
interest capitalized on Student Loans Financed from Balances in the Series
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1997-1 Taxable Acquisition Account since the date of being so Financed, less (d)
the principal component of the repurchase price of Student Loans originally
Financed from Balances in the Series 1997-1 Taxable Acquisition Account which
have been repurchased from a Guarantee Agency upon rehabilitation of such
Student Loans pursuant to the Higher Education Act, over (ii) the sum of (a) the
aggregate of the amounts previously applied to the reduction of the Principal
Amount of all LIBOR Rate Series 1997-1 Notes, plus (b) the aggregate Principal
Amount of LIBOR Rate Series 1997-1 Notes to be prepaid on the next regularly
scheduled Interest Payment Date from Balances then on hand in the Retirement
Account. Payments described in clause (i)(a) of the preceding sentence include,
without limitation, any prepayments by borrowers from the proceeds of a
consolidation loan made or acquired by the Trustee on behalf of the Corporation
or from any other sources, but exclude, for this purpose, proceeds of the sale
or other disposition of Financed Student Loans to any Person other than a
Guarantee Agency, with respect to Guarantee payments, or a Lender, with respect
to the repurchase of Financed Student Loans by such Lender pursuant to its
repurchase obligation under a Student Loan Purchase Agreement, and (B) with
respect to all other series of Series 1997-1 Notes, $0.
"Statutory Corporate Tax Rate" shall mean, with respect to a series of
Tax Exempt Auction Rate Series 1997-1 Notes, the highest tax bracket (expressed
in decimals) applicable at the time of determination of the After-Tax Equivalent
on the income tax of any corporation, as set forth in Section 11 of the Code or
any successor section, without regard to any minimum additional tax provision.
The "Statutory Corporate Tax Rate," as of October 1, 1997, is .35.
"Submission Deadline" shall mean 12:30 p.m., New York City time, on
any Auction Date or such other time on any Auction Date by which Broker-Dealers
are required to submit Orders to the Auction Agent as specified by the Auction
Agent from time to time.
"Submitted Bid" shall have the meaning ascribed to such term in
Section 4(c)(i) hereof.
"Submitted Hold Order" shall have the meaning ascribed to such term in
Section 4(c)(i) hereof.
"Submitted Order" shall have the meaning ascribed to such term in
Section 4(c)(i) hereof.
"Submitted Sell Order" shall have the meaning ascribed to such term in
Section 4(c)(i) hereof.
"Substitute Auction Agent" shall mean the Person with whom the Trustee
enters into a Substitute Auction Agent Agreement.
"Substitute Auction Agent Agreement" shall mean an auction agent
agreement containing terms substantially similar to the terms of the applicable
Initial Auction Agent Agreement, whereby a Person having the qualifications
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required by Section 8 of this First Supplemental Indenture agrees with the
Trustee and the Corporation to perform the duties of the Auction Agent under
this First Supplemental Indenture.
"Sufficient Bids" shall have the meaning ascribed to such term in
Section 4(c)(i) hereof.
"Tax Exempt Auction Rate Series 1997-1 Notes" shall mean the Series
1997-1A Notes, the Series 1997-1B Notes, the Series 1997-1C Notes, the Series
1997-1D Notes and the Series 1997-1E Notes.
"Tax Exempt Series 1997-1 Notes" shall mean the Tax Exempt Auction
Rate Series 1997-1 Notes, the Series 1997-1F Notes and the Series 1997-1K Notes.
"Taxable Auction Rate Series 1997-1 Notes" shall mean the Series 1997-
1G Notes and the Series 1997-1H Notes.
"Taxable Series 1997-1 Notes" shall mean the Taxable Auction Rate
Series 1997-1 Notes and the LIBOR Rate Series 1997-1 Notes.
"Telerate Page 3750" shall mean 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).
"Three-Month LIBOR" shall mean, with respect to a series of Taxable
Auction Rate Series 1997-1 Notes and any Interest Rate Determination Date, the
rate of interest per annum equal to the London interbank offered rate for
deposits in U.S. dollars having a maturity of three months (commencing on such
Interest Rate Determination Date) which appears on Telerate Page 3750 as of
11:00 a.m., London time, on such Interest Rate Determination Date. If such rate
does not appear on Telerate Page 3750, Three-Month LIBOR for such Interest Rate
Determination Date will be determined on the basis of the rates at which
deposits in U.S. dollars having a maturity of three months 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 Interest Rate Determination Date to prime banks in
the London interbank market by the Reference Banks. The Auction Agent will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, Three-Month
LIBOR will be the arithmetic mean (rounded upwards, if necessary, to the nearest
.01%) of such offered rates. If fewer than two such quotations are provided,
Three-Month LIBOR will be the arithmetic mean (rounded upwards, if necessary, to
the nearest .01%) of the rates quoted at approximately 11:00 a.m., New York City
time, on such Interest Rate Determination Date by three major banks in New York,
New York, selected by the Auction Agent, after consultation with the Trustee,
for loans in United States dollars to leading European banks having a maturity
of three months and in a principal amount of not less than U.S. $1,000,000;
provided, however, that if the banks selected as
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aforesaid are not quoting as mentioned in this sentence, Three-Month LIBOR will
be the Three-Month LIBOR in effect for the immediately preceding Interest
Period.
Section 2. Authorization and Terms of Series 1997-1 Notes.
There is hereby created and there shall be (1) a series of Class A
Notes entitled "Tax Exempt Auction Rate Student Loan Asset-Backed Callable
Notes, Senior Series 1997-1A," (2) a series of Class A Notes entitled "Tax
Exempt Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series
1997-1B," (3) a series of Class A Notes entitled "Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1C," (4) a series
of Class A Notes entitled "Tax Exempt Auction Rate Student Loan Asset-Backed
Callable Notes, Senior Series 1997-1D," (5) a series of Class A Notes entitled
"Tax Exempt Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series
1997-1E," (6) a series of Class A Notes entitled "Tax Exempt Fixed Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1F," (7) a series of Class
A Notes entitled "Taxable Auction Rate Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1G," (8) a series of Class A Notes entitled "Taxable Auction
Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1H," (9) a
series of Class A Notes entitled "Taxable LIBOR Rate Student Loan Asset-Backed
Callable Notes, Senior Series 1997-1I," (10) a series of Class A Notes entitled
"Taxable LIBOR Rate Student Loan Asset-Backed Callable Notes, Senior Series
1997-1J," (11) a series of Class B Notes entitled "Tax Exempt Fixed Rate Student
Loan Asset-Backed Callable Notes, Subordinate Series 1997-1K," and (12) a series
of Class B Notes entitled "Taxable LIBOR Rate Student Loan Asset-Backed Callable
Notes, Subordinate Series 1997-1L." The aggregate Principal Amount of the Series
1997-1A Notes that may be authenticated and delivered and Outstanding under the
Indenture is limited to and shall not exceed $_______________________. The
aggregate Principal Amount of the Series 1997-1B Notes that may be authenticated
and delivered and Outstanding under the Indenture is limited to and shall not
exceed $_______________________. The aggregate Principal Amount of the Series
1997-1C Notes that may be authenticated and delivered and Outstanding under the
Indenture is limited to and shall not exceed $_______________________. The
aggregate Principal Amount of the Series 1997-1D Notes that may be authenticated
and delivered and Outstanding under the Indenture is limited to and shall not
exceed $_______________________. The aggregate Principal Amount of the Series
1997-1E Notes that may be authenticated and delivered and Outstanding under the
Indenture is limited to and shall not exceed $_______________________. The
aggregate Principal Amount of the Series 1997-1F Notes that may be authenticated
and delivered and Outstanding under the Indenture is limited to and shall not
exceed $_______________________. The aggregate Principal Amount of the Series
1997-1G Notes that may be authenticated and delivered and Outstanding under the
Indenture is limited to and shall not exceed $_______________________. The
aggregate Principal Amount of the Series 1997-1H Notes that may be authenticated
and delivered and Outstanding under the Indenture is limited to and shall not
exceed $_______________________. The aggregate Principal Amount of the Series
1997-1I Notes that may be authenticated and delivered and Outstanding under the
Indenture is limited to and shall not exceed $_______________________. The
aggregate Principal
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Amount of the Series 1997-1J Notes that may be authenticated and delivered and
Outstanding under the Indenture is limited to and shall not exceed
$_______________________. The aggregate Principal Amount of the Series 1997-1K
Notes that may be authenticated and delivered and Outstanding under the
Indenture is limited to and shall not exceed $_______________________. The
aggregate Principal Amount of the Series 1997-1L Notes that may be authenticated
and delivered and Outstanding under the Indenture is limited to and shall not
exceed $_______________________.
Each series of Series 1997-1 Notes (other than the Series 1997-1F
Notes and the Series 1997-1I Notes) shall consist of Term Notes with a Stated
Maturity on June 1, 2020.
The Series 1997-1F Notes shall consist of $_______________________
Principal Amount of Term Notes with a Stated Maturity on June 1, 2010 and
$_______________________ Principal Amount of Term Notes with a Stated Maturity
on June 1, 2020.
The Series 1997-1I Notes shall consist of Term Notes with a Stated
Maturity on June 1, 2002.
Each series of Auction Rate Series 1997-1 Notes shall bear interest at
the applicable Auction Rate Series 1997-1 Note Interest Rate, and at the same
rate per annum (to the extent that the payment of such interest shall be legally
enforceable) on overdue installments of interest.
Each series of LIBOR Rate Series 1997-1 Notes shall bear interest at a
rate per annum equal to the LIBOR Rate Series 1997-1 Note Interest Rate, and at
the same rate per annum (to the extent that the payment of such interest shall
be legally enforceable) on overdue installments of interest.
The Series 1997-1F Notes shall bear interest at the rates of ______%
per annum (as to such Notes maturing on June 1, 2010) and ______% per annum (as
to such Notes maturing on June 1, 2020), respectively, and at the same
respective rate per annum (to the extent that the payment of such interest shall
be legally enforceable) on overdue installments of interest.
The Series 1997-1K Notes shall bear interest at the rate of ______%
per annum, and at the same rate per annum (to the extent that the payment of
such interest shall be legally enforceable) on overdue installments of interest.
The Series 1997-1 Notes shall be issued as fully registered Notes
without coupons in Authorized Denominations.
The Series 1997-1 Notes shall be dated as provided in Section 3.9 of
the Indenture and shall bear interest from their date of original issue until
payment of principal has been made or duly provided for. The date of original
issue of the Auction Rate Series 1997-1 Notes and the LIBOR Rate Series 1997-1
Notes shall be
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the Closing Date. The date of original issue of the Series 1997-1F Notes and the
Series 1997-1K Notes shall be October 15, 1997. The Series 1997-1 Notes of each
series shall be numbered in such manner as the Note Registrar shall determine.
Interest on each series of Auction Rate Series 1997-1 Notes and LIBOR
Rate Series 1997-1 Notes shall be computed on the basis of actual days elapsed
and accrue daily from the date thereof (on the basis of a 360-day year), and
shall be payable on each regularly scheduled Interest Payment Date with respect
to such series prior to the Maturity thereof and at the Maturity thereof. The
interest payable on each Interest Payment Date for each series of Auction Rate
Series 1997-1 Notes and LIBOR Rate Series 1997-1 Notes shall be [calculated on a
per unit basis, based on a unit of $100,000, and shall be] that interest which
has accrued through the last day preceding such Interest Payment Date or, in the
case of the Maturity of an Auction Rate Series 1997-1 Note or a LIBOR Rate
Series 1997-1 Note, the last day preceding the date of such Maturity. The
applicable Auction Rate Series 1997-1 Note Interest Rate or LIBOR Rate Series
1997-1 Note Interest Rate shall be effective as of and on the first day (whether
or not a Business Day) of the applicable Interest Period and be in effect
thereafter through the end of such Interest Period.
Interest on the Series 1997-1F Notes and the Series 1997-1K Notes
shall be computed on the assumption that each year contains 360 days and is
composed of twelve (12) thirty-day months, and shall be payable on each
regularly scheduled Interest Payment Date with respect to the Series 1997-1F
Notes and the Series 1997-1K Notes prior to the Maturity thereof and at the
Maturity thereof.
The principal of and premium, if any, on the Series 1997-1 Notes,
together with interest payable on the Series 1997-1 Notes at the Maturity
thereof if the date of such Maturity is not a regularly scheduled Interest
Payment Date, shall be payable in lawful money of the United States of America
upon, except as otherwise provided in Section 17 hereof, presentation and
surrender of such Series 1997-1 Notes at the Principal Office of the Trustee, as
Paying Agent with respect to the Series 1997-1 Notes, or a duly appointed
successor Paying Agent. Interest on the Series 1997-1 Notes shall be payable on
each regularly scheduled Interest Payment Date, except as otherwise provided in
Section 17 hereof, by check or draft drawn upon the Paying Agent and mailed to
the person who is the Holder thereof as of 5:00 p.m. in the city in which the
Principal Office of the Note Registrar is located on the Regular Record Date for
such Interest Payment Date at the address of such Holder as it appears on the
Note Register, or, in the case of any Series 1997-1 Note the Holder of which is
the Holder of Series 1997-1 Notes in the aggregate Principal Amount of
$1,000,000 or more (or, if less than $1,000,000 in Principal Amount of Series
1997-1 Notes is outstanding, the Holder of all outstanding Series 1997-1 Notes),
at the direction of such Holder received by the Paying Agent by 5:00 p.m. in the
city in which the Principal Office of the Paying Agent is located on the last
Business Day preceding the applicable Regular Record Date, by electronic
transfer by the Paying Agent in immediately available funds to an account
designated by such Holder. Any interest not so timely paid or duly provided for
(herein referred to as
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"Defaulted Interest") shall cease to be payable to the person who is the Holder
thereof at the close of business on the Regular Record Date and shall be payable
to the person who is the Holder thereof at the close of business on a Special
Record Date for the payment of any such Defaulted Interest. Such Special Record
Date shall be fixed by the Trustee whenever moneys become available for payment
of the Defaulted Interest, and notice of the Special Record Date shall be given
to the Holders of the Series 1997-1 Notes not less than ten (10) days prior
thereto by first-class mail to each such Holder as shown on the Note Register on
a date selected by the Trustee, stating the date of the Special Record Date and
the date fixed for the payment of such Defaulted Interest. All payments of
principal of, premium, if any, and interest on the Series 1997-1 Notes shall be
made in lawful money of the United States of America.
The Series 1997-1 Notes are subject to redemption and prepayment prior
to their Stated Maturities upon the terms and conditions and, in the case of
redemption, at the Redemption Prices specified in Section 16 hereof.
Subject to the provisions of the Indenture, the Tax Exempt Auction
Rate Series 1997-1 Notes shall be in substantially the form set forth in Exhibit
A-1 hereto, with such variations, omissions and insertions as may be required by
the circumstances, be required or permitted by the Indenture, or be consistent
with the Indenture and necessary or appropriate to conform to the rules and
requirements of any governmental authority or any usage or requirement of law
with respect thereto.
Subject to the provisions of the Indenture, the Series 1997-1F Notes
shall be in substantially the form set forth in Exhibit A-2 hereto, with such
variations, omissions and insertions as may be required by the circumstances, be
required or permitted by the Indenture, or be consistent with the Indenture and
necessary or appropriate to conform to the rules and requirements of any
governmental authority or any usage or requirement of law with respect thereto.
Subject to the provisions of the Indenture, the Taxable Auction Rate
Series 1997-1 Notes shall be in substantially the form set forth in Exhibit A-3
hereto, with such variations, omissions and insertions as may be required by the
circumstances, be required or permitted by the Indenture, or be consistent with
the Indenture and necessary or appropriate to conform to the rules and
requirements of any governmental authority or any usage or requirement of law
with respect thereto.
Subject to the provisions of the Indenture, the LIBOR Rate Series
1997-1 Senior Notes shall be in substantially the form set forth in Exhibit A-4
hereto, with such variations, omissions and insertions as may be required by the
circumstances, be required or permitted by the Indenture, or be consistent with
the Indenture and necessary or appropriate to conform to the rules and
requirements of any governmental authority or any usage or requirement of law
with respect thereto.
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Subject to the provisions of the Indenture, the Series 1997-1K Notes
shall be in substantially the form set forth in Exhibit B-1 hereto, with such
variations, omissions and insertions as may be required by the circumstances, be
required or permitted by the Indenture, or be consistent with the Indenture and
necessary or appropriate to conform to the rules and requirements of any
governmental authority or any usage or requirement of law with respect thereto.
Subject to the provisions of the Indenture, the Series 1997-1L Notes
shall be in substantially the form set forth in Exhibit B-2 hereto, with such
variations, omissions and insertions as may be required by the circumstances, be
required or permitted by the Indenture, or be consistent with the Indenture and
necessary or appropriate to conform to the rules and requirements of any
governmental authority or any usage or requirement of law with respect thereto.
Section 3. Interest Payable on Auction Rate Series 1997-1 Notes and
LIBOR Rate Series 1997-1 Notes. (A) The Initial Interest Rate Adjustment Dates
for the Series 1997-1A Notes, the Series 1997-1B Notes, the Series 1997-1C
Notes, the Series 1997-1D Notes, the Series 1997-1E Notes, the Series 1997-1G
Notes and the Series 1997-1H Notes shall be December 4, 1997, December 11, 1997,
December 18, 1997, December 30, 1997, January 6, 1998, December 8, 1997, and
December 15, 1997, respectively.
During the Initial Interest Period, each series of Auction Rate Series
1997-1 Notes shall bear interest at the Auction Rate Series 1997-1 Note Initial
Interest Rate for such series. Thereafter, except with respect to an Auction
Period Adjustment, the Auction Rate Series 1997-1 Notes shall bear interest at
an Auction Rate Series 1997-1 Note Interest Rate based on a 35-day Auction
Period (in the case of Tax Exempt Auction Rate Series 1997-1 Notes) or a 28-day
Auction Period (in the case of Taxable Auction Rate Series 1997-1 Notes), as
determined pursuant to this Section 3(A) and Sections 4 through 12 hereof.
The Auction Rate Series 1997-1 Note Interest Rate to be borne by each
series of Auction Rate Series 1997-1 Notes after such Initial Interest Period
for each Auction Period until an Auction Period Adjustment, if any, shall be
determined as hereinbelow described. Each such Auction Period (1) with respect
to the Tax Exempt Auction Rate Series 1997-1 Notes, shall commence on and
include the Thursday following the expiration of the immediately preceding
Auction Period and terminate on and include the Wednesday immediately preceding
the Thursday of the fifth following week, and (2) with respect to the Taxable
Auction Rate Series 1997-1 Notes, shall commence on and include the first day
following the expiration of the immediately preceding Auction Period and
terminate on and include the day immediately preceding the first Business Day of
the fourth following week; provided, however, that in the case of the Auction
Period that immediately follows the Initial Interest Period for a series of
Auction Rate Series 1997-1 Notes, such Auction Period shall commence on the
Initial Interest Rate Adjustment Date for such series. The Auction Rate Series
1997-1 Note Interest Rate on each series of
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Auction Rate Series 1997-1 Notes for each Auction Period shall be the Auction
Rate in effect for such Auction Period as determined in accordance with Section
4 hereof; provided that if, on any Interest Rate Determination Date, an Auction
is not held for any reason, then the Auction Rate Series 1997-1 Note Interest
Rate on such series for the next succeeding Auction Period shall be the Maximum
Auction Rate.
Notwithstanding the foregoing:
(a) if the ownership of a series of Auction Rate Series 1997-1 Notes
is no longer maintained in Book-Entry Form, the Auction Rate Series 1997-1
Note Interest Rate on such series for any Interest Period commencing after
the delivery of definitive notes representing such series pursuant to
Section 17 hereof shall equal the Maximum Auction Rate on the Business Day
immediately preceding the first day of such subsequent Interest Period; or
(b) if a Payment Default shall have occurred with respect to a series
of Auction Rate Series 1997-1 Notes, the Auction Rate Series 1997-1 Note
Interest Rate on such series for the Interest Period commencing on or
immediately after such Payment Default, and for each Interest Period
thereafter, to and including the Interest Period, if any, during which, or
commencing less than two (2) Business Days after, such Payment Default is
cured, shall equal the Non-Payment Rate on the first day of each such
Interest Period.
In accordance with Section 4(c)(ii) hereof, the Auction Agent shall
promptly give written notice to the Trustee and the Corporation of each Auction
Rate Series 1997-1 Note Interest Rate (unless the Auction Rate Series 1997-1
Note Interest Rate is the Non-Payment Rate or the ownership of such series is no
longer maintained in Book-Entry Form) applicable to each series of the Auction
Rate Series 1997-1 Notes. The Trustee shall notify the Holders of Auction Rate
Series 1997-1 Notes of the Auction Rate Series 1997-1 Note Interest Rate
applicable to each such series for each Auction Period on the second Business
Day of such Auction Period.
In the event that the last Business Day immediately preceding what
would otherwise be the commencement date of an Auction Period for a series of
Auction Rate Series 1997-1 Notes is more than five days prior to such date, the
Interest Rate Determination Date and commencement date for such Auction Period,
as well as the expiration date for the preceding Auction Period, may be adjusted
to fall on such dates as the Market Agent, with the consent of the Corporation,
may determine to be appropriate under such circumstances. The Market Agent shall
promptly notify the Trustee and the Auction Agent in writing of any such
determination. The Trustee, upon receipt of such notice, shall immediately give
written notification of such determination to the Holders of such series of
Auction Rate Series 1997-1 Notes.
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In the event that the Auction Agent no longer determines, or fails to
determine, when required, the Auction Rate Series 1997-1 Note Interest Rate with
respect to a series of Auction Rate Series 1997-1 Notes, or, if for any reason,
such manner of determination shall be held to be invalid or unenforceable, the
Auction Rate Series 1997-1 Note Interest Rate for the next succeeding Interest
Period (which Interest Period shall be an Auction Period for such series of
Auction Rate Series 1997-1 Notes) shall be (1) with respect to the Tax Exempt
Auction Rate Series 1997-1 Notes, the Maximum Auction Rate, and (2) with respect
to the Taxable Auction Rate Series 1997-1 Notes, the Net Loan Rate. The Maximum
Auction Rate with respect to each Interest Rate Determination Date shall be
determined and communicated by the Auction Agent in accordance with Section 6
hereof and the Auction Agent Agreement. If the Auction Agent shall fail or
refuse to determine the Maximum Auction Rate, the Maximum Auction Rate shall be
determined by a securities dealer appointed by the Corporation capable of making
such a determination in accordance with the provisions hereof and written notice
of such determination shall be given by such securities dealer to the Trustee.
The Net Loan Rate with respect to each Interest Rate Determination Date shall be
determined and communicated to the Auction Agent and the Trustee in accordance
with Section 6 hereof.
If the Auction Rate for a series of Taxable Auction Rate Series 1997-1
Notes is greater than the Net Loan Rate, then the Auction Rate Series 1997-1
Note Interest Rate applicable to such series for the related Interest Period
will be the Net Loan Rate. If the Auction Rate Series 1997-1 Note Interest Rate
for a series of Taxable Auction Rate Series 1997-1 Notes for any Interest Period
is the Net Loan Rate, the Trustee shall determine the Carry-Over Amount, if any,
with respect to such series for such Interest Period. Such determination of the
Carry-Over Amount shall be made separately for each series of Taxable Auction
Rate Series 1997-1 Notes. Each Carry-Over Amount shall bear interest calculated
at a rate equal to One-Month LIBOR (as determined by the Auction Agent, provided
the Trustee has received notice of One-Month LIBOR from the Auction Agent, and,
if the Trustee shall not have received such notice from the Auction Agent, then
as determined by the Trustee) from the Interest Payment Date for the Interest
Period with respect to which such Carry-Over Amount was calculated, until paid.
Any payment in respect of Carry-Over Amount shall be applied, first, to any
accrued interest payable thereon and, thereafter, in reduction of such Carry-
Over Amount. For purposes of this First Supplemental Indenture, the Indenture
and the Taxable Auction Rate Series 1997-1 Notes, any reference to "principal"
or "interest" herein and therein shall not include, within the meaning of such
words, Carry-Over Amount or any interest accrued on any such Carry-Over Amount.
Such Carry-Over Amount shall be separately calculated for each Taxable Auction
Rate Series 1997-1 Note of such series by the Trustee during such Interest
Period in sufficient time for the Trustee to give notice to each Holder of such
Carry-Over Amount as required in the next succeeding sentence. On the Interest
Payment Date for an Interest Period with respect to which such Carry-Over Amount
has been calculated by the Trustee, the Trustee shall give written notice to
each Holder of the Carry-Over Amount applicable to such Holder's Taxable Auction
Rate Series 1997-1 Note, which written notice may accompany the
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payment of interest by check made to each such Holder on such Interest Payment
Date or otherwise shall be mailed on such Interest Payment Date by first-class
mail, postage prepaid, to each such Holder at such Holder's address as it
appears on the registration books maintained by the Note Registrar. Such notice
shall state, in addition to such Carry-Over Amount, that, unless and until a
Taxable Auction Rate Series 1997-1 Note has been redeemed or has been deemed no
longer Outstanding under the Indenture (after which all accrued Carry-Over
Amount with respect to such Taxable Auction Rate Series 1997-1 Note (and all
accrued interest thereon) that remains unpaid shall be canceled and no Carry-
Over Amount (or interest accrued thereon) shall be paid with respect to such
Taxable Auction Rate Series 1997-1 Note), (i) the Carry-Over Amount (and
interest accrued thereon) shall be paid by the Trustee on such Taxable Auction
Rate Series 1997-1 Note on the first occurring Interest Payment Date for a
subsequent Interest Period if and to the extent that (a) the Eligible Carry-Over
Make-Up Amount with respect to such Interest Period is greater than zero, and
(b) moneys are available pursuant to the terms of this First Supplemental
Indenture to pay such Carry-Over Amount (and interest accrued thereon), and (ii)
interest shall accrue on the Carry-Over Amount at a per annum rate equal to One-
Month LIBOR until such Carry-Over Amount is paid in full or is canceled.
The Carry-Over Amount (and interest accrued thereon) for a series of
Taxable Auction Rate Series 1997-1 Notes shall be paid by the Trustee on
Outstanding Taxable Auction Rate Series 1997-1 Notes of such series on the first
occurring Interest Payment Date for a subsequent Interest Period if and to the
extent that (i) the Eligible Carry-Over Make-Up Amount with respect to such
Interest Period is greater than zero, and (ii) moneys in the Surplus Account are
available on such Interest Payment Date for transfer to the Interest Account for
such purpose in accordance with the second paragraph of Section 4.8 of the
Indenture, after taking into account all other amounts payable from the Surplus
Fund in accordance with such paragraph on such Interest Payment Date. Any Carry-
Over Amount (and any interest accrued thereon) with respect to any Taxable
Auction Rate Series 1997-1 Note which is unpaid as of an Interest Payment Date,
which Taxable Auction Rate Series 1997-1 Note is to be redeemed or deemed no
longer Outstanding under this First Supplemental Indenture on such Interest
Payment Date, shall be paid to the Holder thereof on such Interest Payment Date
to the extent that moneys are available therefor in accordance with the
provisions of the preceding clause (ii); provided, however, that any Carry-Over
Amount (and any interest accrued thereon) which is not so paid on such Interest
Payment Date shall be canceled with respect to such Taxable Auction Rate Series
1997-1 Note on such Interest Payment Date and shall not be paid on any
succeeding Interest Payment Date. To the extent that any portion of the Carry-
Over Amount (and any interest accrued thereon) remains unpaid after payment of a
portion thereof, such unpaid portion shall be paid in whole or in part as
required hereunder until fully paid by the Trustee on the next occurring
Interest Payment Date or Dates, as necessary, for a subsequent Interest Period
or Periods, if and to the extent that the conditions in the first sentence of
this paragraph are satisfied. On any Interest Payment Date on which the Trustee
pays
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less than all of the Carry-Over Amount (and any interest accrued thereon) with
respect to a Taxable Auction Rate Series 1997-1 Note, the Trustee shall give
written notice in the manner set forth in the immediately preceding paragraph to
the Holder of such Taxable Auction Rate Series 1997-1 Note of the Carry-Over
Amount remaining unpaid on such Taxable Auction Rate Series 1997-1 Note.
The Interest Payment Date on which any Carry-Over Amount (or any
interest accrued thereon) for a series of Taxable Auction Rate Series 1997-1
Notes shall be paid shall be determined by the Trustee in accordance with the
provisions of the immediately preceding paragraph, and the Trustee shall make
payment of the Carry-Over Amount (and any interest accrued thereon) in the same
manner as, and from the same Account from which, it pays interest on the Taxable
Auction Rate Series 1997-1 Notes on an Interest Payment Date.
(B) The Initial Interest Rate Adjustment Date for the Series 1997-1I
Notes, the Series 1997-1J Notes and the Series 1997-1L Notes shall be December
1, 1997.
During the Initial Interest Period, each series of LIBOR Rate Series
1997-1 Notes shall bear interest at the LIBOR Rate Series 1997-1 Note Initial
Interest Rate for such series. The interest rate to be borne by each series of
LIBOR Rate Series 1997-1 Notes during each Interest Period thereafter shall be
determined on the related Interest Rate Determination Date and shall be equal to
the lesser of (i) the sum of One-Month LIBOR determined with respect to such
Interest Rate Determination Date plus the applicable LIBOR Rate Series 1997-1
Note Spread (which is herein referred to as the "LIBOR Rate Series 1997-1 Note
LIBOR-Based Rate"), and (ii) the Net Loan Rate determined with respect to such
Interest Rate Determination Date. The Trustee shall determine such interest rate
on each Interest Rate Determination Date and shall give the Corporation written
notice thereof prior to 2:00 p.m., New York City time, on such Interest Rate
Determination Date. The Net Loan Rate with respect to each Interest Rate
Determination Date shall be determined and communicated to the Trustee in
accordance with Section 6 hereof.
Notwithstanding any other provision of the LIBOR Rate Series 1997-1
Notes or this First Supplemental Indenture, interest payable on a series of
LIBOR Rate Series 1997-1 Notes for an Interest Period shall never exceed for
such Interest Period the amount of interest payable at the Net Loan Rate in
effect for such Interest Period.
If the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate for a series of
LIBOR Rate Series 1997-1 Notes is greater than the Net Loan Rate, then the LIBOR
Rate Series 1997-1 Note Interest Rate applicable to such series for the related
Interest Period will be the Net Loan Rate. If the LIBOR Rate Series 1997-1 Note
Interest Rate for a series of LIBOR Rate Series 1997-1 Notes for any Interest
Period is the Net Loan Rate, the Trustee shall determine the Carry-Over Amount,
if any, with respect to such series for such Interest Period. Such determination
of the Carry-Over Amount
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shall be made separately for each series of LIBOR Rate Series 1997-1 Notes. Each
Carry-Over Amount shall bear interest calculated at a rate equal to the LIBOR
Rate Series 1997-1 Note LIBOR-Based Rate (as determined by the Trustee) from the
Interest Payment Date for the Interest Period with respect to which such Carry-
Over Amount was calculated, until paid. Any payment in respect of Carry-Over
Amount shall be applied, first, to any accrued interest payable thereon and,
thereafter, in reduction of such Carry-Over Amount. For purposes of this First
Supplemental Indenture, the Indenture and the LIBOR Rate Series 1997-1 Notes,
any reference to "principal" or "interest" herein and therein shall not include,
within the meaning of such words, Carry-Over Amount or any interest accrued on
any such Carry-Over Amount. Such Carry-Over Amount shall be separately
calculated for each LIBOR Rate Series 1997-1 Note of such series by the Trustee
during such Interest Period in sufficient time for the Trustee to give notice to
each Holder of such Carry-Over Amount as required in the next succeeding
sentence. On the Interest Payment Date for an Interest Period with respect to
which such Carry-Over Amount has been calculated by the Trustee, the Trustee
shall give written notice to each Holder of the Carry-Over Amount applicable to
such Holder's LIBOR Rate Series 1997-1 Note, which written notice may accompany
the payment of interest by check made to each such Holder on such Interest
Payment Date or otherwise shall be mailed on such Interest Payment Date by
first-class mail, postage prepaid, to each such Holder at such Holder's address
as it appears on the registration books maintained by the Note Registrar. Such
notice shall state, in addition to such Carry-Over Amount, that, unless and
until a LIBOR Rate Series 1997-1 Note has been redeemed or has been deemed no
longer Outstanding under the Indenture (after which all accrued Carry-Over
Amount with respect to such LIBOR Rate Series 1997-1 Note (and all accrued
interest thereon) that remains unpaid shall be canceled and no Carry-Over Amount
(or interest accrued thereon) shall be paid with respect to such LIBOR Rate
Series 1997-1 Note), (i) the Carry-Over Amount (and interest accrued thereon)
shall be paid by the Trustee on such LIBOR Rate Series 1997-1 Note on the first
occurring Interest Payment Date for a subsequent Interest Period if and to the
extent that (a) the Eligible Carry-Over Make-Up Amount with respect to such
Interest Period is greater than zero, and (b) moneys are available pursuant to
the terms of this First Supplemental Indenture to pay such Carry-Over Amount
(and interest accrued thereon), and (ii) interest shall accrue on the Carry-Over
Amount at a per annum rate equal to the LIBOR Rate Series 1997-1 Note LIBOR-
Based Rate until such Carry-Over Amount is paid in full or is canceled.
The Carry-Over Amount (and interest accrued thereon) for a series of
LIBOR Rate Series 1997-1 Notes shall be paid by the Trustee on Outstanding LIBOR
Rate Series 1997-1 Notes of such series on the first occurring Interest Payment
Date for a subsequent Interest Period if and to the extent that (i) the Eligible
Carry-Over Make-Up Amount with respect to such Interest Period is greater than
zero, and (ii) moneys in the Surplus Account are available on such Interest
Payment Date for transfer to the Interest Account for such purpose in accordance
with the second paragraph of Section 4.8 of the Indenture, after taking into
account all other amounts payable from the Surplus Fund in accordance with such
paragraph on such
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Interest Payment Date. Any Carry-Over Amount (and any interest accrued thereon)
with respect to any LIBOR Rate Series 1997-1 Note which is unpaid as of an
Interest Payment Date, which LIBOR Rate Series 1997-1 Note is to be redeemed or
deemed no longer Outstanding under this First Supplemental Indenture on such
Interest Payment Date, shall be paid to the Holder thereof on such Interest
Payment Date to the extent that moneys are available therefor in accordance with
the provisions of the preceding clause (ii); provided, however, that any Carry-
Over Amount (and any interest accrued thereon) which is not so paid on such
Interest Payment Date shall be canceled with respect to such LIBOR Rate Series
1997-1 Note on such Interest Payment Date and shall not be paid on any
succeeding Interest Payment Date. To the extent that any portion of the Carry-
Over Amount (and any interest accrued thereon) remains unpaid after payment of a
portion thereof, such unpaid portion shall be paid in whole or in part as
required hereunder until fully paid by the Trustee on the next occurring
Interest Payment Date or Dates, as necessary, for a subsequent Interest Period
or Periods, if and to the extent that the conditions in the first sentence of
this paragraph are satisfied. On any Interest Payment Date on which the Trustee
pays less than all of the Carry-Over Amount (and any interest accrued thereon)
with respect to a LIBOR Rate Series 1997-1 Note, the Trustee shall give written
notice in the manner set forth in the immediately preceding paragraph to the
Holder of such LIBOR Rate Series 1997-1 Note of the Carry-Over Amount remaining
unpaid on such LIBOR Rate Series 1997-1 Note.
The Interest Payment Date on which any Carry-Over Amount (or any
interest accrued thereon) for a series of LIBOR Rate Series 1997-1 Notes shall
be paid shall be determined by the Trustee in accordance with the provisions of
the immediately preceding paragraph, and the Trustee shall make payment of the
Carry-Over Amount (and any interest accrued thereon) in the same manner as, and
from the same Account from which, it pays interest on the LIBOR Rate Series
1997-1 Notes on an Interest Payment Date.
In the event that the Trustee no longer determines, or fails to
determine, when required, the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate
with respect to a series of LIBOR Rate Series 1997-1 Notes, or if, for any
reason, such manner of determination shall be held to be invalid or
unenforceable, the LIBOR Rate Series 1997-1 Note LIBOR-Based Rate for each
succeeding Interest Period shall be the Net Loan Rate.
The determination of a LIBOR Rate Series 1997-1 Note Interest Rate by
the Trustee or any other authorized Person pursuant to the provisions of this
Section 3(B) shall be conclusive and binding on the Holders of the LIBOR Rate
Series 1997-1 Notes to which such LIBOR Rate Series 1997-1 Note Interest Rate
applies, and the Corporation and the Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on
a series of LIBOR Rate Series 1997-1 Notes (including interest calculated as
provided herein, plus any other amounts that constitute interest on the LIBOR
Rate Series
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1997-1 Notes of such series under applicable law, which are contracted for,
charged, reserved, taken or received pursuant to the LIBOR Rate Series 1997-1
Notes of such series or related documents) calculated from the date of issuance
of such series through any subsequent day during the term of such series or
otherwise prior to payment in full of the LIBOR Rate Series 1997-1 Notes of such
series exceed the amount permitted by applicable law. If the applicable law is
ever judicially interpreted so as to render usurious any amount called for under
the LIBOR Rate Series 1997-1 Notes of a series or related documents or otherwise
contracted for, charged, reserved, taken or received in connection with the
LIBOR Rate Series 1997-1 Notes of such series, or if the redemption, prepayment
or acceleration of the Maturity of the LIBOR Rate Series 1997-1 Notes of a
series results in payment to or receipt by the Holder or any former Holder of
the LIBOR Rate Series 1997-1 Notes of such series of any interest in excess of
that permitted by applicable law, then, notwithstanding any provision of the
LIBOR Rate Series 1997-1 Notes of such series or related documents to the
contrary, all excess amounts theretofore paid or received with respect to the
LIBOR Rate Series 1997-1 Notes of such series shall be credited on the Principal
Amount of the LIBOR Rate Series 1997-1 Notes of such series (or, if the LIBOR
Rate Series 1997-1 Notes of such series have been paid or would thereby be paid
in full, refunded by the recipient thereof), and the provisions of the LIBOR
Rate Series 1997-1 Notes of such series and related documents shall
automatically and immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for under the
LIBOR Rate Series 1997-1 Notes of such series and under the related documents.
Section 4. Determining the Auction Rate Series 1997-1 Note Interest
Rate. By purchasing Auction Rate Series 1997-1 Notes, whether in an Auction or
otherwise, each purchaser of the Auction Rate Series 1997-1 Notes, or its
Broker-Dealer, must agree and shall be deemed by such purchase to have agreed
(i) to participate in Auctions on the terms described herein, (ii) to have its
beneficial ownership of the Auction Rate Series 1997-1 Notes maintained at all
times in Book-Entry Form for the account of its Participant, which in turn will
maintain records of such beneficial ownership, and (iii) to authorize such
Participant to disclose to the Auction Agent such information with respect to
such beneficial ownership as the Auction Agent may request.
So long as the ownership of a series of Auction Rate Series 1997-1
Notes is maintained in Book-Entry Form by the Securities Depository, an Existing
Holder may sell, transfer or otherwise dispose of Auction Rate Series 1997-1
Notes of such series only pursuant to a Bid or Sell Order placed in an Auction
or otherwise sell, transfer or dispose of Auction Rate Series 1997-1 Notes
through a Broker-Dealer, provided that, in the case of all transfers other than
pursuant to Auctions, such Existing Holder, its Broker-Dealer or its Participant
advises the Auction Agent of such transfer. Auctions shall be conducted on each
Auction Date, if there is an
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Auction Agent on such Auction Date, in the following manner (such procedures to
be applicable separately to each series of the Auction Rate Series 1997-1
Notes):
(a) (i) Prior to the Submission Deadline on each Auction Date;
(A) each Existing Holder of Auction Rate Series 1997-1 Notes may
submit to a Broker-Dealer by telephone or otherwise any information as
to:
(1) the Principal Amount of Outstanding Auction Rate Series
1997-1 Notes, if any, owned by such Existing Holder which such
Existing Holder desires to continue to own without regard to the
Auction Rate Series 1997-1 Note Interest Rate for the next
succeeding Auction Period;
(2) the Principal Amount of Outstanding Auction Rate Series
1997-1 Notes, if any, which such Existing Holder offers to sell
if the Auction Rate Series 1997-1 Note Interest Rate for the next
succeeding Auction Period shall be less than the rate per annum
specified by such Existing Holder; and/or
(3) the Principal Amount of Outstanding Auction Rate Series
1997-1 Notes, if any, owned by such Existing Holder which such
Existing Holder offers to sell without regard to the Auction Rate
Series 1997-1 Note Interest Rate for the next succeeding Auction
Period; and
(B) one or more Broker-Dealers may contact Potential Holders to
determine the Principal Amount of Auction Rate Series 1997-1 Notes
which each Potential Holder offers to purchase, if the Auction Rate
Series 1997-1 Note Interest Rate for the next succeeding Auction
Period shall not be less than the rate per annum specified by such
Potential Holder.
The statement of an Existing Holder or a Potential Holder referred to
in (A) or (B) of this paragraph (i) is herein referred to as an "Order,"
and each Existing Holder and each Potential Holder placing an Order is
herein referred to as a "Bidder"; an Order described in clause (A)(1) is
herein referred to as a "Hold Order"; an Order described in clauses (A)(2)
and (B) is herein referred to as a "Bid"; and an Order described in clause
(A)(3) is herein referred to as a "Sell Order."
(ii) (A) Subject to the provisions of Section 4(b) hereof, a Bid by an
Existing Holder shall constitute an irrevocable offer to sell:
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(1) the Principal Amount of Outstanding Auction Rate Series
1997-1 Notes specified in such Bid if the Auction Rate Series
1997-1 Note Interest Rate determined as provided in this Section
4 shall be less than the rate specified therein; or
(2) such Principal Amount, or a lesser Principal Amount of
Outstanding Auction Rate Series 1997-1 Notes to be determined as
set forth in Section 4(d)(i)(D) hereof, if the Auction Rate
Series 1997-1 Note Interest Rate determined as provided in this
Section 4 shall be equal to the rate specified therein; or
(3) such Principal Amount, or a lesser Principal Amount of
Outstanding Auction Rate Series 1997-1 Notes to be determined as
set forth in Section 4(d)(ii)(C) hereof, if the rate specified
therein shall be higher than the Auction Rate Series 1997-1 Note
Interest Rate and Sufficient Bids have not been made.
(B) Subject to the provisions of Section 4(b) hereof, a Sell
Order by an Existing Holder shall constitute an irrevocable offer to
sell:
(l) the Principal Amount of Outstanding Auction Rate Series
1997-1 Notes specified in such Sell Order; or
(2) such Principal Amount, or a lesser Principal Amount, of
Outstanding Auction Rate Series 1997-1 Notes set forth in Section
4(d)(ii)(C) hereof, if Sufficient Bids have not been made.
(C) Subject to the provisions of Section 4(b) hereof, a Bid by a
Potential Holder shall constitute an irrevocable offer to purchase:
(1) the Principal Amount of Outstanding Auction Rate Series
1997-1 Notes specified in such Bid if the Auction Rate Series 1997-1
Note Interest Rate determined as provided in this Section 4 shall be
higher than the rate specified in such Bid; or
(2) such Principal Amount, or a lesser Principal Amount of
Outstanding Auction Rate Series 1997-1 Notes set forth in Section
4(d)(i)(E) hereof, if the Auction Rate Series 1997-1 Note Interest
Rate determined as provided in this Section 4 shall be equal to the
rate specified in such Bid.
(b) (i) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date all Orders obtained
by such Broker-Dealer and shall specify with respect to each such Order:
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(A) the name of the Bidder placing such Order;
(B) the aggregate Principal Amount of Auction Rate Series 1997-1
Notes that are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the Principal Amount of Auction Rate Series 1997-1 Notes,
if any, subject to any Hold Order placed by such Existing Holder;
(2) the Principal Amount of Auction Rate Series 1997-1 Notes,
if any, subject to any Bid placed by such Existing Holder and the
rate specified in such Bid; and
(3) the Principal Amount of Auction Rate Series 1997-1 Notes,
if any, subject to any Sell Order placed by such Existing Holder;
and
(D) to the extent such Bidder is a Potential Holder, the rate
specified in such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate up to
the next higher .001%.
(iii) If an Order or Orders covering all Outstanding Auction Rate
Series 1997-1 Notes owned by an Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order to have been submitted on behalf of such Existing Holder covering the
Principal Amount of Outstanding Auction Rate Series 1997-1 Notes owned by such
Existing Holder and not subject to an Order submitted to the Auction Agent.
(iv) Neither the Corporation, the Trustee nor the Auction Agent shall
be responsible for any failure of a Broker-Dealer to submit an Order to the
Auction Agent on behalf of any Existing Holder or Potential Holder.
(v) If any Existing Holder submits through a Broker-Dealer to the
Auction Agent one or more Orders covering in the aggregate more than the
Principal Amount of Outstanding Auction Rate Series 1997-1 Notes owned by such
Existing Holder, such Orders shall be considered valid as follows and in the
following order of priority:
(A) All Hold Orders shall be considered valid, but only up to the
aggregate Principal Amount of Outstanding Auction Rate Series 1997-1
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Notes owned by such Existing Holder, and if the aggregate Principal
Amount of Auction Rate Series 1997-1 Notes subject to such Hold Orders
exceeds the aggregate Principal Amount of Auction Rate Series 1997-1
Notes owned by such Existing Holder, the aggregate Principal Amount of
Auction Rate Series 1997-1 Notes subject to each such Hold Order shall
be reduced pro rata so that the aggregate Principal Amount of Auction
Rate Series 1997-1 Notes subject to such Hold Order equals the
aggregate Principal Amount of Outstanding Auction Rate Series 1997-1
Notes owned by such Existing Holder.
(B) (1) any Bid shall be considered valid up to an amount equal
to the excess of the Principal Amount of Outstanding Auction Rate
Series 1997-1 Notes owned by such Existing Holder over the
aggregate Principal Amount of Auction Rate Series 1997-1 Notes
subject to any Hold Order referred to in clause (A) of this
paragraph (v);
(2) subject to subclause (1) of this clause (B), if more
than one Bid with the same rate is submitted on behalf of such
Existing Holder and the aggregate Principal Amount of Outstanding
Auction Rate Series 1997-1 Notes subject to such Bids is greater
than such excess, such Bids shall be considered valid up to an
amount equal to such excess;
(3) subject to subclauses (1) and (2) of this clause (B), if
more than one Bid with different rates are submitted on behalf of
such Existing Holder, such Bids shall be considered valid first
in the ascending order of their respective rates until the
highest rate is reached at which such excess exists and then at
such rate up to the amount of such excess; and
(4) in any such event, the amount of Outstanding Auction
Rate Series 1997-1 Notes, if any, subject to Bids not valid under
this clause (B) shall be treated as the subject of a Bid by a
Potential Holder at the rate therein specified; and
(C) All Sell Orders shall be considered valid up to an amount
equal to the excess of the Principal Amount of Outstanding Auction
Rate Series 1997-1 Notes owned by such Existing Holder over the
aggregate Principal Amount of Auction Rate Series 1997-1 Notes subject
to Hold Orders referred to in clause (A) of this paragraph (v) and
valid Bids referred to in clause (B) of this paragraph (v).
(vi) If more than one Bid for Auction Rate Series 1997-1 Notes is
submitted on behalf of any Potential Holder, each Bid submitted shall be a
separate Bid with the rate and Principal Amount therein specified.
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(vii) An Existing Holder that offers to purchase additional Auction
Rate Series 1997-1 Notes is, for purposes of such offer, treated as a
Potential Holder.
(viii) Any Bid or Sell Order submitted by an Existing Holder covering
an aggregate Principal Amount of Auction Rate Series 1997-1 Notes not equal
to an Authorized Denomination shall be rejected and shall be deemed a Hold
Order. Any Bid submitted by a Potential Holder covering an aggregate
Principal Amount of Auction Rate Series 1997-1 Notes not equal to an
Authorized Denomination shall be rejected.
(ix) Any Bid specifying a rate higher than the Maximum Auction Rate
will (a) be treated as a Sell Order if submitted by an Existing Holder and
(b) not be accepted if submitted by a Potential Holder.
(x) Any Order submitted in an Auction by a Broker-Dealer to the
Auction Agent prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(c) (i) Not earlier than the Submission Deadline on each Auction Date,
the Auction Agent shall assemble all valid Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or
deemed submitted by a Broker-Dealer being herein referred to individually
as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order,"
as the case may be, or as a "Submitted Order," and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as
the case may be, or as "Submitted Orders") and shall determine:
(A) the excess of the total Principal Amount of Outstanding
Auction Rate Series 1997-1 Notes over the sum of the aggregate
Principal Amount of Outstanding Auction Rate Series 1997-1 Notes
subject to Submitted Hold Orders (such excess being herein referred to
as the "Available Auction Rate Series 1997-1 Notes"), and
(B) from the Submitted Orders whether:
(1) the aggregate Principal Amount of Outstanding Auction
Rate Series 1997-1 Notes subject to Submitted Bids by Potential
Holders specifying one or more rates equal to or lower than the
Maximum Auction Rate;
exceeds or is equal to the sum of:
(2) the aggregate Principal Amount of Outstanding Auction
Rate Series 1997-1 Notes subject to Submitted Bids by
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Existing Holders specifying one or more rates higher than the
Maximum Auction Rate; and
(3) the aggregate Principal Amount of Outstanding Auction
Rate Series 1997-1 Notes subject to Submitted Sell Orders;
(in the event such excess or such equality exists, other than because
all of the Outstanding Auction Rate Series 1997-1 Notes are subject to
Submitted Hold Orders, such Submitted Bids described in subclause (1)
above shall be referred to collectively as "Sufficient Bids"); and
(C) if Sufficient Bids exist, the Bid Auction Rate, which shall
be the lowest rate specified in such Submitted Bids such that if:
(l) (x) each such Submitted Bid from Existing Holders
specifying such lowest rate and (y) all other Submitted Bids from
Existing Holders specifying lower rates were rejected, thus
entitling such Existing Holders to continue to own the Principal
Amount of Auction Rate Series 1997-1 Notes subject to such
Submitted Bids; and
(2) (x) each such Submitted Bid from Potential Holders
specifying such lowest rate and (y) all other Submitted Bids from
Potential Holders specifying lower rates were accepted;
the result would be that such Existing Holders described in subclause
(1) above would continue to own an aggregate Principal Amount of
Outstanding Auction Rate Series 1997-1 Notes which, when added to the
aggregate Principal Amount of Outstanding Auction Rate Series 1997-1
Notes to be purchased by such Potential Holders described in subclause
(2) above, would equal not less than the Available Auction Rate Series
1997-1 Notes.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to Section 4(c)(i) hereof, the Auction Agent shall advise the
Trustee, the Broker-Dealers and the Corporation of the Net Loan Rate (in
the case of a series of Taxable Auction Rate Series 1997-1 Notes), the
Maximum Auction Rate and the All Hold Rate and the components thereof on
the Auction Date and, based on such determinations, the Auction Rate for
the next succeeding Interest Period as follows:
(A) if Sufficient Bids exist, that the Auction Rate for the next
succeeding Interest Period shall be equal to the Bid Auction Rate so
determined;
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(B) if Sufficient Bids do not exist (other than because all of
the Outstanding Auction Rate Series 1997-1 Notes are subject to
Submitted Hold Orders), that the Auction Rate for the next succeeding
Interest Period shall be equal to the Maximum Auction Rate; or
(C) if all Outstanding Auction Rate Series 1997-1 Notes are
subject to Submitted Hold Orders, that the Auction Rate for the next
succeeding Interest Period shall be equal to the All Hold Rate.
(iii) Promptly after the Auction Agent has determined the Auction
Rate, the Auction Agent shall determine and advise the Trustee of the
Auction Rate Series 1997-1 Note Interest Rate, which rate shall be (A) in
the case of a series of Tax Exempt Auction Rate Series 1997-1 Notes, the
Auction Rate, or (B) in the case of a series of Taxable Auction Rate Series
1997-1 Notes, the lesser of the Auction Rate and the Net Loan Rate;
provided, however, that in no event shall the Auction Rate Series 1997-1
Note Interest Rate exceed the Auction Rate Series 1997-1 Note Interest Rate
Limitation.
(d) Existing Holders shall continue to own the Principal Amount of Auction
Rate Series 1997-1 Notes that are subject to Submitted Hold Orders. If
Sufficient Bids have been received by the Auction Agent (and if, in the case of
a series of Taxable Auction Rate Series 1997-1 Notes, the Net Loan Rate is equal
to or greater than the Bid Auction Rate), the Bid Auction Rate will be the
Auction Rate Series 1997-1 Note Interest Rate, and Submitted Bids and Submitted
Sell Orders will be accepted or rejected and the Auction Agent will take such
other action as described below in subparagraph (i).
If, in the case of a series of Taxable Auction Rate Series 1997-1 Notes,
the Net Loan Rate is less than the Auction Rate, the Net Loan Rate will be the
Auction Rate Series 1997-1 Note Interest Rate for such series. If the Auction
Rate is greater than the Auction Rate Series 1997-1 Note Interest Rate
Limitation (in the case of a series of Tax Exempt Auction Rate Series 1997-1
Notes), or the Auction Rate and the Net Loan Rate are both greater than the
Auction Rate Series 1997-1 Note Interest Rate Limitation (in the case of a
series of Tax Exempt Auction Rate Series 1997-1 Notes), the Auction Rate Series
1997-1 Note Interest Rate for such series shall be equal to the Auction Rate
Series 1997-1 Note Interest Rate Limitation. If the Auction Agent has not
received Sufficient Bids (other than because all of the Outstanding Auction Rate
Series 1997-1 Notes are subject to Submitted Hold Orders), the Auction Rate
Series 1997-1 Note Interest Rate will be (1) in the case of a series of Tax
Exempt Auction Rate Series 1997-1 Notes, the Maximum Auction Rate, or (2) in the
case of a series of Taxable Auction Rate Series 1997-1 Notes, the lesser of the
Maximum Auction Rate and the Net Loan Rate. In any of the cases described above,
Submitted Orders will be accepted or rejected and the Auction Agent will take
such other action as described below in subparagraph (ii).
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(i) if Sufficient Bids have been made (and if, in the case of a
series of Taxable Auction Rate Series 1997-1 Notes, the Net Loan Rate is
equal to or greater than the Bid Auction Rate), in which event the Auction
Rate Series 1997-1 Note Interest Rate shall be the Bid Auction Rate, all
Submitted Sell Orders shall be accepted and, subject to the provisions of
paragraphs (iv) and (v) of this Section 4(d), Submitted Bids shall be
accepted or rejected as follows in the following order of priority, and all
other Submitted Bids shall be rejected:
(A) Existing Holders' Submitted Bids specifying any rate that is
higher than the Auction Rate Series 1997-1 Note Interest Rate shall be
accepted, thus requiring each such Existing Holder to sell the
aggregate Principal Amount of Auction Rate Series 1997-1 Notes subject
to such Submitted Bids;
(B) Existing Holders' Submitted Bids specifying any rate that is
lower than the Auction Rate Series 1997-1 Note Interest Rate shall be
rejected, thus entitling each such Existing Holder to continue to own
the aggregate Principal Amount of Auction Rate Series 1997-1 Notes
subject to such Submitted Bids;
(C) Potential Holders' Submitted Bids specifying any rate that
is lower than the Auction Rate Series 1997-1 Note Interest Rate shall
be accepted;
(D) Each Existing Holders' Submitted Bid specifying a rate that
is equal to the Auction Rate Series 1997-1 Note Interest Rate shall be
rejected, thus entitling such Existing Holder to continue to own the
aggregate Principal Amount of Auction Rate Series 1997-1 Notes subject
to such Submitted Bid, unless the aggregate Principal Amount of
Outstanding Auction Rate Series 1997-1 Notes subject to all such
Submitted Bids shall be greater than the Principal Amount of Auction
Rate Series 1997-1 Notes (the "Remaining Principal Amount") equal to
the excess of the Available Auction Rate Series 1997-1 Notes over the
aggregate Principal Amount of Auction Rate Series 1997-1 Notes subject
to Submitted Bids described in clauses (B) and (C) of this Section
4(d)(i), in which event such Submitted Bid of such Existing Holder
shall be rejected in part, and such Existing Holder shall be entitled
to continue to own the Principal Amount of Auction Rate Series 1997-1
Notes subject to such Submitted Bid, but only in an amount equal to
the aggregate Principal Amount of Auction Rate Series 1997-1 Notes
obtained by multiplying the Remaining Principal Amount by a fraction,
the numerator of which shall be the Principal Amount of Outstanding
Auction Rate Series 1997-1 Notes owned by such Existing Holder subject
to such Submitted Bid and the denominator of which shall be the sum of
the Principal Amount of Outstanding Auction Rate
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Series 1997-1 Notes subject to such Submitted Bids made by all such
Existing Holders that specified a rate equal to the Auction Rate
Series 1997-1 Note Interest Rate; and
(E) Each Potential Holder's Submitted Bid specifying a rate that
is equal to the Auction Rate Series 1997-1 Note Interest Rate shall be
accepted, but only in an amount equal to the Principal Amount of
Auction Rate Series 1997-1 Notes obtained by multiplying the excess of
the aggregate Principal Amount of Available Auction Rate Series 1997-1
Notes over the aggregate Principal Amount of Auction Rate Series 1997-
1 Notes subject to Submitted Bids described in clauses (B), (C) and
(D) of this Section 4(d)(i) by a fraction the numerator of which shall
be the aggregate Principal Amount of Outstanding Auction Rate Series
1997-1 Notes subject to such Submitted Bid and the denominator of
which shall be the sum of the Principal Amount of Outstanding Auction
Rate Series 1997-1 Notes subject to Submitted Bids made by all such
Potential Holders that specified a rate equal to the Auction Rate
Series 1997-1 Note Interest Rate.
(ii) If Sufficient Bids have not been made (other than because all
of the Outstanding Auction Rate Series 1997-1 Notes are subject to
Submitted Hold Orders), if the Auction Rate Series 1997-1 Note Interest
Rate Limitation applies or if, in the case of a series of Taxable Auction
Rate Series 1997-1 Notes, the Net Loan Rate is less than the Bid Auction
Rate (in which event the Auction Rate Series 1997-1 Note Interest Rate for
such series shall be the Net Loan Rate), subject to the provisions of
Section 4(d)(iv) hereof, Submitted Orders shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids
shall be rejected:
(A) Existing Holders' Submitted Bids specifying any rate that is
equal to or lower than the Auction Rate Series 1997-1 Note Interest
Rate shall be rejected, thus entitling such Existing Holders to
continue to own the aggregate Principal Amount of Auction Rate Series
1997-1 Notes subject to such Submitted Bids;
(B) Potential Holders' Submitted Bids specifying (1) any rate
that is equal to or lower than the Auction Rate Series 1997-1 Note
Interest Rate shall be accepted and (2) any rate that is higher than
the Auction Rate Series 1997-1 Note Interest Rate shall be rejected;
and
(C) each Existing Holder's Submitted Bid specifying any rate
that is higher than the Auction Rate Series 1997-1 Note Interest Rate
and the Submitted Sell Order of each Existing Holder shall be
accepted, thus entitling each Existing Holder that submitted any such
Submitted Bid or Submitted Sell Order to sell the Auction Rate Series
1997-1 Notes subject to such Submitted Bid or Submitted Sell Order,
but in both cases
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only in an amount equal to the aggregate Principal Amount of Auction
Rate Series 1997-1 Notes obtained by multiplying the aggregate
Principal Amount of Auction Rate Series 1997-1 Notes subject to
Submitted Bids described in clause (B) of this Section 4(d)(ii) by a
fraction the numerator of which shall be the aggregate Principal
Amount of Outstanding Auction Rate Series 1997-1 Notes owned by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order
and the denominator of which shall be the aggregate Principal Amount
of Outstanding Auction Rate Series 1997-1 Notes subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If all Outstanding Auction Rate Series 1997-1 Notes are
subject to Submitted Hold Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the procedures described in paragraph (i)
or (ii) of this Section 4(d), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a Principal Amount of Auction Rate Series 1997-1 Notes that is
not equal to an Authorized Denomination, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, round up or down the
Principal Amount of Auction Rate Series 1997-1 Notes to be purchased or
sold by any Existing Holder or Potential Holder so that the Principal
Amount of Auction Rate Series 1997-1 Notes purchased or sold by each
Existing Holder or Potential Holder shall be equal to an Authorized
Denomination.
(v) If, as a result of the procedures described in paragraph (i)
of this Section 4(d), any Potential Holder would be entitled or required to
purchase less than an Authorized Denomination of Auction Rate Series 1997-1
Notes, the Auction Agent shall, in such manner as in its sole discretion it
shall determine, allocate Auction Rate Series 1997-1 Notes for purchase
among Potential Holders so that only Auction Rate Series 1997-1 Notes in
Authorized Denominations are purchased by any Potential Holder, even if
such allocation results in one or more of such Potential Holders not
purchasing any Auction Rate Series 1997-1 Notes.
(e) Based on the result of each Auction, the Auction Agent shall determine
the aggregate Principal Amount of Auction Rate Series 1997-1 Notes to be
purchased and the aggregate Principal Amount of Auction Rate Series 1997-1 Notes
to be sold by Potential Holders and Existing Holders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each Broker-
Dealer, to the extent that such aggregate Principal Amount of Auction Rate
Series 1997-1 Notes to be sold differs from such aggregate Principal Amount of
Auction Rate Series 1997-1 Notes to be purchased, determine to which other
Broker-Dealer or Broker-Dealers acting for one or more purchasers such Broker-
Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers acting
for one or more sellers such Broker-Dealer shall receive, as the case may be,
Auction Rate Series 1997-1 Notes.
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(f) Any calculation by the Auction Agent, the Corporation or the Trustee,
as applicable, of the Auction Rate Series 1997-1 Note Interest Rate, One-Month
LIBOR, Three-Month LIBOR, Maximum Auction Rate, All Hold Rate, Net Loan Rate and
Non-Payment Rate shall, in the absence of manifest error, be binding on all
other parties.
(g) Notwithstanding anything in this First Supplemental Indenture to the
contrary notwithstanding, no Auction will be held on any Auction Date hereunder
during the continuance of a Payment Default.
Section 5. Determination of Payment Defaults and Payment of Auction
Agent and Broker-Dealer Fees.
(a) The Trustee shall determine, not later than 2:00 p.m., New York
City time, on the Business Day next succeeding each Interest Payment Date,
whether a Payment Default has occurred. If a Payment Default has occurred, the
Trustee shall, not later than 2:15 p.m., New York City time, on such Business
Day, send a notice thereof in substantially the form of Exhibit C attached
hereto to the Auction Agent by telecopy or similar means and, if such Payment
Default is cured, the Trustee shall immediately send a notice in substantially
the form of Exhibit D attached hereto to the Auction Agent by telecopy or
similar means.
(b) Not later than 12:00 noon, New York City time, on each Interest
Payment Date, the Corporation shall pay to the Auction Agent, in immediately
available funds out of amounts available therefor in the Administration Fund, an
amount equal to the Auction Agent Fee and the Broker-Dealer Fee as calculated in
accordance with the Auction Agent Agreement. The Corporation shall, from time
to time at the request of the Auction Agent, reimburse the Auction Agent for its
reasonable expenses as provided in the Auction Agent Agreement, such expenses to
be paid out of amounts available therefor in the Administration Fund.
Section 6. Calculation of Maximum Auction Rate, All Hold Rate, One-
Month LIBOR, Three-Month LIBOR, Non-Payment Rate, After-Tax Equivalent, "AA"
Composite Commercial Paper Rate, Index, Applicable Percentage and Net Loan Rate.
The Auction Agent shall calculate the Maximum Auction Rate, the All Hold Rate,
the After-Tax Equivalent, the "AA" Composite Commercial Paper Rate, the Index
(unless the Index is to be determined by the Market Agent), the Applicable
Percentage and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each
Auction Date and shall notify the Trustee and the Broker-Dealers of the Maximum
Auction Rate, the All Hold Rate and One-Month LIBOR or Three-Month LIBOR, as the
case may be, all as provided in the Auction Agent Agreement. The Market Agent
shall calculate the Index (if the Index is other than the PSA Index) on each
Interest Rate Determination Date and shall notify the Trustee and the Auction
Agent of the Index prior to 9:30 a.m., New York City time, on each Interest Rate
Determination Date. If the ownership of the Auction Rate Series 1997-1 Notes is
no longer maintained in Book-Entry Form by the Securities Depository, the
Trustee
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shall calculate the Maximum Auction Rate on the Business Day immediately
preceding each Interest Period after the delivery of definitive Auction Rate
Series 1997-1 Notes pursuant to Section 17 hereof. If a Payment Default shall
have occurred, the Trustee shall calculate the Non-Payment Rate on the Interest
Rate Determination Date for (i) each Interest Period commencing after the
occurrence and during the continuance of such Payment Default and (ii) any
Interest Period commencing less than two (2) Business Days after the cure of any
Payment Default. The Auction Agent shall determine the After-Tax Equivalent,
the "AA" Composite Commercial Paper Rate, the Applicable Percentage and One-
Month LIBOR or Three-Month LIBOR, as the case may be, for each Interest Period
other than the first Interest Period; provided that if the ownership of the
Auction Rate Series 1997-1 Notes is no longer maintained in Book-Entry Form, or
if a Payment Default has occurred, then the Trustee shall determine the After-
Tax Equivalent, the "AA" Composite Commercial Paper Rate, the Applicable
Percentage and One-Month LIBOR or Three-Month LIBOR, as the case may be, for
each such Interest Period. The determination by the Trustee or the Auction
Agent, as the case may be, of the After-Tax Equivalent, the "AA" Composite
Commercial Paper Rate, the Applicable Percentage and One-Month LIBOR or Three-
Month LIBOR, as the case may be, shall (in the absence of manifest error) be
final and binding upon all parties. If calculated or determined by the Auction
Agent, the Auction Agent shall promptly advise the Trustee of the After-Tax
Equivalent, the "AA" Composite Commercial Paper Rate, the Applicable Percentage
and One-Month LIBOR or Three-Month LIBOR, as the case may be. The determination
by the Market Agent of the Index shall (in the absence of manifest error) be
final and binding upon all parties.
If the Federal Reserve Bank of New York does not make available its
30-day commercial paper rate for purposes of determining the "AA" Composite
Commercial Paper Rate, the Auction Agent shall notify the Trustee of such fact
and the Trustee shall thereupon request that an Authorized Officer of the
Corporation promptly appoint at least two (2) Commercial Paper Dealers (in
addition to Smith Barney Inc.) to provide commercial paper quotes for purposes
of determining the "AA" Composite Commercial Paper Rate. Pending appointment of
both such additional Commercial Paper Dealers, Smith Barney Inc. and any other
Commercial Paper Dealer appointed and serving as such shall provide the required
quotations and such quotations shall be used for purposes of this First
Supplemental Indenture. Smith Barney Inc. is hereby appointed as a Commercial
Paper Dealer to provide commercial paper quotes for purposes of determining the
"AA" Composite Commercial Paper Rate as aforesaid.
The Net Loan Rate with respect to each Interest Rate Determination
Date shall be determined by or on behalf of the Corporation and written notice
thereof given to the Auction Agent and the Trustee on or prior to the twenty-
fifth day (or, if such twenty-fifth day is not a Business Day, the next
succeeding Business Day) of the calendar month preceding such Interest Rate
Determination Date. If the Corporation shall fail or refuse to determine the
Net Loan Rate, the Net Loan Rate shall be the Net Loan Rate last determined and
communicated to the Auction Agent
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and the Trustee in accordance with this paragraph. The determination by or on
behalf of the Corporation of the Net Loan Rate shall (in the absence of manifest
error) be final and binding upon all parties.
Section 7. Notification of Rates, Amounts and Payment Dates.
(a) By 10:00 a.m., New York City time, on each Regular Record Date
with respect to the Auction Rate Series 1997-1 Notes, the Trustee shall
determine the aggregate amounts of interest distributable on the next succeeding
Interest Payment Date to the beneficial owners of each series thereof.
(b) As soon as practicable prior to each Interest Payment Date with
respect to the Auction Rate Series 1997-1 Notes, the Trustee shall:
(i) confirm with the Auction Agent, so long as no Payment Default has
occurred and is continuing and the ownership of the Auction Rate Series
1997-1 Notes is maintained in Book-Entry Form by the Securities Depository,
(1) the date of such next Interest Payment Date and (2) the amount payable
to the Auction Agent on such Interest Payment Date pursuant to Section 5(b)
hereof;
(ii) advise the Securities Depository, so long as the ownership of the
Auction Rate Series 1997-1 Notes is maintained in Book-Entry Form by the
Securities Depository, upon request, of the aggregate amount of interest
distributable on the next succeeding Interest Payment Date to the
beneficial owners of each series thereof; and
(iii) pursuant to Section 3(A) hereof, advise the Holders of each
series of Taxable Auction Rate Series 1997-1 Notes of any Carry-Over Amount
accruing on such series.
Section 8. Auction Agent.
(a) Bankers Trust Company is hereby appointed as Initial Auction Agent
to serve as agent for the Corporation in connection with Auctions. The Trustee
and the Corporation will, and the Trustee is hereby directed to, enter into the
Initial Auction Agent Agreement with Bankers Trust Company, as the Initial
Auction Agent. Any Substitute Auction Agent shall be (i) a bank, national
banking association or trust company duly organized under the laws of the United
States of America or any state or territory thereof having its principal place
of business in the Borough of Manhattan, New York, or such other location as
approved by the Trustee in writing and having a combined capital stock or
surplus of at least $50,000,000, or (ii) a member of the National Association of
Securities Dealers, Inc., having a capitalization of at least $50,000,000, and,
in either case, authorized by law to perform all the duties imposed upon it
hereunder and under the Auction Agent Agreement. The Auction Agent may at any
time resign and be discharged of the
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duties and obligations created by this First Supplemental Indenture by giving at
least ninety (90) days' notice to the Trustee, the Market Agent and the
Corporation. The Auction Agent with respect to the Tax Exempt Auction Rate
Series 1997-1 Notes may be removed at any time by the Trustee upon the written
direction of an Authorized Officer of the Corporation or the Holders of 66-2/3%
of the aggregate Principal Amount of the Tax Exempt Auction Rate Series 1997-1
Notes then Outstanding, and, if by such Holders, by an instrument signed by such
Holders or their attorneys and filed with the Auction Agent, the Corporation and
the Trustee upon at least ninety (90) days' notice. The Auction Agent with
respect to the Taxable Auction Rate Series 1997-1 Notes may be removed at any
time by the Trustee upon the written direction of an Authorized Officer of the
Corporation or the Holders of 66-2/3% of the aggregate Principal Amount of the
Taxable Auction Rate Series 1997-1 Notes then Outstanding, and, if by such
Holders, by an instrument signed by such Holders or their attorneys and filed
with the Auction Agent, the Corporation and the Trustee upon at least ninety
(90) days' notice. Neither resignation nor removal of the Auction Agent pursuant
to the preceding two sentences shall be effective unless and until a Substitute
Auction Agent has been appointed and has accepted such appointment. However, if
a successor Auction Agent shall not have been appointed within sixty (60) days
from the date of a notice of resignation, the resigning Auction Agent may
petition any court of competent jurisdiction for the appointment of a successor
Auction Agent. If required by the Corporation, a Substitute Auction Agent
Agreement shall be entered into with a Substitute Auction Agent. Notwithstanding
the foregoing, the Auction Agent may terminate the Auction Agent Agreement if,
within twenty-five (25) days after notifying the Trustee, the Market Agent and
the Corporation in writing that it has not received payment of any Auction Agent
Fee due it in accordance with the terms of the Auction Agent Agreement, the
Auction Agent does not receive such payment.
(b) If the Auction Agent shall resign or be removed or be dissolved,
or if the property or affairs of the Auction Agent shall be taken under the
control of any state or federal court or administrative body because of
bankruptcy or insolvency, or for any other reason, the Trustee at the direction
of an Authorized Officer of the Corporation, shall use its best efforts to
appoint a Substitute Auction Agent.
(c) The Auction Agent is acting as agent for the Corporation in
connection with Auctions. In the absence of bad faith, negligent failure to act
or negligence on its part, the Auction Agent shall not be liable for any action
taken, suffered or omitted or any error of judgment made by it in the
performance of its duties under the Auction Agent Agreement and shall not be
liable for any error of judgment made in good faith unless the Auction Agent
shall have been negligent in ascertaining (or failing to ascertain) the
pertinent facts.
(d) In the event of a change in the Auction Agent Fee Rate pursuant to
Section 6.4(b) of the Auction Agent Agreement, the Auction Agent shall give a
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Notice of Fee Rate Change to the Trustee in accordance with the Auction Agent
Agreement.
Section 9. Broker-Dealers.
(a) The Auction Agent will enter into a Broker-Dealer Agreement with
Smith Barney Inc., as the sole initial Broker-Dealer with respect to the Tax
Exempt Auction Rate Series 1997-1 Notes. The Auction Agent will also enter into
a Broker-Dealer Agreement with Smith Barney Inc., as the sole initial Broker-
Dealer with respect to the Taxable Auction Rate Series 1997-1 Notes. An
Authorized Officer of the Corporation may, from time to time, approve one or
more additional persons to serve as Broker-Dealers under Broker-Dealer
Agreements and shall be responsible for providing such Broker-Dealer Agreements
to the Trustee and the Auction Agent; provided, however that while Smith Barney
Inc. is serving as a Broker-Dealer, Smith Barney Inc. shall have the right to
consent to the approval of any additional Broker-Dealers, which consent will not
be unreasonably withheld.
(b) Any Broker-Dealer may be removed at any time, at the request of an
Authorized Officer of the Corporation, but there shall, at all times, be at
least one Broker-Dealer with respect to each of the Tax Exempt Auction Rate
Series 1997-1 Notes and the Taxable Auction Rate Series 1997-1 Notes appointed
and acting as such.
Section 10. Changes in Auction Period or Periods and Certain
Percentages.
(a) While any of the Auction Rate Series 1997-1 Notes are Outstanding,
the Corporation may, from time to time, convert the length of one or more
Auction Periods (an "Auction Period Adjustment"), in order to conform with then
current market practice with respect to similar securities or to accommodate
economic and financial factors that may affect or be relevant to the length of
the Auction Period and the Auction Rate Series 1997-1 Note Interest Rate borne
by the Auction Rate Series 1997-1 Notes. The Corporation shall not initiate an
Auction Period Adjustment unless it shall have received, not less than three (3)
days nor more than twenty (20) days prior to the Auction Period Adjustment, (i)
in the case of an Auction Period Adjustment relating to Tax Exempt Auction Rate
Series 1997-1 Notes, a written opinion of Bond Counsel to the effect that such
Auction Period Adjustment will not adversely affect the exclusion of interest on
any of the Series 1997-1 Notes from income for federal income tax purposes, (ii)
the written consent of the Market Agent, which consent shall not be unreasonably
withheld, and (iii) written confirmation from each of the Rating Agencies then
rating the Series 1997-1 Notes that such Auction Period Adjustment will not
adversely affect its ratings then applicable to any of the Series 1997-1 Notes.
The Corporation shall initiate the Auction Period Adjustment by giving written
notice by Corporation Order to the Trustee, the Auction Agent, the Market Agent
and the Securities Depository in substantially the form of, or containing
substantially the information contained in,
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Exhibit E to this First Supplemental Indenture at least ten (10) days prior to
the Auction Date for such Auction Period.
Any such adjusted Auction Period shall not be less than seven (7) days
nor more than ninety-one (91) days. If any such adjusted Auction Period will be
less than thirty-five (35) days (in the case of the Tax Exempt Auction Rate
Series 1997-1 Notes) or twenty-eight (28) days (in the case of the Taxable
Auction Rate Series 1997-1 Notes), the notice described above will be effective
only if it is accompanied by a written statement of the Trustee, the Auction
Agent and the Securities Depository to the effect that they are capable of
performing their duties, if any, under this First Supplemental Indenture, the
Auction Agent Agreement and any Broker-Dealer Agreement with respect to such
changed Auction Period.
An Auction Period Adjustment shall take effect only (A) if the Trustee
and the Auction Agent receive, by 11:00 a.m., New York City time, on the
Business Day before the Auction Date for the first such Auction Period, a
Corporation Certificate in substantially the form attached as, or containing
substantially the same information contained in, Exhibit F to this First
Supplemental Indenture, authorizing the Auction Period Adjustment specified in
such certificate along with a copy of the opinion of Bond Counsel, the written
consent of the Market Agent and the Rating Agency confirmations described in the
first paragraph of this subsection (a) and, if applicable, the written statement
of the Trustee, the Auction Agent and the Securities Depository described in the
second paragraph of this subsection (a), and (B) Sufficient Bids exist as of the
Auction on the Auction Date for such first Auction Period. If the condition
referred to in (A) above is not met, the Auction Rate Series 1997-1 Note
Interest Rate for the next Auction Period shall be determined pursuant to the
provisions of Sections 4 through 9 hereof and the Auction Period shall be the
Auction Period determined without reference to the proposed change. If the
condition referred to in (A) is met but the condition referred to in (B) above
is not met, the Auction Rate Series 1997-1 Note Interest Rate for the next
Auction Period shall be (1) in the case of the Tax Exempt Auction Rate Series
1997-1 Notes, the Maximum Auction Rate, or (2) in the case of the Taxable
Auction Rate Series 1997-1 Notes, the lesser of the Maximum Auction Rate and the
Net Loan Rate, and in either case the Auction Period shall be the Auction Period
determined without reference to the proposed change.
In connection with any Auction Period Adjustment, the Auction Agent
shall provide such further notice to such parties as is specified in Section 2.5
of the Auction Agent Agreement.
(b) The Market Agent may adjust the percentage used in determining the
All Hold Rate, the Applicable Percentage used in determining the Maximum Auction
Rate and the percentage of the Index used in determining the Non-Payment Rate,
if any such adjustment is necessary, in the judgment of the Market Agent, to
reflect any Change of Tax Law such that a Tax Exempt Auction Rate Series 1997-1
Note bearing interest at the All Hold Rate, a Tax Exempt Auction Rate Series
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1997-1 Note bearing interest at the Maximum Auction Rate and a Tax Exempt
Auction Rate Series 1997-1 Note bearing interest at the Non-Payment Rate shall
have substantially the same market values after such Change of Tax Law as before
such Change of Tax Law. In making any such adjustment, the Market Agent shall
take the following factors in existence both before and after such Change of Tax
Law into account:
(i) short-term taxable and tax exempt market rates and indices of such
short-term rates;
(ii) the market supply and demand for short-term tax exempt
securities;
(iii) yield curves for short-term and long-term tax exempt securities
or obligations having a credit rating that is comparable to the Tax Exempt
Auction Rate Series 1997-1 Notes;
(iv) general economic conditions; and
(v) economic and financial factors present in the securities industry
that may affect or that may be relevant to the Tax Exempt Auction Rate
Series 1997-1 Notes.
The Market Agent shall communicate its determination to adjust the
percentage used in determining the All Hold Rate, the Applicable Percentage used
in determining the Maximum Auction Rate and the percentage of the Index used in
determining the Non-Payment Rate pursuant to the first paragraph of this
subsection (b) by means of a written notice delivered at least ten (10) days
prior to the Interest Rate Determination Date on which the Market Agent desires
to effect the change, to the Corporation, the Trustee and the Auction Agent in
substantially the form attached hereto as, or containing substantially the
information contained in, Exhibit I to this First Supplemental Indenture. Such
notice shall not be given unless the Market Agent has received a Corporation
Consent thereto and a written opinion of Bond Counsel to the effect that such
adjustment will not adversely affect the exclusion of interest on any of the
Series 1997-1 Notes from income for federal income tax purposes.
Any such adjustment in the percentages used to determine the All Hold
Rate, the Maximum Auction Rate and the Non-Payment Rate shall take effect on an
Interest Rate Determination Date only if (A) the Trustee, the Auction Agent and
the Corporation receive, by 11:00 a.m., New York City time, on the Business Day
immediately preceding such Interest Rate Determination Date, a certificate of an
authorized officer of the Market Agent in substantially the form attached hereto
as, or containing substantially the information contained in, Exhibit J to this
First Supplemental Indenture, authorizing the adjustment of such percentage as
specified in such certificate, together with a copy of the Corporation Consent
thereto and the opinion of Bond Counsel described in the second paragraph of
this subsection (b);
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and (B) the Trustee and the Corporation have received written confirmation from
each of the Rating Agencies then rating the Series 1997-1 Notes that such
proposed adjustment will not adversely affect its ratings then applicable to any
of the Series 1997-1 Notes. If any of the conditions referred to in (A) and (B)
above are not met, the existing percentage used to determine the All Hold Rate,
Applicable Percentage used to determine the Maximum Auction Rate and percentage
of the Index used to determine the Non-Payment Rate shall remain in effect, and
the rate of interest on Tax Exempt Auction Rate Series 1997-1 Notes for the next
succeeding Interest Period shall be determined in accordance with the Auction
Procedures.
In connection with any such adjustment in the percentages used to
determine the All Hold Rate, the Maximum Auction Rate and the Non-Payment Rate,
the Auction Agent shall provide such further notice to such parties as is
specified in Section 2.5 of the Auction Agent Agreement.
Section 11. Changes in the Auction Date. The Market Agent, with the
written consent of an Authorized Officer of the Corporation and upon receipt of
the opinion of Bond Counsel as hereinafter required, may specify an earlier
Auction Date (but in no event more than five (5) Business Days earlier) than the
Auction Date that would otherwise be determined in accordance with the
definition of "Auction Date" in Section 1 of this First Supplemental Indenture
with respect to one or more specified Auction Periods in order to conform with
then current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be relevant to the
day of the week constituting an Auction Date and the Auction Rate Series 1997-1
Note Interest Rate borne by the Auction Rate Series 1997-1 Notes. No such
change in the Auction Date shall be effective unless the Corporation and the
Trustee, prior to the proposed effective date of such change, have received a
written opinion of Bond Counsel to the effect that such change will not
adversely affect the exclusion of interest on any of the Series 1997-1 Notes
from income for federal income tax purposes. The Market Agent shall deliver a
written request for consent to such change in the Auction Date to the
Corporation not less than three days nor more than twenty (20) days prior to the
effective date of such change. The Market Agent shall provide notice of its
determination to specify an earlier Auction Date for one or more Auction Periods
by means of a written notice delivered at least ten (10) days prior to the
proposed changed Auction Date to the Trustee, the Auction Agent, the Corporation
and the Securities Depository. Such notice shall be substantially in the form
of, or contain substantially the information contained in, Exhibit G to this
First Supplemental Indenture.
In connection with any change described in this Section 11, the
Auction Agent shall provide such further notice to such parties as is specified
in Section 2.5 of the Auction Agent Agreement.
Section 12. Additional Provisions Regarding the Auction Rate Series
1997-1 Note Interest Rate. The determination of an Auction Rate Series 1997-1
Note
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Interest Rate by the Auction Agent or any other Person pursuant to the
provisions of the applicable Section of this First Supplemental Indenture shall
be conclusive and binding on the Holders of the series of Auction Rate Series
1997-1 Notes to which such Auction Rate Series 1997-1 Note Interest Rate
applies, and the Corporation and the Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on
a series of Auction Rate Series 1997-1 Notes (including interest calculated as
provided herein, plus any other amounts that constitute interest on the Auction
Rate Series 1997-1 Notes of such series under applicable law, which are
contracted for, charged, reserved, taken or received pursuant to the Auction
Rate Series 1997-1 Notes of such series or related documents) calculated from
the date of issuance of such series through any subsequent day during the term
of such series or otherwise prior to payment in full of the Auction Rate Series
1997-1 Notes of such series exceed the amount permitted by applicable law. If
the applicable law is ever judicially interpreted so as to render usurious any
amount called for under the Auction Rate Series 1997-1 Notes of a series or
related documents or otherwise contracted for, charged, reserved, taken or
received in connection with the Auction Rate Series 1997-1 Notes of such series,
or if the redemption, prepayment or acceleration of the maturity of the Auction
Rate Series 1997-1 Notes of such series results in payment to or receipt by the
Holder or any former Holder of the Auction Rate Series 1997-1 Notes of such
series of any interest in excess of that permitted by applicable law, then,
notwithstanding any provision of the Auction Rate Series 1997-1 Notes of such
series or related documents to the contrary, all excess amounts theretofore paid
or received with respect to the Auction Rate Series 1997-1 Notes of such series
shall be credited on the Principal Amount of the Auction Rate Series 1997-1
Notes of such series (or, if the Auction Rate Series 1997-1 Notes of such series
have been paid or would thereby be paid in full, refunded by the recipient
thereof), and the provisions of the Auction Rate Series 1997-1 Notes of such
series and related documents shall automatically and immediately be deemed
reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for under the Auction Rate Series 1997-1 Notes of such
series and under the related documents.
Section 13. Qualifications of Market Agent. The Market Agent shall
be a member of the National Association of Securities Dealers, Inc., have a
capitalization of at least $50,000,000 and be authorized by law to perform all
the duties imposed upon it by this First Supplemental Indenture. The Market
Agent may resign and be discharged of the duties and obligations created by this
First Supplemental Indenture by giving at least thirty (30) days notice to the
Corporation and the Trustee, provided that such resignation shall not be
effective until the appointment of a successor market agent by the Corporation
and the acceptance of such appointment by such successor market agent. The
Market Agent may be replaced at the direction of the Corporation, by an
instrument signed by an
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Authorized Officer of the Corporation filed with the Market Agent and the
Trustee at least thirty (30) days before the effective date of such replacement,
provided that such replacement shall not be effective until the appointment of a
successor market agent by the Corporation and the acceptance of such appointment
by such successor market agent.
In the event that the Market Agent shall be removed or be dissolved,
or if the property or affairs of the Market Agent shall be taken under the
control of any state or federal court or administrative body because of
bankruptcy or insolvency, or for any other reason, and there is no Market Agent,
and the Corporation shall not have appointed its successor as Market Agent, the
Trustee, notwithstanding the provisions of the first paragraph of this Section
13, shall be deemed to be the Market Agent for all purposes of this First
Supplemental Indenture until the appointment by the Corporation of the successor
Market Agent. Nothing in this Section 13 shall be construed as conferring on
the Trustee additional duties other than as set forth herein.
Section 14. Purposes of Issuance of Series 1997-1 Notes. The Series
1997-1 Notes are being issued to provide funds to be used to (a) refund the
Refunded Obligations and, in so doing, acquire student loan notes incurred under
the Higher Education Act financed with the proceeds thereof, as well as other
available moneys under the applicable indentures, which will be applied to the
purposes described in the following clauses (b) and (c), (b) acquire additional
student loan notes incurred under the Higher Education Act, and (c) fund the
Reserve Fund.
Section 15. Deposit of Series 1997-1 Note Proceeds. From the
proceeds derived from the sale of the Series 1997-1 Notes, including the accrued
interest paid as part of the purchase price thereof, there shall be deposited
with the Trustee:
(1) for credit to the Series 1997-1 Interest Subaccount, an amount
equal to any accrued interest on the Series 1997-1 Notes paid as part of
the purchase price thereof;
(2) for credit to the Series 1997-1 Tax Exempt Reserve Account, an
amount from the proceeds of the Tax Exempt Series 1997-1 Notes equal to
$____________________, from which sum (A) $____________________ shall be
immediately transferred to the Series 1979 Trustee contemporaneously with
receipt by the Trustee from the Series 1979 Trustee of a like amount of
cash transferred from the reserve fund under the Series 1979 Indenture for
credit to the Series 1997-1 Tax Exempt Reserve Account, (B)
$____________________ shall be immediately transferred to the Series 1989
Trustee contemporaneously with receipt by the Trustee from the Series 1989
Trustee of a like amount of cash transferred from the reserve fund under
the Series 1989 Indenture for credit to the Series 1997-1 Tax Exempt
Reserve Account, and (C) $____________________ shall be immediately
transferred to the Series 1994 Trustee contemporaneously with receipt by
the Trustee from the Series 1994 Trustee of a like amount of cash
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(consisting of proceeds of the Series 1996-1 Notes) transferred from the
reserve fund under the Series 1994 Indenture for credit to the Series
1997-1 Tax Exempt Reserve Account;
(3) for credit to the Series 1997-1 Taxable Reserve Account, an
amount from the proceeds of the Taxable Series 1997-1 Notes equal to
$____________________;
(4) an amount from the proceeds of the Tax Exempt Series 1997-1 Notes
equal to $____________________, from which sum (A) $____________________
shall be immediately transferred to the Series 1979 Trustee
contemporaneously with receipt by the Trustee from the Series 1979 Trustee
of a like amount of cash transferred from the surplus fund [and the
acquisition fund] under the Series 1979 Indenture for credit to the Series
1997-1 Tax Exempt Acquisition Account, (B) $____________________ shall be
immediately transferred to the Series 1989 Trustee contemporaneously with
receipt by the Trustee from the Series 1989 Trustee of a like amount of
cash transferred from the surplus fund under the Series 1989 Indenture for
credit to the Series 1997-1 Tax Exempt Acquisition Account, (C)
$____________________ shall be immediately transferred to the Series 1997
Trustee contemporaneously with receipt by the Trustee from the Series 1997
Trustee of a like amount of cash (consisting of proceeds of the Series
1997-A Bonds) transferred from the acquisition fund under the Series 1997
Indenture for credit to the Series 1997-1 Tax Exempt Acquisition Account,
and (D) $____________________ shall be immediately transferred to the
Series 1994 Trustee contemporaneously with receipt by the Trustee from the
Series 1994 Trustee of a like amount of cash (consisting of proceeds of the
Series 1996-1 Notes) transferred from the acquisition fund under the Series
1994 Indenture for credit to the Series 1997-1 Tax Exempt Acquisition
Account, all of such amounts to remain in such Account until applied for
the acquisition or origination of Eligible Loans, including the acquisition
of Eligible Loans pursuant to the Student Loan Purchase Agreements
identified in Exhibit H-4 hereto (as such Exhibit H-4 may be amended or
supplemented from time to time);
(5) for credit to the Series 1997-1 Tax Exempt Acquisition Account,
the remainder of the proceeds of the Tax Exempt Series 1997-1 Notes, to
remain in such Account until applied for (A) the acquisition of Eligible
Loans from:
(i) the Series 1979 Trustee, which Eligible Loans were previously
acquired by the Corporation, or by the Series 1979 Trustee on behalf
of the Corporation, pursuant to the Student Loan Purchase Agreements
identified in Exhibit H-1 hereto;
(ii) the Series 1989 Trustee, which Eligible Loans were
previously acquired by the Corporation, or by the Series 1989 Trustee
on behalf of the Corporation, pursuant to the Student Loan Purchase
Agreements identified in Exhibit H-2 hereto; and
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(iii) the Series 1994 Trustee, which Eligible Loans were
previously acquired by the Corporation, or by the Series 1994 Trustee
on behalf of the Corporation, pursuant to the Student Loan Purchase
Agreements identified in Exhibit H-3 hereto with proceeds of the
Series 1996-1 Notes; or
(B) the acquisition or origination of other Eligible Loans, including the
acquisition of Eligible Loans pursuant to the Student Loan Purchase Agreements
identified in Exhibit H-4 hereto (as such Exhibit H-4 may be amended or
supplemented from time to time); and
(6) for credit to the Series 1997-1 Taxable Acquisition Account, the
remainder of the proceeds of the Taxable Series 1997-1 Notes, to remain in
such Account until applied for (A) the acquisition of Eligible Loans from
the Series 1994 Trustee, which Eligible Loans were previously acquired by
the Corporation, or by the Series 1994 Trustee on behalf of the
Corporation, pursuant to the Student Loan Purchase Agreements identified
in Exhibit H-5 hereto with proceeds of the Series 1994-1 Notes, the Series
1995-1 Notes and the Series 1995-2 Notes, or (B) the acquisition or
origination of other Eligible Loans, including the acquisition of Eligible
Loans pursuant to the Student Loan Purchase Agreements identified in
Exhibit H-6 hereto (as such Exhibit H-6 may be amended or supplemented from
time to time).
All amounts deposited in the Series 1997-1 Tax Exempt Reserve Account, the
Series 1997-1 Taxable Reserve Account and the Series 1997-1 Tax Exempt
Acquisition Account pursuant to clauses (2), (3) and (4) above shall, except as
otherwise provided in Section 19 hereof or for purposes of complying with the
requirements of the Tax Matters Certificate relating to the Tax Exempt Series
1997-1 Notes and applicable Treasury Regulations, be deemed to be proceeds of
the Series 1997-1 Notes for purposes of this First Supplemental Indenture. With
respect to the Eligible Loans Financed as described in clauses (5)(A) and
(6)(A), there shall be credited to the Revenue Fund any federal interest subsidy
payments and Special Allowance Payments that accrued on such Eligible Loans
prior to the date on which they were Financed.
Section 16. Redemption and Prepayment of Series 1997-1 Notes. The
Series 1997-1 Notes are subject to redemption and prepayment as provided in this
Section 16.
(A) Redemption From Unexpended Tax Exempt Series 1997-1 Note
Proceeds. Subject to compliance with Section 10.2 of the Indenture, Outstanding
Tax Exempt Auction Rate Series 1997-1 Notes of any series or (to the extent no
Tax Exempt Auction Rate Series 1997-1 Notes are Outstanding) Series 1997-F Notes
or Series 1997-K Notes may, at the option of the Corporation, and, under the
circumstances described in the next succeeding sentence, shall be redeemed, in
whole or in part, on any Interest Rate Adjustment Date or regularly scheduled
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Interest Payment Date for such series (in the case of a series of Tax Exempt
Auction Rate Series 1997-1 Notes) or on any date (in the case of Series 1997-1F
Notes or Series 1997-1K Notes), at a Redemption Price equal to 100% of the
Principal Amount of Tax Exempt Series 1997-1 Notes so redeemed plus accrued
interest thereon to the Redemption Date, from proceeds of the Tax Exempt Series
1997-1 Notes constituting a portion of the Balance of the Series 1997-1 Tax
Exempt Acquisition Account that have not been used to acquire Eligible Loans and
from that portion of the Series 1997-1 Tax Exempt Reserve Account which, if left
in the Reserve Fund upon such redemption, would cause the Balance in the Reserve
Fund to exceed the Reserve Fund Requirement, calculated after giving effect to
such redemption. Such redemption shall be required on June 1, 2001 (to the
extent the proceeds in the Series 1997-1 Tax Exempt Acquisition Account not so
used as of April 15, 2001, exceed $59,725,000) and on June 1, 2002 (from such
proceeds not so used as of April 15, 2002), in each case unless the Corporation
delivers to the Trustee: (i) an opinion of Bond Counsel stating in effect that
such redemption is not required pursuant to the Code and that failure to so
redeem Tax Exempt Series 1997-1 Notes will not adversely affect the tax exempt
status of interest on any Tax Exempt Series 1997-1 Notes for federal income tax
purposes, (ii) a Corporation Certificate certifying that, based on a Cash Flow
Projection, the failure to redeem such Tax Exempt Series 1997-1 Notes will not
materially adversely affect the Corporation's ability to pay Debt Service on the
Outstanding Notes and the Outstanding Other Obligations, Carry-Over Amounts
(including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees or to make required deposits to the Rebate
Fund, and (iii) written confirmation from each of the Rating Agencies then
rating the Series 1997-1 Notes to the effect that the failure to redeem such Tax
Exempt Series 1997-1 Notes will not result in a reduction or withdrawal of the
rating of the Series 1997-1 Notes. The Trustee shall transfer any such moneys
to the credit of the Series 1997-1 Tax Exempt Retirement Subaccount for such
purpose without any further authorization or direction.
(B) Redemption From Unexpended Taxable Series 1997-1 Note Proceeds.
Subject to compliance with Section 10.2 of the Indenture, Outstanding Taxable
Auction Rate Series 1997-1 Notes of any series may, at the option of the
Corporation, and, under the circumstances described in the next succeeding
sentence, shall be redeemed, in whole or in part, on any regularly scheduled
Interest Payment Date for such series, at a Redemption Price equal to 100% of
the Principal Amount of Taxable Auction Rate Series 1997-1 Notes so redeemed
plus accrued interest thereon to the Redemption Date, from proceeds of the
Taxable Series 1997-1 Notes constituting a portion of the Balance of the Series
1997-1 Taxable Acquisition Account that have not been used to acquire Eligible
Loans and from that portion of the Series 1997-1 Taxable Reserve Account which,
if left in the Reserve Fund upon such redemption, would cause the Balance in the
Reserve Fund to exceed the Reserve Fund Requirement, calculated after giving
effect to such redemption. Such redemption shall be required on the regularly
scheduled Interest Payment Date occurring in December, 1998 (from such proceeds
not so used as of November 1, 1998), unless the Corporation delivers to the
Trustee: (i) a Corporation Certificate
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certifying that, based on a Cash Flow Projection, the failure to redeem such
Taxable Auction Rate Series 1997-1 Notes will not materially adversely affect
the Corporation's ability to pay Debt Service on the Outstanding Notes and the
Outstanding Other Obligations, Carry-Over Amounts (including accrued interest
thereon) with respect to Outstanding Notes, Administrative Expenses or Note Fees
or to make required deposits to the Rebate Fund, and (ii) written confirmation
from each of the Rating Agencies then rating the Series 1997-1 Notes to the
effect that the failure to redeem such Taxable Auction Rate Series 1997-1 Notes
will not result in a reduction or withdrawal of the rating of the Series 1997-1
Notes. The Trustee shall transfer any such moneys to the credit of the Series
1997-1 Taxable Retirement Subaccount for such purpose without any further
authorization or direction.
(C) Redemption from Series 1997-1 Tax Exempt Surplus Subaccount.
Subject to compliance with Section 10.2 of the Indenture, Outstanding Tax Exempt
Auction Rate Series 1997-1 Notes of any series may, at the option of the
Corporation, be redeemed on any Interest Rate Adjustment Date or regularly
scheduled Interest Payment Date for such series occurring on or after December
1, 1998, in whole or in part, from amounts available therefor as hereinafter
described. Subject to compliance with Section 10.2 of the Indenture,
Outstanding Series 1997-1F Notes and Series 1997-1K Notes may, at the option of
the Corporation, be redeemed on December 1, 1998, and on any date thereafter, in
whole or in part, from amounts available therefor as hereinafter described. Any
such redemption of Tax Exempt Auction Rate Series 1997-1 Notes, Series 1997-1F
Notes or Series 1997-1K Notes shall be at a Redemption Price equal to 100% of
the Principal Amount thereof to be redeemed plus accrued interest thereon to the
Redemption Date, and shall be made from amounts credited to the Series 1997-1
Tax Exempt Retirement Subaccount from the Series 1997-1 Tax Exempt Surplus
Subaccount for such purpose in accordance with Section 4.8 of the Indenture and
from that portion of the Series 1997-1 Tax Exempt Reserve Account which exceeds
the Reserve Fund Requirement (calculated after giving effect to such redemption)
in accordance with Section 4.4 of the Indenture. If the Trustee shall have
first certified that no deficiencies exist in any of the Rebate Fund, the Note
Fund, the Reserve Fund or the Special Redemption and Prepayment Account, the
Trustee shall, upon Corporation Order, transfer to the Series 1997-1 Tax Exempt
Retirement Account any Balances in the Series 1997-1 Tax Exempt Surplus
Subaccount (other than those consisting of Student Loans) which a Corporation
Certificate states are not reasonably expected to be needed for the payment of
scheduled Debt Service on the Outstanding Notes and Outstanding Other
Obligations, Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes, Administrative Expenses or Note Fees, or for
transfer to the Rebate Fund.
(D) Redemption from Series 1997-1 Taxable Surplus Subaccount.
Subject to compliance with Section 10.2 of the Indenture, Outstanding Taxable
Auction Rate Series 1997-1 Notes of any series may, at the option of the
Corporation, be redeemed on any regularly scheduled Interest Payment Date for
such series occurring on or after December 1, 1998, in whole or in part, from
amounts available
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therefor as hereinafter described. Any such redemption of Taxable Auction Rate
Series 1997-1 Notes shall be at a Redemption Price equal to 100% of the
Principal Amount thereof to be redeemed plus accrued interest thereon to the
Redemption Date, and shall be made from amounts credited to the Series 1997-1
Taxable Retirement Subaccount from the Series 1997-1 Taxable Surplus Subaccount
for such purpose in accordance with Section 4.8 of the Indenture and from that
portion of the Series 1997-1 Taxable Reserve Account which exceeds the Reserve
Fund Requirement (calculated after giving effect to such redemption) in
accordance with Section 4.4 of the Indenture. If the Trustee shall have first
certified that no deficiencies exist in any of the Rebate Fund, the Note Fund,
the Reserve Fund or the Special Redemption and Prepayment Account, the Trustee
shall, upon Corporation Order, transfer to the Series 1997-1 Taxable Retirement
Account any Balances in the Series 1997-1 Taxable Surplus Subaccount (other than
those consisting of Student Loans) which a Corporation Certificate states are
not reasonably expected to be needed for the payment of scheduled Debt Service
on the Outstanding Notes and Outstanding Other Obligations, Carry-Over Amounts
(including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees, or for transfer to the Rebate Fund.
(E) Optional Redemption. Subject to compliance with Section 10.2 of
the Indenture, Outstanding Auction Rate Series 1997-1 Notes of any series may,
at the option of the Corporation and from amounts credited to the Retirement
Account for such purpose, be redeemed on any Interest Rate Adjustment Date or
regularly scheduled Interest Payment Date for such series, in whole or in part,
at a Redemption Price equal to 100% of the Principal Amount of Auction Rate
Series 1997-1 Notes to be so redeemed plus accrued interest thereon to the
Redemption Date. Subject to compliance with Section 10.2 of the Indenture,
Outstanding Series 1997-1F Notes and Series 1997-1K Notes may, at the option of
the Corporation and from amounts credited to the Retirement Account for such
purpose, be redeemed on December 1, 2007, and on any date thereafter, in whole
or in part, at the Redemption Prices (expressed as a percentage of Principal
Amount) set forth below plus accrued interest to the Redemption Date:
Redemption
Redemption Period Price
----------------- ------
December 1, 2007, through November 30, 2008 102%
December 1, 2008, through November 30, 2009 101%
December 1, 2009, and thereafter 100%
Notwithstanding the foregoing, no Series 1997-1 Notes shall be
redeemed pursuant to this subsection (E) unless the Trustee receives, at least
forty-five (45) days prior to the proposed Redemption Date (unless a shorter
notice is satisfactory to the Trustee), a Corporation Certificate certifying
that, based on a Cash Flow Projection, such redemption of such Series 1997-1
Notes will not materially adversely affect the Corporation's ability to pay Debt
Service on the Outstanding
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Notes and Outstanding Other Obligations, Carry-Over Amounts (including accrued
interest thereon) with respect to Outstanding Notes, Administrative Expenses or
Note Fees or to make required deposits to the Rebate Fund.
(F) Prepayment of Taxable LIBOR Rate Series 1997-1 Notes. Subject to
compliance with Section 10.2 of the Indenture, Outstanding LIBOR Rate Series
1997-1 Notes shall receive prepayments of principal on any Interest Payment Date
from moneys credited to the Series 1997-1 Taxable Special Redemption and
Prepayment Subaccount as hereinafter described.
On each Special Prepayment Determination Date, the Corporation shall
determine to what extent the Balance in the Series 1997-1 Taxable Special
Redemption and Prepayment Subaccount exceeds the amount reasonably expected to
otherwise be required to be transferred to the Note Fund, the Rebate Fund or the
Reserve Fund prior to the next succeeding regularly scheduled Interest Payment
Date (the "Special Prepayment Excess"). If the Corporation determines that
there is any Special Prepayment Excess, it shall, within two (2) Business Days
after the Special Prepayment Determination Date, deliver to the Trustee a
Corporation Certificate to that effect, and the Trustee shall, provided no
deficiencies exist at the time in the Note Fund, the Rebate Fund or the Reserve
Fund, immediately and without further authorization or direction transfer to the
credit of the Series 1997-1 Taxable Retirement Subaccount that portion of the
Balance of the Series 1997-1 Taxable Special Redemption and Prepayment
Subaccount equal to the Special Prepayment Excess so certified.
All prepayments of principal in accordance with this subsection (F)
shall, subject to Section 10.2 of the Indenture, be allocated between the LIBOR
Rate Series 1997-1 Senior Notes and the Series 1997-1L Notes pro rata based upon
their respective aggregate Principal Amounts. All such prepayments of principal
allocated to the LIBOR Rate Series 1997-1 Senior Notes shall be applied to the
Series 1997-1I Notes so long as any such Notes remain Outstanding, and
thereafter to the Series 1997-1J Notes. All such prepayments of principal
applied to a given series of LIBOR Rate Series 1997-1 Notes shall be allocated
pro rata, based upon their respective Principal Amounts, to the reduction of the
Principal Amount of all Notes of such series.
(G) Redemption Upon Reduction of Student Loan Balance. Subject to
compliance with Section 10.2 of the Indenture, the Outstanding Series 1997-1
Notes may, at the option of the Corporation, be redeemed, in whole but not in
part, at a Redemption Price equal to 100% of the Principal Amount of Series
1997-1 Notes to be so redeemed plus accrued interest thereon to the Redemption
Date, on any date after the remaining aggregate Principal Balance of Student
Loans Financed with proceeds of the Series 1997-1 Notes is less than 10% of the
aggregate amount of proceeds described in subsections (4), (5) and (6) of
Section 15 hereof.
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(H) Selection of Series 1997-1 Notes for Redemption. If less than
all Outstanding Series 1997-1 Notes subject to redemption are to be redeemed
pursuant to subsections (C) or (E) of this Section 16, the Principal Amounts of
each series of Series 1997-1 Notes to be redeemed shall be selected as follows:
to the extent that the provisions of Section 10.2 of the Indenture will not be
violated thereby, either (i) to the extent Series 1997-1 Subordinate Notes are
subject to such redemption, that Principal Amount thereof shall be redeemed
which bears, as nearly as practicable, the same (but no greater) proportion to
the aggregate Principal Amount of all Outstanding Series 1997-1 Notes to be
redeemed as the aggregate Principal Amount of Outstanding Series 1997-1
Subordinate Notes bears to the aggregate Principal Amount of all Outstanding
Series 1997-1 Notes or (ii) if the Trustee receives, at least forty-five (45)
days prior to the Redemption Date (unless a shorter notice is satisfactory to
the Trustee), a Corporation Certificate certifying that, based on a Cash Flow
Projection, a different proportion of Series 1997-1 Subordinate Notes to be
redeemed will not materially adversely affect the Corporation's ability to pay
Debt Service on the Outstanding Notes and on Outstanding Other Obligations,
Carry-Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes, Administrative Expenses or Note Fees or to make required
deposits to the Rebate Fund, Series 1997-1 Subordinate Notes shall be redeemed
in such Principal Amount as is designated by the Corporation in such
certificate. The remaining Series 1997-1 Notes to be redeemed pursuant to
subsections (C) or (E) of this Section 16 shall be selected from the Series
1997-1 Senior Notes subject to such redemption, and, if more than one series of
Series 1997-1 Senior Notes is so subject, from each such series in the manner
described in the following paragraph.
If less than all Outstanding Series 1997-1 Senior Notes subject to
redemption are to be redeemed pursuant to subsections (A), (C) or (E) of this
Section 16, and more than one series of Series 1997-1 Senior Notes is so
subject, the Principal Amounts of each series of Series 1997-1 Notes to be
redeemed shall be selected from each such series in such Principal Amounts as
the Corporation may designate in a Corporation Certificate delivered to the
Trustee at least forty-five (45) days prior to the Redemption Date (unless a
shorter notice is satisfactory to the Trustee), or, in the absence of such
designation, from each such series in, as nearly as practicable, the same
proportion to the aggregate Principal Amount of all Outstanding Series 1997-1
Senior Notes to be redeemed as the aggregate Principal Amount of Outstanding
Series 1997-1 Senior Notes of such series bears to the aggregate Principal
Amount of all Outstanding Series 1997-1 Senior Notes subject to such redemption.
Notwithstanding the foregoing provisions of this Section 16, to the
extent Series 1997-1 Subordinate Notes cannot be redeemed due to the application
of Section 10.2 of the Indenture, but Series 1997-1 Senior Notes may be redeemed
without violating the provisions of said Section 10.2, the particular Series
1997-1 Notes to be redeemed shall be selected from the appropriate series of the
Series 1997-1 Senior Notes as described above.
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If less than all of the Outstanding Series 1997-1 Notes of a given
series are to be redeemed pursuant to this Section 16, the particular Series
1997-1 Notes to be redeemed shall be selected by the Trustee by lot in such
manner as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions of the principal of Series 1997-1 Notes
in an Authorized Denomination.
The Trustee shall promptly notify the Note Registrar and any Paying
Agent for the Series 1997-1 Notes (in each case, if other than the Trustee) in
writing of the Series 1997-1 Notes selected for redemption and, in the case of
any Series 1997-1 Note selected for partial redemption, the Principal Amount
thereof to be redeemed.
For all purposes of the Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Series 1997-1 Notes shall
relate, in the case of any Series 1997-1 Note redeemed or to be redeemed only in
part, to the portion of the principal of such Series 1997-1 Note which has been
or is to be redeemed.
(I) Notice of Redemption. Notice of redemption of Series 1997-1
Notes pursuant to this Section 16 shall be given not less than fifteen (15) days
(in the case of Auction Rate Series 1997-1 Notes) or thirty (30) days (in the
case of LIBOR Rate Series 1997-1 Notes, Series 1997-1F Notes and Series 1997-1K
Notes), as the case may be, prior to the Redemption Date in accordance with the
provisions of Section 10.4 of the Indenture.
Section 17. Book-Entry Series 1997-1 Notes. (a) Subject to
subsection (c) below, the registered Holder of all Series 1997-1 Notes shall be
the Securities Depository and the Series 1997-1 Notes shall be registered in the
name of the nominee for the Securities Depository. The "Series 1997-1 Notes"
referred to in this subsection (a) shall refer to the Series 1997-1 Notes
registered in the name of the Securities Depository.
(b) The Series 1997-1 Notes shall be initially issued in the form of
one or more separate, authenticated fully-registered Series 1997-1 Notes for
each series thereof in the aggregate Principal Amount of such series. Upon
initial issuance, the ownership of each such Series 1997-1 Note shall be
registered in the registration books kept by the Note Registrar in the name of
the nominee of the Securities Depository. The Trustee and the Corporation may
treat the Securities Depository (or its nominee) as the sole and exclusive owner
of the Series 1997-1 Notes registered in its name for the purposes of (1)
payment of the principal or Redemption Price of and interest on the Series 1997-
1 Notes, (2) selecting the Series 1997-1 Notes or portions thereof to be
redeemed, (3) giving any notice permitted or required to be given to Holders
under the Indenture, (4) registering the transfer of Series 1997-1 Notes, and
(5) obtaining any consent or other action to be taken by Holders and for all
other purposes whatsoever, and neither the Trustee nor the Corporation shall be
affected
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by any notice to the contrary (except as provided in subsection (c)
below). Neither the Trustee nor the Corporation shall have any responsibility
or obligation to any Participant, any Beneficial Owner or any other Person
claiming a beneficial ownership interest in the Series 1997-1 Notes under or
through the Securities Depository or any Participant, or any other Person which
is not shown on the registration books of the Note Registrar as being a Holder,
with respect to the accuracy of any records maintained by the Securities
Depository or any Participant, the payment to the Securities Depository of any
amount in respect of the principal or Redemption Price of or interest on the
Series 1997-1 Notes; any notice which is permitted or required to be given to
Holders under the Indenture; the selection by the Securities Depository or any
Participant of any Person to receive payment in the event of a partial
redemption of the Series 1997-1 Notes; or any consent given or other action
taken by the Securities Depository as Holder. The Trustee shall pay all
principal and Redemption Price of and interest on the Series 1997-1 Notes only
"to or upon the order of" the Securities Depository (as that phrase is used in
the Uniform Commercial Code as adopted in the State of South Dakota), and all
such payments shall be valid and effective to fully satisfy and discharge the
Corporation's obligations with respect to the principal, purchase price or
Redemption Price of and interest on the Series 1997-1 Notes to the extent of the
sum or sums so paid. Except as provided in subsection (c) below, no Person
other than the Securities Depository shall receive an authenticated Series 1997-
1 Note evidencing the obligation of the Corporation to make payments of
principal or Redemption Price and interest pursuant to this Indenture. Upon
delivery by the Securities Depository to the Trustee of written notice to the
effect that the Securities Depository has determined to substitute a new nominee
in place of the preceding nominee, the Series 1997-1 Notes will be transferable
to such new nominee in accordance with subsection (f) below.
(c) Except with respect to any Auction Rate Series 1997-1 Notes
during such time as they bear interest at the Auction Rate, in the event the
Corporation determines that it is in the best interest of the Corporation not to
continue the Book-Entry System of transfer or that the interest of the Holders
might be adversely affected if the Book-Entry System of transfer is continued,
the Corporation may so notify the Securities Depository and the Trustee,
whereupon the Securities Depository will notify the Participants of the
availability through the Securities Depository of definitive Series 1997-1
Notes. In such event, the Trustee shall authenticate, transfer and exchange
definitive Series 1997-1 Notes as requested by the Securities Depository in
appropriate amounts in accordance with subsection (f) below. The Securities
Depository may determine to discontinue providing its services with respect to
the Series 1997-1 Notes at any time by giving notice to the Corporation and the
Trustee and discharging its responsibilities with respect thereto under
applicable law, or the Corporation may determine that the Securities Depository
is incapable of discharging its responsibilities and may so advise the
Securities Depository. In either such event, the Corporation shall either
establish its own Book-Entry System or use reasonable efforts to locate another
securities depository. Under such circumstances (if there is no successor
Securities
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Depository), the Corporation and the Trustee shall be obligated to
deliver definitive Series 1997-1 Notes as described in this Indenture and in
accordance with subsection (f) below. In the event definitive Series 1997-1
Notes are issued, the provisions of this Indenture shall apply to such
definitive Series 1997-1 Notes in all respects, including, among other things,
the transfer and exchange of such Series 1997-1 Notes and the method of payment
of principal or Redemption Price of and interest on such Series 1997-1 Notes.
Whenever the Securities Depository requests the Corporation and the Trustee to
do so, the Trustee and the Corporation will cooperate with the Securities
Depository in taking appropriate action after reasonable notice (A) to make
available one or more separate definitive Series 1997-1 Notes to any Participant
having Series 1997-1 Notes credited to its account with the Securities
Depository or (B) to arrange for another securities depository to maintain
custody of definitive Series 1997-1 Notes.
(d) Notwithstanding any other provision of the Indenture to the
contrary, so long as any Series 1997-1 Note is registered in the name of the
nominee of the Securities Depository, all payments with respect to the principal
or Redemption Price of and interest on such Series 1997-1 Note and all notices
with respect to such Series 1997-1 Note shall be made and given, respectively,
to the Securities Depository as provided in its letter of representations.
(e) In connection with any notice or other communication to be
provided to Holders pursuant to the Indenture by the Corporation or the Trustee
or with respect to any consent or other action to be taken by Holders, the
Corporation or the Trustee, as the case may be, shall establish a record date
for such consent or other action and give the Securities Depository notice of
such record date not less than fifteen (15) calendar days in advance of such
record date to the extent possible. Such notice to the Securities Depository
shall be given only when the Securities Depository is the sole Holder.
(f) In the event that any transfer or exchange of Series 1997-1 Notes
is permitted under subsection (b) or (c) of this Section 17, such transfer or
exchange shall be accomplished upon receipt by the Trustee from the registered
Holder thereof of the Series 1997-1 Notes to be transferred or exchanged and
appropriate instruments of transfer to the permitted transferee, all in
accordance with the applicable provisions of the Indenture. In the event
definitive Series 1997-1 Notes are issued to Holders other than the nominee of
the Securities Depository, or another securities depository as Holder of all the
Series 1997-1 Notes, the provisions of the Indenture shall also apply to, among
other things, the printing of such definitive Series 1997-1 Notes and the
methods of payment of principal or Redemption Price of and interest on such
Series 1997-1 Notes.
(g) Notwithstanding any provision of Article Ten of the Indenture to
the contrary, in connection with any redemption of Series 1997-1 Notes while The
Depository Trust Company, New York, New York ("DTC"), is the sole Holder, the
Corporation shall give notice of such redemption to the Trustee at least thirty
(30)
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days prior to the date fixed for redemption with respect to Auction Rate
Series 1997-1 Notes or LIBOR Rate Series 1997-1 Notes or at least forty-five
(45) days prior to the date fixed for redemption with respect to Series 1997-1F
Notes or Series 1997-1K Notes, and the Trustee shall give notice of redemption
to DTC as Holder of such Series 1997-1 Notes pursuant to Section 10.4 of the
Indenture at least fifteen (15) days and not more than thirty (30) days prior to
the date fixed for redemption of Auction Rate Series 1997-1 Notes or LIBOR Rate
Series 1997-1 Notes or at least thirty (30) days and not more than sixty (60)
days prior to the date fixed for redemption of Series 1997-1F Notes or Series
1997-1K Notes.
Section 18. Series 1997-1 Accounts and Subaccounts. So long as any
Series 1997-1 Notes are Outstanding, the following Accounts and Subaccounts (the
"Series 1997-1 Accounts" and "Series 1997-1 Subaccounts," respectively), which
are hereby established, shall be maintained by the Trustee or the Deposit Agent,
as the case may be:
(A) With respect to the Tax Exempt Series 1997-1 Notes and the
proceeds thereof, in the Acquisition Fund, an Account to be known as the
"Series 1997-1 Tax Exempt Acquisition Account"; in the Administration Fund,
an Account to be known as the "Series 1997-1 Tax Exempt Administration
Account"; in the Reserve Fund, an Account to be known as the "Series 1997-1
Tax Exempt Reserve Account"; in the Rebate Account, a Subaccount to be
known as the "Series 1997-1 Rebate Subaccount"; in the Excess Earnings
Account, a Subaccount to be known as the "Series 1997-1 Excess Earnings
Subaccount"; in the Interest Account, a Subaccount to be known as the
"Series 1997-1 Tax Exempt Interest Subaccount"; in the Principal Account, a
Subaccount to be known as the "Series 1997-1 Tax Exempt Principal
Subaccount"; in the Retirement Account, a Subaccount to be known as the
"Series 1997-1 Tax Exempt Retirement Subaccount"; and in the Surplus
Account, a Subaccount to be known as the "Series 1997-1 Tax Exempt Surplus
Subaccount" (each a "Series 1997-1 Tax Exempt Account" or a "Series 1997-1
Tax Exempt Subaccount," as appropriate).
All amounts transferred to the Acquisition Fund, the Administration
Fund, the Reserve Fund, the Rebate Account, the Excess Earnings Account,
the Interest Account, the Principal Account, the Retirement Account and the
Surplus Account from any other Fund or Account pursuant to the requirements
of the Indenture with respect to the Tax Exempt Series 1997-1 Notes or the
Student Loans Financed with the proceeds thereof shall be deposited to the
credit of the Series 1997-1 Tax Exempt Acquisition Account, the Series
1997-1 Tax Exempt Administration Account, the Series 1997-1 Tax Exempt
Reserve Account, the Series 1997-1 Rebate Subaccount, the Series 1997-1
Excess Earnings Subaccount, the Series 1997-1 Tax Exempt Interest
Subaccount, the Series 1997-1 Tax Exempt Principal Subaccount, the Series
1997-1 Tax Exempt Retirement Subaccount or the Series 1997-1 Tax Exempt
Surplus Subaccount, respectively, and as appropriate.
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(B) With respect to the Taxable Series 1997-1 Notes and the proceeds
thereof, in the Acquisition Fund, an Account to be known as the "Series
1997-1 Taxable Acquisition Account"; in the Administration Fund, an Account
to be known as the "Series 1997-1 Taxable Administration Account"; in the
Reserve Fund, an Account to be known as the "Series 1997-1 Taxable Reserve
Account"; in the Interest Account, a Subaccount to be known as the "Series
1997-1 Taxable Interest Subaccount"; in the Principal Account, a Subaccount
to be known as the "Series 1997-1 Taxable Principal Subaccount"; in the
Retirement Account, a Subaccount to be known as the "Series 1997-1 Taxable
Retirement Subaccount"; in the Special Redemption and Prepayment Account, a
Subaccount to be known as the "Series 1997-1 Taxable Special Redemption and
Prepayment Subaccount"; and in the Surplus Account, a Subaccount to be
known as the "Series 1997-1 Taxable Surplus Subaccount."
All amounts transferred to the Acquisition Fund, the Administration
Fund, the Reserve Fund, the Interest Account, the Principal Account, the
Retirement Account and the Surplus Account from any other Fund or Account
pursuant to the requirements of the Indenture with respect to the Taxable
Series 1997-1 Notes or the Student Loans Financed with the proceeds thereof
shall be deposited to the credit of the Series 1997-1 Taxable Acquisition
Account, the Series 1997-1 Taxable Administration Account, the Series 1997-
1 Taxable Reserve Account, the Series 1997-1 Taxable Interest Subaccount,
the Series 1997-1 Taxable Principal Subaccount, the Series 1997-1 Taxable
Retirement Subaccount, the Series 1997-1 Taxable Special Redemption and
Prepayment Subaccount or the Series 1997-1 Taxable Surplus Subaccount,
respectively, and as appropriate.
Notwithstanding any other provision of the Indenture or this First
Supplemental Indenture to the contrary, in no event shall (i) any portion of the
Balances in the Administration Fund or the Surplus Fund (including, without
limitation, the Series 1997-1 Tax Exempt Administration Account and the Series
1997-1 Tax Exempt Surplus Subaccount) be paid out for, or applied to the
reimbursement of, Costs of Issuance, Note Fees, Administrative Expenses or other
uses otherwise permitted under the Indenture if, and to the extent, as a result
of such payment, reimbursement or use, less than 90% of the net proceeds of the
Tax Exempt Series 1997-1 Notes will, at the time of such payment, have been used
directly or indirectly to make or finance student loans described in Section
144(b)(1)(A) of the Code, all within the meaning of such Section 144(b) of the
Code, or (ii) any portion of the Balances in any Series 1997-1 Tax Exempt
Account or Series 1997-1 Tax Exempt Subaccount be applied to (a) the payment of
any amounts payable from the Fund or Account in which such Account or Subaccount
is established in respect of any series of Notes other than the Tax Exempt
Series 1997-1 Notes until all amounts available therefor in the Account or
Subaccount, as the case may be, relating to such series, as well as in all other
Accounts or Subaccounts comprising such Fund or Account (other than those
Accounts or Subaccounts relating to other series of Tax Exempt Notes), have been
exhausted, or (b) in any event, to the
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redemption at the option of the Corporation of Notes of any series other than
the Tax Exempt Series 1997-1 Notes, unless, prior to any such application
pursuant to this clause (ii), the Corporation has delivered to the Trustee an
opinion of Bond Counsel to the effect that such application will not adversely
affect the tax exempt status of interest on any Series Tax Exempt 1997-1 Notes
for federal income tax purposes.
Except as heretofore provided in this Section 18, nothing herein shall
be deemed to prohibit (1) the Trustee from using Balances of any Series 1997-1
Account or Series 1997-1 Subaccount to remedy deficiencies for which Balances of
the Fund or Account in which such Account or Subaccount is established are
subject to use under the Indenture, or (2) the application of Balances of any
Series 1997-1 Account or Series 1997-1 Subaccount for any purpose for which
Balances of the Fund or Account in which such Account or Subaccount is
established are authorized to be applied by the Indenture.
When there shall be no Tax Exempt Series 1997-1 Notes Outstanding, the
Series 1997-1 Tax Exempt Acquisition Account shall terminate and any Balance
thereof at such time shall be used as other Balances of the Acquisition Fund.
At such time as all Tax Exempt Series 1997-1 Notes have been retired and all
requirements of Section 148 of the Code with respect to the Tax Exempt Series
1997-1 Notes have been satisfied, including without limitation the payment to
the United States or otherwise of all Excess Earnings (including such Excess
Earnings computed in respect of the Refunded Obligations and the Eligible Loans
financed with the proceeds thereof, as provided in Section 19 hereof) and Rebate
Amounts required by such section, the Series 1997-1 Excess Earnings Subaccount
and the Series 1997-1 Rebate Subaccount shall each terminate and any Balance
thereof shall be used as other Balances of the Excess Earnings Account or the
Rebate Account, as applicable. When there shall be no Tax Exempt Series 1997-1
Notes Outstanding, the Series 1997-1 Tax Exempt Interest Account shall terminate
and any Balance thereof at such time shall be used as other Balances of the
Interest Account, the Series 1997-1 Tax Exempt Principal Account shall terminate
and any Balance thereof at such time shall be used as other Balances of the
Principal Account, the Series 1997-1 Tax Exempt Retirement Account shall
terminate and any Balance thereof at such time shall be used as other Balances
of the Retirement Account, the Series 1997-1 Tax Exempt Reserve Account shall
terminate and any Balance thereof at such time shall be used as other Balances
of the Reserve Fund, the Series 1997-1 Tax Exempt Administration Account shall
terminate and any Balance thereof at such time shall be used as other Balances
of the Administration Fund and the Series 1997-1 Tax Exempt Surplus Subaccount
shall terminate and any Balance thereof at such time shall be used as other
Balances of the Surplus Account.
When there shall be no Taxable Series 1997-1 Notes Outstanding, the
Series 1997-1 Taxable Acquisition Account shall terminate and any Balance
thereof at such time shall be used as other Balances of the Acquisition Fund.
When there shall be no Taxable Series 1997-1 Notes Outstanding, the Series 1997-
1 Taxable
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Interest Account shall terminate and any Balance thereof at such time shall be
used as other Balances of the Interest Account, the Series 1997-1 Taxable
Principal Account shall terminate and any Balance thereof at such time shall be
used as other Balances of the Principal Account, the Series 1997-1 Taxable
Retirement Account shall terminate and any Balance thereof at such time shall be
used as other Balances of the Retirement Account, the Series 1997-1 Taxable
Reserve Account shall terminate and any Balance thereof at such time shall be
used as other Balances of the Reserve Fund, the Series 1997-1 Taxable
Administration Account shall terminate and any Balance thereof at such time
shall be used as other Balances of the Administration Fund, the Series 1997-1
Taxable Special Redemption and Prepayment Subaccount shall terminate and any
Balance thereof at such time shall be used as other Balances of the Special
Redemption and Prepayment Account and the Series 1997-1 Taxable Surplus
Subaccount shall terminate and any Balance thereof at such time shall be used as
other Balances of the Surplus Account.
Section 19. Deposits to Series 1997-1 Rebate Subaccount and Series
1997-1 Excess Earnings Subaccount. On or prior to the second Monthly Payment
Date following the end of each Note Year with respect to the Tax Exempt Series
1997-1 Notes, and within forty-five (45) days following the final Maturity of
the Tax Exempt Series 1997-1 Notes (each an "Excess Earnings Computation Date"),
the Trustee and the Corporation shall determine whether, as of the end of such
Note Year or final Maturity, as the case may be, any Excess Earnings have
resulted with respect to the Tax Exempt Series 1997-1 Notes. In the event any
Excess Earnings with respect to the Tax Exempt Series 1997-1 Notes have resulted
as of the end of such Note Year or final Maturity, the Trustee shall, on or
prior to the related Excess Earnings Computation Date, transfer to the Series
1997-1 Excess Earnings Subaccount the amount, if any, which is necessary to
increase the Balance in such Subaccount to an amount equal to such Excess
Earnings. Any such transfer shall be made from the Funds and Accounts as
specified in Section 4.5(B) of the Indenture. In the event, as of the end of
any Note Year or final Maturity, the Balance of the Series 1997-1 Excess
Earnings Subaccount exceeds the amount of Excess Earnings computed with respect
to such date, such excess shall be transferred or applied in accordance with the
provisions of Section 4.5(B) of the Indenture.
Notwithstanding any provision of the Indenture or this First
Supplemental Indenture to the contrary:
(i)(a) Excess Earnings on Eligible Loans Financed with proceeds of the
Tax Exempt Series 1997-1 Notes as described in clauses (4) and (5)(A) of
Section 15 hereof shall be the "Excess Earnings" computed with respect to
the related series of Refunded Obligations in accordance with the
requirements of the indenture relating to such series, (b) all deposits to
the Series 1997-1 Excess Earnings Subaccount in respect of Excess Earnings
for each such series of Refunded Obligations shall be applied to reduce the
yield on the applicable Eligible Loans in accordance with the requirements
of the related indenture, and (c) amounts described in the preceding clause
(a) shall be deposited in,
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and amounts described in the preceding clause (b) shall be applied from,
the Series 1997-1 Excess Earnings Subaccount prior to any other deposits
in, or applications from, the Excess Earnings Account; and
(ii)(a) Rebate Amount on any portion of the Balance of any Fund or
Account constituting proceeds of a series of Refunded Obligations shall be
the "Rebate Amount" computed with respect to such series in accordance with
the requirements of the indenture relating thereto, (b) all deposits to the
Series 1997-1 Rebate Subaccount in respect of Rebate Amount for each such
series of Refunded Obligations shall be transferred to the rebate account
established with respect to such series under the related indenture and
applied in accordance with the requirements of such indenture, and (c)
amounts described in the preceding clause (a) shall be deposited in, and
amounts described in the preceding clause (b) shall be applied from, the
Series 1997-1 Rebate Subaccount prior to any other deposits in, or
applications from, the Rebate Account.
The foregoing provisions shall apply to each series of Refunded Obligations
until such series has been retired, after which time Excess Earnings on the
applicable Eligible Loans and, where appropriate, Rebate Amounts will be
computed with respect to the Tax Exempt Series 1997-1 Notes.
Section 20. Obligors Not To Make Certain Purchases of Tax Exempt
Series 1997-1 Notes. No obligor on a Student Loan financed, in whole or in
part, with proceeds of the Tax Exempt Series 1997-1 Notes, or any related party
to such obligor, shall purchase any Tax Exempt Series 1997-1 Notes in an amount
related to the amount of such Student Loan.
Section 21. Arbitrage Provisions. The Corporation covenants with the
Holders of Series 1997-1 Notes that it will use the proceeds of the Tax Exempt
Series 1997-1 Notes and any other funds of the Corporation in such a manner that
the use thereof, as reasonably expected by the Corporation at the time of
issuance thereof, would not cause any of the Tax Exempt Series 1997-1 Notes to
be "arbitrage bonds" under Section 148 of the Code and the Regulations. The
president, the secretary and other officers and employees of the Corporation
shall execute and deliver from time to time, on behalf of the Corporation, such
certificates, instruments and documents as shall be deemed necessary or
advisable to evidence compliance by the Corporation with said Section 148 and
the Regulations with respect to the use of the proceeds of the Tax Exempt Series
1997-1 Notes and any other funds of the Corporation. Such certificates,
instruments and documents may contain such stipulations as shall be necessary or
advisable in connection with the stated purpose of this Section and the
foregoing provisions hereof, and the Corporation and Trustee hereby covenant and
agree to comply with the provisions of any such stipulation throughout the term
of the Tax Exempt Series 1997-1 Notes.
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Section 22. Purchase of Eligible Loans From Series 1997-1 Tax Exempt
and Taxable Acquisition Accounts and Series 1997-1 Tax Exempt and Taxable
Surplus Subaccounts. Each Student Loan Financed from Balances in the Series
1997-1 Tax Exempt Acquisition Account or the Series 1997-1 Tax Exempt Surplus
Subaccount shall have been made to an Eligible Borrower for the post-secondary
education of (a) a resident of the State attending a post-secondary school
located within or without the State, or (b) a resident of a state other than the
State attending a post-secondary school located within the State.
The price paid to purchase an Eligible Loan from the Balance in the
Series 1997-1 Tax Exempt Acquisition Account shall not exceed 100% of the
remaining unpaid principal amount of such Eligible Loan, plus accrued Special
Allowance Payments and noncapitalized borrower interest thereon, if any, to the
date of purchase, reasonable transfer, origination and assignment fees, if
applicable, and a premium not to exceed the lesser of (i) 1% (or such greater
percentage as shall be permitted under the Higher Education Act), and (ii) that
assumed in the Closing Cash Flow Projection (or such greater premium the payment
of which will not materially adversely affect the Corporation's ability to pay
Debt Service on the Outstanding Notes, Other Indenture Obligations, Carry-Over
Amounts (including accrued interest thereon) with respect to Outstanding Notes,
Administrative Expenses or Note Fees or to make required transfers to the Rebate
Fund, as shown in a subsequent Cash Flow Projection received by the Trustee, and
which will not result in the lowering or withdrawal of the outstanding rating
assigned by any Rating Agency to any of the Unenhanced Senior or Subordinate
Notes Outstanding, as evidenced in writing to the Trustee by each such Rating
Agency), and as otherwise authorized by Section 4.2 of the Indenture.
The price paid to purchase an Eligible Loan from the Balance in the
Series 1997-1 Taxable Acquisition Account shall not exceed 100% of the remaining
unpaid principal amount of such Eligible Loan, plus accrued Special Allowance
Payments and noncapitalized borrower interest thereon, if any, to the date of
purchase, reasonable transfer, origination and assignment fees, if applicable,
and a premium not to exceed that assumed in the Closing Cash Flow Projection (or
such greater premium the payment of which will not materially adversely affect
the Corporation's ability to pay Debt Service on the Outstanding Notes, Other
Indenture Obligations, Carry-Over Amounts (including accrued interest thereon)
with respect to Outstanding Notes, Administrative Expenses or Note Fees or to
make required transfers to the Rebate Fund, as shown in a subsequent Cash Flow
Projection received by the Trustee, and which will not result in the lowering or
withdrawal of the outstanding rating assigned by any Rating Agency to any of the
Unenhanced Senior or Subordinate Notes Outstanding, as evidenced in writing to
the Trustee by each such Rating Agency), and as otherwise authorized by Section
4.2 of the Indenture.
Any Student Loans Financed from Balances in the Series 1997-1 Tax
Exempt Surplus Subaccount or the Series 1997-1 Taxable Surplus Subaccount prior
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to __________________________, and constituting Eligible Loans shall, upon the
financing thereof, be credited to, and included in the Balance of, the Series
1997-1 Tax Exempt Acquisition Account or the Series 1997-1 Taxable Acquisition
Account, as appropriate, and shall thereafter not be deemed to have been
Financed with moneys in the Surplus Account but to have been Financed with
moneys in the Acquisition Fund.
Section 23. Limitation on Costs of Issuance, Administrative Expenses
and Note Fees. The Corporation covenants and agrees that the Costs of Issuance,
Administrative Expenses and Note Fees to be paid, or reimbursed to the
Corporation, from the Administration Fund shall not exceed the aggregate amount
thereof specified in the Closing Cash Flow Projection, unless the Corporation
delivers to the Trustee (i) a Corporation Certificate certifying that, based on
a Cash Flow Projection, the payment or reimbursement of a greater amount of
Costs of Issuance, Administrative Expenses and Note Fees from the Administration
Fund will not materially adversely affect the Corporation's ability to pay Debt
Service on the Outstanding Notes and on Outstanding Other Obligations, to pay
Carry-Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes or to make required deposits to the Rebate Fund and (ii)
written confirmation from each of the Rating Agencies then rating the Series
1997-1 Notes to the effect that payment or reimbursement of such additional
Costs of Issuance, Administrative Expenses or Note Fees will not result in a
reduction or withdrawal of the rating of the Series 1997-1 Notes.
Section 24. Proceeds of Sales of Certain Student Loans To Be
Deposited in the Acquisition Fund. The Trustee shall deposit in the Acquisition
Fund the proceeds of the resale to a Lender of any Student Loans Financed with
proceeds of the Series 1997-1 Notes pursuant to such Lender's repurchase
obligation under the applicable Student Loan Purchase Agreement upon receipt
thereof from the Corporation, to the extent directed in a Corporation Order and
received by the Trustee prior to __________________________. Any such proceeds
received by the Trustee after such date shall be deposited in the Revenue Fund.
Section 25. Limitation on Acquisition of Consolidation Loans and
Special Program Loans. The Corporation shall not acquire or originate any
Consolidation Loan from Balances in the Series 1997-1 Tax Exempt Acquisition
Account (except for the portion of such Balance applied to the acquisition of
Eligible Loans in accordance with Section 15(5)(A) hereof) or the Series 1997-1
Tax Exempt Surplus Subaccount if, as a result of such acquisition or
origination, either: (i) the aggregate of the amounts applied from such
Balances to the acquisition or origination of Consolidation Loans would exceed
the greater of (a) $52,000,000, or (b) 20% of the aggregate of the amounts
applied from such Balances to the acquisition or origination of all Student
Loans; or (ii) at such time as the aggregate of the amounts applied from such
Balances to the acquisition or origination of Consolidation Loans equals or
exceeds $5,000,000, and thereafter, the weighted average final maturity of all
Consolidation Loans so Financed would exceed
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20 years, unless the Corporation delivers to the Trustee a Corporation
Certificate certifying that, based on a Cash Flow Projection, the acquisition or
origination of such Consolidation Loan will not materially adversely affect the
Corporation's ability to pay Debt Service on the Outstanding Notes and on
Outstanding Other Obligations, to pay Carry-Over Amounts (including accrued
interest thereon) with respect to Outstanding Notes or to make required deposits
to the Rebate Fund.
The Corporation shall not acquire or originate any Consolidation Loan
from Balances in the Series 1997-1 Taxable Acquisition Account (except for the
portion of such Balance applied to the acquisition of Eligible Loans in
accordance with Section 15(6)(A) hereof) or the Series 1997-1 Taxable Surplus
Subaccount if, as a result of such acquisition or origination, either: (1) the
aggregate of the amounts applied from such Balances to the acquisition or
origination of Consolidation Loans would exceed the greater of (a) $19,400,000,
or (b) 40% of the aggregate of the amounts applied from such Balances to the
acquisition or origination of all Student Loans; or (2) at such time as the
aggregate of the amounts applied from such Balances to the acquisition or
origination of Consolidation Loans equals or exceeds $2,000,000, and thereafter,
the weighted average final maturity of all Consolidation Loans so Financed would
exceed 20 years, unless the Corporation delivers to the Trustee a Corporation
Certificate certifying that, based on a Cash Flow Projection, the acquisition or
origination of such Consolidation Loan will not materially adversely affect the
Corporation's ability to pay Debt Service on the Outstanding Notes and on
Outstanding Other Obligations, to pay Carry-Over Amounts (including accrued
interest thereon) with respect to Outstanding Notes or to make required deposits
to the Rebate Fund.
The Corporation shall not acquire or originate any Student Loan
subject to any interest rate reduction or other program that would reduce the
yield thereon (I) if such yield reduction (a) is more than 2% per annum, (b) may
commence if any of the first 48 consecutive payments have not been received in a
timely fashion or (c) may continue if any payments are not received in a timely
fashion, or (II)(a) from Balances in the Series 1997-1 Tax Exempt Acquisition
Account or the Series 1997-1 Taxable Acquisition Account if, as a result of such
acquisition or origination, the aggregate of the amounts applied from such
Balances to the acquisition or origination of Student Loans subject to such
programs would exceed $110,000,000, or (b) from Balances in the Series 1997-1
Tax Exempt Surplus Subaccount or the Series 1997-1 Taxable Surplus Subaccount
if, as a result of such acquisition or origination, the aggregate of the amounts
applied from such Balances to the acquisition or origination of Student Loans
subject to such programs would exceed 38% of the aggregate of the amounts
applied from such Balances to the acquisition or origination of all Student
Loans, unless the Corporation delivers to the Trustee a Corporation Certificate
certifying that, based on a Cash Flow Projection, the acquisition or origination
of such Student Loan will not materially adversely affect the Corporation's
ability to pay Debt Service on the Outstanding Notes and on Outstanding Other
Obligations, to pay Carry-Over Amounts (including accrued interest thereon) with
respect to Outstanding Notes or to make
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required deposits to the Rebate Fund; provided that the foregoing restrictions
shall not apply to the acquisition or origination of any Student Loan subject to
a yield reduction program which the Corporation may, at its option, discontinue
at any time and which would not reduce the yield thereon by more than .25% per
annum. No program
The Corporation shall not agree to, or permit any Servicer to agree
to, any discount or other reduction in the yield on any Student Loan Financed
from Balances in the Series 1997-1 Tax Exempt Acquisition Account, the Series
1997-1 Taxable Acquisition Account, the Series 1997-1 Tax Exempt Surplus
Subaccount or the Series 1997-1 Taxable Surplus Subaccount (other than any such
reduction that existed at the time such Student Loan was so Financed) if, as a
result thereof, the yield on such Student Loan would be reduced by more than
.25% per annum, unless the Corporation delivers to the Trustee a Corporation
Certificate certifying that, based on a Cash Flow Projection, such reduction
will not materially adversely affect the Corporation's ability to pay Debt
Service on the Outstanding Notes and on Outstanding Other Obligations, to pay
Carry-Over Amounts (including accrued interest thereon) with respect to
Outstanding Notes or to make required deposits to the Rebate Fund.
Section 26. Certain Findings, Determinations and Designations. The
Corporation hereby finds and determines as follows:
(A) The Original Indenture has not been amended, supplemented or
repealed since the execution thereof. This First Supplemental Indenture
amends and supplements the Indenture, constitutes and is a "Supplemental
Indenture" within the meaning of such term as defined and used in the
Indenture and is executed under and pursuant to the Indenture.
(B) No Notes have heretofore been issued under the Indenture. The
Series 1997-1 Senior Notes constitute, and are hereby designated as, "Class
A Notes" within the meaning of the term as defined and used in the
Indenture, and the Series 1997-1 Subordinate Notes constitute, and are
hereby designated as, "Class B Notes" within the meaning of the term as
defined and used in the Indenture.
(C) Upon receipt of the proceeds of the sale of the Series 1997-1
Notes: (1) the revenues and other moneys and property pledged under the
Indenture will not be encumbered by any lien or charge thereon or pledge
thereof, other than the lien and charge thereon and pledge thereof created
by the Indenture for the payment and security of the Notes; and (2) there
will not be outstanding any bonds, notes or other evidences of indebtedness
payable from and secured by a lien on or pledge or charge upon the revenues
and other moneys and property pledged under the Indenture.
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(D) There does not exist an "Event of Default," within the meaning of
such term as defined in the Indenture, which is continuing, nor does there
exist any condition which, after the passage of time, would constitute such
an "Event of Default."
Section 27. Governing Law. This First Supplemental Indenture shall be
governed by and be construed in accordance with the laws of the State without
giving effect to the conflicts-of-laws principles thereof; provided that those
provisions of this First Supplemental Indenture relating to the rights and
duties of the Auction Agent shall be governed by and be construed in accordance
with the laws of the State of New York.
Section 28. Section Headings; Table of Contents. The headings or
titles of the several sections hereof shall be solely for convenience of
reference and shall not affect the meaning or construction, interpretation or
effect of this First Supplemental Indenture.
Section 29. Severability. If any provision of this First
Supplemental Indenture shall be held or deemed to be or shall, in fact, be
inoperative or unenforceable as applied in any particular case in any
jurisdiction or jurisdictions or in all jurisdictions or in all cases because it
conflicts with any provisions of any constitution or statute or rule of public
policy, or for any other reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable to any extent whatever.
The invalidity of any one or more phrases, sentences, clauses or
paragraphs in this First Supplemental Indenture contained shall not affect the
remaining portions of this First Supplemental Indenture or part thereof.
Section 30. Counterparts. This First Supplemental Indenture 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.
Section 31. Effect of First Supplemental Indenture. Upon the
execution and delivery of this First Supplemental Indenture, the Indenture shall
be supplemented in accordance herewith, and this First Supplemental Indenture
shall form a part of the Indenture for all purposes and every Holder of Notes
hereafter authenticated and delivered and Other Beneficiary under the Indenture
shall be bound hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate seals
be hereunto affixed and attested, all as of the day and year first above
written.
EDUCATION LOANS INCORPORATED
(SEAL)
By
----------------------------
President
Attest:
- -----------------------
Secretary
FIRST BANK NATIONAL ASSOCIATION,
as Trustee
(SEAL)
By
----------------------------
Vice President
Attest:
- ----------------------------
Trust Officer
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Draft of 10/16/97
-----------------
EXHIBIT 4.3
================================================================================
AUCTION AGENT AGREEMENT
(TAXABLE AUCTION RATE SERIES 1997-1 NOTES)
by and among
EDUCATION LOANS INCORPORATED,
as Issuer,
FIRST BANK NATIONAL ASSOCIATION,
as Trustee,
and
BANKERS TRUST COMPANY,
as Auction Agent
------------------------
Dated as of July 1, 1997
------------------------
Relating to
$____________
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G and H
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions and Rules of Construction....................... 2
1.1 Terms Defined by Reference to First Supplemental
Indenture................................................. 2
1.2 Terms Defined Herein........................................ 2
1.3 Rules of Construction....................................... 4
Section 2. The Auction................................................. 4
2.1 Interest Rate on Taxable Auction Rate Series 1997-1 Notes;
Incorporation by Reference of Auction Procedures and
Settlement Procedures..................................... 4
2.2 Preparation of Each Auction; Maintenance of
Existing Holder Registry.................................. 5
2.3 All Hold Rates, Maximum Auction Rates, Net
Loan Rate, One-Month LIBOR and Three-Month LIBOR.......... 7
2.4 Auction Schedule............................................ 9
2.5 Changes in Auction Periods or Auction Date.................. 10
2.6 Notice of Fee Rate Change................................... 10
2.7 Notices to Existing Holders................................. 11
2.8 Payment Default............................................. 11
2.9 Broker-Dealers.............................................. 11
2.10 Access to and Maintenance of Auction Records................ 11
Section 3. Term of Agreement........................................... 12
Section 4. Trustee..................................................... 13
Section 5. Representations and Warranties of the Trustee............... 13
Section 6. The Auction Agent........................................... 14
6.1 Duties and Responsibilities................................. 14
6.2 Rights of the Auction Agent................................. 14
6.3 Auction Agent's Disclaimer.................................. 15
6.4 Compensation, Remedies and Indemnification.................. 15
6.5 Compensation of the Broker-Dealers.......................... 16
Section 7. Miscellaneous............................................... 18
7.1 Governing Law............................................... 18
7.2 Communications.............................................. 18
7.3 Entire Agreement............................................ 19
7.4 Benefits.................................................... 19
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.5 Amendment; Waiver........................................ 19
7.6 Successors and Assigns................................... 20
7.7 Severability............................................. 20
7.8 Execution in Counterparts................................ 20
Exhibits
- --------
Exhibit A -- List of Initial Broker-Dealers
Exhibit B -- Broker-Dealer Agreement
Exhibit C -- Notice of Ratings
Exhibit D -- Notice of Taxable Auction Rate Series 1997-1 Notes Outstanding
Exhibit E -- Notice of Fee Rate Change
Exhibit F -- Notice of a Payment Default
Exhibit G -- Settlement Procedures
Exhibit H -- Notice of Continuation of Auction Period
Exhibit I -- Notice of Auction Rate Series 1997-1 Note Interest Rate
</TABLE>
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<PAGE>
THIS AUCTION AGENT AGREEMENT (TAXABLE AUCTION RATE SERIES 1997-1
NOTES), dated as of July 1, 1997 (this "Auction Agent Agreement"), is being
entered into by and among EDUCATION LOANS INCORPORATED, a South Dakota
corporation (together with any successors or assigns, the "Issuer"), FIRST BANK
NATIONAL ASSOCIATION, Minneapolis, Minnesota, a national banking association
duly established and existing under the laws of the United States of America, as
Trustee (together with any successors or assigns, the "Trustee") under a certain
First Supplemental Indenture of Trust, as hereinafter defined and described, and
BANKERS TRUST COMPANY, a New York banking corporation (together with its
successors and assigns, the "Auction Agent"), acting not in its individual
capacity but solely as agent for the Issuer.
W I T N E S S E T H:
WHEREAS, the Issuer proposes to cause the Trustee to authenticate and
deliver $_______________________ aggregate principal amount of its Student Loan
Asset-Backed Callable Notes, Series 1997-1, including therein two series
designated Taxable Auction Rate Student Loan Asset-Backed Callable Notes, Senior
Series 1997-1G (the "Series 1997-1G Notes"), and Taxable Auction Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1H (the "Series 1997-1H
Notes" and, together with the Series 1997-1G Notes, the "Taxable Auction Rate
Series 1997-1 Notes"). The Taxable Auction Rate Series 1997-1 Notes are being
issued under the First Supplemental Indenture of Trust, dated as of July 1, 1997
(the "First Supplemental Indenture"), by and between the Issuer and the Trustee
and executed pursuant to an Indenture of Trust, dated as of July 1, 1997 (the
"Original Indenture"), by and between the Trustee and the Issuer ; and
WHEREAS, pursuant to Section 8 of the First Supplemental Indenture,
the Auction Agent has been appointed to act in the capacities set forth in this
Auction Agent Agreement; and
WHEREAS, the Trustee is entering into this Auction Agent Agreement at
the direction of the Issuer pursuant to the terms of the First Supplemental
Indenture;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Issuer, the Trustee and the Auction Agent agree
as follows:
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<PAGE>
Section 1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to First Supplemental Indenture.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given such terms in the First Supplemental Indenture.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
"Auction" shall have the meaning specified in Section 2.1 hereof.
"Auction Agent Fee" shall have meaning specified in Section 6.4(b)
hereof.
"Auction Agent Fee Rate" shall mean the rate per annum determined
pursuant to Section 6.4(b) hereof, as the same may be changed from time to time
in accordance with Section 6.4(b) hereof, at which the fee to be paid to the
Auction Agent for services rendered by it hereunder and under the Broker-Dealer
Agreements accrues pursuant to Section 6.4(b) hereof.
"Auction Procedures" shall mean the provisions that are set forth in
Sections 4 through 11, inclusive, of the First Supplemental Indenture.
"Authorized Auction Agent Officer" shall mean, with respect to the
Auction Agent, each Managing Director, Vice President, Assistant Vice President
and Assistant Treasurer of the Auction Agent and every other officer of the
Auction Agent assigned to its Corporate Trust and Agency Group and every other
officer or employee of the Auction Agent designated as an "Authorized Auction
Agent Officer" for purposes hereof in a communication to the Trustee and the
Issuer.
"Authorized Issuer Officer" shall mean, with respect to the Issuer,
the Chairman of the Board of Directors, the President, any Vice President or the
Secretary of the Issuer or any other person designated in writing by the Board
of Directors of the Issuer to the Auction Agent from time to time, which writing
may limit the functions which such other person may undertake as an Authorized
Issuer Officer hereunder.
"Authorized Trustee Representative" shall mean each Vice President,
Assistant Vice President or Trust Officer in the Corporate Trust Department of
the Trustee and every other officer or employee of the Trustee designated as an
"Authorized Trustee Representative" for purposes hereof in a written
communication to the Auction Agent and the Issuer.
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<PAGE>
"Broker-Dealer" shall mean a person listed on Exhibit A hereto, as
such Exhibit A may be amended from time to time.
"Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit B.
"Broker-Dealer Fee" shall have the meaning specified in Section 6.5(a)
hereof.
"Broker-Dealer Fee Rate" shall have the meaning specified in Section
6.5(b) hereof.
"Business Day" shall mean a day of the year on which (i) banks located
in the city in which the Principal Office of the Trustee is located are not
required or authorized to remain closed, (ii) banks located in the city in which
the Principal Office of the Auction Agent, as set forth in Section 7.2 hereof,
is located are not required or authorized to remain closed, (iii) banks located
in the city in which the Principal Office of each Broker-Dealer, as set forth in
and for purposes of the applicable Broker-Dealer Agreement, is located are not
required or authorized to remain closed and (iv) The New York Stock Exchange is
not closed.
"Existing Holder Registry" shall mean the register maintained by the
Auction Agent pursuant to Section 2.2 hereof.
"Notice of Failure to Deliver or Make Payment" shall mean a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreement.
"Notice of Fee Rate Change" shall mean a notice substantially in the
form of Exhibit E hereof.
"Notice of Payment Default" shall mean a notice substantially in the
form of Exhibit F hereto.
"Notice of Ratings" shall mean a notice substantially in the form of
Exhibit C hereto.
"Notice of Taxable Auction Rate Series 1997-1 Notes Outstanding" shall
mean a notice substantially in the form of Exhibit D hereto.
"Notice of Transfer" shall mean a notice substantially in the form of
Exhibit C to the Broker-Dealer Agreement.
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<PAGE>
"Participant" shall mean a member of, or participant in, the
Securities Depository.
"Settlement Procedures" shall mean the Settlement Procedures attached
as Exhibit G hereto.
1.3 Rules of Construction. Unless the context or use indicates
another or different meaning or intent, the following rules shall apply to the
construction of this Auction Agent Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Auction Agent Agreement
nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto" and other words of similar
import refer to this Auction Agent Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
(e) The rights and duties of the Trustee, the Auction Agent and the
Issuer under this Auction Agent Agreement shall apply to the Series 1997-1G
Notes and the Series 1997-1H Notes, but separately in each case. References
to "Taxable Auction Rate Series 1997-1 Notes" shall, unless the context
clearly contemplates a reference to all the Taxable Auction Rate Series
1997-1 Notes, be deemed to refer only to a particular series of Taxable
Auction Rate Series 1997-1 Notes.
Section 2. The Auction.
2.1 Interest Rate on Taxable Auction Rate Series 1997-1 Notes;
Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) During the Initial Interest Period, each of the Series 1997-1G
Notes and the Series 1997-1H Notes shall bear interest at the Taxable
Auction Rate Series 1997-1 Note Initial Interest Rate for such series.
Thereafter, the Taxable Auction Rate Series 1997-1 Notes shall bear
interest at the Auction Rate Series 1997-1 Note Interest Rate based on an
Interest Period that shall be an Auction Period. The Auction Rate Series
1997-1 Note Interest Rate on each series of the Taxable Auction Rate Series
1997-1 Notes for each Auction Period shall be the lesser of (i) the Net
Loan Rate and (ii) the Auction Rate determined in
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<PAGE>
accordance with Sections 3 through 12 of the First Supplemental Indenture
(not to exceed 18% per annum). Pursuant to Section 8 of the First
Supplemental Indenture, the Issuer has duly appointed Bankers Trust Company
as Auction Agent for purposes of the Auction Procedures and to perform such
other obligations and duties as are herein set forth. Bankers Trust Company
hereby accepts such appointment and agrees that, on each Auction Date, it
shall follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of, among other things, determining the Auction
Rate, and ultimately the Auction Rate Series 1997-1 Note Interest Rate for
each series of the Taxable Auction Rate Series 1997-1 Notes for each
Auction Period other than the Initial Interest Period. Each periodic
operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if
such provisions were fully set forth herein.
2.2 Preparation of Each Auction; Maintenance of Existing Holder
Registry.
(a) A list of Broker-Dealers (showing Smith Barney Inc. as the sole
initial Broker-Dealer) is attached as Exhibit A to this Auction Agent
Agreement. Not later than seven days prior to any Auction Date for which
any change in such list of Broker-Dealers is to be effective, the Trustee,
at the direction of an Authorized Issuer Officer, will notify the Auction
Agent in writing of such change and, if any such change is the addition of
a Broker-Dealer to such list, shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement manually
signed by such Broker-Dealer. The Auction Agent shall have entered into a
Broker-Dealer Agreement with each Broker-Dealer prior to the participation
of any such Broker-Dealer in any Auction.
(b) In the event that any day that is scheduled to be an Auction Date
shall be changed after the Auction Agent shall have given the notice of
such Auction Date pursuant to clause (vii) of paragraph (a) of the
Settlement Procedures, the Auction Agent, by such means as the Auction
Agent deems practicable, shall give notice of such change to the Broker-
Dealers not later than the earlier of 9:15 a.m., New York City time, on the
new Auction Date and 9:15 a.m., New York City time, on the old Auction
Date.
(c) (i) The Auction Agent shall maintain a current registry of
Persons that are Broker-Dealers, compiled initially on the Closing
Date as described below, and that hold Taxable Auction Rate Series
1997-1
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<PAGE>
Notes, for purposes of dealing with the Auction Agent in connection
with an Auction (such registry being herein called the "Existing
Holder Registry"). Such Persons shall constitute the "Existing
Holders" for purposes of dealing with the Auction Agent in connection
with an Auction. The Auction Agent shall indicate in the Existing
Holder Registry for each Existing Holder the identity of the Broker-
Dealer which submitted the most recent Order in any Auction which
resulted in such Existing Holder continuing to hold or purchasing the
Taxable Auction Rate Series 1997-1 Notes. Pursuant to the Broker-
Dealer Agreement, Smith Barney Inc., as the sole initial Broker-
Dealer, has agreed to provide to the Auction Agent on the Closing Date
the names and addresses of the Persons who are to be initially listed
on the Existing Holder Registry as constituting the initial Existing
Holders of Taxable Auction Rate Series 1997-1 Notes for purposes of
dealing with the Auction Agent in connection with an Auction. The
Auction Agent may rely upon, as evidence of the identities of the
Existing Holders, such list, the results of each Auction and notices
from any Existing Holder, Participant of any Existing Holder or
Broker-Dealer of any Existing Holder as described in Section
2.2(c)(iii) hereof.
(ii) The Trustee shall notify the Auction Agent when any notice
of redemption of Taxable Auction Rate Series 1997-1 Notes is sent to
the Securities Depository as the Holder of Taxable Auction Rate Series
1997-1 Notes not later than 11:00 a.m., New York City time, on the
date such notice is sent. Such notice with respect to a redemption
shall be substantially in the form of Exhibit D hereto, Notice of
Taxable Auction Rate Series 1997-1 Notes Outstanding. In the event the
Auction Agent receives from the Trustee written notice of any partial
redemption of any Taxable Auction Rate Series 1997-1 Notes, the
Auction Agent shall, at least two Business Days prior to the next
Auction, request each Participant to disclose to the Auction Agent
(upon selection by such Participant of the Existing Holders whose
Taxable Auction Rate Series 1997-1 Notes are to be redeemed) the
aggregate principal amount of such Taxable Auction Rate Series 1997-1
Notes of each such Existing Holder, if any, which are to be redeemed;
provided the Auction Agent has been furnished with the name and
telephone number of a person or department at such Participant from
which it is to request such information. In the absence of receiving
any such information with respect to any Existing Holder, from such
Existing Holder's Participant or otherwise, the Auction Agent may
continue to treat such Existing Holder as the beneficial owner of the
principal amount of Taxable Auction Rate Series 1997-1 Notes shown in
the Existing Holder Registry.
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(iii) The Auction Agent shall be required to register in the
Existing Holder Registry a transfer of Taxable Auction Rate Series
1997-1 Notes from an Existing Holder to another Person only if such
transfer is made to a Person through a Broker-Dealer and if (A) such
transfer is pursuant to an Auction or (B) the Auction Agent has been
notified in writing (1) in a notice substantially in the form of a
Notice of Transfer by such Existing Holder, by the Participant of such
Existing Holder or by the Broker-Dealer of such Existing Holder of
such transfer, or (2) in a notice substantially in the form of a
Notice of Failure to Deliver or Make Payment by the Broker-Dealer of
any Person that purchased or sold Taxable Auction Rate Series 1997-1
Notes in an Auction of the failure of such Taxable Auction Rate Series
1997-1 Notes to be transferred as a result of the Auction. The Auction
Agent is not required to accept any Notice of Transfer or Notice of
Failure to Deliver or Make Payment delivered prior to an Auction
unless it is received by the Auction Agent by 3:00 p.m., New York City
time, on the Business Day next preceding the applicable Auction Date.
(d) The Auction Agent may request that the Broker-Dealers, as set
forth in the Broker-Dealer Agreements, provide the Auction Agent with the
aggregate principal amount of Taxable Auction Rate Series 1997-1 Notes held
by such Broker-Dealers for purposes of the Existing Holder Registry, as
well as with a list of their respective customers that such Broker-Dealers
believe are Existing Holders of the Taxable Auction Rate Series 1997-1
Notes and the aggregate principal amount of Taxable Auction Rate Series
1997-1 Notes beneficially owned by each such customer. Except as permitted
by Section 2.10 hereof, the Auction Agent shall keep confidential any such
information and shall not disclose any such information so provided to any
person other than the relevant Broker-Dealer, the Issuer and the Trustee,
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would
be unlawful.
(e) The Auction Agent shall send by telecopy or other means a copy of
any Notice of Taxable Auction Rate Series 1997-1 Notes Outstanding received
from the Trustee to each Broker-Dealer in accordance with Section 4.3 of
the applicable Broker-Dealer Agreement.
2.3 All Hold Rates, Maximum Auction Rates, Net Loan Rate, One-Month
LIBOR and Three-Month LIBOR.
(a) On each Auction Date, the Auction Agent shall determine the All
Hold Rate, the Maximum Auction Rate and One-Month LIBOR or Three-Month
LIBOR, as the case may be. The Net Loan Rate with respect to each Auction
Date shall be determined and written notice thereof given to the
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Auction Agent in accordance with Section 6 of the First Supplemental
Indenture. Not later than 9:30 a.m., New York City time, on each Auction
Date, the Auction Agent shall notify the Trustee and the Broker-Dealers of
the All Hold Rate, the Maximum Auction Rate, the Net Loan Rate and One-
Month LIBOR or Three-Month LIBOR, as the case may be, so determined. On or
within three Business Days after the Closing Date, the Issuer shall give
written notice to the Auction Agent of the initial ratings on the Taxable
Auction Rate Series 1997-1 Notes by Moody's and Fitch substantially in the
form of the Notice of Ratings. Thereafter, if there is a change in one of
both of such ratings, the Issuer shall give written notice to the Auction
Agent substantially in the form of the Notice of Ratings within three
Business Days of its receipt of notice of such change, but not later than
the close of business on the Business Day immediately preceding an Auction
Date if the Issuer has received written notice of such change in a rating
or ratings prior to 12:00 noon, New York City time, on such Business Day,
and the Auction Agent shall take into account such change in rating or
ratings for purposes hereof and any Auction so long as such Notice of
Ratings is received by the Auction Agent no later than the close of
business on such Business Day.
(b) (i) If, on any Auction Date for an Auction Period, an Auction is
not held for any reason, then the Auction Rate Series 1997-1 Note
Interest Rate for the next succeeding Auction Period shall be the Net
Loan Rate.
(ii) If the ownership of the Taxable Auction Rate Series 1997-1
Notes is no longer maintained in Book-Entry Form by the Securities
Depository, no further Auctions shall be held and the Auction Rate
Series 1997-1 Note Interest Rate for each Interest Period commencing
after the delivery of certificated Taxable Auction Rate Series 1997-1
Notes pursuant to Section 17 of the First Supplemental Indenture shall
equal the lesser of the Net Loan Rate and the Maximum Auction Rate as
determined by the Trustee on the Business Day immediately preceding
the first day of such subsequent Interest Period as provided in
Section 3(A) of the First Supplemental Indenture.
(iii) If a Payment Default shall have occurred with respect to a
series of Taxable Auction Rate Series 1997-1 Notes, the Auction Rate
Series 1997-1 Note Interest Rate with respect to such series for each
Interest Period commencing on or immediately after the occurrence of
such Payment Default, and for each Interest Period thereafter, to and
including the Interest Period, if any, during which, or commencing
less than two Business Days after, such Payment Default is cured,
shall equal the Non-Payment Rate, as determined by the Trustee on the
first day of such Interest Period as provided in Section 3(A) of the
First
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Supplemental Indenture. The Auction Rate Series 1997-1 Note Interest
Rate for each Interest Period commencing at least two Business Days
after any cure of a Payment Default shall be determined through
implementation of the Auction Procedures.
2.4 Auction Schedule. The Auction Agent shall conduct Auctions on the
Auction Date in accordance with the schedule set forth below. Such schedule may
be changed by the Auction Agent with the consent of the Trustee and the Market
Agent, which consent shall not be unreasonably withheld or delayed. The Auction
Agent shall give notice pursuant to Section 4.3 of the applicable Broker-Dealer
Agreement of any such change to each Broker-Dealer. Such notice shall be given
prior to the first Auction Date on which any such change shall be effective.
By 9:30 a.m. The Auction Agent advises the Trustee and
the Broker-Dealers of the Maximum Auction
Rate, the All Hold Rate, the Net Loan Rate
and One-Month LIBOR or Three-Month LIBOR,
as the case may be, to be used in
determining the Auction Rate under the
Auction Procedures, the First Supplemental
Indenture and this Auction Agent
Agreement.
9:30 a.m. - 12:30 p.m. The Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Section 4(c)(i) of the First
Supplemental Indenture. The Submission
Deadline is 12:30 p.m., New York City
time.
Not earlier than The Auction Agent makes the determina-
12:30 p.m. tion pursuant to Section 4(c)(i) of the
First Supplemental Indenture. Submitted
Bids and Submitted Sell Orders are
accepted and rejected in whole or in part
and principal amount of Taxable Auction
Rate Series 1997-1 Notes is allocated as
provided in Section 4(d) of the First
Supplemental Indenture.
By approximately The Auction Agent advises the Trustee and
3:00 p.m./1/ or the Broker-Dealers of the results of
4:00 p.m./2/ the Auction as provided in Section
4(c)(ii) of the First Supplemental
Indenture.
- ----------
/1/ If the Auction Rate Series 1997-1 Note Interest Rate is the Auction Rate.
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/2/ If the Auction Rate Series 1997-1 Note Interest Rate is the Net Loan Rate.
The Auction Agent shall follow the notification procedures set forth
in paragraph (a) of the Settlement Procedures.
2.5 Changes in Auction Periods or Auction Date.
(a) Changes in Auction Period or Periods.
(i) The Auction Agent shall mail any notice delivered to it
pursuant to the first paragraph of Section 10(a) of the First
Supplemental Indenture to the Existing Holders within two Business
Days of its receipt thereof.
(ii) The Auction Agent shall deliver any certificate delivered
to it pursuant to the third paragraph of Section 10(a) of the First
Supplemental Indenture to the Broker-Dealers not later than 3:00 p.m.,
New York City time, on the last Business Day preceding the next
Auction Date by telecopy or similar means.
(iii) If, after delivery to the Auction Agent of the notice
referred to in the first paragraph of Section 10(a) of the First
Supplemental Indenture, the Auction Agent fails to receive the
certificate referred to in the third paragraph of Section 10(a) of the
First Supplemental Indenture by 11:00 a.m., New York City time, on the
last Business Day preceding the next Auction Date, the Auction Agent
shall deliver a notice of such failure in substantially the form of
Exhibit H hereto to the Broker-Dealers not later than 3:00 p.m., New
York City time, on such Business Day by telecopy or other similar
means.
(iv) If, after delivery to the Auction Agent of the notice
referred to in the first paragraph of Section 10(a) and the
certificate referred to in third paragraph of Section 10(a) of the
First Supplemental Indenture, Sufficient Bids are not received by the
Auction Agent by the Submission Deadline, the Auction Agent shall
notify the Broker-Dealers not later than 3:00 p.m., New York City
time, on such Auction Date by telephone confirmed in writing in
substantially the form of Exhibit I hereto the next Business Day.
(b) Changes in Auction Date. The Auction Agent shall mail any notice
delivered to it pursuant to Section 11 of the First Supplemental Indenture
to the Broker-Dealers within three Business Days of its receipt thereof.
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2.6 Notice of Fee Rate Change. If the Auction Agent Fee Rate is
changed pursuant to the provisions of Section 6.4(b) hereof or the Broker-Dealer
Fee Rate is changed pursuant to the provisions of 6.5(b) hereof, the Auction
Agent shall mail a Notice of Fee Rate Change (i) to the Trustee with respect to
a change in the Auction Agent Fee Rate and the Broker-Dealer Fee Rate and (ii)
to the Broker-Dealers with respect to a change in the Broker-Dealer Fee Rate, in
each case within two Business Days of such change.
2.7 Notices to Existing Holders. The Auction Agent shall be entitled
to rely upon the address of each Broker-Dealer as provided in Section 4.3 of the
applicable Broker-Dealer Agreement in connection with any notice to each Broker-
Dealer, as an Existing Holder, required to be given by the Auction Agent.
2.8 Payment Default.
(a) After delivery by the Trustee to the Auction Agent of a notice
that a Payment Default shall have occurred, the Auction Agent shall, on the
Business Day following its receipt of the same, deliver a Notice of Payment
Default to the Broker-Dealers by telecopy or other similar means.
(b) The Auction Agent shall deliver a copy of any notice received by
it from the Trustee to the effect that a Payment Default has been cured to
the Broker-Dealers on the Business Day following its receipt of the same by
telecopy or other similar means.
2.9 Broker-Dealers.
(a) If the Auction Agent is provided with a copy of a Broker-Dealer
Agreement, which has been manually signed, with any person listed on
Exhibit A hereto to which the Trustee, at the direction of an Authorized
Issuer Officer, shall have consented, it shall enter into such Broker-
Dealer Agreement with such person. The Issuer hereby directs the Trustee to
consent to Smith Barney Inc. as the sole initial Broker-Dealer.
(b) The Auction Agent may, at the written direction of an Authorized
Issuer Officer, and with the approval of Smith Barney Inc., so long as
Smith Barney Inc. is acting as a Broker-Dealer, enter into a Broker-Dealer
Agreement with any other person who requests to be selected to act as a
Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein at the direction of an Authorized Issuer Officer.
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2.10 Access to and Maintenance of Auction Records. The Auction Agent
shall afford to the Trustee, the Issuer and their respective agents, independent
public accountants and counsel access, at reasonable times during normal
business hours, to review and make extracts or copies (at no cost to the Auction
Agent) of all books, records, documents and other information concerning the
conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Trustee or the
Issuer requesting that the Auction Agent afford such person access. The Auction
Agent shall maintain records relating to any Auction for a period of two years
after such Auction (or for such longer period requested by the Trustee or the
Issuer, not to exceed four years after each Auction), and such records shall, in
reasonable detail, accurately and fairly reflect the actions taken by the
Auction Agent hereunder. At the end of such period, the Auction Agent shall
deliver such records to the Trustee. The Trustee and the Issuer agree to keep
any information regarding the conduct and results of the Auctions, including,
without limitation, information regarding customers of any Broker-Dealer,
received from the Auction Agent in connection with this Auction Agent Agreement
confidential and shall not disclose such information or permit the disclosure of
such information without the prior written consent of the applicable Broker-
Dealer to anyone except such agent, accountant or counsel engaged to audit or
review the results of Auctions as permitted by this Section 2.10. Any such
agent, accountant or counsel, before having access to such information, shall
agree to keep such information confidential and not to disclose such information
or permit disclosure of such information without the prior written consent of
the applicable Broker-Dealer, except as may otherwise be required by law.
Section 3. Term of Agreement.
(a) This Auction Agent Agreement shall terminate on the earlier to
occur of (i) the satisfaction and discharge of the First Supplemental
Indenture with respect to the Taxable Auction Rate Series 1997-1 Notes or
this Auction Agent Agreement and (ii) the date on which this Auction Agent
Agreement is terminated in accordance with this Section 3. The Trustee may
terminate this Auction Agent Agreement in accordance with Section 8(a) of
the First Supplemental Indenture. The Auction Agent may terminate this
Auction Agent Agreement upon written notice to the Trustee, the Issuer and
the Market Agent on the date specified in such notice, which date shall be
no earlier than 90 days after the date of delivery of such notice.
Notwithstanding the foregoing, the provisions of Section 2 hereof shall
terminate upon the delivery of certificates representing Taxable Auction
Rate Series 1997-1 Notes pursuant to Section 17 of the First Supplemental
Indenture. Notwithstanding the foregoing, the Auction Agent may terminate
this Agreement without further notice if, within 25 days after notifying in
writing the Trustee, the Issuer and the Market Agent that it has not
received payment
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of any Auction Agent Fee due it in accordance with the terms hereof, the
Auction Agent does not receive such payment. Any resignation of the Auction
Agent or termination of this Auction Agent Agreement, other than as
described in the preceding sentence of this paragraph, shall not become
effective until a successor Auction Agent has been appointed and acceptance
of such appointment by such successor Auction Agent. The Issuer and the
Trustee agree to diligently proceed to appoint a successor Auction Agent.
However, if a successor Auction Agent shall not have been appointed within
60 days from the date of such notice of resignation, the resigning Auction
Agent may petition any court of competent jurisdiction for the appointment
of a successor Auction Agent.
(b) Except as otherwise provided in this Section 3(b), the respective
rights and duties of the Trustee, the Issuer and the Auction Agent under
this Auction Agent Agreement shall cease upon termination of this Auction
Agent Agreement. The Trustee's representations and warranties to the
Auction Agent under Section 5 hereof, and the Issuer's obligations to the
Auction Agent under Section 6.4 hereof and to the Broker-Dealers under
Section 6.5 hereof, shall survive the termination of this Auction Agent
Agreement subject to Section 4 hereof. Upon termination of this Auction
Agent Agreement, the Auction Agent shall, upon request, promptly deliver to
the Trustee copies of all books and records maintained by it with respect
to Taxable Auction Rate Series 1997-1 Notes in connection with its duties
hereunder.
Section 4. Trustee. All privileges, rights and immunities given to
the Trustee in the First Supplemental Indenture are hereby extended to and
applicable to the Trustee's obligations hereunder.
Section 5. Representations and Warranties of the Trustee.
The Trustee hereby represents and warrants to the Auction Agent and
the Issuer as follows:
5.1 The Trustee (i) has been duly incorporated and is validly
existing and in good standing as a national banking association under the laws
of the United States, and (ii) has all necessary authority, approvals, consents
(whether from the Issuer or otherwise) to enter into and perform its obligations
under this Auction Agent Agreement. This Auction Agent Agreement has been duly
and validly authorized, executed and delivered by the Trustee and constitutes
the legal, valid, binding and enforceable obligation of the Trustee.
5.2 Neither the execution, delivery and performance of this Auction
Agent Agreement, the consummation of the transactions contemplated hereby nor
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the fulfillment of or compliance with the terms and conditions of this Auction
Agent Agreement will conflict with, violate or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, any law or
regulation, any order or decree of any court or public authority having
jurisdiction over the Trustee, or any mortgage, indenture, contract, agreement
or undertaking to which the Trustee is a party or by which it is bound, or the
organizational documents pursuant to which the Trustee has been created and
under which it is operating.
5.3 All approvals, consents and orders of any governmental authority,
legislative body, board, agency or commission having jurisdiction over the
Trustee which would constitute a condition precedent to or the absence of which
would materially adversely affect the due performance by the Trustee of its
obligations under this Auction Agent Agreement have been obtained.
Section 6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent of the Issuer and
owes no fiduciary duties to any person (other than the Issuer) by reason of
this Auction Agent Agreement. The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in this Auction
Agent Agreement, and no implied covenants or obligations shall be read into
this Auction Agent Agreement by means of the provisions of the First
Supplemental Indenture or otherwise against the Auction Agent.
(b) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted
or for any error of judgment made by it in the performance of its duties
under this Auction Agent Agreement. The Auction Agent shall not be liable
for any error of judgment made in good faith unless the Auction Agent shall
have been negligent in ascertaining the pertinent facts.
(c) The Auction Agent shall not agree to any amendment to a Broker-
Dealer Agreement without the prior written consent of the Issuer, which
consent shall not be unreasonably withheld.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon
any written instruction, notice, request, direction, consent, report,
certificate, form of bond certificate or other instrument, paper or
document believed by it to be genuine. The Auction Agent shall not be
liable for acting
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upon any telephone communication authorized hereby which the Auction Agent
believes in good faith to have been given by the Trustee or by a Broker-
Dealer. The Auction Agent may record telephone communications with the
Trustee or with Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice, and the
advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed by it with due care hereunder.
6.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the correctness of the recitals in this Auction Agent
Agreement or the Broker-Dealer Agreement or the validity or adequacy of the
Taxable Auction Rate Series 1997-1 Notes.
6.4 Compensation, Remedies and Indemnification.
(a) With respect to each series of Taxable Auction Rate Series 1997-1
Notes, not later than 12:00 noon, New York City time, on the first Interest
Payment Date relating to such series, the Issuer, pursuant to Section 5(b)
of the First Supplemental Indenture, shall pay in arrears to the Auction
Agent, solely from moneys available therefor in the Administration Fund, an
amount in cash equal to the product of (i) the Auction Agent Fee Rate times
(ii) a fraction, the numerator of which is the number of days from the
Closing Date to such Interest Payment Date (or, if such series of Taxable
Auction Rate Series 1997-1 Notes ceased to be outstanding prior to such
Interest Payment Date, the date on which such series ceased to be
outstanding) and the denominator of which is 360, times (iii) the aggregate
principal amount of Taxable Auction Rate Series 1997-1 Notes of such series
on the date of original issuance of the Series 1997-1 Notes.
(b) With respect to each series of Taxable Auction Rate Series 1997-1
Notes any of which were outstanding at any time during the related period,
not later than 12:00 noon, New York City time, on each Interest Payment
Date thereafter relating to such series, the Issuer, pursuant to Section
5(b) of the
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First Supplemental Indenture, shall pay in arrears to the Auction Agent,
solely from moneys available therefor in the Administration Fund, an amount
in cash equal to the product of (i) the Auction Agent Fee Rate times (ii) a
fraction, the numerator of which is the number of days from the preceding
Interest Payment Date to the current Interest Payment Date (or, if such
series of Taxable Auction Rate Series 1997-1 Notes ceased to be outstanding
prior to such current Interest Payment Date, the date on which such series
ceased to be outstanding) and the denominator of which is 360, times (iii)
the average principal amount of Taxable Auction Rate Series 1997-1 Notes of
such series outstanding during the period between such preceding Interest
Payment Date (or the Closing Date, in the case of the first Interest
Payment Date) and the current Interest Payment Date (or, if such series of
Taxable Auction Rate Series 1997-1 Notes ceased to be outstanding prior to
such current Interest Payment Date, the date on which such series ceased to
be outstanding) (together with the fee described in Section 6.4(a), the
"Auction Agent Fee"). The Auction Agent Fee Rate may be adjusted from time
to time with the approval of an Authorized Issuer Officer upon a written
request of the Auction Agent delivered to the Trustee and the Issuer. The
Initial Auction Agent Fee Rate shall be .025%. Any change in the Auction
Agent Fee Rate shall be effective on the Auction Date next succeeding such
change.
(c) The Issuer shall reimburse the Auction Agent, upon its request,
for all reasonable expenses, disbursements and advances, if any, incurred
or made by the Auction Agent in accordance with any provision of this
Auction Agent Agreement or the Broker-Dealer Agreements (including the
reasonable compensation, expenses and disbursements of its agents and
counsel) from amounts available therefor in the Administration Fund. The
Issuer shall indemnify and hold harmless the Auction Agent for and against
any loss, liability or expense incurred without negligence or bad faith on
the Auction Agent's part, arising out of or in connection with the
acceptance or administration of its agency under this Auction Agent
Agreement and the Broker-Dealer Agreements, including the reasonable costs
and expenses (including the reasonable fees and expenses of its counsel) of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder and
of enforcing this indemnification provision; provided that the Issuer shall
not indemnify the Auction Agent pursuant to this Section 6.4(c) for any
fees and expenses incurred by the Auction Agent in the normal course of
performing its duties hereunder and under the Broker-Dealer Agreements,
such fees and expenses being payable as provided in Section 6.4(a) and (b)
above.
6.5 Compensation of the Broker-Dealers.
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(a) With respect to each series of Taxable Auction Rate Series 1997-1
Notes, not later than 12:00 noon, New York City time, on each Interest
Payment Date relating to such series, the Issuer, pursuant to Section 5(b)
of the First Supplemental Indenture, shall pay to the Auction Agent, solely
from moneys available therefor in the Administration Fund, an amount in
cash equal to the product of (i) the Broker-Dealer Fee Rate times (ii) a
fraction, the numerator of which is the number of days from the preceding
Interest Payment Date (or from the Closing Date, in the case of the first
Interest Payment Date) to the current Interest Payment Date (or, if such
series of Taxable Auction Rate Series 1997-1 Notes ceased to be outstanding
prior to such current Interest Payment Date, the date on which such series
ceased to be outstanding) and the denominator of which is 360, times (iii)
the aggregate principal amount of Taxable Auction Rate Series 1997-1 Notes
of such series outstanding at the close of business on the date of original
issuance of the Taxable Auction Rate Series 1997-1 Notes (in the case of
the initial Interest Payment Date) or at the close of business on the
preceding Interest Payment Date (in the case of all succeeding Interest
Payment Dates), as the case may be (the "Broker-Dealer Fee"). The Auction
Agent shall advise the Issuer of the amount referred to in the preceding
sentence not later than 4:00 p.m., New York City time, at least two
Business Days preceding such Interest Payment Date. The Auction Agent shall
apply such monies as set forth in Section 2.5 of the Broker-Dealer
Agreements.
(b) After retaining an amount equal to the Auction Agent Fee as
provided in Section 6.4 above, the Auction Agent shall pay the Broker-
Dealer Fee as provided in Section 6.5(a) above solely out of amounts
received by the Auction Agent pursuant to Section 5(b) of the First
Supplemental Indenture. The Auction Agent shall advise the Issuer at least
annually, at the request of an Authorized Issuer Officer, of the prevailing
rate. The Broker-Dealer Fee Rate may be adjusted from time to time with the
approval of an Authorized Issuer Officer upon a written request of the
Auction Agent or Smith Barney Inc., as the initial Broker-Dealer, delivered
to the Trustee and the Issuer. The initial Broker-Dealer Fee Rate shall be
.25% per annum. If the Broker-Dealer Fee Rate is changed pursuant to the
terms hereof, the Trustee shall notify the Auction Agent thereof. Any
changes in the Broker-Dealer Fee Rate shall be effective on the Auction
Date next succeeding such change.
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Section 7. Miscellaneous.
7.1 Governing Law. This Auction Agent Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in such state, it being understood that the
corporate powers and legal capacity of the Issuer shall be construed and
interpreted in accordance with the laws of the State of South Dakota.
7.2 Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Auction Agent Agreement or the Auction
Procedures and (ii) communications in connection with Auctions (other than those
expressly requi red to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party addressed to it at its
address, or facsimile number set below:
If to the Trustee,
addressed: First Bank National Association
141 North Main Avenue
Sioux Falls, South Dakota 57117
Attn: Corporate Trust Department
Telephone: (605) 339-8725
Facsimile: (605) 333-3813
If to the Issuer,
addressed: Education Loans Incorporated
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attn: President
Telephone: (605) 622-4590
Facsimile: (605) 622-4547
If to the Auction Agent,
addressed: Bankers Trust Company
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Attn: Auction Rate Securities
Telephone: (212) 250-6850
Facsimile: (212) 250-6215
-18-
<PAGE>
If to the Market Agent,
addressed: Smith Barney Inc.
390 Greenwich Street
2nd Floor
New York, New York 10013
Attn: Public Finance
Division
Telephone: (212) 723-5564
Facsimile: (212) 723-8939
or such other address, telephone or facsimile number as such party may hereafter
specify for such purpose by notice in writing to the other parties. Each such
notice, request or communication shall be effective when delivered at the
address specified herein. Communications shall be given on behalf of the Trustee
by an Authorized Trustee Representative, on behalf of the Auction Agent by an
Authorized Auction Agent Officer and on behalf of the Issuer by an Authorized
Issuer Officer.
7.3 Entire Agreement. This Auction Agent Agreement contains the
entire agreement between the parties relating to the subject matter hereof, and
there are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof.
7.4 Benefits. Nothing herein, express or implied, shall give to any
person, other than the Trustee, acting on behalf of the beneficial owners of the
Taxable Auction Rate Series 1997-1 Notes, the Auction Agent, the Issuer and
their respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Auction Agent Agreement shall not be deemed or construed to
be modified, amended, rescinded, canceled or waived, in whole or in part,
except by a written instrument signed by duly authorized representatives of
the parties hereto.
(b) The Trustee and the Issuer shall not enter into or approve any
amendment of or supplement to the First Supplemental Indenture which
materially affects the Auction Agent's duties or obligations under the
First Supplemental Indenture without obtaining the prior written consent of
the Auction Agent. The Trustee shall promptly notify the Auction Agent of
any amendment of or supplement to the First Supplemental Indenture, and
shall provide a copy thereof to the Auction Agent upon request.
-19-
<PAGE>
(c) Failure of a party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by any other party shall not
constitute a waiver of any such right or remedy with respect to any
subsequent breach.
7.6 Successors and Assigns. This Auction Agent Agreement shall be
binding upon, inure to the benefit of and be enforceable by the respective
successors and assigns of each of the Trustee, the Issuer (including, without
limitation, EdLinc upon the Section 150(d)(3) Transfer) and the Auction Agent.
Except as to the Section 150(d)(3) Transfer and the associated assignment of the
Issuer's rights hereunder to, and assumption of the Issuer's obligations
hereunder by, EdLinc (consent to which assignment and assumption by the Trustee
and Auction Agent are hereby acknowledged), this Auction Agent Agreement may not
be assigned by any party hereto absent the prior written consent of the other
parties hereto, which consents shall not be unreasonably withheld.
7.7 Severability. If any clause, provision or section hereof shall be
ruled invalid or unenforceable by any court of competent jurisdiction, the
invalidity or unenforceability of such clause, provision or section shall not
affect any of the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts. This Auction Agent Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Auction Agent
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the date first above written.
EDUCATION LOANS INCORPORATED,
as Issuer
By: _______________________
Title: President
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By: _______________________
Title: Trust Officer
BANKERS TRUST COMPANY, as
Auction Agent
By: _______________________
Title: _____________________
-21-
<PAGE>
EXHIBIT A
TO AUCTION AGENT AGREEMENT
--------------------------
LIST OF INITIAL BROKER-DEALERS
------------------------------
Smith Barney Inc.
A-1
<PAGE>
EXHIBIT B
TO AUCTION AGENT AGREEMENT
--------------------------
BROKER-DEALER AGREEMENT
-----------------------
B-1
<PAGE>
EXHIBIT C
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF RATINGS
-----------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G AND H
NOTICE IS HEREBY GIVEN to the Auction Agent by the Issuer pursuant to
Section 2.3(a) of the Auction Agent Agreement that:
1. as of the date of this notice the rating by Moody's on the
captioned Taxable Auction Rate Series 1997-1 Notes is ______ [and
such rating is [*"Aa3"or higher/lower than "Aa3"]]**; and
2. as of the date of this notice the rating by Fitch on the
captioned Taxable Auction Rate Series 1997-1 Notes is _____ [and
such rating is [*"AA-" or higher] [lower than "AA-"]]**.
The Auction Agent may rely on such ratings for all purposes of the
First Supplemental Indenture, including determination of the Maximum Auction
Rate thereunder, from the date hereof until further notice from the undersigned
Education Loans Incorporated.
EDUCATION LOANS INCORPORATED
By:
--------------------------
Title:
-------------------
Date:
--------------------
* Choose one.
** The information in the outer brackets will be used as applicable whenever
the Moody's rating is not equal to "Aa3" and/or the Fitch rating is not
equal to "AA-."
C-1
<PAGE>
EXHIBIT D
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF TAXABLE AUCTION RATE SERIES 1997-1 NOTES OUTSTANDING
--------------------------------------------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G[H]
NOTICE IS HEREBY GIVEN that $_________ aggregate principal amount of
Series 1997-1G[H] Notes were outstanding at the close of business on the
immediately preceding Regular Record Date. Such aggregate principal amount of
Series 1997-1G[H] Notes, less $_________ aggregate principal amount of Series
1997-1G[H] Notes to be redeemed by the Issuer pursuant to the First Supplemental
Indenture, for a net aggregate principal amount of Series 1997-1G[H] Notes of
$_____________, will be available on the next Auction scheduled to be held on
_______________.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By: _________________________
Title: ___________________
Date: ____________________
D-1
<PAGE>
EXHIBIT E
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF FEE RATE CHANGE
-------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G AND H
NOTICE IS HEREBY GIVEN that the [Auction Agent Fee Rate] [Broker-
Dealer Fee Rate] has been changed in accordance with Section [6.4(b)] [6.5(b)]
of the Auction Agent Agreement. The new [Auction Agent Fee Rate] [Broker-Dealer
Fee Rate] shall be ______% per annum.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
BANKERS TRUST COMPANY, as
Auction Agent
By: _________________________
Title: ___________________
Date: ____________________
APPROVED:
EDUCATION LOANS INCORPORATED
By: _________________________
Title: ___________________
Date: ____________________
E-1
<PAGE>
EXHIBIT F
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF A PAYMENT DEFAULT
---------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G[H]
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and not
been cured with respect to the Series 1997-1_____ Notes. Determination of the
Auction Rate Series 1997-1 Note Interest Rate on the Taxable Auction Rate Series
1997-1 Notes pursuant to the Auction Procedures will be suspended. The Auction
Rate Series 1997-1 Note Interest Rate on each series of the Taxable Auction Rate
Series 1997-1 Notes for each Auction Period commencing after the date of Payment
Default will equal the Non-Payment Rate (as to each such series with respect to
which a Payment Default exists) or the Net Loan Rate (as to all other series),
as the case may be, as it is determined by the Trustee on the first day of such
Auction Period.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
BANKERS TRUST COMPANY, as
Auction Agent
By: _________________________
Title: ___________________
Date: ____________________
F-1
<PAGE>
EXHIBIT G
TO AUCTION AGENT AGREEMENT
--------------------------
SETTLEMENT PROCEDURES
---------------------
If not otherwise defined below, capitalized terms used herein shall
have the meanings given such terms in the First Supplemental Indenture. These
Settlement Procedures apply separately to each series of Taxable Auction Rate
Series 1997-1 Notes.
(a) Not later than (1) 3:00 p.m., if the Auction Rate Series 1997-1
Note Interest Rate is the Auction Rate, or (2) 4:00 p.m., if the Auction
Rate Series 1997-1 Note Interest Rate is the Net Loan Rate, on each Auction
Date, the Auction Agent shall notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an
Order on behalf of an Existing Holder or Potential Holder of:
(i) the Auction Rate Series 1997-1 Note Interest Rate fixed for
the next Interest Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Holder, whether
such Bid or Sell Order was accepted or rejected, in whole or in part,
and the principal amount of Taxable Auction Rate Series 1997-1 Notes,
if any, to be sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Holder, whether such Bid was accepted
or rejected, in whole or in part, and the principal amount of Taxable
Auction Rate Series 1997-1 Notes, if any, to be purchased by such
Potential Holder;
(v) If the aggregate amount of Taxable Auction Rate Series 1997-1
Notes to be sold by all Existing Holders on whose behalf such Seller's
Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate
principal amount of Taxable Auction Rate Series 1997-1 Notes to be
purchased by all Potential Holders on whose behalf such Buyer's
Broker-Dealer submitted a Bid, the name or names of one or more
Buyer's Broker-Dealers (and the name of the Participant, if any, of
each such Buyer's Broker-Dealer) acting for one or more purchasers of
such
G-1
<PAGE>
excess principal amount of Taxable Auction Rate Series 1997-1 Notes
and the principal amount of Taxable Auction Rate Series 1997-1 Notes
to be purchased from one or more Existing Holders on whose behalf such
Seller's Broker-Dealer acted by one or more Potential Holders on whose
behalf each of such Buyer's Broker-Dealers acted;
(vi) if the principal amount of Taxable Auction Rate Series 1997-
1 Notes to be purchased by all Potential Holders on whose behalf such
Buyer's Broker-Dealer submitted a Bid exceeds the amount of Taxable
Auction Rate Series 1997-1 Notes to be sold by all Existing Holders on
whose behalf such Seller's Broker-Dealer submitted a Bid or a Sell
Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Participant, if any, of each such Seller's Broker-
Dealer) acting for one or more sellers of such excess principal amount
of Taxable Auction Rate Series 1997-1 Notes and the principal amount
of Taxable Auction Rate Series 1997-1 Notes to be sold to one or more
Potential Holders on whose behalf such Buyer's Broker-Dealer acted by
one or more Existing Holders on whose behalf each of such Seller's
Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder on whose
behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction
on such Auction Date whether such Bid or Sell Order was accepted or
rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's Broker-
Dealer, advise each Potential Holder on whose behalf such Buyer's
Broker-Dealer submitted a Bid that was accepted, in whole or in part,
to instruct such Potential Holder's Participant to pay such Buyer's
Broker-Dealer (or its Participant) through the Securities Depository
the amount necessary to purchase the principal amount of Taxable
Auction Rate Series 1997-1 Notes to be purchased pursuant to such Bid
against receipt of such Taxable Auction Rate Series 1997-1 Notes;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Holder on whose behalf such Seller's
Broker-Dealer submitted a Sell Order that was accepted, in whole or in
part, or a Bid that was accepted, in whole or in part, to instruct
such Existing Holder's Participant to deliver to such Seller's Broker-
Dealer (or its
G-2
<PAGE>
Participant) through the Securities Depository the principal amount of
Taxable Auction Rate Series 1997-1 Notes to be sold pursuant to such
Order against payment therefor;
(iv) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order and each Potential Holder on whose behalf
such Broker-Dealer submitted a Bid of the Auction Rate for the next
Interest Period;
(v) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Holder on whose behalf such Broker-
Dealer submitted a Bid that was accepted, in whole or in part, of the
next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order
in an Auction is required to allocate any funds received by it in
connection with such Auction pursuant to paragraph (b)(ii) above, and any
Taxable Auction Rate Series 1997-1 Notes received by it in connection with
such Auction pursuant to paragraph (b)(iii) above among the Potential
Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the
Existing Holders, if any, on whose behalf such Broker-Dealer submitted Bids
or Sell Orders in such Auction, and any Broker-Dealers identified to it by
the Auction Agent following such Auction pursuant to paragraph (a)(v) or
(a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder with an Order in
the Auction on such Auction Date shall instruct its Participant as
provided in paragraph (b)(ii) or (b)(iii) above, as the case may be;
(ii) each Seller's Broker-Dealer that is not a Participant of the
Securities Depository shall instruct its Participant to deliver such
Taxable Auction Rate Series 1997-1 Notes through the Securities
Depository to a Buyer's Broker-Dealer (or its Participant) identified
to such Seller's Broker-Dealer pursuant to paragraph (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in the
Securities Depository shall instruct its Participant to pay through
the Securities Depository to Seller's Broker-Dealer (or its
Participant) identified following such Auction pursuant to (a)(vi)
above in the
G-3
<PAGE>
amount necessary to purchase Taxable Auction Rate Series 1997-1 Notes
to be purchased pursuant to paragraph (b)(ii) above against receipt of
such Taxable Auction Rate Series 1997-1 Notes.
(e) On the Business Date following each Auction Date:
(i) each Participant for a Bidder in the Auction on such Auction
Date referred to in paragraph (d)(i) above shall instruct the
Securities Depository to execute the transactions described under
paragraph (b)(ii) or (b)(iii) above for such Auction, and the
Securities Depository shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant shall
instruct the Securities Depository to execute the transactions
described in paragraph (d)(ii) above for such Auction, and the
Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant shall
instruct the Securities Depository to execute the transactions
described in paragraph (d)(iii) above for such Auction, and the
Securities Depository shall execute such transactions.
(f) If an Existing Holder selling Taxable Auction Rate Series 1997-1
Notes in an Auction fails to deliver such Taxable Auction Rate Series 1997-
1 Notes (by authorized book-entry), a Broker-Dealer may deliver to the
Potential Holder on behalf of which it submitted a Bid that was accepted a
principal amount of Taxable Auction Rate Series 1997-1 Notes that is less
than the principal amount of Taxable Auction Rate Series 1997-1 Notes that
otherwise was to be purchased by such Potential Holder. In such event, the
principal amount of Taxable Auction Rate Series 1997-1 Notes to be so
delivered shall be determined solely by such Broker-Dealer (but only in
Authorized Denominations). Delivery of such lesser principal amount of
Taxable Auction Rate Series 1997-1 Notes shall constitute good delivery.
Notwithstanding the foregoing terms of this paragraph (f), any delivery or
nondelivery of Taxable Auction Rate Series 1997-1 Notes which shall
represent any departure from the results of an Auction, as determined by
the Auction Agent, shall be of no effect unless and until the Auction Agent
shall have been notified of such delivery or nondelivery in accordance with
the provisions of the Auction Agent Agreement and the Broker-Dealer
Agreements. Neither the Trustee nor the Auction Agent will have any
responsibility or liability with respect to the failure of a Potential
Holder, Existing Holder or their respective Broker-Dealer or Participant to
take delivery of or deliver, as the case may be, the principal amount of
Taxable
G-4
<PAGE>
Auction Rate Series 1997-1 Notes purchased or sold pursuant to an Auction
or otherwise.
G-5
<PAGE>
EXHIBIT H
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF CONTINUATION OF AUCTION PERIOD
----------------------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G[H]
NOTICE IS HEREBY GIVEN that a condition for the establishment of a
change in the length of one or more Auction Periods for the captioned Taxable
Auction Rate Series 1997-1 Notes has not been met. An Auction will therefor be
held on the next Auction Date (___________________) and the length of such
Auction Period shall remain an Auction Period of _______ days.
BANKERS TRUST COMPANY, as
Auction Agent
By:
----------------------------
Title:
---------------------
Date:
---------------------
H-1
<PAGE>
EXHIBIT I
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF AUCTION RATE SERIES 1997-1 NOTE INTEREST RATE
-------------------------------------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G[H]
NOTICE IS HEREBY GIVEN that [the Corporation Certificate and the
Trustee written statements, if any,] [Sufficient Bids] necessary for the
establishment of a change in the length of one or more Auction Periods for the
captioned Taxable Auction Rate Series 1997-1 Notes have not been provided. The
Auction Rate Series 1997-1 Note Interest Rate for the Auction Period commencing
on ______________ shall be the [Maximum Auction Rate] [Net Loan Rate] and such
Auction Period shall remain an Auction Period of _____ days.
BANKERS TRUST COMPANY, as
Auction Agent
By:
-----------------------------
Title:
----------------------
Date:
----------------------
I-1
<PAGE>
Draft of 10/16/97
-----------------
EXHIBIT 4.4
================================================================================
AUCTION AGENT AGREEMENT
(TAX EXEMPT AUCTION RATE SERIES 1997-1 NOTES)
by and among
EDUCATION LOANS INCORPORATED,
as Issuer,
FIRST BANK NATIONAL ASSOCIATION,
as Trustee,
and
BANKERS TRUST COMPANY,
as Auction Agent
________________________
Dated as of July 1, 1997
________________________
Relating to
$
-----------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A, B, C, D AND E
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
Section 1. Definitions and Rules of Construction......................... 2
1.1 Terms Defined by Reference to First Supplemental
Indenture................................................. 2
1.2 Terms Defined Herein.......................................... 2
1.3 Rules of Construction......................................... 4
Section 2. The Auction................................................... 4
2.1 Interest Rate on Tax Exempt Auction Rate Series 1997-1 Notes;
In corporation by Reference of Auction Procedures
and Settlement Procedures................................. 4
2.2 Preparation of Each Auction; Maintenance of
Existing Holder Registry.................................. 5
2.3 Maximum Auction Rates, All Hold Rates, After-Tax
Equivalents, "AA" Composite Commercial Paper Rates,
Indexes and Applicable Percentages........................ 8
2.4 Auction Schedule.............................................. 9
2.5 Changes in Auction Periods, Auction Date or Percentages
Used in Determining Maximum Auction Rate, All Hold
Rate and Non-Payment Rate................................. 10
2.6 Notice of Fee Rate Change..................................... 11
2.7 Notices to Existing Holders................................... 11
2.8 Payment Default............................................... 12
2.9 Broker-Dealers................................................ 12
2.10 Access to and Maintenance of Auction Records.................. 12
Section 3. Term of Agreement............................................. 13
Section 4. Trustee....................................................... 14
Section 5. Representations and Warranties of the Trustee................. 14
Section 6. The Auction Agent............................................. 15
6.1 Duties and Responsibilities................................... 15
6.2 Rights of the Auction Agent................................... 15
6.3 Auction Agent's Disclaimer.................................... 16
6.4 Compensation, Remedies and Indemnification.................... 16
6.5 Compensation of the Broker-Dealers............................ 17
Section 7. Miscellaneous................................................. 18
7.1 Governing Law................................................. 18
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.2 Communications............................... 18
7.3 Entire Agreement............................. 20
7.4 Benefits..................................... 20
7.5 Amendment; Waiver............................ 20
7.6 Successor and Assigns........................ 20
7.7 Severability................................. 20
7.8 Execution in Counterparts.................... 21
Exhibits
- --------
Exhibit A -- List of Initial Broker-Dealers
Exhibit B -- Broker-Dealer Agreement
Exhibit C -- Notice of Continuation of Percentage Used in
Determining Maximum Auction Rate, All Hold Rate or
Non-Payment Rate
Exhibit D -- Notice of Tax Exempt Auction Rate Series 1997-1 Notes
Outstanding
Exhibit E -- Notice of Fee Rate Change
Exhibit F -- Notice of a Payment Default
Exhibit G -- Settlement Procedures
Exhibit H -- Notice of Continuation of Auction Period
Exhibit I -- Notice of Auction Rate Series 1997-1 Note Interest Rate
Exhibit J -- Notice of Ratings
</TABLE>
-ii-
<PAGE>
THIS AUCTION AGENT AGREEMENT (TAX EXEMPT AUCTION RATE SERIES 1997-1
NOTES), dated as of July 1, 1997 (this "Auction Agent Agreement"), is being
entered into by and among EDUCATION LOANS INCORPORATED, a South Dakota
corporation (together with any successors or assigns, the "Issuer"), FIRST BANK
NATIONAL ASSOCIATION, Minneapolis, Minnesota, a national banking association
duly established and existing under the laws of the United States of America, as
Trustee (together with any successors or assigns, the "Trustee") under a certain
First Supplemental Indenture of Trust, as hereinafter defined and described, and
BANKERS TRUST COMPANY, a New York banking corporation (together with its
successors and assigns, the "Auction Agent"), acting not in its individual
capacity but solely as agent for the Issuer.
W I T N E S S E T H:
WHEREAS, the Issuer proposes to cause the Trustee to authenticate and
deliver $____________________ aggregate principal amount of its Student Loan
Asset-Backed Callable Notes, Series 1997-1, including therein five series
designated Tax Exempt Auction Rate Student Loan Asset-Backed Callable Notes,
Senior Series 1997-1A (the "Series 1997-1A Notes"), Tax Exempt Auction Rate
Student Loan Asset-Backed Callable Notes, Senior Series 1997-1B (the "Series
1997-1B Notes"), Tax Exempt Auction Rate Student Loan Asset-Backed Callable
Notes, Senior Series 1997-1C (the "Series 1997-1C Notes"), Tax Exempt Auction
Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1D (the
"Series 1997-1D Notes") and Tax Exempt Auction Rate Student Loan Asset-Backed
Callable Notes, Senior Series 1997-1E (the "Series 1997-1E Notes" and, together
with the Series 1997-1A Notes, the Series 1997-1B Notes, the Series 1997-1C
Notes and the Series 1997-1D Notes, the "Tax Exempt Auction Rate Series 1997-1
Notes"). The Tax Exempt Auction Rate Series 1997-1 Notes are being issued under
the First Supplemental Indenture of Trust, dated as of July 1, 1997 (the "First
Supplemental Indenture"), by and between the Issuer and the Trustee and executed
pursuant to an Indenture of Trust, dated as of July 1, 1997 (the "Original
Indenture"), by and between the Trustee and the Issuer ; and
WHEREAS, pursuant to Section 8 of the First Supplemental Indenture,
the Auction Agent has been appointed to act in the capacities set forth in this
Auction Agent Agreement; and
WHEREAS, the Trustee is entering into this Auction Agent Agreement at
the direction of the Issuer pursuant to the terms of the First Supplemental
Indenture;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Issuer, the Trustee and the Auction Agent agree
as follows:
-1-
<PAGE>
Section 1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to First Supplemental Indenture.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given such terms in the First Supplemental Indenture.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
"Auction" shall have the meaning specified in Section 2.1 hereof.
"Auction Agent Fee" shall have meaning specified in Section 6.4(b)
hereof.
"Auction Agent Fee Rate" shall mean the rate per annum determined
pursuant to Section 6.4(b) hereof, as the same may be changed from time to time
in accordance with Section 6.4(b) hereof, at which the fee to be paid to the
Auction Agent for services rendered by it hereunder and under the Broker-Dealer
Agreements accrues pursuant to Section 6.4(b) hereof.
"Auction Procedures" shall mean the provisions that are set forth in
Sections 4 through 11, inclusive, of the First Supplemental Indenture.
"Authorized Auction Agent Officer" shall mean, with respect to the
Auction Agent, each Managing Director, Vice President, Assistant Vice President
and Assistant Treasurer of the Auction Agent and every other officer of the
Auction Agent assigned to its Corporate Trust and Agency Group and every other
officer or employee of the Auction Agent designated as an "Authorized Auction
Agent Officer" for purposes hereof in a communication to the Trustee and the
Issuer.
"Authorized Issuer Officer" shall mean, with respect to the Issuer,
the Chairman of the Board of Directors, the President, any Vice President or the
Secretary of the Issuer or any other person designated in writing by the Board
of Directors of the Issuer to the Auction Agent from time to time, which writing
may limit the functions which such other person may undertake as an Authorized
Issuer Officer hereunder.
"Authorized Trustee Representative" shall mean each Vice President,
Assistant Vice President or Trust Officer in the Corporate Trust Department of
the Trustee and every other officer or employee of the Trustee designated as an
"Authorized Trustee Representative" for purposes hereof in a written
communication to the Auction Agent and the Issuer.
-2-
<PAGE>
"Broker-Dealer" shall mean a person listed on Exhibit A hereto, as
such Exhibit A may be amended from time to time.
"Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit B.
"Broker-Dealer Fee" shall have the meaning specified in Section 6.5(a)
hereof.
"Broker-Dealer Fee Rate" shall have the meaning specified in Section
6.5(b) hereof.
"Business Day" shall mean a day of the year on which (i) banks located
in the city in which the Principal Office of the Trustee is located are not
required or authorized to remain closed, (ii) banks located in the city in which
the Principal Office of the Auction Agent, as set forth in Section 7.2 hereof,
is located are not required or authorized to remain closed, (iii) banks located
in the city in which the Principal Office of each Broker-Dealer, as set forth in
and for purposes of the applicable Broker-Dealer Agreement, is located are not
required or authorized to remain closed and (iv) The New York Stock Exchange is
not closed.
"Existing Holder Registry" shall mean the register maintained by the
Auction Agent pursuant to Section 2.2 hereof.
"Notice of Failure to Deliver or Make Payment" shall mean a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreement.
"Notice of Fee Rate Change" shall mean a notice substantially in the
form of Exhibit E hereof.
"Notice of Payment Default" shall mean a notice substantially in the
form of Exhibit F hereto.
"Notice of Ratings" shall mean a notice substantially in the form of
Exhibit J hereto.
"Notice of Tax Exempt Auction Rate Series 1997-1 Notes Outstanding"
shall mean a notice substantially in the form of Exhibit D hereto.
"Notice of Transfer" shall mean a notice substantially in the form of
Exhibit C to the Broker-Dealer Agreement.
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"Participant" shall mean a member of, or participant in, the
Securities Depository.
"Settlement Procedures" shall mean the Settlement Procedures attached
as Exhibit G hereto.
1.3 Rules of Construction. Unless the context or use indicates
another or different meaning or intent, the following rules shall apply to the
construction of this Auction Agent Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Auction Agent Agreement
nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto" and other words of similar
import refer to this Auction Agent Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
(e) The rights and duties of the Trustee, the Auction Agent and the
Issuer under this Auction Agent Agreement shall apply to the Series 1997-1A
Notes, the Series 1997-1B Notes, the Series 1997-1C Notes, the Series 1997-
1D Notes and the Series 1997-1E Notes, but separately in each case.
References to "Tax Exempt Auction Rate Series 1997-1 Notes" shall, unless
the context clearly contemplates a reference to all the Tax Exempt Auction
Rate Series 1997-1 Notes, be deemed to refer only to a particular series of
Tax Exempt Auction Rate Series 1997-1 Notes.
Section 2. The Auction.
2.1 Interest Rate on Tax Exempt Auction Rate Series 1997-1 Notes;
Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) During the Initial Interest Period, each of the Series 1997-1A
Notes, the Series 1997-1B Notes, the Series 1997-1C Notes, the Series 1997-
1D Notes and the Series 1997-1E Notes shall bear interest at the Tax Exempt
Auction Rate Series 1997-1 Note Initial Interest Rate for such series.
Thereafter, the Tax Exempt Auction Rate Series 1997-1 Notes shall bear
interest at the Auction Rate Series 1997-1 Note Interest Rate based on an
Interest Period that shall be an Auction Period. The Auction Rate Series
1997-1 Note Interest Rate
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on each series of the Tax Exempt Auction Rate Series 1997-1 Notes for each
Auction Period shall be the Auction Rate determined in accordance with
Sections 3 through 12 of the First Supplemental Indenture (not to exceed
14% per annum). Pursuant to Section 8 of the First Supplemental Indenture,
the Issuer has duly appointed Bankers Trust Company as Auction Agent for
purposes of the Auction Procedures and to perform such other obligations
and duties as are herein set forth. Bankers Trust Company hereby accepts
such appointment and agrees that, on each Auction Date, it shall follow the
procedures set forth in this Section 2 and the Auction Procedures for the
purpose of, among other things, determining the Auction Rate, and
ultimately the Auction Rate Series 1997-1 Note Interest Rate for each
series of the Tax Exempt Auction Rate Series 1997-1 Notes for each Auction
Period other than the Initial Interest Period. Each periodic operation of
such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if
such provisions were fully set forth herein.
2.2 Preparation of Each Auction; Maintenance of Existing Holder
Registry.
(a) A list of Broker-Dealers (showing Smith Barney Inc. as the sole
initial Broker-Dealer) is attached as Exhibit A to this Auction Agent
Agreement. Not later than seven days prior to any Auction Date for which
any change in such list of Broker-Dealers is to be effective, the Trustee,
at the direction of an Authorized Issuer Officer, will notify the Auction
Agent in writing of such change and, if any such change is the addition of
a Broker-Dealer to such list, shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement manually
signed by such Broker-Dealer. The Auction Agent shall have entered into a
Broker-Dealer Agreement with each Broker-Dealer prior to the participation
of any such Broker-Dealer in any Auction.
(b) In the event that any day that is scheduled to be an Auction Date
shall be changed after the Auction Agent shall have given the notice of
such Auction Date pursuant to clause (vii) of paragraph (a) of the
Settlement Procedures, the Auction Agent, by such means as the Auction
Agent deems practicable, shall give notice of such change to the Broker-
Dealers not later than the earlier of 9:15 a.m., New York City time, on the
new Auction Date and 9:15 a.m., New York City time, on the old Auction
Date.
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(c) (i) The Auction Agent shall maintain a current registry of Persons
that are Broker-Dealers, compiled initially on the Closing Date as
described below, and that hold Tax Exempt Auction Rate Series 1997-1
Notes, for purposes of dealing with the Auction Agent in connection
with an Auction (such registry being herein called the "Existing
Holder Registry"). Such Persons shall constitute the "Existing
Holders" for purposes of dealing with the Auction Agent in connection
with an Auction. The Auction Agent shall indicate in the Existing
Holder Registry for each Existing Holder the identity of the Broker-
Dealer which submitted the most recent Order in any Auction which
resulted in such Existing Holder continuing to hold or purchasing the
Tax Exempt Auction Rate Series 1997-1 Notes. Pursuant to the Broker-
Dealer Agreement, Smith Barney Inc., as the sole initial Broker-
Dealer, has agreed to provide to the Auction Agent on the Closing Date
the names and addresses of the Persons who are to be initially listed
on the Existing Holder Registry as constituting the initial Existing
Holders of Tax Exempt Auction Rate Series 1997-1 Notes for purposes of
dealing with the Auction Agent in connection with an Auction. The
Auction Agent may rely upon, as evidence of the identities of the
Existing Holders, such list, the results of each Auction and notices
from any Existing Holder, Participant of any Existing Holder or
Broker-Dealer of any Existing Holder as described in Section
2.2(c)(iii) hereof.
(ii) The Trustee shall notify the Auction Agent when any notice
of redemption of Tax Exempt Auction Rate Series 1997-1 Notes is sent
to the Securities Depository as the Holder of Tax Exempt Auction Rate
Series 1997-1 Notes not later than 11:00 a.m., New York City time, on
the date such notice is sent. Such notice with respect to a redemption
shall be substantially in the form of Exhibit D hereto, Notice of Tax
Exempt Auction Rate Series 1997-1 Notes Outstanding. In the event the
Auction Agent receives from the Trustee written notice of any partial
redemption of any Tax Exempt Auction Rate Series 1997-1 Notes, the
Auction Agent shall, at least two Business Days prior to the next
Auction, request each Participant to disclose to the Auction Agent
(upon selection by such Participant of the Existing Holders whose Tax
Exempt Auction Rate Series 1997-1 Notes are to be redeemed) the
aggregate principal amount of such Tax Exempt Auction Rate Series
1997-1 Notes of each such Existing Holder, if any, which are to be
redeemed; provided the Auction Agent has been furnished with the name
and telephone number of a person or department at such Participant
from which it is to request such information. In the absence of
receiving any such information with respect to any Existing Holder,
from such Existing Holder's Participant or otherwise, the Auction
Agent may continue to treat such Existing Holder as the
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beneficial owner of the principal amount of Tax Exempt Auction Rate
Series 1997-1 Notes shown in the Existing Holder Registry.
(iii) The Auction Agent shall be required to register in the
Existing Holder Registry a transfer of Tax Exempt Auction Rate Series
1997-1 Notes from an Existing Holder to another Person only if such
transfer is made to a Person through a Broker-Dealer and if (A) such
transfer is pursuant to an Auction or (B) the Auction Agent has been
notified in writing (1) in a notice substantially in the form of a
Notice of Transfer by such Existing Holder, by the Participant of such
Existing Holder or by the Broker-Dealer of such Existing Holder of
such transfer, or (2) in a notice substantially in the form of a
Notice of Failure to Deliver or Make Payment by the Broker-Dealer of
any Person that purchased or sold Tax Exempt Auction Rate Series 1997-
1 Notes in an Auction of the failure of such Tax Exempt Auction Rate
Series 1997-1 Notes to be transferred as a result of the Auction. The
Auction Agent is not required to accept any Notice of Transfer or
Notice of Failure to Deliver or Make Payment delivered prior to an
Auction unless it is received by the Auction Agent by 3:00 p.m., New
York City time, on the Business Day next preceding the applicable
Auction Date.
(d) The Auction Agent may request that the Broker-Dealers, as set
forth in the Broker-Dealer Agreements, provide the Auction Agent with the
aggregate principal amount of Tax Exempt Auction Rate Series 1997-1 Notes
held by such Broker-Dealers for purposes of the Existing Holder Registry,
as well as with a list of their respective customers that such Broker-
Dealers believe are Existing Holders of the Tax Exempt Auction Rate Series
1997-1 Notes and the aggregate principal amount of Tax Exempt Auction Rate
Series 1997-1 Notes beneficially owned by each such customer. Except as
permitted by Section 2.10 hereof, the Auction Agent shall keep confidential
any such information and shall not disclose any such information so
provided to any person other than the relevant Broker-Dealer, the Issuer
and the Trustee, provided that the Auction Agent reserves the right to
disclose any such information if it is advised by its counsel that its
failure to do so would be unlawful.
(e) The Auction Agent shall send by telecopy or other means a copy of
any Notice of Tax Exempt Auction Rate Series 1997-1 Notes Outstanding
received from the Trustee to each Broker-Dealer in accordance with Section
4.3 of the applicable Broker-Dealer Agreement.
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2.3 Maximum Auction Rates, All Hold Rates, After-Tax Equivalents,
"AA" Composite Commercial Paper Rates, Indexes and Applicable Percentages.
(a) On each Auction Date, the Auction Agent shall determine the
Maximum Auction Rate, the All Hold Rate, the After-Tax Equivalent, the "AA"
Composite Commercial Paper Rate, the Index (unless the Index is to be
determined by the Market Agent) and the Applicable Percentage. Not later
than 9:30 a.m., New York City time, on each Auction Date, the Auction Agent
shall notify the Trustee and the Broker-Dealers of the Maximum Auction
Rate, the All Hold Rate, the After-Tax Equivalent, the "AA" Composite
Commercial Paper Rate, the Index (unless the Index is to be determined by
the Market Agent) and the Applicable Percentage so determined. On or within
three Business Days after the Closing Date, the Issuer shall give written
notice to the Auction Agent of the initial ratings on the Tax Exempt
Auction Rate Series 1997-1 Notes by Moody's and Fitch substantially in the
form of the Notice of Ratings. Thereafter, if there is a change in one of
both of such ratings, the Issuer shall give written notice to the Auction
Agent substantially in the form of the Notice of Ratings within three
Business Days of its receipt of notice of such change, but not later than
the close of business on the Business Day immediately preceding an Auction
Date if the Issuer has received written notice of such change in a rating
or ratings prior to 12:00 noon, New York City time, on such Business Day,
and the Auction Agent shall take into account such change in rating or
ratings for purposes hereof and any Auction so long as such Notice of
Ratings is received by the Auction Agent no later than the close of
business on such Business Day.
(b) (i) If, on any Auction Date for an Auction Period, an Auction is
not held for any reason, then the Auction Rate Series 1997-1 Note
Interest Rate for the next succeeding Auction Period shall be the
Maximum Auction Rate.
(ii) If the ownership of the Tax Exempt Auction Rate Series
1997-1 Notes is no longer maintained in Book-Entry Form by the
Securities Depository, no further Auctions shall be held and the
Auction Rate Series 1997-1 Note Interest Rate for each Interest Period
commencing after the delivery of certificated Tax Exempt Auction Rate
Series 1997-1 Notes pursuant to Section 17 of the First Supplemental
Indenture shall equal the Maximum Auction Rate as determined by the
Trustee on the Business Day immediately preceding the first day of
such subsequent Interest Period as provided in Section 3(A) of the
First Supplemental Indenture.
(iii) If a Payment Default shall have occurred with respect to a
series of Tax Exempt Auction Rate Series 1997-1 Notes, the Auction
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Rate Series 1997-1 Note Interest Rate with respect to such series for
each Interest Period commencing on or immediately after the occurrence
of such Payment Default, and for each Interest Period thereafter, to
and including the Interest Period, if any, during which, or commencing
less than two Business Days after, such Payment Default is cured,
shall equal the Non-Payment Rate, as determined by the Trustee on the
first day of such Interest Period as provided in Section 3(A) of the
First Supplemental Indenture. The Auction Rate Series 1997-1 Note
Interest Rate for each Interest Period commencing at least two
Business Days after any cure of a Payment Default shall be determined
through implementation of the Auction Procedures.
2.4 Auction Schedule. The Auction Agent shall conduct Auctions on the
Auction Date in accordance with the schedule set forth below. Such schedule may
be changed by the Auction Agent with the consent of the Trustee and the Market
Agent, which consent shall not be unreasonably withheld or delayed. The Auction
Agent shall give notice pursuant to Section 4.3 of the applicable Broker-Dealer
Agreement of any such change to each Broker-Dealer. Such notice shall be given
prior to the first Auction Date on which any such change shall be effective.
By 9:30 a.m. The Auction Agent advises the Trustee and the
Broker-Dealers of the Maximum Auction Rate, the All
Hold Rate, the After-Tax Equivalent, the "AA"
Composite Commercial Paper Rate, the Index and the
Applicable Percentage to be used in determining the
Auction Rate under the Auction Procedures, the First
Supplemental Indenture and this Auction Agent
Agreement.
9:30 a.m. - 12:30 p.m. The Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section
4(c)(i) of the First Supplemental Indenture. The
Submission Deadline is 12:30 p.m., New York City
time.
Not earlier than The Auction Agent makes the determination pursuant
12:30 p.m. to Section 4(c)(i) of the First Supplemental
Indenture. Submitted Bids and Submitted Sell Orders
are accepted and rejected in whole or in part and
principal amount of Tax Exempt Auction Rate Series
1997-1 Notes is allocated as provided in
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Section 4(d) of the
First Supplemental Indenture.
By approximately The Auction Agent advises the Trustee and
3:00 p.m./1/ or the Broker-Dealers of the results of the
4:00 p.m./2/ Auction as provided in Section 4(c)(ii) of
the First Supplemental Indenture.
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/1/ If the Auction Rate Series 1997-1 Note Interest Rate is the Auction
Rate.
/2/ If the Auction Rate Series 1997-1 Note Interest Rate is the Maximum
Auction Rate.
The Auction Agent shall follow the notification procedures set forth
in paragraph (a) of the Settlement Procedures.
2.5 Changes in Auction Periods, Auction Date or Percentages Used in
Determining Maximum Auction Rate, All Hold Rate and Non-Payment Rate.
(a) Changes in Auction Period or Periods.
(i) The Auction Agent shall mail any notice delivered to it
pursuant to the first paragraph of Section 10(a) of the First
Supplemental Indenture to the Existing Holders within two Business
Days of its receipt thereof.
(ii) The Auction Agent shall deliver any certificate delivered
to it pursuant to the third paragraph of Section 10(a) of the First
Supplemental Indenture to the Broker-Dealers not later than 3:00 p.m.,
New York City time, on the last Business Day preceding the next
Auction Date by telecopy or similar means.
(iii) If, after delivery to the Auction Agent of the notice
referred to in the first paragraph of Section 10(a) of the First
Supplemental Indenture, the Auction Agent fails to receive the
certificate referred to in the third paragraph of Section 10(a) of the
First Supplemental Indenture by 11:00 a.m., New York City time, on the
last Business Day preceding the next Auction Date, the Auction Agent
shall deliver a notice of such failure in substantially the form of
Exhibit H hereto to the Broker-Dealers not later than 3:00 p.m., New
York City time, on such Business Day by telecopy or other similar
means.
(iv) If, after delivery to the Auction Agent of the notice
referred to in the third paragraph of Section 10(a) and the
certificate referred to in the third paragraph of Section 10(a) of the
First Supplemental
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Indenture, Sufficient Bids are not received by the
Auction Agent by the Submission Deadline, the Auction Agent shall
notify the Broker-Dealers not later than 3:00 p.m., New York City
time, on such Auction Date by telephone confirmed in writing in
substantially the form of Exhibit I hereto the next Business Day.
(b) Changes in Auction Date. The Auction Agent shall mail any notice
delivered to it pursuant to Section 11 of the First Supplemental Indenture
to the Broker-Dealers within three Business Days of its receipt thereof.
(c) Changes in Percentages Used in Determining Maximum Auction Rate,
All Hold Rate and Non-Payment Rate.
(i) The Auction Agent shall mail any notice delivered to it
pursuant to the second paragraph of Section 10(b) of the First
Supplemental Indenture to the Existing Holders within two Business
Days of its receipt thereof.
(ii) The Auction Agent shall deliver any certificate delivered
to it pursuant to the third paragraph of Section 10(b) of the First
Supplemental Indenture to the Broker-Dealers not later than 3:00 p.m.,
New York City time, on the last Business Day preceding the next
Auction Date by telecopy or similar means.
(iii) If, after delivery to the Auction Agent of the notice
referred to in the second paragraph of Section 10(b) of the First
Supplemental Indenture, the Auction Agent fails to receive the
certificate referred to in the third paragraph of Section 10(b) of the
First Supplemental Indenture by 11:00 a.m., New York City time, on the
last Business Day preceding the next Auction Date, the Auction Agent
shall deliver a notice of such failure in substantially the form of
Exhibit C hereto to the Broker-Dealers not later than 3:00 p.m., New
York City time, on such Business Day by telecopy or other similar
means.
2.6 Notice of Fee Rate Change. If the Auction Agent Fee Rate is
changed pursuant to the provisions of Section 6.4(b) hereof or the Broker-Dealer
Fee Rate is changed pursuant to the provisions of 6.5(b) hereof, the Auction
Agent shall mail a Notice of Fee Rate Change (i) to the Trustee with respect to
a change in the Auction Agent Fee Rate and the Broker-Dealer Fee Rate and (ii)
to the Broker-Dealers with respect to a change in the Broker-Dealer Fee Rate, in
each case within two Business Days of such change.
2.7 Notices to Existing Holders. The Auction Agent shall be entitled
to rely upon the address of each Broker-Dealer as provided in Section 4.3 of the
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applicable Broker-Dealer Agreement in connection with any notice to each Broker-
Dealer, as an Existing Holder, required to be given by the Auction Agent.
2.8 Payment Default.
(a) After delivery by the Trustee to the Auction Agent of a notice
that a Payment Default shall have occurred, the Auction Agent shall, on the
Business Day following its receipt of the same, deliver a Notice of Payment
Default to the Broker-Dealers by telecopy or other similar means.
(b) The Auction Agent shall deliver a copy of any notice received by
it from the Trustee to the effect that a Payment Default has been cured to
the Broker-Dealers on the Business Day following its receipt of the same by
telecopy or other similar means.
2.9 Broker-Dealers.
(a) If the Auction Agent is provided with a copy of a Broker-Dealer
Agreement, which has been manually signed, with any person listed on
Exhibit A hereto to which the Trustee, at the direction of an Authorized
Issuer Officer, shall have consented, it shall enter into such Broker-
Dealer Agreement with such person. The Issuer hereby directs the Trustee
to consent to Smith Barney Inc. as the sole initial Broker-Dealer.
(b) The Auction Agent may, at the written direction of an Authorized
Issuer Officer, and with the approval of Smith Barney Inc., so long as
Smith Barney Inc. is acting as a Broker-Dealer, enter into a Broker-Dealer
Agreement with any other person who requests to be selected to act as a
Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein at the direction of an Authorized Issuer Officer.
2.10 Access to and Maintenance of Auction Records. The Auction Agent
shall afford to the Trustee, the Issuer and their respective agents, independent
public accountants and counsel access, at reasonable times during normal
business hours, to review and make extracts or copies (at no cost to the Auction
Agent) of all books, records, documents and other information concerning the
conduct and results of Auctions, provided that any such agent, accountant or
counsel shall furnish the Auction Agent with a letter from the Trustee or the
Issuer requesting that the Auction Agent afford such person access. The Auction
Agent shall maintain records relating to any Auction for a period of two years
after such
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Auction (or for such longer period requested by the Trustee or the Issuer, not
to exceed four years after each Auction), and such records shall, in reasonable
detail, accurately and fairly reflect the actions taken by the Auction Agent
hereunder. At the end of such period, the Auction Agent shall deliver such
records to the Trustee. The Trustee and the Issuer agree to keep any
information regarding the conduct and results of the Auctions, including,
without limitation, information regarding customers of any Broker-Dealer,
received from the Auction Agent in connection with this Auction Agent Agreement
confidential and shall not disclose such information or permit the disclosure of
such information without the prior written consent of the applicable Broker-
Dealer to anyone except such agent, accountant or counsel engaged to audit or
review the results of Auctions as permitted by this Section 2.10. Any such
agent, accountant or counsel, before having access to such information, shall
agree to keep such information confidential and not to disclose such information
or permit disclosure of such information without the prior written consent of
the applicable Broker-Dealer, except as may otherwise be required by law.
Section 3. Term of Agreement.
(a) This Auction Agent Agreement shall terminate on the earlier to
occur of (i) the satisfaction and discharge of the First Supplemental
Indenture with respect to the Tax Exempt Auction Rate Series 1997-1 Notes
or this Auction Agent Agreement and (ii) the date on which this Auction
Agent Agreement is terminated in accordance with this Section 3. The
Trustee may terminate this Auction Agent Agreement in accordance with
Section 8(a) of the First Supplemental Indenture. The Auction Agent may
terminate this Auction Agent Agreement upon written notice to the Trustee,
the Issuer and the Market Agent on the date specified in such notice, which
date shall be no earlier than 90 days after the date of delivery of such
notice. Notwithstanding the foregoing, the provisions of Section 2 hereof
shall terminate upon the delivery of certificates representing Tax Exempt
Auction Rate Series 1997-1 Notes pursuant to Section 17 of the First
Supplemental Indenture. Notwithstanding the foregoing, the Auction Agent
may terminate this Agreement without further notice if, within 25 days
after notifying in writing the Trustee, the Issuer and the Market Agent
that it has not received payment of any Auction Agent Fee due it in
accordance with the terms hereof, the Auction Agent does not receive such
payment. Any resignation of the Auction Agent or termination of this
Auction Agent Agreement, other than as described in the preceding sentence
of this paragraph, shall not become effective until a successor Auction
Agent has been appointed and acceptance of such appointment by such
successor Auction Agent. The Issuer and the Trustee agree to diligently
proceed to appoint a successor Auction Agent. However, if a successor
Auction Agent shall not have been appointed within 60 days from the date of
such notice of resignation, the resigning Auction
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Agent may petition any court of competent jurisdiction for the appointment
of a successor Auction Agent.
(b) Except as otherwise provided in this Section 3(b), the respective
rights and duties of the Trustee, the Issuer and the Auction Agent under
this Auction Agent Agreement shall cease upon termination of this Auction
Agent Agreement. The Trustee's representations and warranties to the
Auction Agent under Section 5 hereof, and the Issuer's obligations to the
Auction Agent under Section 6.4 hereof and to the Broker-Dealers under
Section 6.5 hereof, shall survive the termination of this Auction Agent
Agreement subject to Section 4 hereof. Upon termination of this Auction
Agent Agreement, the Auction Agent shall, upon request, promptly deliver to
the Trustee copies of all books and records maintained by it with respect
to Tax Exempt Auction Rate Series 1997-1 Notes in connection with its
duties hereunder.
Section 4. Trustee. All privileges, rights and immunities given to
the Trustee in the First Supplemental Indenture are hereby extended to and
applicable to the Trustee's obligations hereunder.
Section 5. Representations and Warranties of the Trustee.
The Trustee hereby represents and warrants to the Auction Agent and
the Issuer as follows:
5.1 The Trustee (i) has been duly incorporated and is validly
existing and in good standing as a national banking association under the laws
of the United States, and (ii) has all necessary authority, approvals, consents
(whether from the Issuer or otherwise) to enter into and perform its obligations
under this Auction Agent Agreement. This Auction Agent Agreement has been duly
and validly authorized, executed and delivered by the Trustee and constitutes
the legal, valid, binding and enforceable obligation of the Trustee.
5.2 Neither the execution, delivery and performance of this Auction
Agent Agreement, the consummation of the transactions contemplated hereby nor
the fulfillment of or compliance with the terms and conditions of this Auction
Agent Agreement will conflict with, violate or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, any law or
regulation, any order or decree of any court or public authority having
jurisdiction over the Trustee, or any mortgage, indenture, contract, agreement
or undertaking to which the Trustee is a party or by which it is bound, or the
organizational documents pursuant to which the Trustee has been created and
under which it is operating.
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5.3 All approvals, consents and orders of any governmental authority,
legislative body, board, agency or commission having jurisdiction over the
Trustee which would constitute a condition precedent to or the absence of which
would materially adversely affect the due performance by the Trustee of its
obligations under this Auction Agent Agreement have been obtained.
Section 6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent of the Issuer and
owes no fiduciary duties to any person (other than the Issuer) by reason of
this Auction Agent Agreement. The Auction Agent undertakes to perform such
duties and only such duties as are specifically set forth in this Auction
Agent Agreement, and no implied covenants or obligations shall be read into
this Auction Agent Agreement by means of the provisions of the First
Supplemental Indenture or otherwise against the Auction Agent.
(b) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted
or for any error of judgment made by it in the performance of its duties
under this Auction Agent Agreement. The Auction Agent shall not be liable
for any error of judgment made in good faith unless the Auction Agent shall
have been negligent in ascertaining the pertinent facts.
(c) The Auction Agent shall not agree to any amendment to a Broker-
Dealer Agreement without the prior written consent of the Issuer, which
consent shall not be unreasonably withheld.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized hereby and upon
any written instruction, notice, request, direction, consent, report,
certificate, form of bond certificate or other instrument, paper or
document believed by it to be genuine. The Auction Agent shall not be
liable for acting upon any telephone communication authorized hereby which
the Auction Agent believes in good faith to have been given by the Trustee
or by a Broker-Dealer. The Auction Agent may record telephone
communications with the Trustee or with Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice, and the
advice of such counsel shall be full and complete authorization and
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protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed by it with due care hereunder.
6.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the correctness of the recitals in this Auction Agent
Agreement or the Broker-Dealer Agreement or the validity or adequacy of the Tax
Exempt Auction Rate Series 1997-1 Notes.
6.4 Compensation, Remedies and Indemnification.
(a) With respect to each series of Tax Exempt Auction Rate Series
1997-1 Notes, not later than 12:00 noon, New York City time, on the first
Interest Payment Date relating to such series, the Issuer, pursuant to
Section 5(b) of the First Supplemental Indenture, shall pay in arrears to
the Auction Agent, solely from moneys available therefor in the
Administration Fund, an amount in cash equal to the product of (i) the
Auction Agent Fee Rate times (ii) a fraction, the numerator of which is the
number of days from the Closing Date to such Interest Payment Date (or, if
such series of Tax Exempt Auction Rate Series 1997-1 Notes ceased to be
outstanding prior to such Interest Payment Date, the date on which such
series ceased to be outstanding) and the denominator of which is 360, times
(iii) the aggregate principal amount of Tax Exempt Auction Rate Series
1997-1 Notes of such series on the date of original issuance of the Series
1997-1 Notes.
(b) With respect to each series of Tax Exempt Auction Rate Series
1997-1 Notes any of which were outstanding at any time during the related
period, not later than 12:00 noon, New York City time, on each Interest
Payment Date thereafter relating to such series, the Issuer, pursuant to
Section 5(b) of the First Supplemental Indenture, shall pay in arrears to
the Auction Agent, solely from moneys available therefor in the
Administration Fund, an amount in cash equal to the product of (i) the
Auction Agent Fee Rate times (ii) a fraction, the numerator of which is the
number of days from the preceding Interest Payment Date to the current
Interest Payment Date (or, if such series of Tax Exempt Auction Rate Series
1997-1 Notes ceased to be outstanding prior to such current Interest
Payment Date, the date on which such series ceased to be outstanding) and
the denominator of which is 360, times (iii) the average principal amount
of Tax Exempt Auction Rate Series 1997-1 Notes of such series outstanding
during the period between such preceding Interest Payment Date (or the
Closing Date, in the case of the first Interest Payment Date) and the
current Interest Payment Date (or, if such series of Tax Exempt Auction
Rate Series 1997-1 Notes ceased to be outstanding prior to such current
Interest Payment Date, the date on which
-16-
<PAGE>
such series ceased to be outstanding) (together with the fee described in
Section 6.4(a), the "Auction Agent Fee"). The Auction Agent Fee Rate may be
adjusted from time to time with the approval of an Authorized Issuer
Officer upon a written request of the Auction Agent delivered to the
Trustee and the Issuer. The Initial Auction Agent Fee Rate shall be .025%.
Any change in the Auction Agent Fee Rate shall be effective on the Auction
Date next succeeding such change.
(c) The Issuer shall reimburse the Auction Agent, upon its request,
for all reasonable expenses, disbursements and advances, if any, incurred
or made by the Auction Agent in accordance with any provision of this
Auction Agent Agreement or the Broker-Dealer Agreements (including the
reasonable compensation, expenses and disbursements of its agents and
counsel) from amounts available therefor in the Administration Fund. The
Issuer shall indemnify and hold harmless the Auction Agent for and against
any loss, liability or expense incurred without negligence or bad faith on
the Auction Agent's part, arising out of or in connection with the
acceptance or administration of its agency under this Auction Agent
Agreement and the Broker-Dealer Agreements, including the reasonable costs
and expenses (including the reasonable fees and expenses of its counsel) of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder and
of enforcing this indemnification provision; provided that the Issuer shall
not indemnify the Auction Agent pursuant to this Section 6.4(c) for any
fees and expenses incurred by the Auction Agent in the normal course of
performing its duties hereunder and under the Broker-Dealer Agreements,
such fees and expenses being payable as provided in Section 6.4(a) and (b)
above.
6.5 Compensation of the Broker-Dealers.
(a) With respect to each series of Tax Exempt Auction Rate Series
1997-1 Notes, not later than 12:00 noon, New York City time, on each
Interest Payment Date relating to such series, the Issuer, pursuant to
Section 5(b) of the First Supplemental Indenture, shall pay to the Auction
Agent, solely from moneys available therefor in the Administration Fund, an
amount in cash equal to the product of (i) the Broker-Dealer Fee Rate times
(ii) a fraction, the numerator of which is the number of days from the
preceding Interest
-17-
<PAGE>
Payment Date (or from the Closing Date, in the case of the first Interest
Payment Date) to the current Interest Payment Date (or, if such series of
Tax Exempt Auction Rate Series 1997-1 Notes ceased to be outstanding prior
to such current Interest Payment Date, the date on which such series ceased
to be outstanding) and the denominator of which is 360, times (iii) the
average principal amount of Tax Exempt Auction Rate Series 1997-1 Notes of
such series outstanding during the period between such preceding Interest
Payment Date (or the Closing Date, in the case of the first Interest
Payment Date) and the current Interest Payment Date (or, if such series of
Tax Exempt Auction Rate Series 1997-1 Notes ceased to be outstanding prior
to such current Interest Payment Date, the date on which such series ceased
to be outstanding) (the "Broker-Dealer Fee"). The Auction Agent shall
advise the Issuer of the amount referred to in the preceding sentence not
later than 4:00 p.m., New York City time, at least two Business Days
preceding such Interest Payment Date. The Auction Agent shall apply such
monies as set forth in Section 2.5 of the Broker-Dealer Agreements.
(b) After retaining an amount equal to the Auction Agent Fee as
provided in Section 6.4 above, the Auction Agent shall pay the Broker-
Dealer Fee as provided in Section 6.5(a) above solely out of amounts
received by the Auction Agent pursuant to Section 5(b) of the First
Supplemental Indenture. The Auction Agent shall advise the Issuer at least
annually, at the request of an Authorized Issuer Officer, of the prevailing
rate. The Broker-Dealer Fee Rate may be adjusted from time to time with
the approval of an Authorized Issuer Officer upon a written request of the
Auction Agent or Smith Barney Inc., as the initial Broker-Dealer, delivered
to the Trustee and the Issuer. The initial Broker-Dealer Fee Rate shall be
.25% per annum. If the Broker-Dealer Fee Rate is changed pursuant to the
terms hereof, the Trustee shall notify the Auction Agent thereof. Any
changes in the Broker-Dealer Fee Rate shall be effective on the Auction
Date next succeeding such change.
Section 7. Miscellaneous.
7.1 Governing Law. This Auction Agent Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in such state, it being understood that
the corporate powers and legal capacity of the Issuer shall be construed and
interpreted in accordance with the laws of the State of South Dakota.
7.2 Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Auction Agent Agreement or the Auction
Procedures and (ii) communications in connection with Auctions (other than those
expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing)
-18-
<PAGE>
and shall be given to such party addressed to it at its address, or facsimile
number set below:
If to the Trustee,
addressed: First Bank National Association
141 North Main Avenue
Sioux Falls, South Dakota 57104
Attn: Corporate Trust Department
Telephone: (605) 339-8725
Facsimile: (605) 333-3813
If to the Issuer,
addressed: Education Loans Incorporated
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attn: President
Telephone: (605) 622-4590
Facsimile: (605) 622-4574
If to the Auction Agent,
addressed: Bankers Trust Company
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Attn: Auction Rate Securities
Telephone: (212) 250-6850
Facsimile: (212) 250-6215
If to the Market Agent,
addressed: Smith Barney Inc.
390 Greenwich Street
2nd Floor
New York, New York 10013
Attn: Public Finance
Division
Telephone: (212) 723-5564
Facsimile: (212) 723-8939
or such other address, telephone or facsimile number as such party may hereafter
specify for such purpose by notice in writing to the other parties. Each such
notice, request or communication shall be effective when delivered at the
address specified herein. Communications shall be given on behalf of the
Trustee by an Authorized Trustee Representative, on behalf of the Auction Agent
by an Authorized Auction Agent Officer and on behalf of the Issuer by an
Authorized Issuer Officer.
-19-
<PAGE>
7.3 Entire Agreement. This Auction Agent Agreement contains the
entire agreement between the parties relating to the subject matter hereof, and
there are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof.
7.4 Benefits. Nothing herein, express or implied, shall give to any
person, other than the Trustee, acting on behalf of the beneficial owners of the
Tax Exempt Auction Rate Series 1997-1 Notes, the Auction Agent, the Issuer and
their respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Auction Agent Agreement shall not be deemed or construed to
be modified, amended, rescinded, canceled or waived, in whole or in part,
except by a written instrument signed by duly authorized representatives of
the parties hereto.
(b) The Trustee and the Issuer shall not enter into or approve any
amendment of or supplement to the First Supplemental Indenture which
materially affects the Auction Agent's duties or obligations under the
First Supplemental Indenture without obtaining the prior written consent of
the Auction Agent. The Trustee shall promptly notify the Auction Agent of
any amendment of or supplement to the First Supplemental Indenture, and
shall provide a copy thereof to the Auction Agent upon request.
(c) Failure of a party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by any other party shall not
constitute a waiver of any such right or remedy with respect to any
subsequent breach.
7.6 Successors and Assigns. This Auction Agent Agreement shall be
binding upon, inure to the benefit of and be enforceable by the respective
successors and assigns of each of the Trustee, the Issuer (including, without
limitation, EdLinc upon the Section 150(d)(3) Transfer) and the Auction Agent.
Except as to the Section 150(d)(3) Transfer and the associated assignment of the
Issuer's rights hereunder to, and assumption of the Issuer's obligations
hereunder by, EdLinc (consent to which assignment and assumption by the Trustee
and Auction Agent are hereby acknowledged), this Auction Agent Agreement may not
be assigned by any party hereto absent the prior written consent of the other
parties hereto, which consents shall not be unreasonably withheld.
7.7 Severability. If any clause, provision or section hereof shall
be ruled invalid or unenforceable by any court of competent jurisdiction, the
invalidity
-20-
<PAGE>
or unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts. This Auction Agent Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Auction Agent
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the date first above written.
EDUCATION LOANS INCORPORATED,
as Issuer
By: _______________________
Title: President
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By: _______________________
Title: Trust Officer
BANKERS TRUST COMPANY, as
Auction Agent
By: _______________________
Title: _____________________
-22-
<PAGE>
EXHIBIT A
TO AUCTION AGENT AGREEMENT
--------------------------
LIST OF INITIAL BROKER-DEALERS
------------------------------
Smith Barney Inc.
A-1
<PAGE>
EXHIBIT B
TO AUCTION AGENT AGREEMENT
--------------------------
BROKER-DEALER AGREEMENT
-----------------------
B-1
<PAGE>
EXHIBIT C
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF CONTINUATION OF PERCENTAGE USED IN DETERMINING
[MAXIMUM AUCTION RATE] [ALL HOLD RATE] [NON-PAYMENT RATE]
---------------------------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A[B][C][D][E]
NOTICE IS HEREBY GIVEN that a condition for the establishment of a
change in the percentage used in determining the [Maximum Auction Rate] [All
Hold Rate] [Non-Payment Rate] for the captioned Tax Exempt Auction Rate Series
1997-1 Notes has not been met. The existing such percentage will continue to be
used in all such determinations.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By: _______________________
Title: ___________________
Date: ____________________
C-1
<PAGE>
EXHIBIT D
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF TAX EXEMPT AUCTION RATE SERIES 1997-1 NOTES
OUTSTANDING
-----------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A[B][C][D][E]
NOTICE IS HEREBY GIVEN that $________ aggregate principal amount of
Series 1997-1A[B][C][D][E] Notes were outstanding at the close of business on
the immediately preceding Regular Record Date. Such aggregate principal amount
of Series 1997-1A[B][C][D][E] Notes, less $_________ aggregate principal amount
of Series 1997-1A[B][C][D][E] Notes to be redeemed by the Issuer pursuant to the
First Supplemental Indenture, for a net aggregate principal amount of Series
1997-1A[B][C][D][E] Notes of $_______, will be available on the next Auction
scheduled to be held on _________________.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By:
--------------------------------
Title:
--------------------------
Date:
--------------------------
D-1
<PAGE>
EXHIBIT E
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF FEE RATE CHANGE
-------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A, B, C, D AND E
NOTICE IS HEREBY GIVEN that the [Auction Agent Fee Rate] [Broker-
Dealer Fee Rate] has been changed in accordance with Section [6.4(b)] [6.5(b)]
of the Auction Agent Agreement. The new [Auction Agent Fee Rate] [Broker-Dealer
Fee Rate] shall be ______% per annum.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
BANKERS TRUST COMPANY, as
Auction Agent
By: ________________________
Title: ___________________
Date: ____________________
APPROVED:
EDUCATION LOANS INCORPORATED
By: ________________________
Title: ___________________
Date: ____________________
E-1
<PAGE>
EXHIBIT F
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF A PAYMENT DEFAULT
---------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and not
been cured with respect to the Series 1997-1_____ Notes. Determination of the
Auction Rate Series 1997-1 Note Interest Rate on the Tax Exempt Auction Rate
Series 1997-1 Notes pursuant to the Auction Procedures will be suspended. The
Auction Rate Series 1997-1 Note Interest Rate on each series of the Tax Exempt
Auction Rate Series 1997-1 Notes for each Auction Period commencing after the
date of Payment Default will equal the Non-Payment Rate (as to each such series
with respect to which a Payment Default exists) or the Maximum Auction Rate (as
to all other series), as the case may be, as it is determined by the Trustee on
the first day of such Auction Period.
Terms used herein have the meanings set forth in the First
Supplemental Indenture relating to the above-referenced issue.
BANKERS TRUST COMPANY, as
Auction Agent
By: ________________________
Title: ___________________
Date: ____________________
F-1
<PAGE>
EXHIBIT G
TO AUCTION AGENT AGREEMENT
--------------------------
SETTLEMENT PROCEDURES
---------------------
If not otherwise defined below, capitalized terms used herein shall
have the meanings given such terms in the First Supplemental Indenture. These
Settlement Procedures apply separately to each series of Tax Exempt Auction Rate
Series 1997-1 Notes.
(a) Not later than (1) 3:00 p.m., if the Auction Rate Series 1997-1
Note Interest Rate is the Auction Rate, or (2) 4:00 p.m., if the Auction
Rate Series 1997-1 Note Interest Rate is the Maximum Auction Rate, on each
Auction Date, the Auction Agent shall notify by telephone each Broker-
Dealer that participated in the Auction held on such Auction Date and
submitted an Order on behalf of an Existing Holder or Potential Holder of:
(i) the Auction Rate Series 1997-1 Note Interest Rate fixed for
the next Interest Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Holder, whether
such Bid or Sell Order was accepted or rejected, in whole or in part,
and the principal amount of Tax Exempt Auction Rate Series 1997-1
Notes, if any, to be sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Holder, whether such Bid was accepted
or rejected, in whole or in part, and the principal amount of Tax
Exempt Auction Rate Series 1997-1 Notes, if any, to be purchased by
such Potential Holder;
(v) If the aggregate amount of Tax Exempt Auction Rate Series
1997-1 Notes to be sold by all Existing Holders on whose behalf such
Seller's Broker-Dealer submitted Bids or Sell Orders exceeds the
aggregate principal amount of Tax Exempt Auction Rate Series 1997-1
Notes to be purchased by all Potential Holders on whose behalf such
Buyer's Broker-Dealer submitted a Bid, the name or names of one or
more Buyer's Broker-Dealers (and the name of the Participant, if any,
of each such Buyer's Broker-Dealer) acting for one or more purchasers
of
G-1
<PAGE>
such excess principal amount of Tax Exempt Auction Rate Series 1997-1
Notes and the principal amount of Tax Exempt Auction Rate Series 1997-
1 Notes to be purchased from one or more Existing Holders on whose
behalf such Seller's Broker-Dealer acted by one or more Potential
Holders on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the principal amount of Tax Exempt Auction Rate Series
1997-1 Notes to be purchased by all Potential Holders on whose behalf
such Buyer's Broker-Dealer submitted a Bid exceeds the amount of Tax
Exempt Auction Rate Series 1997-1 Notes to be sold by all Existing
Holders on whose behalf such Seller's Broker-Dealer submitted a Bid or
a Sell Order, the name or names of one or more Seller's Broker-Dealers
(and the name of the Participant, if any, of each such Seller's
Broker-Dealer) acting for one or more sellers of such excess principal
amount of Tax Exempt Auction Rate Series 1997-1 Notes and the
principal amount of Tax Exempt Auction Rate Series 1997-1 Notes to be
sold to one or more Potential Holders on whose behalf such Buyer's
Broker-Dealer acted by one or more Existing Holders on whose behalf
each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder on whose
behalf such Broker-Dealer submitted a Bid or Sell Order in the Auction
on such Auction Date whether such Bid or Sell Order was accepted or
rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's Broker-
Dealer, advise each Potential Holder on whose behalf such Buyer's
Broker-Dealer submitted a Bid that was accepted, in whole or in part,
to instruct such Potential Holder's Participant to pay such Buyer's
Broker-Dealer (or its Participant) through the Securities Depository
the amount necessary to purchase the principal amount of Tax Exempt
Auction Rate Series 1997-1 Notes to be purchased pursuant to such Bid
(which amount, unless the date of such purchase is an Interest Payment
Date, will include an amount equal to the interest accrued and unpaid
on such principal amount of Tax Exempt Auction Rate Series 1997-1
Notes) against receipt of such Tax Exempt Auction Rate Series 1997-1
Notes;
G-2
<PAGE>
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Holder on whose behalf such Seller's
Broker-Dealer submitted a Sell Order that was accepted, in whole or in
part, or a Bid that was accepted, in whole or in part, to instruct
such Existing Holder's Participant to deliver to such Seller's Broker-
Dealer (or its Participant) through the Securities Depository the
principal amount of Tax Exempt Auction Rate Series 1997-1 Notes to be
sold pursuant to such Order against payment therefor;
(iv) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order and each Potential Holder on whose behalf
such Broker-Dealer submitted a Bid of the Auction Rate for the next
Interest Period;
(v) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Holder on whose behalf such Broker-
Dealer submitted a Bid that was accepted, in whole or in part, of the
next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order
in an Auction is required to allocate any funds received by it in
connection with such Auction pursuant to paragraph (b)(ii) above, and any
Tax Exempt Auction Rate Series 1997-1 Notes received by it in connection
with such Auction pursuant to paragraph (b)(iii) above among the Potential
Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the
Existing Holders, if any, on whose behalf such Broker-Dealer submitted Bids
or Sell Orders in such Auction, and any Broker-Dealers identified to it by
the Auction Agent following such Auction pursuant to paragraph (a)(v) or
(a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder with an Order in
the Auction on such Auction Date shall instruct its Participant as
provided in paragraph (b)(ii) or (b)(iii) above, as the case may be;
(ii) each Seller's Broker-Dealer that is not a Participant of the
Securities Depository shall instruct its Participant to deliver such
Tax Exempt Auction Rate Series 1997-1 Notes through the Securities
Depository to a Buyer's Broker-Dealer (or its Participant) identified
to
G-3
<PAGE>
such Seller's Broker-Dealer pursuant to paragraph (a)(v) above against
payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in the
Securities Depository shall instruct its Participant to pay through
the Securities Depository to Seller's Broker-Dealer (or its
Participant) identified following such Auction pursuant to (a)(vi)
above in the amount necessary to purchase Tax Exempt Auction Rate
Series 1997-1 Notes to be purchased pursuant to paragraph (b)(ii)
above against receipt of such Tax Exempt Auction Rate Series 1997-1
Notes.
(e) On the Business Date following each Auction Date:
(i) each Participant for a Bidder in the Auction on such Auction
Date referred to in paragraph (d)(i) above shall instruct the
Securities Depository to execute the transactions described under
paragraph (b)(ii) or (b)(iii) above for such Auction, and the
Securities Depository shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant shall
instruct the Securities Depository to execute the transactions
described in paragraph (d)(ii) above for such Auction, and the
Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant shall
instruct the Securities Depository to execute the transactions
described in paragraph (d)(iii) above for such Auction, and the
Securities Depository shall execute such transactions.
(f) If an Existing Holder selling Tax Exempt Auction Rate Series
1997-1 Notes in an Auction fails to deliver such Tax Exempt Auction Rate
Series 1997-1 Notes (by authorized book-entry), a Broker-Dealer may deliver
to the Potential Holder on behalf of which it submitted a Bid that was
accepted a principal amount of Tax Exempt Auction Rate Series 1997-1 Notes
that is less than the principal amount of Tax Exempt Auction Rate Series
1997-1 Notes that otherwise was to be purchased by such Potential Holder.
In such event, the principal amount of Tax Exempt Auction Rate Series 1997-
1 Notes to be so delivered shall be determined solely by such Broker-Dealer
(but only in Authorized Denominations). Delivery of such lesser principal
amount of Tax Exempt Auction Rate Series 1997-1 Notes shall constitute good
delivery. Notwithstanding the foregoing terms of this paragraph (f), any
delivery or nondelivery of Tax Exempt Auction Rate Series 1997-1 Notes
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall
G-4
<PAGE>
have been notified of such delivery or nondelivery in accordance with the
provisions of the Auction Agent Agreement and the Broker-Dealer Agreements.
Neither the Trustee nor the Auction Agent will have any responsibility or
liability with respect to the failure of a Potential Holder, Existing
Holder or their respective Broker-Dealer or Participant to take delivery of
or deliver, as the case may be, the principal amount of Tax Exempt Auction
Rate Series 1997-1 Notes purchased or sold pursuant to an Auction or
otherwise.
G-5
<PAGE>
EXHIBIT H
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF CONTINUATION OF AUCTION PERIOD
----------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A[B][C][D][E]
NOTICE IS HEREBY GIVEN that a condition for the establishment of a
change in the length of one or more Auction Periods for the captioned Tax Exempt
Auction Rate Series 1997-1 Notes has not been met. An Auction will therefor be
held on the next Auction Date (___________________) and the length of such
Auction Period shall remain an Auction Period of _______ days.
BANKERS TRUST COMPANY, as
Auction Agent
By: _______________________
Title: ___________________
Date: ____________________
H-1
<PAGE>
EXHIBIT I
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF AUCTION RATE SERIES 1997-1 NOTE INTEREST RATE
-------------------------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A[B][C][D][E]
NOTICE IS HEREBY GIVEN that [the Corporation Certificate and the
Trustee written statements, if any,] [Sufficient Bids] necessary for the
establishment of a change in the length of one or more Auction Periods for the
captioned Tax Exempt Auction Rate Series 1997-1 Notes have not been provided.
The Auction Rate Series 1997-1 Note Interest Rate for the Auction Period
commencing on ______________ shall be the Maximum Auction Rate and such Auction
Period shall remain an Auction Period of _____ days.
BANKERS TRUST COMPANY, as
Auction Agent
By: ________________________
Title: ___________________
Date: ____________________
I-1
<PAGE>
EXHIBIT J
TO AUCTION AGENT AGREEMENT
--------------------------
NOTICE OF RATINGS
-----------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN
ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A, B, C, D AND E
NOTICE IS HEREBY GIVEN to the Auction Agent by the Issuer pursuant to
Section 2.3(a) of the Auction Agent Agreement that:
1. as of the date of this notice the rating by Moody's on the
captioned Tax Exempt Auction Rate Series 1997-1 Notes is ______;
and
2. as of the date of this notice the rating by Fitch on the
captioned Tax Exempt Auction Rate Series 1997-1 Notes is _____.
The Auction Agent may rely on such ratings for all purposes of the
First Supplemental Indenture, including determination of the Maximum Auction
Rate, the All Hold Rate and the Non-Payment Rate thereunder, from the date
hereof until further notice from the undersigned Education Loans Incorporated.
EDUCATION LOANS INCORPORATED
By:
------------------------
Title:
-----------------
Date:
------------------
J-1
<PAGE>
Exhibit 4.5
BROKER-DEALER AGREEMENT
(TAXABLE AUCTION RATE SERIES 1997-1 NOTES)
between
BANKERS TRUST COMPANY,
as Auction Agent
and
SMITH BARNEY INC.,
as Broker-Dealer
Dated as of July 1, 1997
Relating to
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1G AND 1997-1H
<PAGE>
BROKER-DEALER AGREEMENT
This BROKER-DEALER AGREEMENT (TAXABLE AUCTION RATE SERIES 1997-1 NOTES)
(the "Broker Dealer Agreement"), dated as of July 1, 1997, is by and between
Bankers Trust Company, a New York banking corporation (together with its
successors and assigns, the "Auction Agent"), pursuant to authority granted to
it in the Auction Agent Agreement, defined below, acting not in its individual
capacity, but solely as agent for Education Loans Incorporated (the
"Corporation"), a South Dakota corporation and SMITH BARNEY INC. (together with
its respective successors and assigns, the "Broker-Dealer").
RECITALS
The Corporation proposes to cause the Trustee, defined below, to
authenticate and deliver $107,500,000 aggregate principal amount of its Taxable
Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series 1997-1G
(the "Series 1997-1G Notes") and its Taxable Auction Rate Student Loan Asset-
Backed Callable Notes, Senior Series 1997-1H (the "Series 1997-1H Notes", and
together with the Series 1997-1G Notes, the "Taxable Auction Rate Series 1997-1
Notes"). The Taxable Auction Rate Series 1997-1 Notes are being issued under the
First Supplemental Indenture of Trust, dated as of July 1, 1997 (the "First
Supplemental Indenture"), executed in accordance with the Indenture of Trust,
dated as of July 1, 1997 (the "Indenture"), each between the Corporation and
First Bank National Association, Minneapolis, Minnesota (together with its
successors and assigns, the "Trustee"). The Taxable Auction Rate Series 1997-1
Notes are being issued as adjustable rate securities.
The First Supplemental Indenture provides that the Auction Rate Series
1997-1 Note Interest Rate for each Interest Period after the Initial Interest
Period shall equal the lesser of the Net Loan Rate and the Auction Rate, but in
no event shall exceed 18% per annum with respect to the Taxable Auction Rate
Series 1997-1 Notes.
Pursuant to Section 2.9 (a) of the Auction Agent Agreement (Taxable Auction
Rate Series 1997-1 Notes), dated as of July 1, 1997, among the Trustee, the
Auction Agent and the Corporation (the "Auction Agent Agreement"), the Trustee
has directed the Auction Agent to execute and deliver this Broker-Dealer
Agreement.
The Auction Procedures require the participation of one or more Broker-
Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the
<PAGE>
Auction Agent, as agent of the Corporation, and the Broker-Dealer agree as
follows:
Section 1. Definitions and Rules of Construction
1.1. Terms Defined by Reference to the First Supplemental Indenture.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given such terms in the First Supplemental Indenture.
1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures, defined below, the following terms shall have the following
meanings, unless the context otherwise requires:
"Applicable Auction Rate Series 1997-1 Note Interest Rate" shall mean the
Auction Rate Series 1997-1 Note Interest Rate as defined in the First
Supplemental Indenture.
"Authorized Officer" shall mean, with respect to the Auction Agent, each
Managing Director, Vice President, Assistant Vice President and Assistant
Treasurer and every other officer of the Auction Agent assigned to its Corporate
Trust and Agency Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to the Broker-Dealer.
"Broker-Dealer Officer" shall mean each officer or employee of the Broker-
Dealer designated as a "Broker-Dealer Officer" for purposes of this Broker-
Dealer Agreement in a communication to the Auction Agent.
"Beneficial Owner" shall mean a beneficial owner of any of the Taxable
Auction Rate Series 1997-1 Notes.
"Notice of Failure to Deliver or Make Payment" shall mean a notice
substantially in the form of Exhibit D hereto.
"Notice of Transfer" shall mean a notice substantially in the form of
Exhibit C hereto.
"Order Form" shall mean the form to be submitted by any Broker-Dealer on or
prior to any Auction Date substantially in the form of Exhibit B hereto.
"Settlement Procedures" shall mean the Settlement Procedures attached
hereto as Exhibit A.
1.3. Rules of Construction. Unless the context or use indicate another or
different meaning or intent, the following rules shall apply to the construction
of this Agreement;
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<PAGE>
(a) Words importing the singular number shall include the plural number and
vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement nor, shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Broker-Dealer Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York
City time.
(e) The rights and duties of the Broker-Dealer and the Auction Agent under
this Broker-Dealer Agreement shall apply to all series of the Taxable Auction
Rate Series 1997-1 Notes, but separately. References to "Taxable Auction Rate
Series 1997-1 Notes," unless the context clearly contemplates a reference to all
Taxable Auction Rate Series 1997-1 Notes shall refer only to the Series 1997-1G
Notes as to rights and duties regarding Series 1997-1G Notes; and only to the
Series 1997-1H Notes as to rights and duties regarding Series 1997-1H Notes.
Section 2. The Auction
2.1. Incorporation by Reference of Auction Procedures and Settlement
Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures will be
followed by the Auction Agent for the purpose of determining the Applicable
Auction Rate Series 1997-1 Note Interest Rate for each Auction Period after the
Initial Interest Period. Each periodic operation of such procedures is
hereinafter referred to as an "Auction".
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part of this Broker-Dealer Agreement to the same extent
as if such provisions were fully set forth herein.
(c) The Broker-Dealer and other Broker-Dealers may participate in Auctions
for their own accounts.
2.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the Taxable Auction
Rate Series 1997-1 Notes, the Auction Agent shall advise the Broker-Dealer by
telephone of the All Hold Rate,
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<PAGE>
the Maximum Auction Rate, the Net Loan Rate and the One-month LIBOR or the
Three-month LIBOR, as the case may be.
(b) If the Auction Date for any Auction shall be changed after the Auction
Agent has given notice of such Auction Date pursuant to clause (vii) of
paragraph (a) of the Settlement Procedures, the Auction Agent, by telephone
(confirmed in writing), telecopy or such other means as the Auction Agent deems
practicable, shall give notice of such change to the Broker-Dealer not later
than the earlier of 9:15 A.M. on the new Auction Date and 9:15 A.M. on the old
Auction Date. Thereafter, the Broker-Dealer shall use its best efforts to
promptly notify its customers who are Existing Holders of such change in the
Auction Date.
(c) From time to time upon request of the Auction Agent pursuant to Section
2.2(d) of the Auction Agent Agreement, the Broker-Dealer shall provide the
Auction Agent with a statement of the aggregate amount of each series of Taxable
Auction Rate Series 1997-1 Notes held by the Broker-Dealer as an Existing Holder
for its own account or otherwise, as well as with a list of the Broker-Dealer's
customers that the Broker-Dealer believes are Existing Holders of either series
of the Taxable Auction Rate Series 1997-1 Notes (listed by series) and the
aggregate principal amount of each series of Taxable Auction Rate Series 1997-1
Notes beneficially owned by each such customer. Except as permitted by Section
2.10 of the Auction Agent Agreement, the Auction Agent shall keep confidential
any such information and shall not disclose any such information so provided to
any person other than the Broker-Dealer, the Issuer and the Trustee, provided
that the Auction Agent reserves the right to disclose any such information if it
is advised by its counsel that its failure to do so would be unlawful.
(d) The Auction Agent shall send by telecopy or other means a copy of any
Notice of Taxable Auction Rate Series 1997-1 Notes Outstanding received from the
Trustee to the Broker-Dealer in accordance with Section 4.3 hereof.
2.3. Auction Schedule: Method of Submission of Orders.
(a) The Auction Agent shall conduct Auctions for the Taxable Auction Rate
Series 1997-1 Notes in accordance with the schedule set forth below. Such
schedule may be changed by the Auction Agent with the consent of the Trustee and
the Market Agent, which consent shall not be unreasonably withheld or delayed.
The Auction Agent shall give written notice of any such change to the Broker-
Dealer. Such notice shall be given prior to the close of business on the
Business Day next preceding the first Auction Date on which any such change
shall be effective.
By 9:30 A.M. The Auction Agent advises the Trustee and the Broker-Dealers
of the Maximum Auction Rate, the All Hold Rate, the Net Loan
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<PAGE>
Rate and the One-month LIBOR or the Three-month LIBOR, as
the case may be, to be used in determining the Auction Rate
under the Auction Procedures, the First Supplemental
Indenture and the Auction Agent Agreement.
9:30 A.M.- The Auction Agent assembles information communicated to it
12:30 P.M. by Broker-Dealers as provided in Section 4(c)(i) of the
First Supplemental Indenture. The Submission Deadline is
12:30 P.M.
Not earlier The Auction Agent makes determinations pursuant to Section
than 4(c)(i) of the First Supplemental Indenture. Submitted Bids
12:30 P.M. and Submitted Sell Orders are accepted and rejected in whole
or in part and Taxable Auction Rate Series 1997-1 Notes
allocated as provided in Section 4(d) of the First
Supplemental Indenture.
By The Auction Agent advises the Trustee and the Broker-Dealers
approximately of the results of the Auction as provided in Section
3:00 P.M.* 4(c) (ii) of the First Supplemental Indenture. The Auction
4:00 P.M.** Agent gives notice of Auction results as set forth in
Section 2.4(a) hereof.
* If the Auction Rate Series 1997-1 Note Interest Rate is the Auction Rate.
** If the Auction Rate Series 1997-1 Note Interest Rate is the Net Loan Rate.
(b) The Broker-Dealer agrees to maintain a list of Potential Holders and to
contact the Potential Holders on such list on or prior to each Auction Date for
the purposes of participating in the Auction on such Auction Date.
(c) The Broker-Dealer shall submit Orders to the Auction Agent in writing
by delivering an Order Form. The Broker-Dealer shall submit separate Orders to
the Auction Agent for each Potential Holder or Existing Holder on whose behalf
the Broker-Dealer is submitting an Order and shall not net or aggregate the
Orders of different Potential Holders or Existing Holders on whose behalf the
Broker-Dealer is submitting Orders.
(d) The Broker-Dealer shall deliver to the Auction Agent (i) a Notice of
Transfer with respect to any transfer of Taxable Auction Rate Series 1997-1
Notes made through the Broker-Dealer by an Existing Holder to another person
other than pursuant to an
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<PAGE>
Auction, and (ii) a Notice of Failure to Deliver or Make Payment with respect to
the failure of any Auction Rate Series 1997-1 Note Interest Rate to be
transferred to or payment to be made by any person that purchased or sold
Taxable Auction Rate Series 1997-1 Notes through the Broker-Dealer pursuant to a
prior Auction. The Auction Agent is not required to accept any notice delivered
pursuant to clauses (i) or (ii) of this subparagraph (d) with respect to an
Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business
Day next preceding such Auction Date.
(e) The Broker-Dealer agrees to handle its customers' Orders in accordance
with its duties under applicable securities laws and rules.
2.4. Notices.
(a) On each Auction Date, the Auction Agent shall notify the Broker-Dealer
by telephone of the results of the Auction as set forth in paragraph (a) of the
Settlement Procedures. The Auction Agent shall by 10:30 A.M. on the Business Day
next succeeding such Auction Date if previously requested by the Broker-Dealer
notify the Broker-Dealer in writing of the disposition of all Orders submitted
by the Broker-Dealer in the Auction held on such Auction Date.
(b) The Broker-Dealer shall notify each Existing Holder or Potential Holder
on whose behalf the Broker-Dealer has submitted an Order as set forth in
paragraph (b) of the Settlement Procedures and take such other action as is
required by the Broker-Dealer pursuant to the Settlement Procedures.
(c) The Auction Agent shall deliver to the Broker-Dealer all notices and
certificates that the Auction Agent is required to deliver to the Broker-Dealer
pursuant to Section 2 of the Auction Agent Agreement at the times and in the
manner set forth in the Auction Agent Agreement.
2.5. Service Charge to Be Paid to the Broker-Dealer. Not later than 2:00
P.M. on each Interest Payment Date with respect to each Interest Period that
immediately follows an Auction Date, the Auction Agent shall pay to the Broker-
Dealer a fee, from monies received from the Trustee, in an amount equal to the
product of (i) the Broker-Dealer Fee Rate times (ii) a fraction, the numerator
of which is the number of days in the Interest Period related to the Auction by
which the Applicable Auction Rate Series 1997-1 Note Interest Rate was
determined and the denominator of which is 360 times (iii) the sum of (A) the
aggregate principal amount of Taxable Auction Rate Series 1997-1 Notes placed by
the Broker-Dealer in such Auction that were (x) the subject of Submitted Bids of
Existing Holders submitted by the Broker-Dealer and continued to be held as a
result of such submission and (y) the subject of Submitted Bids of Potential
Holders submitted by the Broker-Dealer
-6-
<PAGE>
and purchased as a result of such submission, plus (B) the aggregate principal
amount of Taxable Auction Rate Series 1997-1 Notes subject to valid Hold Orders
submitted to the Auction Agent by the Broker-Dealer plus (C) the aggregate
principal amount of Taxable Auction Rate Series 1997-1 Notes that were covered
by Hold Orders deemed to have been submitted by Existing Holders that were
acquired by such Existing Holders through the Broker-Dealer. For purposes of
subclause (iii) (C) above, if any Existing Holder who acquired Taxable Auction
Rate Series 1997-1 Notes through the Broker-Dealer transfers those Taxable
Auction Rate Series 1997-1 Notes to another person other than pursuant to an
Auction, then the Broker-Dealer shall continue to be the Broker-Dealer through
which the Taxable Auction Rate Series 1997-1 Notes so transferred were acquired;
provided, however, that if the transfer was effected by, or if the transferee is
a Broker-Dealer other than the Broker-Dealer, then such other Broker-Dealer
shall be the Broker-Dealer through which such Taxable Auction Rate Series 1997-1
Notes were acquired.
2.6. Settlement.
(a) If any Existing Holder on whose behalf the Broker-Dealer has submitted
a Bid or Sell Order for Taxable Auction Rate Series 1997-1 Notes that was
accepted in whole or in part fails to instruct its Participant to deliver the
Taxable Auction Rate Series 1997-1 Notes subject to such Bid or Sell Order
against payment therefor, the Broker-Dealer shall instruct such Participant to
deliver such Taxable Auction Rate Series 1997-1 Notes against payment therefor
and the Broker-Dealer may deliver to the Potential Holder on whose behalf the
Broker-Dealer submitted a Bid that was accepted in whole or in part, a principal
amount of the Taxable Auction Rate Series 1997-1 Notes that is less than the
principal amount of the Taxable Auction Rate Series 1997-1 Notes specified in
such Bid to be purchased by such Potential Holder. Notwithstanding the foregoing
terms of this Section, any delivery or nondelivery of Taxable Auction Rate
Series 1997-1 Notes that represents any departure from the results of an
Auction, as determined by the Auction Agent, shall be of no effect unless and
until the Auction Agent shall have been notified of such delivery or non-
delivery in accordance with the terms of Section 2.3(d) hereof. The Auction
Agent shall have no duty or liability with respect to enforcement of this
Section 2.6(a).
(b) Neither the Auction Agent, the Trustee, nor the Corporation shall have
any responsibility or liability with respect to the failure of an Existing
Holder, a Potential Holder or its respective Participant to deliver Taxable
Auction Rate Series 1997-1 Notes or to pay for Taxable Auction Rate Series 1997-
1 Notes sold or purchased pursuant to the Auction Procedures or otherwise. The
Auction Agent shall have no responsibility for any adjustment to the fees paid
pursuant to Section 2.5 hereof as a result of any failure described in this
Section 2.6(b).
-7-
<PAGE>
Section 3. The Auction Agent.
3.1. Duties and Responsibilities.
(a) The Auction Agent is acting hereunder solely as agent for the
Corporation and owes no fiduciary duties to any person by reason of this Broker-
Dealer Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Broker-Dealer Agreement, and no
implied covenants or obligations shall be read into this Broker-Dealer Agreement
against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under this Broker-
Dealer Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
3.2. Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized by this Broker-Dealer
Agreement and upon any written instruction, notice request, direction, consent
report, certificate, share certificate or other instrument, paper or document
reasonably believed by it to be genuine. The Auction Agent shall not be liable
for acting upon any telephone communication authorized by this Broker-Dealer
Agreement which the Auction Agent believes in good faith to have been given by
the Trustee, a Broker-Dealer or the Corporation. The Auction Agent may record
telephone communications with the Broker-Dealers.
(b) The Auction Agent may consult with counsel of its own choice, and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its
own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall not be
responsible for any willful misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.
-8-
<PAGE>
3.3. The Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the correctness of the recitals in this Broker-Dealer
Agreement, the Auction Agent Agreement or the validity or adequacy of the Series
1995-2 Notes.
Section 4. Miscellaneous.
4.1. Termination. Any party may terminate this Broker-Dealer Agreement at
any time upon five days' prior notice to the other party; provided, however,
that if the Broker-Dealer is Smith Barney Inc., neither the Broker-Dealer nor
the Auction Agent may terminate this Broker-Dealer Agreement without first
obtaining the prior written consent of the Trustee and the Corporation of such
termination, which consent shall not be unreasonably withheld or delayed. For so
long as the Auction Agent Agreement is effective and if Smith Barney Inc. is the
sole Broker-Dealer, any termination of this Broker-Dealer Agreement shall not be
effective unless and until a successor, or substitute Broker-Dealer Agreement
becomes effective. This Broker-Dealer Agreement shall automatically terminate
upon the delivery of certificates representing the Taxable Auction Rate Series
1997-1 Notes pursuant to Section 17 of the First Supplemental Indenture or upon
termination of the Auction Agent Agreement.
4.2. Participant. The Broker-Dealer is, and shall remain for the term of
this Broker-Dealer Agreement, a member of, or Participant in, the Depository (or
an affiliate of such a member or Participant).
4.3. Communications. Except for (i) communications authorized to be made
by telephone pursuant to this Broker-Dealer Agreement or the Auction Procedures
and (ii) communications in connection with the Auctions (other than those
expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, or its
address or facsimile number set forth below:
If to the Broker-Dealer,
addressed: SMITH BARNEY INC.
390 Greenwich Street
2nd Floor
New York, New York 10013
Attention: Public Finance Division
Telephone: (212) 723-5564
Facsimile: (212) 723-8939
-9-
<PAGE>
If to the Auction Agent,
addressed: BANKERS TRUST COMPANY
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telephone: (212) 250-6850
Facsimile: (212) 250-6215
If to the Trustee,
addressed: First Bank National Association
141 North Main Avenue
Sioux Falls, South Dakota 57117
Attention: Corporate Trust Department
Telephone: (605) 339-8725
Facsimile: (605) 335-3813
If to the Corporation,
addressed: Education Loans Incorporated
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attention: President
Telephone: (605) 622-4590
Facsimile: (605) 622-4547
or such other address or facsimile number as such party may hereafter specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Broker-Dealer by a Broker-Dealer
Officer and on behalf of the Auction Agent by an Authorized Officer of the
Auction Agent. The Broker-Dealer may record telephone communications with the
Auction Agent.
4.4. Entire Agreement. This Broker-Dealer Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are not other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof, except for the fee letter dated as of July 1, 1997, from
the Auction Agent to the Corporation.
4.5. Benefits. Nothing in this Broker-Dealer Agreement, express or
implied, shall give to any person, other than the Auction Agent, the
Corporation, the Broker-Dealer and their respective successors and assigns, any
benefit of any legal or equitable right, remedy or claim under this Broker-
Dealer Agreement.
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<PAGE>
4.6. Amendment; Waiver.
(a) This Broker-Dealer Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the parties
hereto. This Broker-Dealer Agreement may not be amended without first obtaining
the prior written consent of the Corporation.
(b) Failure of either party to this Broker-Dealer Agreement to exercise any
right or remedy hereunder in the event of a breach of this Broker-Dealer
Agreement by the other party shall not constitute a waiver of any such right or
remedy with respect to any subsequent breach.
4.7. Successors and Assigns. This Broker-Dealer Agreement shall be binding
upon, inure to the benefit of, and be enforceable by, the parties hereto and
their respective successors and assigns.
4.8. Severability. If any clause, provision or section of this Broker-
Dealer Agreement shall be ruled invalid or unenforceable by any court of
competent jurisdiction, the invalidity or unenforceability of such clause,
provision or section shall not affect any remaining clause, provision or
sections hereof.
4.9. Execution in Counterparts. This Broker-Dealer Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
4.10. Governing Law. This Broker-Dealer Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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<PAGE>
In Witness Whereof, the parties hereto have caused this Broker-Dealer
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
BANKERS TRUST COMPANY
as Auction Agent
By:
--------------------------------
Title:
-------------------------
SMITH BARNEY INC.,
as Broker-Dealer
By:
--------------------------------
Title:
-------------------------
Pursuant to and in accordance with Section 9
of the First Supplemental Indenture and
Section 2.9 of the Auction Agent Agreement
(defined above), the undersigned consents to
the execution of the above Broker-Dealer
Agreement.
First Bank National Association, as Trustee
By:
---------------------------------------
Title:
------------------------------------
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<PAGE>
EXHIBIT A TO BROKER-DEALER AGREEMENT
SETTLEMENT PROCEDURES
If not otherwise defined herein, capitalized terms used herein shall
have the meanings given such terms in Article 1 of the First Supplemental
Indenture. These Settlement Procedures shall apply separately for each series
of Taxable Auction Rate Series 1997-1 Notes.
(a) Not later than (1) 3:00 P.M., if the Auction Rate Series 1997-1
Note Interest Rate is the Auction Rate or (2) 4:00 p.m. if the Auction Rate
Series 1997-1 Note Interest Rate is the Net Loan Rate, on each Auction Date, the
Auction Agent shall notify by telephone each Broker-Dealer that participated in
the Auction held on such Auction Date and submitted an Order on behalf of an
Existing Holder or Potential Holder of:
(i) the Auction Rate Series 1997-1 Note Interest Rate fixed for
the next Interest Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer submitted Bids or Sell Orders on
behalf of an Existing Holder (a "Seller's Broker-Dealer"),
whether such Bid or Sell Order was accepted or rejected, in
whole or in part, and the principal amount of Taxable
Auction Rate Series 1997-1 Notes, if any, to be sold by such
Existing Holder;
(iv) if such Broker-Dealer submitted a Bid on behalf of a
Potential Holder (a "Buyer's Broker-Dealer"), whether such
Bid was accepted or rejected, in whole or in part, and the
principal amount of Taxable Auction Rate Series 1997-1
Notes, if any, to be purchased by such Potential Holder;
(v) if the aggregate amount of Taxable Auction Rate Series
1997-1 Notes to be sold by all Existing Holders on whose
behalf such Seller's Broker-Dealer submitted Bids or Sell
Orders exceeds the aggregate principal amount of Taxable
Auction Rate Series 1997-1 Notes to be purchased by all
Potential Holders on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's
Broker-Dealers (and the name of the Participant, if any, of
each such Buyer's Broker-Dealer)
A-1
<PAGE>
acting for one or more purchasers of such excess principal
amount of Taxable Auction Rate Series 1997-1 Notes and the
principal amount of Taxable Auction Rate Series 1997-1 Notes
to be purchased from one or more Existing Holders on whose
behalf such Seller's Broker-Dealer acted by one or more
Potential Holders on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the principal amount of Taxable Auction Rate Series
1997-1 Notes to be purchased by all Potential Holders on
whose behalf such Buyer's Broker-Dealer submitted a Bid
exceeds the amount of Taxable Auction Rate Series 1997-1
Notes to be sold by all Existing Holders on whose behalf
such Broker-Dealer submitted a Bid or a Sell Order, the name
or names of one or more Seller's Broker-Dealers (and the
name of the Participant, if any, of each such Seller's
Broker-Dealer) acting for one or more sellers of such excess
principal amount of Taxable Auction Rate Series 1997-1 Notes
and the principal amount of Taxable Auction Rate Series
1997-1 Notes to be sold to one or more Potential Holders on
whose behalf such Buyer's Broker-Dealer acted by one or more
Existing Holders on whose behalf each of such Seller's
Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder on whose
behalf such Broker-Dealer submitted a Bid or Sell Order in
the Auction on such Auction Date whether such Bid or Sell
Order was accepted or rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's Broker-
Dealer, advise each Potential Holder on whose behalf such
Buyer's Broker-Dealer submitted a Bid that was accepted, in
whole or in part, to instruct such Potential Holder's
Participant to pay such Buyer's Broker-Dealer (or its
Participant) through the Depository the amount necessary to
purchase
A-2
<PAGE>
the principal amount of Taxable Auction Rate Series 1997-1
Notes to be purchased pursuant to such Bid against receipt
of such Taxable Auction Rate Series 1997-1 Notes;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Holder on whose behalf such
Seller's Broker-Dealer submitted a Sell Order that was
accepted, in whole or in part, to instruct such Existing
Holder's Participant to deliver to such Seller's Broker-
Dealer (or its Participant) through the Depository the
principal amount of Taxable Auction Rate Series 1997-1 Notes
to be sold pursuant to such Order against payment therefor;
(iv) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order and each Potential Holder on whose
behalf such Broker-Dealer submitted a Bid of the Auction
Rate Series 1997-1 Note Interest Rate for the next Taxable
Auction Rate Series 1997-1 Note Interest Period;
(v) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order of the next Auction Date,
including, without limitation, Existing Holders deemed to
have submitted Hold Orders pursuant to Section 4(b)(iii) of
the Second Supplemental Indenture; and
(vi) advise each Potential Holder on whose behalf such Broker-
Dealer submitted a Bid that was accepted, in whole or in
part, of the next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order in an
Auction is required to allocate any funds received by it in connection with such
Auction pursuant to paragraph (b) (ii) above, and any Taxable Auction Rate
Series 1997-1 Notes received by it in connection with such Auction pursuant to
paragraph (b) (iii) above among the Potential Holders, if any, on whose behalf
such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf
such Broker-Dealer submitted Bids or Sell Orders in such Auction, and any
Broker-Dealers identified to it by the Auction Agent following such Auction
pursuant to paragraph (a) (v) or (a) (vi) above.
(d) On each Auction Date:
A-3
<PAGE>
(i) each Potential Holder and Existing Holder with an Order in
the Auction on such Auction Date shall instruct its
Participant as provided in (b) (ii) or (b)(iii) above, as
the case may be;
(ii) each Seller's Broker-Dealer that is not a Participant of the
Depository shall instruct its Participant to deliver such
Taxable Auction Rate Series 1997-1 Notes through the
Depository to a Buyer's Broker-Dealer (or its Participant)
identified to such Seller's Broker-Dealer pursuant to (a)
(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in the
Depository shall instruct its Participant to pay through the
Depository to a Seller's Broker-Dealer (or its Participant)
identified following such Auction pursuant to (a) (vi) above
the amount necessary to purchase the Taxable Auction Rate
Series 1997-1 Notes to be purchased pursuant to (b) (ii)
above against receipt of such Taxable Auction Rate Series
1997-1 Notes.
(e) On the Business Day following each Auction Date:
(i) each Participant for a Bidder in the Auction on such Auction
Date referred to in (d) (i) above shall instruct the
Depository to execute the transactions described under (b)
(ii) or (b) (iii) above for such Auction, and the Depository
shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant shall
instruct the Depository to execute the transactions
described in (d)(ii) above for such Auction, and the
Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant shall instruct
the Depository to execute the transactions described in (d)
(iii) above for such Auction, and the Depository shall
execute such transactions.
(f) If an Existing Holder selling Taxable Auction Rate Series 1997-1
Notes in an Auction fails to deliver such Taxable Auction Rate Series 1997-1
Notes (by authorized book-entry), a Broker-Dealer may deliver to the Potential
Holder on behalf of which it submitted a Bid that was accepted a principal
amount of
A-4
<PAGE>
Taxable Auction Rate Series 1997-1 Notes that is less than the principal amount
of Taxable Auction Rate Series 1997-1 Notes that otherwise was to be purchased
by such Potential Holder. In such event, the principal amount of Taxable
Auction Rate Series 1997-1 Notes to be so delivered shall be determined solely
by such Broker-Dealer, but only in Authorized Denominations. Delivery of such
lesser principal amount of Taxable Auction Rate Series 1997-1 Notes shall
constitute good delivery. Notwithstanding the foregoing terms of this paragraph
(f), any delivery or nondelivery of Taxable Auction Rate Series 1997-1 Notes
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or nondelivery in
accordance with the provisions of the Auction Agent Agreement and the Broker-
Dealer Agreements. Neither the Trustee nor the Auction Agent will have any
responsibility or liability with respect to the failure of a Potential Holder,
Existing Holder or their respective Broker-Dealer or Participant to deliver the
principal amount of Taxable Auction Rate Series 1997-1 Notes or to pay for the
Taxable Auction Rate Series 1997-1 Notes purchased or sold pursuant to an
Auction or otherwise.
A-5
<PAGE>
EXHIBIT B TO BROKER-DEALER AGREEMENT
------------------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1G] [1997-1H]
ORDER FORM
----------
AUCTION DATE _________
ISSUE ________________
SERIES _______________
The undersigned Broker-Dealer submits the following orders on behalf
of the Bidder(s) indicated below:
BIDS BY EXISTING HOLDERS
------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES ($100,000
EXISTING HOLDER OR MULTIPLES) BID RATE
--------------- --------
<C> <S> <C> <C>
1. ____________________________ __________________ ____________
2. ____________________________ __________________ ____________
3. ____________________________ __________________ ____________
4. ____________________________ __________________ ____________
5. ____________________________ __________________ ____________
6. ____________________________ __________________ ____________
7. ____________________________ __________________ ____________
8. ____________________________ __________________ ____________
9. ____________________________ __________________ ____________
10. ____________________________ __________________ ____________
</TABLE>
*Existing Holders may be described by name or other reference as determined in
the sole discretion of the Broker-Dealer.
B-1
<PAGE>
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1G] [1997-1H]
BIDS BY POTENTIAL HOLDERS
-------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES ($100,000
POTENTIAL HOLDER OR MULTIPLES) BID RATE
----------------- --------
<C> <S> <C> <C>
1. ____________________________ __________________ ____________
2. ____________________________ __________________ ____________
3. ____________________________ __________________ ____________
4. ____________________________ __________________ ____________
5. ____________________________ __________________ ____________
6. ____________________________ __________________ ____________
7. ____________________________ __________________ ____________
8. ____________________________ __________________ ____________
9. ____________________________ __________________ ____________
10. ____________________________ __________________ ____________
11. ____________________________ __________________ ____________
12. ____________________________ __________________ ____________
13. ____________________________ __________________ ____________
14. ____________________________ __________________ ____________
15. ____________________________ __________________ ____________
</TABLE>
NOTES:
1. If one or more Orders covering in the aggregate more than the outstanding
principal amount of Taxable Auction Rate Series 1997-1 Notes held by any
Existing Holder are submitted, such Orders shall be considered valid in the
order of priority set forth in the Auction Procedures.
2. A Hold or Sell Order may be placed only by an Existing Holder covering a
principal account of Taxable Auction Rate Series 1997-1 Notes not greater
than the principal amount currently held by such Existing Holder.
B-2
<PAGE>
3. Potential Holders may only make Bids, each of which must specify a rate. If
more than one Bid is submitted on behalf of any Potential Holder, each Bid
submitted shall be a separate Bid with the rate specified herein.
4. Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%).
5. An order must be submitted in principal amounts of $100,000 or integral
multiples thereof.
*Potential Holders may be described by name or other reference as determined in
the sole discretion of the Broker-Dealer.
B-3
<PAGE>
NAME OF BROKER-DEALER: _______________________________
AUTHORIZED SIGNATURE: ________________________________
TOTAL NUMBER OF ORDERS ON THIS ORDER FORM: ___________
Submit to: BANKERS TRUST COMPANY
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Telephone: (212) 250-6850
Telecopier: (212) 250-6215
B-4
<PAGE>
EXHIBIT C TO BROKER-DEALER AGREEMENT
------------------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1G] [1997-1H]
(To be used only for transfers made other
than pursuant to an Auction)
We are (check one)
__________ the Existing Holder indicated below*; or
__________ the Broker-Dealer for such Existing Holder; or
__________ the Participant for such Existing Holder.
We hereby notify you that such Existing Holder has transferred $________ (must
be in units of $100,000) of Senior Series 1997--1[G][H] Notes to
_______________________
______________________________
(Existing Holder)
_______________________________
(Name of Broker-Dealer)
_______________________________
(Name of Participant)
By:____________________________
Printed Name:__________________
Title:_________________________
*Existing Holders may be described by name or other reference as determined in
the sole discretion of the Broker-Dealer.
C-1
<PAGE>
EXHIBIT D TO BROKER-DEALER AGREEMENT
------------------------------------
EDUCATION LOANS INCORPORATED
TAXABLE AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1G] [1997-1H]
NOTICE OF A FAIL TO DELIVER OR MAKE PAYMENT
-------------------------------------------
COMPLETE EITHER I OR II.
- ------------------------
I. We are a Broker-Dealer for _____* (the "Purchaser"), which purchased
$_________ (must be in units of $100,000) of the Senior Series 1997-
1[G][H] Notes in the Auction held on ___________________ from the
seller of such Series 1997-1[G][H] Notes.
II. We are a Broker-Dealer for ______* (the "Seller"), which sold
$__________ (must be in units of $100,000) of the Senior Series 1997-
1[G][H] Notes in the Auction held on __________________ to the
purchaser of such Senior Series 1997-1[G][H] Notes.
We hereby notify you that (check one)
___________ the Seller failed to deliver such Senior Series 1997-1[G][H]
Notes to the Purchaser.
___________ the Purchaser failed to make payment to the Seller upon delivery
of such Series 1997-1[G][H] Notes.
_____________________________
(Name of Broker-Dealer)
By:__________________________
Name:________________________
Title:_______________________
*may be described by name or other reference as determined in the sole
discretion of the Broker-Dealer.
D-1
<PAGE>
Exhibit 4.6
BROKER-DEALER AGREEMENT
(TAX EXEMPT AUCTION RATE SERIES 1997-1 NOTES)
between
BANKERS TRUST COMPANY,
as Auction Agent
and
SMITH BARNEY INC.,
as Broker-Dealer
Dated as of July 1, 1997
Relating to
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES 1997-1A, 1997-1B, 1997-1C, 1997-1D and 1997-1E
<PAGE>
BROKER-DEALER AGREEMENT
This BROKER-DEALER AGREEMENT (TAX EXEMPT AUCTION RATE SERIES 1997-1
NOTES)(the "Broker Dealer Agreement"), dated as of July 1, 1997, is by and
between Bankers Trust Company, a New York banking corporation (together with its
successors and assigns, the "Auction Agent"), pursuant to authority granted to
it in the Auction Agent Agreement, defined below, acting not in its individual
capacity, but solely as agent for Education Loans Incorporated (the
"Corporation"), a South Dakota corporation and SMITH BARNEY INC. (together with
its respective successors and assigns, the "Broker-Dealer").
RECITALS
The Corporation proposes to cause the Trustee, defined below, to
authenticate and deliver $274,900,000 aggregate principal amount of its Tax
Exempt Auction Rate Student Loan Asset-Backed Callable Notes, Senior Series
1997-1A (the "Series 1997-1A Notes"), its Tax Exempt Auction Rate Student Loan
Asset-Backed Callable Notes, Senior Series 1997-1B (the "Series 1997-1B Notes"),
its Tax Exempt Auction Rate Student Loan Asset-Backed Callable Notes, Senior
Series 1997-1C (the "Series 1997-1C Notes"), its Tax Exempt Auction Rate Student
Loan Asset-Backed Callable Notes, Senior Series 1997-1D (the "Series 1997-1D
Notes") and its Tax Exempt Auction Rate Student Loan Asset-Backed Callable
Notes, Senior Series 1997-1E (the "Series 1997-1E Notes", and together with the
Series 1997-1A Notes, the Series 1997-1B Notes, the Series 1997-1C Notes and the
Series 1997-1D Notes, the "Tax Exempt Auction Rate Series 1997-1 Senior Notes").
The Tax Exempt Auction Rate Series 1997-1 Notes are being issued under the First
Supplemental Indenture of Trust, dated as of July 1, 1997 (the "First
Supplemental Indenture"), executed in accordance with the Indenture of Trust,
dated as of July 1, 1997 (the "Indenture"), each between the Corporation and
First Bank National Association, Minneapolis, Minnesota (together with its
successors and assigns, the "Trustee"). The Tax Exempt Auction Rate Series
1997-1 Notes are being issued as adjustable rate securities.
The First Supplemental Indenture provides that the Auction Rate Series
1997-1 Note Interest Rate for each Interest Period after the Initial Interest
Period shall equal the Auction Rate, but in no event shall exceed the Auction
Rate Series 1997-1 Note Interest Rate Limitation.
Pursuant to Section 2.9 (a) of the Auction Agent Agreement (Tax Exempt
Auction Rate Series 1997-1 Notes), dated as of July 1, 1997, among the Trustee,
the Auction Agent and the Corporation (the "Auction Agent Agreement"), the
Trustee has directed the Auction Agent to execute and deliver this Broker-Dealer
Agreement.
<PAGE>
The Auction Procedures require the participation of one or more Broker-
Dealers.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Auction Agent, as agent of the Corporation, and the
Broker-Dealer agree as follows:
Section 1. Definitions and Rules of Construction
1.1. Terms Defined by Reference to the First Supplemental Indenture.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given such terms in the First Supplemental Indenture.
1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures, defined below, the following terms shall have the following
meanings, unless the context otherwise requires:
"Applicable Auction Rate Series 1997-1 Note Interest Rate" shall mean the
Auction Rate Series 1997-1 Note Interest Rate as defined in the First
Supplemental Indenture.
"Authorized Officer" shall mean, with respect to the Auction Agent, each
Managing Director, Vice President, Assistant Vice President and Assistant
Treasurer and every other officer of the Auction Agent assigned to its Corporate
Trust and Agency Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to the Broker-Dealer.
"Broker-Dealer Officer" shall mean each officer or employee of the Broker-
Dealer designated as a "Broker-Dealer Officer" for purposes of this Broker-
Dealer Agreement in a communication to the Auction Agent.
"Beneficial Owner" shall mean a beneficial owner of any of the Tax Exempt
Auction Rate Series 1997-1 Notes.
"Notice of Failure to Deliver or Make Payment" shall mean a notice
substantially in the form of Exhibit D hereto.
"Notice of Transfer" shall mean a notice substantially in the form of
Exhibit C hereto.
"Order Form" shall mean the form to be submitted by any Broker-Dealer on or
prior to any Auction Date substantially in the form of Exhibit B hereto.
"Settlement Procedures" shall mean the Settlement Procedures attached
hereto as Exhibit A.
-2-
<PAGE>
1.3. Rules of Construction. Unless the context or use indicate another or
different meaning or intent, the following rules shall apply to the construction
of this Agreement;
(a) Words importing the singular number shall include the plural number and
vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement nor, shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Broker-Dealer Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York
City time.
(e) The rights and duties of the Broker-Dealer and the Auction Agent under
this Broker-Dealer Agreement shall apply to all series of the Tax Exempt Auction
Rate Series 1997-1 Notes, but separately. References to "Tax Exempt Auction
Rate Series 1997-1 Notes," unless the context clearly contemplates a reference
to all Tax Exempt Auction Rate Series 1997-1 Notes shall refer only to the
Series 1997-1A Notes as to rights and duties regarding Series 1997-1A Notes;
only to the Series 1997-1B Notes as to rights and duties regarding Series 1997-
1B Notes; only to the Series 1997-1C Notes as to rights and duties regarding
Series 1997-1C Notes; only to the Series 1997-1D Notes as to rights and duties
regarding Series 1997-1D Notes; and only to the Series 1997-1E Notes as to
rights and duties regarding Series 1997-1E Notes.
Section 2. The Auction
2.1. Incorporation by Reference of Auction Procedures and Settlement
Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures will be
followed by the Auction Agent for the purpose of determining the Applicable
Auction Rate Series 1997-1 Note Interest Rate for each Auction Period after the
Initial Interest Period. Each periodic operation of such procedures is
hereinafter referred to as an "Auction".
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part of this Broker-Dealer Agreement to the same extent
as if such provisions were fully set forth herein.
-3-
<PAGE>
(c) The Broker-Dealer and other Broker-Dealers may participate in Auctions
for their own accounts.
2.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the Tax Exempt
Auction Rate Series 1997-1 Notes, the Auction Agent shall advise the Broker-
Dealer by telephone of the All Hold Rate, the Maximum Auction Rate, the After-
Tax Equivalent, the "AA" Composite Commercial Paper Rate, the Index and the
Applicable Percentage.
(b) If the Auction Date for any Auction shall be changed after the Auction
Agent has given notice of such Auction Date pursuant to clause (vii) of
paragraph (a) of the Settlement Procedures, the Auction Agent, by telephone
(confirmed in writing), telecopy or such other means as the Auction Agent deems
practicable, shall give notice of such change to the Broker-Dealer not later
than the earlier of 9:15 A.M. on the new Auction Date and 9:15 A.M. on the old
Auction Date. Thereafter, the Broker-Dealer shall use its best efforts to
promptly notify its customers who are Existing Holders of such change in the
Auction Date.
(c) From time to time upon request of the Auction Agent pursuant to Section
2.2(d) of the Auction Agent Agreement, the Broker-Dealer shall provide the
Auction Agent with a statement of the aggregate amount of each series of Tax
Exempt Auction Rate Series 1997-1 Notes held by the Broker-Dealer as an Existing
Holder for its own account or otherwise, as well as with a list of the Broker-
Dealer's customers that the Broker-Dealer believes are Existing Holders of any
series of the Tax Exempt Auction Rate Series 1997-1 Notes (listed by series) and
the aggregate principal amount of each series of Tax Exempt Auction Rate Series
1997-1 Notes beneficially owned by each such customer. Except as permitted by
Section 2.10 of the Auction Agent Agreement, the Auction Agent shall keep
confidential any such information and shall not disclose any such information so
provided to any person other than the Broker-Dealer, the Issuer and the Trustee,
provided that the Auction Agent reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would be
unlawful.
(d) The Auction Agent shall send by telecopy or other means a copy of any
Notice of Tax Exempt Auction Rate Series 1997-1 Notes Outstanding received from
the Trustee to the Broker-Dealer in accordance with Section 4.3 hereof.
2.3. Auction Schedule: Method of Submission of Orders.
(a) The Auction Agent shall conduct Auctions for the Tax Exempt Auction
Rate Series 1997-1 Notes in accordance with the schedule set forth below. Such
schedule may be changed by the
-4-
<PAGE>
Auction Agent with the consent of the Trustee and the Market Agent, which
consent shall not be unreasonably withheld or delayed. The Auction Agent shall
give written notice of any such change to the Broker-Dealer. Such notice shall
be given prior to the close of business on the Business Day next preceding the
first Auction Date on which any such change shall be effective.
By 9:30 A.M. The Auction Agent advises the Trustee and the Broker-
Dealers of the Maximum Auction Rate, the All Hold Rate,
the After-Tax Equivalent, the "AA" Composite Commercial
Paper Rate, the Index and the Applicable Percentage to
be used in determining the Auction Rate under the
Auction Procedures, the First Supplemental Indenture
and the Auction Agent Agreement.
9:30 A.M.- The Auction Agent assembles information communicated to
12:30 P.M. it by Broker-Dealers as provided in Section 4(c)(i) of
the First Supplemental Indenture. The Submission
Deadline is 12:30 P.M.
Not earlier than The Auction Agent makes determinations pursuant to
12:30 P.M. Section 4(c)(i) of the First Supplemental Indenture.
Submitted Bids and Submitted Sell Orders are accepted
and rejected in whole or in part and Tax Exempt Auction
Rate Series 1997-1 Notes allocated as provided in
Section 4(d) of the First Supplemental Indenture.
By approximately The Auction Agent advises the Trustee and the Broker-
3:00 P.M.* Dealers of the results of the Auction as provided in
4:00 P.M.** Section 4(c) (ii) of the First Supplemental Indenture.
The Auction Agent gives notice of Auction results as
set forth in Section 2.4(a) hereof.
* If the Auction Rate Series 1997-1 Note Interest Rate is the Auction Rate.
** If the Auction Rate Series 1997-1 Note Interest Rate is the Maximum Auction
Rate.
(b) The Broker-Dealer agrees to maintain a list of Potential Holders
and to contact the Potential Holders on such list on or prior to each Auction
Date for the purposes of participating in the Auction on such Auction Date.
-5-
<PAGE>
(c) The Broker-Dealer shall submit Orders to the Auction Agent in
writing by delivering an Order Form. The Broker-Dealer shall submit separate
Orders to the Auction Agent for each Potential Holder or Existing Holder on
whose behalf the Broker-Dealer is submitting an Order and shall not net or
aggregate the Orders of different Potential Holders or Existing Holders on whose
behalf the Broker-Dealer is submitting Orders.
(d) The Broker-Dealer shall deliver to the Auction Agent (i) a Notice
of Transfer with respect to any transfer of Tax Exempt Auction Rate Series 1997-
1 Notes made through the Broker-Dealer by an Existing Holder to another person
other than pursuant to an Auction, and (ii) a Notice of Failure to Deliver or
Make Payment with respect to the failure of any Tax Exempt Auction Rate Series
1997-1 Notes to be transferred to or payment to be made by any person that
purchased or sold Tax Exempt Auction Rate Series 1997-1 Notes through the
Broker-Dealer pursuant to a prior Auction. The Auction Agent is not required to
accept any notice delivered pursuant to clauses (i) or (ii) of this subparagraph
(d) with respect to an Auction unless it is received by the Auction Agent by
3:00 P.M. on the Business Day next preceding such Auction Date.
(e) The Broker-Dealer agrees to handle its customers' Orders in
accordance with its duties under applicable securities laws and rules.
2.4. Notices.
(a) On each Auction Date, the Auction Agent shall notify the Broker-
Dealer by telephone of the results of the Auction as set forth in paragraph (a)
of the Settlement Procedures. The Auction Agent shall by 10:30 A.M. on the
Business Day next succeeding such Auction Date if previously requested by the
Broker-Dealer notify the Broker-Dealer in writing of the disposition of all
Orders submitted by the Broker-Dealer in the Auction held on such Auction Date.
(b) The Broker-Dealer shall notify each Existing Holder or Potential
Holder on whose behalf the Broker-Dealer has submitted an Order as set forth in
paragraph (b) of the Settlement Procedures and take such other action as is
required by the Broker-Dealer pursuant to the Settlement Procedures.
(c) The Auction Agent shall deliver to the Broker-Dealer all notices
and certificates that the Auction Agent is required to deliver to the Broker-
Dealer pursuant to Section 2 of the Auction Agent Agreement at the times and in
the manner set forth in the Auction Agent Agreement.
2.5. Service Charge to Be Paid to the Broker-Dealer. Not later than
2:00 P.M. on each Interest Payment Date with respect to the Tax Exempt Auction
Rate Series 1997-1 Notes, the Auction Agent
-6-
<PAGE>
shall pay to the Broker-Dealer a fee with respect to each series of Tax Exempt
Auction Rate Series 1997-1 Notes, from monies received from the Trustee, in an
amount equal to the product of (i) a fraction the numerator of which is the
number of days from the preceding Interest Payment Date (or since the Closing
Date, in the case of the first Interest Payment Date) to the current Interest
Payment Date (or, if such series ceased to be outstanding prior thereto, the
date on which such series ceased to be outstanding) and the denominator of which
is 360 times (ii) the Broker-Dealer Fee Rate times (iii) the average principal
amount of Tax Exempt Auction Rate Series 1997-1 Notes of such series outstanding
during the period from such preceding Interest Payment Date (or the Closing
Date, in the case of the first Interest Payment Date) to the current Interest
Payment Date (or, if such series ceased to be outstanding prior thereto, the
date on which such series ceased to be outstanding).
2.6. Settlement.
(a) If any Existing Holder on whose behalf the Broker-Dealer has
submitted a Bid or Sell Order for Tax Exempt Auction Rate Series 1997-1 Notes
that was accepted in whole or in part fails to instruct its Participant to
deliver the Tax Exempt Auction Rate Series 1997-1 Notes subject to such Bid or
Sell Order against payment therefor, the Broker-Dealer shall instruct such
Participant to deliver such Tax Exempt Auction Rate Series 1997-1 Notes against
payment therefor and the Broker-Dealer may deliver to the Potential Holder on
whose behalf the Broker-Dealer submitted a Bid that was accepted in whole or in
part, a principal amount of the Tax Exempt Auction Rate Series 1997-1 Notes that
is less than the principal amount of the Tax Exempt Auction Rate Series 1997-1
Notes specified in such Bid to be purchased by such Potential Holder.
Notwithstanding the foregoing terms of this Section, any delivery or nondelivery
of Tax Exempt Auction Rate Series 1997-1 Notes that represents any departure
from the results of an Auction, as determined by the Auction Agent, shall be of
no effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the terms of Section 2.3(d) hereof.
The Auction Agent shall have no duty or liability with respect to enforcement of
this Section 2.6(a).
(b) Neither the Auction Agent, the Trustee, nor the Corporation shall
have any responsibility or liability with respect to the failure of an Existing
Holder, a Potential Holder or its respective Participant to deliver Tax Exempt
Auction Rate Series 1997-1 Notes or to pay for Tax Exempt Auction Rate Series
1997-1 Notes sold or purchased pursuant to the Auction Procedures or otherwise.
The Auction Agent shall have no responsibility for any adjustment to the fees
paid pursuant to Section 2.5 hereof as a result of any failure described in this
Section 2.6(b).
-7-
<PAGE>
Section 3. The Auction Agent.
3.1. Duties and Responsibilities.
(a) The Auction Agent is acting hereunder solely as agent for the
Corporation and owes no fiduciary duties to any person by reason of this Broker-
Dealer Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Broker-Dealer Agreement, and no
implied covenants or obligations shall be read into this Broker-Dealer Agreement
against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under this Broker-
Dealer Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
3.2. Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized by this Broker-Dealer
Agreement and upon any written instruction, notice request, direction, consent
report, certificate, share certificate or other instrument, paper or document
reasonably believed by it to be genuine. The Auction Agent shall not be liable
for acting upon any telephone communication authorized by this Broker-Dealer
Agreement which the Auction Agent believes in good faith to have been given by
the Trustee, a Broker-Dealer or the Corporation. The Auction Agent may record
telephone communications with the Broker-Dealers.
(b) The Auction Agent may consult with counsel of its own choice, and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys and shall not be
responsible for any willful misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.
-8-
<PAGE>
3.3. The Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the correctness of the recitals in this Broker-Dealer
Agreement, the Auction Agent Agreement or the validity or adequacy of the Series
1996-1 Notes.
Section 4. Miscellaneous.
4.1. Termination. Any party may terminate this Broker-Dealer
Agreement at any time upon five days' prior notice to the other party; provided,
however, that if the Broker-Dealer is Smith Barney Inc., neither the Broker-
Dealer nor the Auction Agent may terminate this Broker-Dealer Agreement without
first obtaining the prior written consent of the Trustee and the Corporation of
such termination, which consent shall not be unreasonably withheld or delayed.
For so long as the Auction Agent Agreement is effective and if Smith Barney Inc.
is the sole Broker-Dealer, any termination of this Broker-Dealer Agreement shall
not be effective unless and until a successor, or substitute Broker-Dealer
Agreement becomes effective. This Broker-Dealer Agreement shall automatically
terminate upon the delivery of certificates representing the Tax Exempt Auction
Rate Series 1997-1 Notes pursuant to Section 17 of the First Supplemental
Indenture or upon termination of the Auction Agent Agreement.
4.2. Participant. The Broker-Dealer is, and shall remain for the term
of this Broker-Dealer Agreement, a member of, or Participant in, the Depository
(or an affiliate of such a member or Participant).
4.3. Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Broker-Dealer Agreement or the Auction
Procedures and (ii) communications in connection with the Auctions (other than
those expressly required to be in writing), all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, or its
address or facsimile number set forth below:
If to the Broker-Dealer,
addressed: SMITH BARNEY INC.
390 Greenwich Street
2nd Floor
New York, New York 10013
Attention: Public Finance Division
Telephone: (212) 723-5564
Facsimile: (212) 723-8939
-9-
<PAGE>
If to the Auction Agent,
addressed: BANKERS TRUST COMPANY
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Attention: Auction Rate Securities
Telephone: (212) 250-6850
Facsimile: (212) 250-6215
If to the Trustee,
addressed: First Bank National Association
141 North Main Avenue
Sioux Falls, South Dakota 57117
Attention: Corporate Trust Department
Telephone: (605) 339-8725
Facsimile: (605) 333-3813
If to the Corporation,
addressed: Education Loans Incorporated
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attention: President
Telephone: (605) 622-4590
Facsimile: (605) 622-4547
or such other address or facsimile number as such party may hereafter specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Broker-Dealer by a Broker-Dealer
Officer and on behalf of the Auction Agent by an Authorized Officer of the
Auction Agent. The Broker-Dealer may record telephone communications with the
Auction Agent.
4.4. Entire Agreement. This Broker-Dealer Agreement contains the
entire agreement between the parties relating to the subject matter hereof, and
there are not other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof, except for the fee letter dated as of July 1, 1997, from
the Auction Agent to the Corporation.
4.5. Benefits. Nothing in this Broker-Dealer Agreement, express or
implied, shall give to any person, other than the Auction Agent, the
Corporation, the Broker-Dealer and their respective successors and assigns, any
benefit of any legal or equitable right, remedy or claim under this Broker-
Dealer Agreement.
-10-
<PAGE>
4.6. Amendment; Waiver.
(a) This Broker-Dealer Agreement shall not be deemed or construed to
be modified, amended, rescinded, canceled or waived, in whole or in part, except
by a written instrument signed by a duly authorized representative of the
parties hereto. This Broker-Dealer Agreement may not be amended without first
obtaining the prior written consent of the Corporation.
(b) Failure of either party to this Broker-Dealer Agreement to
exercise any right or remedy hereunder in the event of a breach of this Broker-
Dealer Agreement by the other party shall not constitute a waiver of any such
right or remedy with respect to any subsequent breach.
4.7. Successors and Assigns. This Broker-Dealer Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the parties hereto
and their respective successors and assigns.
4.8. Severability. If any clause, provision or section of this
Broker-Dealer Agreement shall be ruled invalid or unenforceable by any court of
competent jurisdiction, the invalidity or unenforceability of such clause,
provision or section shall not affect any remaining clause, provision or
sections hereof.
4.9. Execution in Counterparts. This Broker-Dealer Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
4.10. Governing Law. This Broker-Dealer Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
-11-
<PAGE>
In Witness Whereof, the parties hereto have caused this Broker-Dealer
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
BANKERS TRUST COMPANY
as Auction Agent
By:____________________________
Title:______________________
SMITH BARNEY INC.,
as Broker-Dealer
By:____________________________
Title:______________________
Pursuant to and in accordance with Section 9 of the First Supplemental Indenture
and Section 2.9 of the Auction Agent Agreement (defined above), the undersigned
consents to the execution of the above Broker-Dealer Agreement.
First Bank National Association, as Trustee
By: ___________________________________
Title: ________________________________
-12-
<PAGE>
EXHIBIT A TO BROKER-DEALER AGREEMENT
SETTLEMENT PROCEDURES
If not otherwise defined herein, capitalized terms used herein shall
have the meanings given such terms in Article 1 of the First Supplemental
Indenture. These Settlement Procedures shall apply separately for each series
of Tax Exempt Auction Rate Series 1997-1 Notes.
(a) Not later than (1) 3:00 P.M., if the Auction Rate Series 1997-1
Note Interest Rate is the Auction Rate or (2) 4:00 p.m. if the Auction Rate
Series 1997-1 Note Interest Rate is the Maximum Auction Rate, on each Auction
Date, the Auction Agent shall notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of an Existing Holder or Potential Holder of:
(i) the Auction Rate Series 1997-1 Note Interest Rate fixed for
the next Interest Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer submitted Bids or Sell Orders on
behalf of an Existing Holder (a "Seller's Broker-Dealer"),
whether such Bid or Sell Order was accepted or rejected, in
whole or in part, and the principal amount of Tax Exempt
Auction Rate Series 1997-1 Notes, if any, to be sold by such
Existing Holder;
(iv) if such Broker-Dealer submitted a Bid on behalf of a
Potential Holder (a "Buyer's Broker-Dealer"), whether such
Bid was accepted or rejected, in whole or in part, and the
principal amount of Tax Exempt Auction Rate Series 1997-1
Notes, if any, to be purchased by such Potential Holder;
(v) if the aggregate amount of Tax Exempt Auction Rate Series
1997-1 Notes to be sold by all Existing Holders on whose
behalf such Seller's Broker-Dealer submitted Bids or Sell
Orders exceeds the aggregate principal amount of Tax Exempt
Auction Rate Series 1997-1 Notes to be purchased by all
Potential Holders on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's
Broker-Dealers (and the name of the Participant, if any, of
each such Buyer's Broker-Dealer)
A-1
<PAGE>
acting for one or more purchasers of such excess principal
amount of Tax Exempt Auction Rate Series 1997-1 Notes and
the principal amount of Tax Exempt Auction Rate Series 1997-
1 Notes to be purchased from one or more Existing Holders on
whose behalf such Seller's Broker-Dealer acted by one or
more Potential Holders on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the principal amount of Tax Exempt Auction Rate Series
1997-1 Notes to be purchased by all Potential Holders on
whose behalf such Buyer's Broker-Dealer submitted a Bid
exceeds the amount of Tax Exempt Auction Rate Series 1997-1
Notes to be sold by all Existing Holders on whose behalf
such Broker-Dealer submitted a Bid or a Sell Order, the name
or names of one or more Seller's Broker-Dealers (and the
name of the Participant, if any, of each such Seller's
Broker-Dealer) acting for one or more sellers of such excess
principal amount of Tax Exempt Auction Rate Series 1997-1
Notes and the principal amount of Tax Exempt Auction Rate
Series 1997-1 Notes to be sold to one or more Potential
Holders on whose behalf such Buyer's Broker-Dealer acted by
one or more Existing Holders on whose behalf each of such
Seller's Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Holder or Potential Holder shall:
(i) advise each Existing Holder and Potential Holder on whose
behalf such Broker-Dealer submitted a Bid or Sell Order in
the Auction on such Auction Date whether such Bid or Sell
Order was accepted or rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's Broker-
Dealer, advise each Potential Holder on whose behalf such
Buyer's Broker-Dealer submitted a Bid that was accepted, in
whole or in part, to instruct such Potential Holder's
Participant to pay such Buyer's Broker-Dealer (or its
Participant) through the Depository the amount necessary to
purchase
A-2
<PAGE>
the principal amount of Tax Exempt Auction Rate Series 1997-
1 Notes to be purchased pursuant to such Bid (which amount,
unless the date of such purchase is an Interest Payment
Date, will include an amount equal to the interest accrued
and unpaid on such principal amount of Tax Exempt Auction
Rate Series 1997-1 Notes) against receipt of such Tax Exempt
Auction Rate Series 1997-1 Notes;
(iii) in the case of a Broker-Dealer that is a Seller's Broker-
Dealer, instruct each Existing Holder on whose behalf such
Seller's Broker-Dealer submitted a Sell Order that was
accepted, in whole or in part, to instruct such Existing
Holder's Participant to deliver to such Seller's Broker-
Dealer (or its Participant) through the Depository the
principal amount of Tax Exempt Auction Rate Series 1997-1
Notes to be sold pursuant to such Order against payment
therefor;
(iv) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order and each Potential Holder on whose
behalf such Broker-Dealer submitted a Bid of the Auction
Rate Series 1997-1 Note Interest Rate for the next Interest
Period;
(v) advise each Existing Holder on whose behalf such Broker-
Dealer submitted an Order of the next Auction Date,
including, without limitation, Existing Holders deemed to
have submitted Hold Orders pursuant to Section 4(b)(iii) of
the Second Supplemental Indenture; and
(vi) advise each Potential Holder on whose behalf such Broker-
Dealer submitted a Bid that was accepted, in whole or in
part, of the next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order in an
Auction is required to allocate any funds received by it in connection with such
Auction pursuant to paragraph (b) (ii) above, and any Tax Exempt Auction Rate
Series 1997-1 Notes received by it in connection with such Auction pursuant to
paragraph (b) (iii) above among the Potential Holders, if any, on whose behalf
such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf
such Broker-Dealer submitted Bids or Sell Orders in such Auction, and any
Broker-
A-3
<PAGE>
Dealers identified to it by the Auction Agent following such Auction pursuant to
paragraph (a) (v) or (a) (vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder with an Order in
the Auction on such Auction Date shall instruct its
Participant as provided in (b) (ii) or (b)(iii) above, as
the case may be;
(ii) each Seller's Broker-Dealer that is not a Participant of the
Depository shall instruct its Participant to deliver such
Tax Exempt Auction Rate Series 1997-1 Notes through the
Depository to a Buyer's Broker-Dealer (or its Participant)
identified to such Seller's Broker-Dealer pursuant to (a)
(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in the
Depository shall instruct its Participant to pay through the
Depository to a Seller's Broker-Dealer (or its Participant)
identified following such Auction pursuant to (a) (vi) above
the amount necessary to purchase the Tax Exempt Auction Rate
Series 1997-1 Notes to be purchased pursuant to (b) (ii)
above against receipt of such Tax Exempt Auction Rate Series
1997-1 Notes.
(e) On the Business Day following each Auction Date:
(i) each Participant for a Bidder in the Auction on such Auction
Date referred to in (d) (i) above shall instruct the
Depository to execute the transactions described under (b)
(ii) or (b) (iii) above for such Auction, and the Depository
shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant shall
instruct the Depository to execute the transactions
described in (d)(ii) above for such Auction, and the
Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant shall instruct
the Depository to execute the transactions described in (d)
(iii) above for such Auction, and the Depository shall
execute such transactions.
A-4
<PAGE>
(f) If an Existing Holder selling Tax Exempt Auction Rate Series
1997-1 Notes in an Auction fails to deliver such Tax Exempt Auction Rate Series
1997-1 Notes (by authorized book-entry), a Broker-Dealer may deliver to the
Potential Holder on behalf of which it submitted a Bid that was accepted a
principal amount of Tax Exempt Auction Rate Series 1997-1 Notes that is less
than the principal amount of Tax Exempt Auction Rate Series 1997-1 Notes that
otherwise was to be purchased by such Potential Holder. In such event, the
principal amount of Tax Exempt Auction Rate Series 1997-1 Notes to be so
delivered shall be determined solely by such Broker-Dealer, but only in
Authorized Denominations. Delivery of such lesser principal amount of Tax Exempt
Auction Rate Series 1997-1 Notes shall constitute good delivery. Notwithstanding
the foregoing terms of this paragraph (f), any delivery or nondelivery of Tax
Exempt Auction Rate Series 1997-1 Notes which shall represent any departure from
the results of an Auction, as determined by the Auction Agent, shall be of no
effect unless and until the Auction Agent shall have been notified of such
delivery or nondelivery in accordance with the provisions of the Auction Agent
Agreement and the Broker-Dealer Agreements. Neither the Trustee nor the Auction
Agent will have any responsibility or liability with respect to the failure of a
Potential Holder, Existing Holder or their respective Broker-Dealer or
Participant to deliver the principal amount of Tax Exempt Auction Rate Series
1997-1 Notes or to pay for the Tax Exempt Auction Rate Series 1997-1 Notes
purchased or sold pursuant to an Auction or otherwise.
A-5
<PAGE>
EXHIBIT B TO BROKER-DEALER AGREEMENT
------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1A] [1997-1B] [1997-1C] [1997-1D] [1997-1E]
ORDER FORM
----------
AUCTION DATE _________
ISSUE ________________
SERIES _______________
The undersigned Broker-Dealer submits the following orders on behalf
of the Bidder(s) indicated below:
BIDS BY EXISTING HOLDERS
------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES ($100,000
EXISTING HOLDER OR MULTIPLES) BID RATE
--------------- ------------------ --------
<S> <C> <C> <C>
1. _______________ __________________ ________
2. _______________ __________________ ________
3. _______________ __________________ ________
4. _______________ __________________ ________
5. _______________ __________________ ________
6. _______________ __________________ ________
7. _______________ __________________ ________
8. _______________ __________________ ________
9. _______________ __________________ ________
10. _______________ __________________ ________
</TABLE>
*Existing Holders may be described by name or other reference as determined in
the sole discretion of the Broker-Dealer.
B-1
<PAGE>
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1A] [1997-1B] [1997-1C] [1997-1D] [1997-1E]
<TABLE>
<CAPTION>
BIDS BY POTENTIAL HOLDERS
-------------------------
PRINCIPAL AMOUNT
OF NOTES ($100,000
POTENTIAL HOLDER OR MULTIPLES) BID RATE
---------------- ------------------ --------
<S> <C> <C> <C>
1. ________________ __________________ ________
2. ________________ __________________ ________
3. ________________ __________________ ________
4. ________________ __________________ ________
5. ________________ __________________ ________
6. ________________ __________________ ________
7. ________________ __________________ ________
8. ________________ __________________ ________
9. ________________ __________________ ________
10. ________________ __________________ ________
11. ________________ __________________ ________
12. ________________ __________________ ________
13. ________________ __________________ ________
14. ________________ __________________ ________
15. ________________ __________________ ________
</TABLE>
NOTES:
1. If one or more Orders covering in the aggregate more than the outstanding
principal amount of Tax Exempt Auction Rate Series 1997-1 Notes held by any
Existing Holder are submitted, such Orders shall be considered valid in the
order of priority set forth in the Auction Procedures.
2. A Hold or Sell Order may be placed only by an Existing Holder covering a
principal account of Tax Exempt Auction Rate Series 1997-1 Notes not
greater than the principal amount currently held by such Existing Holder.
B-2
<PAGE>
3. Potential Holders may only make Bids, each of which must specify a rate.
If more than one Bid is submitted on behalf of any Potential Holder, each
Bid submitted shall be a separate Bid with the rate specified herein.
4. Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%).
5. An order must be submitted in principal amounts of $100,000 or integral
multiples thereof.
*Potential Holders may be described by name or other reference as determined in
the sole discretion of the Broker-Dealer.
B-3
<PAGE>
NAME OF BROKER-DEALER: _______________________________
AUTHORIZED SIGNATURE: ________________________________
TOTAL NUMBER OF ORDERS ON THIS ORDER FORM: ___________
Submit to: BANKERS TRUST COMPANY
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Telephone: (212) 250-6850
Telecopier: (212) 250-6215
B-4
<PAGE>
EXHIBIT C TO BROKER-DEALER AGREEMENT
------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1A] [1997-1B] [1997-1C] [1997-1D] [1997-1E]
(To be used only for transfers made other
than pursuant to an Auction)
We are (check one)
_________ the Existing Holder indicated below*; or
_________ the Broker-Dealer for such Existing Holder; or
_________ the Participant for such Existing Holder.
We hereby notify you that such Existing Holder has transferred $________ (must
be in units of $100,000) of Senior Series 1997-1[A][B][C][D][E] Notes to
_______________________
______________________________
(Existing Holder)
_______________________________
(Name of Broker-Dealer)
_______________________________
(Name of Participant)
By:____________________________
Printed Name:__________________
Title:_________________________
*Existing Holders may be described by name or other reference as determined in
the sole discretion of the Broker-Dealer.
C-1
<PAGE>
EXHIBIT D TO BROKER-DEALER AGREEMENT
------------------------------------
EDUCATION LOANS INCORPORATED
TAX EXEMPT AUCTION RATE STUDENT LOAN ASSET-BACKED CALLABLE NOTES
SENIOR SERIES [1997-1A] [1997-1B] [1997-1C] [1997-1D] [1997-1E]
NOTICE OF A FAILURE TO DELIVER OR MAKE PAYMENT
----------------------------------------------
COMPLETE EITHER I OR II.
- ------------------------
I. We are a Broker-Dealer for _____* (the "Purchaser"), which purchased
$_________ (must be in units of $100,000) of the Senior Series 1997-
1[A][B][C][D][E] Notes in the Auction held on ___________________ from
the seller of such Series 1997-1[A][B][C][D][E] Notes.
II. We are a Broker-Dealer for ______* (the "Seller"), which sold
$__________ (must be in units of $100,000) of the Senior Series 1997-
1[A][B][C][D][E] Notes in the Auction held on __________________ to
the purchaser of such Senior Series 1997-1[A][B][C][D][E] Notes.
We hereby notify you that (check one)
___________ the Seller failed to deliver such Senior Series 1997-
1[A][B][C][D][E] Notes to the Purchaser.
___________ the Purchaser failed to make payment to the Seller upon delivery
of such Series 1997-1[A][B][C][D][E] Notes.
_____________________________
(Name of Broker-Dealer)
By:__________________________
Name:________________________
Title:_______________________
*may be described by name or other reference as determined in the sole
discretion of the Broker-Dealer.
D-1
<PAGE>
Exhibit 10.1
SERVICING AGREEMENT
THIS SERVICING AGREEMENT (the "Servicing Agreement") entered into as
of the 1st day of July 1997 by and among Student Loan Finance Corporation, a
corporation organized under the laws of the State of South Dakota (the
"Servicer"), Education Loans Incorporated,a corporation organized under the laws
of the State of Delaware (the "Issuer"), and First Bank National Association, a
national banking association headquartered in Minneapolis, Minnesota, as trustee
(the "Trustee").
W I T N E S E T H:
WHEREAS, the Servicer services student loans ("Student Loans") which
are guaranteed under a guaranty program established by a state or a private
nonprofit corporation pursuant to the requirements of the Higher Education Act
of 1965, as amended from time to time, and the rules and regulations promulgated
thereunder (the "Higher Education Act"); and
WHEREAS, the Servicer has established its Student Loan Purchase
Program pursuant to which it causes the acquisition of certain Student Loans
from lenders ("Lenders") eligible to originate or hold such Student Loans under
the Higher Education Act; and
WHEREAS, pursuant to the Servicer's Student Loan Purchase Program, the
Issuer has entered into or will enter into (including, without limitation, by
assignment and assumption) Student Loan Purchase Agreements ("Student Loan
Purchase Agreements") with certain Lenders pursuant to which it has agreed to
cause the purchase of or will cause the purchase of Student Loans by the Trustee
(for the account and on behalf of the Issuer) from such Lenders;
WHEREAS, under certain circumstances, the Issuer also will cause the
origination of Student Loans by the Trustee (for the account and on behalf of
the Issuer) (Student Loans purchased or originated under the Indenture
hereinafter described are hereinafter referred to as "Financed Student Loans");
and
WHEREAS, the Issuer initially will obtain funds necessary to originate
and purchase Student Loans through the issuance by Education Loans Incorporated
(formerly known as Student Loan Finance Corporation), a South Dakota nonprofit
corporation (the "Original Issuer"), of its Student Loan Asset-Backed Callable
Notes, Series 1997-1 (the "Series 1997-1 Notes") and the immediate assumption by
the Issuer of all of the Original Issuer's liabilities and obligations with
respect to the Series 1997-1 Notes, and the subsequent issuance from time to
time by the Issuer of additional notes (together with the Series 1997-1 Notes,
the "Notes"), all pursuant to an Indenture of Trust, dated as of July 1, 1997
(as amended or supplemented, the "Indenture") between the
<PAGE>
Original Issuer and the Trustee, as Trustee, and with respect to which the
Original Issuer has assigned all its rights to the Issuer and the Issuer has
assumed all the Original Issuer's obligations; and
WHEREAS, the principal of and interest on the Notes is to be paid from
repayment of Financed Student Loans and other trust assets pledged under the
Indenture; and
WHEREAS, the Issuer wishes to provide for the origination, acquisition
and servicing of the Financed Student Loans in the manner provided in the
Student Loan Purchase Agreements and the Indenture; and
WHEREAS, copies of (i) the executed Student Loan Purchase Agreements,
(ii) the Indenture and (iii) the Plan for Doing Business of the Original Issuer,
dated as of July 1, 1997 (the "Plan for Doing Business") have been furnished to
the Servicer, and the Servicer has read and reviewed each thereof in detail; and
WHEREAS, the Issuer wishes to retain the Servicer to provide services
in connection with the origination, acquisition, servicing and collection of the
Financed Student Loans in accordance with the requirements of the Higher
Education Act, the Guarantee Program, the Student Loan Purchase Agreements and
the Indenture, and the Servicer is willing to undertake such obligations on the
terms hereinafter specified; and,
WHEREAS, the Issuer also wishes to retain the Servicer to perform
other administrative requirements on behalf of the Issuer, including those
required to allow the Issuer to satisfy certain requirements under the
Indenture;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Term. The term of this Servicing Agreement shall commence as of
the date hereof and shall continue for so long as any of the Notes shall remain
Outstanding (as defined in the Indenture) unless this Servicing Agreement is
terminated in accordance with the terms hereof.
2. Definitions. In addition to terms elsewhere defined in this
Servicing Agreement, and except as otherwise provided herein or as the context
may otherwise require or suggest, initially capitalized terms used herein shall
have the meanings assigned thereto in the Indenture, or if not defined therein,
in the Student Loan Purchase Agreements.
3. Agreement to Provide Services with respect to Financed Student
Loans; Cooperation.
2
<PAGE>
a. The Servicer shall provide services to the Issuer in
connection with the origination and acquisition of Student
Loans to be Financed in accordance with this Servicing
Agreement. The Servicer shall commence servicing the Financed
Student Loans as of the day they are Financed and shall
service the Financed Student Loans in accordance with this
Servicing Agreement. The Servicer may perform all or part of
its origination, acquisition, and servicing activities
hereunder through a subcontractor. The Servicer shall perform
or shall cause its subcontractor to perform all services
hereunder in compliance with the Higher Education Act,
applicable requirements of the Guarantee Agency and all other
applicable federal, state and local laws and regulations. The
Servicer shall be responsible for the performance of its
obligations hereunder, whether such obligations are performed
by the Servicer or by its subcontractor, and the Servicer
shall be responsible for any fees and payments required by
the subcontractor. A subcontractor shall be subject to the
same obligations relating to audits, examinations and
inspections as to which the Servicer is subject hereunder.
The Servicer shall provide the Issuer and the Trustee with
prior written notice of any subcontractor relationship.
b. The Issuer and the Trustee shall, in accordance with the
provisions of the Indenture, cooperate with the Servicer in
delivering or causing to be delivered Financed Student Loans
to the Servicer for origination, acquisition and servicing
in accordance with this Servicing Agreement.
4. Acquisition Process. The Issuer, the Trustee and the Servicer
agree that:
a. Unless and until otherwise directed in writing by the
Issuer, the Servicer shall provide to the Trustee all
certificates and directions required to be delivered by the
Issuer to the Trustee under the Indenture in connection with
the Financing through acquisition of Eligible Loans and
Student Loans thereunder.
b. Pursuant to the Student Loan Purchase Agreements, the
Servicer will, on behalf of the Issuer and the Trustee,
require that each
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Lender transfer to the Servicer (or the Servicer's bailee),
on or before each applicable Loan Purchase Date, physical
custody and possession of documentation and information
relating to Student Loans scheduled to be sold to the
Trustee on behalf of the Issuer on each such Loan Purchase
Date. Such documentation and information so transferred
will include (i) the documents described in Exhibit B
attached to the Student Loan Purchase Agreements (the "Loan
Documents"), and (ii) such additional documentation or
information relating to the Student Loans as the Servicer
shall reasonably require for the purpose of allowing the
Student Loans to be properly serviced by the Servicer.
c. Within a reasonable period after delivery to the Servicer
(but in no event longer than 10 Business Days unless
otherwise expressly agreed) of the documentation and
information relating to the Student Loans identified in
Section 4(b) above, the Servicer shall (i) establish and
maintain all records delivered to the Servicer with respect
to each Financed Student Loan, and complete records of the
Servicer's servicing of the Financed Student Loan from the
date such servicing commenced, (ii) maintain possession of
the loan documents described in Section 6(p) and (r) hereof
that it receives as required hereunder, and (iii) image,
microfilm or otherwise reproduce such documents and cause
such reproductions to be stored at a separate location.
d. In the course of establishing the records relating to each
Financed Student Loan as described in Section 4(c) hereof,
the Servicer shall make note of any item which comes to the
attention of the Servicer during the establishment process
(it being understood that the Servicer will not be
conducting a complete file and note examination of each
Student Loan to be Financed) which would make it appear that
any Student Loan has not been properly originated, disbursed
and documented or has not had due diligence exercised with
respect thereto, in the origination, disbursement,
administration, servicing and collection thereof, in
accordance with the requirements of the Higher Education
Act, the
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Guarantee Program and the applicable Student Loan Purchase
Agreement. The Servicer shall give Lenders a reasonable
opportunity to correct any exceptions or problems identified
by the Servicer and to provide such documentation and
information to the Servicer as shall be necessary to correct
such exceptions or problems. Except as otherwise permitted
under the Indenture, if such exceptions or problems are not
corrected, the Servicer shall return to the Lenders, in
accordance with procedures and under the conditions
specified in the sections of the Student Loan Purchase
Agreements relating to the rejection or repurchase of
Student Loans, any documents and information related to
Student Loans which have exceptions or problems resulting in
such loans not being Eligible Loans.
e. The Servicer shall (i) establish a course of communication
with each Lender sufficient to ensure that the Servicer
receives notice from each Lender of all transactions with
respect to each Student Loan prior to the required time of
delivery by the Servicer to the Trustee of the documents
required by Section 4(a) hereof, and (ii) load all
information necessary for servicing Financed Student Loans
into its servicing system so that servicing and collection
of Financed Student Loans on the basis of "simple interest"
can commence as of the Loan Purchase Date as required by
Section 3 hereof. If interest has been collected on any
Student Loan to be purchased by the Trustee (for the account
and on behalf of the Issuer) on the basis of the "rule of
78's", the Servicer shall cause the Lender wishing to sell
such loan to convert the remaining repayment schedule for
each such Student Loan so that it may be collected on the
basis of "simple interest".
f. The Issuer and the Trustee shall promptly after each Loan
Purchase Date, upon request by the Servicer, provide to the
Servicer any additional documentation or information related
to the Financed Student Loans which either of them may have
in their possession or may reasonably be able to obtain.
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g. The Servicer shall, promptly after each Loan Purchase Date,
notify the Borrower under each Financed Student Loan
purchased on such Loan Purchase Date of the assignment and
transfer to the Trustee (for the account and on behalf of
the Issuer) of the Lender's interest in each such Financed
Student Loan and shall direct each such Borrower thereafter
to make all payments on such Financed Student Loan directly
to the Servicer until otherwise notified by the Trustee. If
a Financed Student Loan has been converted from repayment
under the rule of 78's to repayment under the simple
interest method, as required by Section 4(e) hereof, the
Lender shall notify the Borrower and shall obtain the
written consent of the Borrower and take whatever additional
action may be necessary to effect such conversion of
repayment method in accordance with applicable legal
requirements. Each Borrower notification shall include all
information required to be included by the Higher Education
Act and the requirements of the Guarantee Agency.
h. The assignment of each Financed Student Loan to the Trustee
(for the account and on behalf of the Issuer) shall be
reported by the Servicer promptly after each applicable Loan
Purchase Date to the Secretary of Education and/or the
Guarantee Agency, as appropriate, and the Trustee, by a
properly completed Loan Transfer Report in the form required
by the Secretary of Education and/or the Guarantee Agency.
i. If the Servicer at any time becomes aware of an event which
would (i) allow the Issuer to reject a Student Loan under
the applicable Student Loan Purchase Agreement, or (ii)
allow the Issuer to require a Lender to repurchase a
Financed Eligible Loan or Financed Student Loan or to
substitute an Eligible Loan under the applicable Student
Loan Purchase Agreement, then the Servicer shall so notify
the Issuer. If the Servicer or the Issuer determine that
such a Student Loan should be rejected or repurchased, the
Trustee shall take such action as shall be necessary to
allow the Issuer and the Trustee to enforce their respective
rights under the applicable Student Loan Purchase Agreement.
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5. Origination Process. The Issuer, the Trustee and the Servicer
agree that:
a. Unless and until otherwise directed in writing by the
Issuer, the Servicer shall provide to the Trustee all
certificates and directions required to be delivered by the
Issuer to the Trustee under the Indenture in connection with
the Financing through origination of Eligible Loans and
Student Loans thereunder.
b. The Servicer shall provide disbursement and origination
services in connection with the origination and disbursement
of Eligible Loans under the Indenture. The Servicer shall
perform all services and duties customary to the origination
and disbursement of Student Loans in accordance with
generally accepted industry standards and practices and in
compliance with the Higher Education Act, applicable
requirements of the Guarantee Agency and all other
applicable federal, state and local laws and regulations.
6. Servicing. The Servicer agrees that each of the Financed Student
Loans, while held under the Indenture shall be serviced by it in accordance with
the procedures established in the Higher Education Act and the Guarantee Program
regulations. Additionally, the Servicer shall perform at least the following
minimum duties, obligations and functions in connection with its servicing of
such Financed Student Loans:
a. Maintain a complete and separate file concerning each
Financed Student Loan, which file (i) shall include, without
limitation, the documentation relating to each of the
Financed Student Loans listed and described in Exhibit B to
the applicable Student Loan Purchase Agreement, and at least
the following information relating to each of the Financed
Student Loans: name and social security number of Eligible
Borrower, actual or estimated graduation date of the
student, payment status, days delinquent, number of payments
made, next payment due date, date of last payment received,
total amount disbursed, beginning of deferments and
forbearances, and ending of deferments and forbearances; and
(ii) shall be maintained in a manner sufficient to allow
separate identification of the Financed Student Loans
securing the Notes from other loans serviced or owned by the
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Servicer (including those owned by or on behalf of the
Issuer).
b. Take all steps necessary to maintain the Insurance and
Guarantee coverage on each Financed Student Loan in full
force and effect at all times.
c. Exercise reasonable discretion in approving borrower
requests for forbearance (as permitted under the Higher
Education Act and the Guarantee Program regulations) where
such approval will not adversely affect the financial
viability of the Issuer and will not violate the covenants
set forth in the Indenture.
d. Exercise due diligence (within the meaning of the Higher
Education Act and the Guarantee Program regulations) in the
servicing, administration and collection of all Financed
Student Loans.
e. Attempt to collect or cause to be collected all payment of
principal and interest, Special Allowance Payments, and
Guarantee payments with respect to each Financed Student
Loan and, with respect thereto, (A)(i) cause all interest
subsidy payments and Special Allowance Payments to be
forwarded by the Secretary of Education directly to the
Trustee for immediate deposit into the appropriate fund or
account under the Indenture and (ii) deposit all other such
payments immediately upon receipt into a lock-box account
(which shall be part of the Revenue Fund) to be established
by the Trustee in the name of and for the account of the
Trustee under circumstances which provide for investment of
such payments in accordance with the requirements of the
Indenture applicable to moneys on deposit in the Revenue
Fund. Upon submission by the Servicer to the Secretary of
Education of a billing for interest subsidy payments or
Special Allowance Payments, the Servicer shall, upon
request, provide to the Trustee and the Issuer a written
statement indicating (a) the amount billed for interest
subsidy payments and (b) the principal amount in each
Special Allowance Payment category for which the billing is
submitted, for use by the Trustee and the Issuer in
verifying amounts
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billed for and received with respect thereto from the
Secretary of Education. In the event of discrepancies or
disputes with the Secretary of Education, the Servicer shall
be responsible for representing the interests of the Issuer
and the Trustee in effecting a settlement with the Secretary
of Education of such discrepancies or disputes. The
Servicer shall direct the transfer from time to time of the
Balances in the lock-box account to the Trustee for deposit
in the appropriate Fund or Account under the Indenture;
provided, however, that the Balances in the lock-box account
as of the last day of any calendar month shall, at a
minimum, be transferred on or before the 12th day of the
next succeeding month (or the next preceding Business Day if
such 12th day is not a Business Day), to the Trustee for
deposit in the appropriate Fund or Account under the
Indenture. On or before the date of any transfer, the
Servicer shall deliver by facsimile, hand or mail by U.S.
express mail (or other substantially equivalent means
acceptable to the Trustee) a statement to the Trustee
indicating the portion of the payments transferred on such
date which represents (x) principal payments from any source
with respect to Financed Student Loans, and (y) interest
payments from any source with respect to Financed Student
Loans.
f. Retain summary records of all contacts, follow-ups and
collection efforts (showing at least the date and subject of
each communication with the Borrower or endorser for
collection of each delinquent Financed Student Loan) and
records of all correspondence (including, without
limitation, changes for which records are required to be
maintained by the Higher Education Act and the Guarantee
Program regulations) relating to each Financed Student Loan.
g. Prepare and maintain all appropriate accounting records with
respect to all transactions related to each Financed Student
Loan, including, but not limited to, accounting for all
payments of principal, interest, and Guarantee payments with
respect to each Financed Student Loan and Special
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Allowance Payments relating to all Financed Student Loans.
h. Handle the processing of all adjustments including, without
limitation, forbearances, reinstatements, deferments,
refunds and loans paid in full.
i. Handle the processing of all address changes and the
updating of the address records accordingly.
j. In the case of defaulted Financed Student Loans, take all
steps necessary to file and prove a claim for loss with the
Secretary of Education or the Guarantee Agency, as the case
may be and as required, and assume responsibility for all
necessary communication and contact with the Secretary of
Education or the Guarantee Agency, as the case may be and as
required, to recover on such defaulted Financed Student
Loans within the time required by the Higher Education Act
and the requirements of the Guarantee Agency.
k. In the case of a claim for loss being denied by the
Secretary of Education or the Guarantee Agency, as the case
may be, under circumstances resulting in a Lender being
required by a Student Loan Purchase Agreement to repurchase
a Financed Student Loan, take such action as shall be
necessary to allow the Issuer or the Trustee to cause such
Lender to repurchase such Financed Student Loan or to
substitute a different Eligible Loan in accordance with the
requirements of the applicable Student Loan Purchase
Agreement.
l. Prepare and file with the Secretary of Education or the
Guarantee Agency, as the case may be and as required, a
Lender's manifest of Financed Student Loans on all new
accounts, accounts paid in full and accounts converted to a
repayment basis.
m. Prepare and furnish to the Issuer and the Trustee by the
10th day of each month the following reports with respect to
activity concerning each Financed Student Loan during the
preceding month:
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(1) upon request, computer generated reports showing, in
reasonable detail, all transactions during such
preceding month concerning each Financed Student Loan
serviced by the Servicer;
(2) upon request, a report showing the unpaid principal
balance of each Financed Student Loan as of the last
day of such preceding month;
(3) upon request, with respect to Financed Student Loans in
repayment, a delinquency report or reports showing all
accounts past due as of the last day of such preceding
month in categories of 0-30 days, 31-60 days, 61-90
days, 91-120 days, 121-150 days, 151-180 days, and over
180 days.
(4) upon request, a report of Financed Student Loans paid
in full during such preceding month;
(5) a report specifying the number of and the aggregate
unpaid principal amount of claims made during such
preceding month on defaulted Financed Student Loans and
during the then current fiscal year of the Issuer and
the number and aggregate amount of such claims which
were rejected by the Guarantee Agency, if any, during
such month and during the then current fiscal year of
the Issuer, the number and aggregate unpaid principal
amount of Financed Student Loans being serviced by the
Servicer as of the last day of such preceding month,
and the aggregate unpaid principal amount of defaulted
Financed Student Loans as of the last day of such
preceding month;
(6) copies of all formal reports filed by the Servicer with
respect to Financed Student Loans with any person or
entity and such other reports which are available to
the Servicer and which may be reasonably requested from
time to time by the Issuer or the Trustee;
n. With respect to Financed Student Loans in repayment, prepare
and furnish to the Issuer
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and the Trustee upon request, copies of all file updates and
transactions listings including, without limitation, credits
applied, Financed Student Loans paid and exceptions
listings.
o. Identify on the servicing system the Notes as the source of
financing for each such Financed Student Loan.
p. Maintain a duplicate or copy of the file or record (which
may be on microfilm or computer tape) pertaining to each
Financed Student Loan at a location separate and apart from
that at which the original of such file is maintained (such
duplicate file shall include, without limitation, a copy of
each loan application, interim and payout note(s) if
applicable, Certificate of Insurance, Contract of Insurance,
Guarantee Agreement, disclosure statement and Secretary of
Education Loan Transfer Statement, where applicable).
q. Maintain the original promissory note pertaining to each
Financed Student Loan to be maintained in secure storage
facilities to protect, to the extent reasonable and possible
under the circumstances, such original file concerning each
Financed Student Loan.
r. Obtain and maintain imaged or microfilm copies and/or back-
up computer tapes (but in any case a copy of the promissory
note relating to each Financed Student Loan) at a separate
location adequate to ensure against loss or damage to the
files pertaining to the Financed Student Loans by reason of
any casualty or theft; obtain and maintain in force adequate
insurance for loss or damage to the file pertaining to the
Financed Student Loans by reason of any casualty or theft;
and the Servicer shall be liable for any costs associated
with, or loss to the Issuer resulting from, the
reconstruction of data related to the Financed Student Loans
in the event of natural disaster or the malfunction of any
computer systems.
s. Maintain in force fidelity bonds upon all personnel of the
Servicer insuring against any loss of money or other
property which the Trustee, the Issuer or the Servicer might
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suffer as a consequence of any fraudulent or dishonest act
of such personnel, in an amount required by any supervisory
agency of federal or state government having jurisdiction,
but if not so required, then in an amount equal to at least
the Servicer's current coverage amounts and deductibles (as
evidenced by the insurance certificate delivered to the
Issuer herewith) or such lesser amount as shall be in
writing determined from time to time by the Issuer, with the
approval of the Trustee to be sufficient.
t. Answer all lawful inquiries received by the Servicer from
Lenders, Borrowers, Eligible Institutions, the Secretary of
Education, the Guarantee Agency, the Issuer or the Trustee
pertaining to Financed Student Loans, school status or
refunds, and cooperate to the extent necessary to gather the
information needed to answer such inquiries, provided,
however, that such inquiries may be referred to the Eligible
Institution which a student attended or is attending, if
necessary, and the Servicer shall have no responsibility
with respect to disputes between a Borrower and such
Eligible institution regarding tuition or registration.
u. Any communication received by the Servicer which is in the
nature of a complaint, shall be immediately answered by the
Servicer.
v. The Servicer shall file with the Secretary of Education in
an accurate, timely and complete manner "Lenders Request for
Payment of Interest and Special Allowance" (ED Form 799), or
such other form or request for payment directly to the
Trustee of interest subsidy payments and Special Allowance
Payments as the Secretary of Education may require, from
time to time but in no event later than fifteen (15)
Business Days after the end of each calendar quarter.
In addition, the Servicer agrees that it will, for the servicing fees specified
in Section 18 hereof, perform all servicing obligations relating to Financed
Student Loans required of the Issuer or the Trustee, or which the Issuer or the
Trustee is required to cause the Servicer to perform.
7. Due Diligence. The Servicer agrees that in discharging its
obligations hereunder it shall:
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a. Exercise due diligence in the origination, disbursement,
administration, servicing and collection of all Financed
Student Loans as the term "due diligence" is used in the
Higher Education Act and the Guarantee Program regulations;
b. Exercise reasonable care and diligence in the origination,
disbursement, acquisition, administration and collection of
all Financed Student Loans;
c. Attempt to collect or cause to be collected the Financed
Student Loans in a competent, diligent and orderly fashion,
and in a manner substantially in accordance with the
requirements of the Higher Education Act, the Secretary of
Education, the Guarantee Agency, the Indenture (including
specifically but without limitation the provisions of
Sections 5.5 through 5.8 of the Indenture), the Student Loan
Purchase Agreements and each applicable Federal
Reimbursement Contract and Guarantee Agreement; and
d. Exercise reasonable prudence in those aspects of the
administration of the Program which are within its area of
responsibility.
8. Liaison with Lenders, Eligible Institutions and Other Parties.
The Servicer shall maintain one or more toll-free WATS telephone lines to
provide telephone access to its Student Loan servicing office in Aberdeen, South
Dakota, by the Issuer, the Trustee, Lenders, Borrowers and Eligible
Institutions. The applicable numbers for such telephone lines shall be provided
in writing to the Issuer and the Trustee and to each Borrower. The Issuer, the
Trustee and each such Borrower shall be promptly advised in writing of each
change to such telephone number.
9. Right of Inspection; Availability of Records; Audits.
a. Subject to any restrictions of applicable law, the Issuer,
the Trustee, the Guarantee Agency, the Secretary or any
successor thereto, the Comptroller of the Currency and/or
any governmental agency having jurisdiction over the Issuer
or the Trustee (and, in each case, such entities'
representatives) (any such entity being referred to herein
as the "Examiner"), shall have the right, at any time and
from time to time, during normal business
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hours, and upon reasonable notice to the Servicer (which may
be less than 5 days), to examine and audit any and all of
the Servicer's records or accounts pertaining to any
Financed Student Loan. Under the preceding sentence, the
Examiner shall have the right to examine and make copies of
any documents related to Financed Student Loans and to
interview personnel involved in the servicing. Subject to
any access restrictions in any agreement for provision of
computer or data processing equipment or related services,
the Servicer shall make available to the Examiner without
charge all manuals, forms, files and descriptions of the
software necessary to enable the Examiner to interpret and
analyze the information and reports produced by the system,
it being understood that the Servicer shall retain all
title, rights and interest thereto and therein.
b. The Issuer and the Trustee shall each have the right to
require the Servicer to furnish such documents as it in its
sole discretion from time to time deems necessary to
determine that the Servicer has complied with the provisions
of this Servicing Agreement, the Student Loan Purchase
Agreements and the Indenture, including, without limitation,
Sections 5.5 through 5.8 of the Indenture.
c. If and to the extent required by the Higher Education Act
and the Guarantee Program regulations, the Servicer shall
cause to have prepared and shall submit to the Secretary of
Education and the Guarantee Agencies on or before the
respective due dates thereof:
(1) any third-party servicer compliance audits and audited
financial statements required under the Higher
Education Act and the Guarantee Program regulations
relating to the Servicer and its servicing of Financed
Student Loans; and,
(2) any lender compliance audits required under the Higher
Education Act and the Guarantee Program regulations
relating to the Trustee (as the holder of the Financed
Student Loans) and the Financed Student Loans.
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The Servicer shall provide to the Issuer and the Trustee
promptly after it becomes available (and in no event later
than 10 Business Days) a copy of each such audit and any
other audit or report required by the Secretary of
Education, any Guaranty Agency or other third party in
connection with the Servicer's activities in originating,
acquiring and servicing the Financed Student Loans.
d. The Servicer shall provide to the Issuer and the Trustee
copies of its annual third party (SAS70) audit reports, if
such reports are prepared, promptly following the Servicer's
receipt thereof.
e. The Servicer shall provide to the Issuer and the Trustee its
annual financial statements, audited by a firm of
independent certified public accountants, within one hundred
twenty (120) days of the end of each fiscal year of the
Servicer; and its quarterly unaudited financial statements,
within forty-five (45) days of the end of each fiscal
quarter of the Servicer.
f. If reports are not prepared and submitted under Section 9(c)
hereof or if the Trustee determines it is necessary as part
of a request under Section 9(b) hereof, upon the request of
the Trustee or the Issuer, the Servicer shall undergo an
annual audit, examination and review conducted by a firm of
independent public accountants with experience in auditing
student loan program operations under the Higher Education
Act, independently selected by the Issuer (or the Trustee if
the Issuer fails to make such selection), of its systems,
programs, procedures, services and operations to determine
the Servicer's compliance with this Agreement. If any such
audit, examination and review shall indicate to the Issuer
or the Trustee that the Servicer is not in material
compliance with its obligations under this Servicing
Agreement, this Servicing Agreement may be terminated by the
Issuer or the Trustee on the basis of Section 11(a)(3)
hereof (an audit, examination or review under this
subsection, however, is not required for a termination under
Section 11(a)(3)).
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g. The costs of audits and reports prepared under subsections
(c) through (f) above shall be paid by the Servicer.
10. Amendments; Benefits; Termination. The Servicing Agreement (a)
may be amended, supplemented or modified only by written instrument duly
executed by all parties hereto and only upon the receipt of a written
certificate from the Issuer and the Trustee that such amendment, supplement or
modification will not deprive any holder of the Notes in any material respect of
the security afforded by this Servicing Agreement, (b) shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, and (c) except as provided in Section 11 hereof, may not be
terminated (except for cause) or assigned by any party hereto without the prior
written consent of the other parties hereto, provided, that the Trustee may make
an assignment to its successor as trustee under the Indenture if the Trustee
shall cease serving as trustee under the Indenture.
11. Termination.
a. The Servicing Agreement shall terminate:
(1) upon the expiration of the term stated in Section 1
hereof;
(2) If the Servicer shall:
(a) admit in writing its inability to pay its debts
generally as they become due;
(b) consent to the appointment of a custodian (as that
term is defined in the federal Bankruptcy Code) for or
assignment to a custodian of the whole or any
substantial part of the Servicer's property, or fail to
stay, set aside or vacate within sixty (60) days from
the date of entry thereof any order or decree entered
by a court of competent jurisdiction ordering such
appointment or assignment;
(c) commence any proceeding or file a petition under
the provisions of the federal Bankruptcy Code for
liquidation, reorganization or adjustment of debts, or
under any insolvency law or other statute or law
providing for the modification or adjustment of the
rights of creditors, or fail to stay, set aside or
vacate within
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sixty (60) days from the date of entry thereof any
order or decree entered by a court of competent
jurisdiction pursuant to an involuntary proceeding,
whether under federal or state law, providing for
liquidation or reorganization of the Servicer or
modification or adjustment of the rights of creditors;
or
(d) contest in writing the validity or enforceability
of this Agreement as a whole or deny in writing that
this Agreement as a whole is binding upon the Servicer;
(3) upon written notice by the Issuer or the Trustee to the
Servicer, if the Servicer materially breaches its
obligations, or any representation or warranty, under
this Servicing Agreement or upon written notice by the
Issuer or the Trustee to the Servicer on the basis of
Section 9(f) hereof; or,
(4) upon written notice by the Issuer or the Trustee to the
Servicer, if at any time the Guarantee Agency or the
Department of Education has issued a notice of
suspension or termination against the Servicer, or has
suspended or terminated the payment of all claims with
respect to Financed Student Loans or, in the case of
the Department of Education, all Special Allowance
Payments or interest benefit payments with respect to
Financed Student Loans as a result of actions or
omissions of the Servicer (it being understood that the
cessation of less than all such claims or payments may
constitute a breach under Section 11(a)(3) hereof).
Notwithstanding the foregoing, any termination pursuant to
clauses (3) or (4) of this subsection (a) will be subject to
the following conditions. If such breach under clause (3)
or suspension or termination under clause (4) is capable of
being cured within ninety (90) days without, in the judgment
of the Trustee, adversely affecting the security provided to
the Noteholders by the Financed Student Loans and the
related Guarantee payments, Special Allowance Payments and
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interest subsidy payments, the Servicer shall have the right
to cure such breach, within ninety (90) days of the date the
Servicer learns of such breach or receives notice of such
breach from the Issuer or the Trustee, prior to such
termination. If such breach is not capable of being cured
in the manner specified above, no termination pursuant to
clause (3) or (4) shall occur if, in the judgment of the
Trustee, such breach or suspension or termination will not
adversely affect the security provided the Noteholders by
the Financed Student Loans and the related Guarantee,
Special Allowance Payments and interest subsidy payments.
The Servicer agrees to promptly notify the Trustee and the
Issuer of any occurrence or condition which constitutes (or
which with the passage of time or the giving of notice or
both would constitute) an event permitting the termination
of this Agreement.
b. If this Servicing Agreement shall be terminated under
subsection (a) or if any Financed Student Loan is sold or
otherwise transferred by the Trustee (for the account and on
behalf of the Issuer) to another person, then any Financed
Student Loans then being serviced hereunder (or the
particular Financed Student Loans that are sold or otherwise
transferred, as the case may be) shall be transferred by the
Servicer to a servicing system of the Issuer, the Trustee or
their designee and (i) the Servicer shall promptly provide
the Issuer and the Trustee with every reasonable and
necessary assistance, including data processing support, to
timely transfer the Financed Student Loans and all
promissory notes and all records related to the Financed
Student Loans (including system records), together with all
necessary or proper assignments, transfers and documents of
authority, and (ii) the actual documented costs and expenses
of such transfer and of the conversion by the replacement
servicer of such Financed Student Loans to such replacement
servicing system shall be paid by the Servicer if such
termination is by the Issuer or the Trustee by reason of the
occurrence of an event described in Section 11 (a)(2),
(a)(3) or (a)(4). There shall be no
19
<PAGE>
additional charge to the Issuer or the Trustee for the
Servicer's handling of assignments and transfers of Financed
Student Loans in the ordinary course.
c. If this Servicing Agreement shall be terminated under
subsection (a), the Servicer agrees that it shall continue
to perform all its obligations under this Servicing
Agreement until a successor servicer has been appointed or
until otherwise directed in writing by the Trustee.
12. Disposition of Files on Termination. Upon termination of this
Servicing Agreement all files and information held by the Servicer in connection
herewith (including computer information) will be turned over to the Issuer or
its designee in such form (which may include microfilm) as the Issuer may
reasonably request, upon reimbursement by the Issuer for reasonable costs,
except as otherwise specified in Section 11(b) above.
13. Servicer Not Agent. The Servicer is not, and shall not hold
itself out to be, the agent of the Issuer or the Trustee except for the specific
limited purposes set forth in this Servicing Agreement. Except as set forth in
this Servicing Agreement, the Issuer and the Trustee may not direct the methods
or means by which the Servicer shall accomplish its duties under this Servicing
Agreement.
14. Maintenance of Records.
a. The Servicer shall retain information and documentation
pertaining to the Financed Student Loans (including, but not
limited to, the information and documentation to be
delivered to the Servicer in accordance with Section 3
hereof) which comes into the physical custody or possession
of the Servicer as a result of this Servicing Agreement or
by the servicing of the Financed Student Loans by the
Servicer, unless and until the Trustee shall notify the
Servicer in writing to the contrary, whereupon such physical
custody and possession shall be transferred in the manner
directed by the Trustee. The Trustee may nevertheless elect
to retain such original documentation as it may, upon the
advice of Counsel, consider necessary or advisable to
protect its first security interest in the Financed Student
Loans.
20
<PAGE>
b. The Servicer shall maintain original documentation and
system records for each Financed Student Loan, segregated
from any other loans or assets of the Servicer or any other
party and clearly labeled so as to identify the Financed
Student Loans as property of the Trustee (for the account
and on behalf of the Issuer) and as security for the Notes,
provided that the Servicer may combine original
documentation and system records for each consolidated
serial loan so long as the Servicer does so in a manner
which will ensure that each Financed Student Loan comprising
such a consolidated serial loan may be separately identified
and transferred or sold. The Servicer shall hold such
documentation and records subject to this Servicing
Agreement and the Indenture. From time to time the Servicer
shall, upon request by the Trustee or the Issuer and the
Trustee, submit such information and take such action as may
be reasonably required by the Trustee or the Issuer and the
Trustee, to assure that the Financed Student Loans are
maintained in a proper and secure condition.
c. Except as required by law and permitted by Section 6(t)
hereof, the Servicer shall maintain the confidentiality of
the information provided hereunder and shall not disclose or
in any way communicate such information to third parties
without the express written consent of the Issuer and the
Trustee. The Servicer shall provide a proper security
system for access to original documents and to its computer
system.
d. With respect to the original promissory note relating to
each Financed Student Loan, the obligations of the Servicer
shall be only to the Trustee during the time the Notes are
Outstanding (as defined in the Indenture) and the Issuer
shall have no authority during the time the Notes are
Outstanding to direct the Servicer in its activities with
respect to such original promissory notes.
15. Representations, Warranties and Agreements. The Servicer hereby
represents, warrants and agrees as follows:
a. The Servicer is duly organized and validly existing as a
corporation in good standing
21
<PAGE>
under the laws of the State of South Dakota and is duly
qualified to conduct its business in good standing in the
State of South Dakota and is qualified to do business in all
other States where action by the Servicer is required to
carry out the obligations of the Servicer under this
Servicing Agreement.
b. The Servicer has the power and authority (corporate and
other) to own its assets and carry on its business as now
being conducted and to enter into, and perform in accordance
with the terms of, this Servicing Agreement.
c. The Servicer has, and its officers acting on its behalf
have, full legal authority to engage in the transactions
contemplated by this Servicing Agreement; the execution and
delivery of this Servicing Agreement, the consummation of
the transactions herein contemplated and compliance with the
terms, conditions and provisions of this Servicing Agreement
do not and will not conflict with or result in a breach of
any of the terms, conditions or provisions of the articles
of incorporation or bylaws of the Servicer or any agreement
or instrument to which the Servicer is a party or by which
it is bound, or constitute a default thereunder; the
Servicer is not a party to or bound by any agreement or
instrument or subject to any charter or other corporate
restriction or judgment, order, writ, injunction, decree,
law, rule or regulation which may materially and adversely
affect the ability of the Servicer to perform its
obligations under this Servicing Agreement, and this
Servicing Agreement constitutes a valid and binding
obligation of the Servicer enforceable against it in
accordance with its terms, and no consent, approval,
license, exemption or authorization of, or filing or
registration with, any government or governmental body (i)
which has not been made or obtained is required in
connection with the execution and delivery of this Servicing
Agreement, and (ii) which has not been or will not be made
or obtained is or will be required in connection with the
consummation of the transactions herein contemplated.
22
<PAGE>
16. Notification to Borrowers. The parties hereto acknowledge and
agree that each Student Loan Purchase Agreement provides that the Lender which
is a party thereto shall notify each Borrower under each Financed Student Loan
of the assignment and transfer to the Trustee (but for the account and on behalf
of the Issuer) of the Lender's interest in such Financed Student Loan and shall
direct the Borrower to make all payments thereon directly to the Servicer until
otherwise notified by the Trustee. To the extent permitted by the Higher
Education Act and the Guarantee Program regulations, the Servicer may, on behalf
of the Issuer, waive this requirement of any Lender if the notice is sent by the
Servicer on behalf of such Lender.
17. Obligations to Forward Payments. The parties hereto acknowledge
and agree that each Student Loan Purchase Agreement provides that if the Lender
which is a party thereto is, after any Loan Purchase Date (as defined in the
Student Loan Purchase Agreement), the recipient of any funds, from whatever
source received, which constitute payment of principal, interest or Special
Allowance Payments accrued with respect to any Financed Student Loan for any
period subsequent to such Loan Purchase Date, such Lender shall promptly remit,
or cause to be remitted, all such funds to the Servicer or in such manner as the
Trustee may otherwise direct. If any such funds shall he received by the
Trustee or by a person to whom the Trustee has directed such funds to be
remitted, the Trustee shall furnish the Servicer with prompt advice as to the
receipt of any such funds.
18. Servicing Fees; No Petition. The Issuer shall pay, or shall
cause the Trustee to pay, from funds available for such purpose under the
Indenture to the Servicer, for the performance of the Servicer's functions
(including, without limitation, management and administrative functions) under
this Servicing Agreement, a monthly fee in an amount each month equal to
0.104167% of the outstanding principal balance of all Financed Student Loans as
of the last day of the immediately preceding month. Such fee shall be paid to
the Servicer on a monthly basis within fifteen (15) days of receipt by the
Trustee, of an itemized written monthly billing statement from the Servicer. If
the Servicer believes that it is necessary to increase the monthly fee payable
hereunder, it shall provide a written request to the Issuer and the Trustee of
its need for an increase in such fee, together with all information required
under the Indenture for the Trustee to approve an increase in the fees payable
hereunder. The Servicer acknowledges that such fee shall not be increased
unless the conditions for increasing such fees under the Indenture have been
satisfied.
The Servicer acknowledges that the Issuer and the Trustee contemplate
paying all servicing fees payable under this Servicing Agreement solely from
funds available for such purpose in the Administration Fund created under the
Indenture, which funds are primarily dependent upon collection by the Servicer
and receipt by
23
<PAGE>
the Trustee of payments with respect to the Financed Student Loans. The Servicer
covenants and agrees to continue to be bound by the terms and provisions of this
Servicing Agreement relating to the Financed Student Loans in all respects, and
to perform for a period of 120 days its obligations hereunder, regardless of the
receipt or non-receipt on a timely basis by it of any payments in respect of
servicing fees.
The Servicer, by entering into this Servicing Agreement, covenants and
agrees that it will not at any time institute against the Issuer, or join in any
institution against the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States Federal or state bankruptcy or similar law in connection with any
obligation relating to this Servicing Agreement.
19. Cooperation. Each party covenants and agrees to fully cooperate
with the other parties hereto to facilitate the transactions contemplated
hereunder and by the Student Loan Purchase Agreements and the Indenture.
20. Payment of Expenses. Each party to this Servicing Agreement
shall pay its own expenses incurred in connection with the preparation,
execution and delivery of this Servicing Agreement, including, but not limited
to, the fees and expenses of legal counsel.
21. Administrative Functions of the Servicer. The Issuer, the
Trustee and the Servicer agree that the Servicer shall perform the following
administrative functions on behalf of the Issuer as part of its responsibilities
under this Agreement.
a. Provide all necessary personnel, facilities, equipment,
forms and supplies for operating the Program in accordance
with Sections 5.5 through 5.8 of the Indenture;
b. Disseminate information on the Program to Lenders and to
student financial aid officers in Eligible Institutions and
to other persons as necessary;
c. Control and account for the receipt and expenditure of the
Issuer's funds in accordance with the resolutions of the
Issuer's board of directors and the Indenture and maintain
accurate and complete records on all aspects of the Program,
which records shall be available for inspection at any time
by any director or officer of the Issuer and by auditors
employed by the Issuer;
24
<PAGE>
d. Review all statements and reports to the Issuer required of
the Trustee, the Servicer and the Lender in accordance with
the provisions of the Indenture, this Servicing Agreement
and the Student Loan Purchase Agreements; and
e. Prepare and submit to the Trustee on or before the 25th day
of each month (and if such day is not a Business Day, on the
next succeeding Business Day), the monthly reports required
to be delivered to the Noteholders pursuant to Section 5.23
of the Indenture, the form of which is included as Exhibit A
hereto. The Servicer also shall (i) determine the Net Loan
Rate and notify the Trustee and the Auction Agent thereof at
the times required by the Indenture, and (ii) prepare for
filing, and provide such other assistance as is required by
the Issuer to file, any other reports required to be filed
by the Issuer under the Indenture or under any applicable
law, including without limitation, the Higher Education Act
and any federal and state securities laws.
22. Servicer as Bailee
a. The Servicer, in holding Loan Documents relating to the
Financed Student Loans, holds such Loan Documents as bailee
for and on behalf of the Trustee.
b. No Loan Documents held by the Servicer on behalf of the
Trustee hereunder shall be released or delivered to the
Issuer or any other person (other than claim filings in the
ordinary course with the Guaranty Agencies and sales or
transfers permitted under Section 4.2 of the Indenture)
without the prior written consent of the Trustee.
c. The Servicer shall maintain all Loan Documents in a manner
which clearly identifies them as being held by the Servicer
as bailee for and on behalf of the Trustee and not for or on
behalf of the Issuer or any other person.
d. No assignment or purported assignment by the Issuer or any
other person (other than the Trustee) of any Loan Documents
held by the Servicer on behalf of the Trustee hereunder
25
<PAGE>
shall be recognized by the Servicer, and the Servicer shall
provide immediate notice to the Trustee upon receiving
notice of any such assignment or purported assignment.
e. The Servicer hereby represents, warrants and acknowledges
that the Servicer, in serving as bailee under this Section,
is acting exclusively as the bailee and agent of the
Trustee, and not of the Issuer or any other person, with
respect to the Loan Documents.
f. The Servicer hereby waives any lien which the Servicer might
have pursuant to statute or otherwise available at law or in
equity on the Financed Student Loans and the Loan Documents
held by the Servicer on behalf of the Trustee hereunder,
including all monies and proceeds derived therefrom or
relating thereto.
23. Plan for Doing Business of Original Issuer. In providing
administrative services on behalf of the Issuer hereunder, the Servicer agrees
to operate the Program in compliance with the Plan for Doing Business. The
Servicer shall comply with the Plan for Doing Business while the Plan for Doing
Business is required to be in effect, so that the receipt of Special Allowance
Payments by the Trustee with respect to Financed Student Loans will not be
adversely affected. Such compliance shall include, without limitation,
satisfying the assurances of the Original Issuer contained under the headings of
the Plan for Doing Business relating to Sections 438(e)(2)(A), (C), (D) (which
includes Section 438(e)(3) of the Higher Education Act), (E) and (F) of the
Higher Education Act. The Servicer shall advise the Original Issuer if any
amendments to the Plan for Doing Business are required from time to time, and
shall assist the Original Issuer in preparing and filing any such amendments to
the Plan for Doing Business.
24. Indemnification. The Servicer shall indemnify and hold
harmless the Issuer and the Trustee from and against any loss, cost, damage or
expense, including reasonable attorney's fees, to the extent that such loss,
cost, damage or expense arises out of the Servicer's failure to perform its
obligations under this Agreement. In addition, and without limiting the
generality of the foregoing, the Servicer shall defend and indemnify the Issuer
and the Trustee against, and hold each harmless from, all claims, losses,
liabilities and expenses (including reasonable attorneys' fees) arising from or
in connection with:
a. any claim of infringement of any patent, trade secret,
copyright, trademark, service mark, trade name or other
proprietary right alleged to have occurred as a result of
the
26
<PAGE>
performance of services hereunder by the Servicer; or
b. any claim by an employee of the Servicer arising in
consequence of, or relating to, the employee's employment by
the Servicer.
25. Miscellaneous.
a. Any material written communication received at any time by
the Issuer or the Trustee with respect to a Financed Student
Loan or the Borrower under such a Financed Student Loan
shall be immediately transmitted by the Issuer or the
Trustee, as the case may be, to the Servicer. Such
communications shall include but not be limited to letters,
notices of death or disability, adjudications of bankruptcy
and like documents, and forms requesting forbearance,
deferment of repayment or loan cancellations.
b. This Servicing Agreement shall be governed by the laws of
the State of South Dakota.
c. All covenants and agreements herein contained shall extend
to and be obligatory upon all successors and assigns of the
respective parties hereto.
d. This Servicing Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and
all of which shall be deemed to constitute but one and the
same instrument.
e. If any provisions of this Servicing Agreement shall be held,
or deemed to be, or shall, in fact, be inoperative or
unenforceable as applied in any particular situation, such
circumstance shall not have the effect of rendering any
other provision or provisions herein contained invalid,
inoperative or unenforceable to any extent whatsoever. The
invalidity of any one or more phrases, sentences, clauses or
paragraphs herein contained shall not affect the remaining
portions of this Servicing Agreement or any part hereof.
f. All notices, requests, demands or other instruments which
may or are required to be
27
<PAGE>
given by any party to another party, shall be in writing,
and each shall be deemed to have been properly given when
served personally on an officer of the party to which such
notice is to be given, or upon expiration of a period of 48
hours (excluding weekends and holidays) from and after the
postmark thereof when mailed postage prepaid by registered
or certified mail, requesting return receipt, addressed as
follows:
If intended for the Issuer:
Education Loans Incorporated
Suite 200
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attention: President
or, if intended for the Trustee:
First Bank National Association
P.O. Box 5308
141 North Main Avenue
Sioux Falls, South Dakota 57104-6429
Attention: Corporate Trust Department
or, if intended for the Servicer:
Student Loan Finance Corporation
105 First Avenue Southwest
Aberdeen, South Dakota 57401
Attention: President
Any party may change the address to which subsequent notices
are to be sent to it by notice to the others given as
aforesaid, but any such notice of change, if sent by mail,
shall not be effective until the fifth business day after it
is mailed.
g. This Servicing Agreement may not be terminated by any party
hereto except in the manner and with the effect herein
specifically provided.
h. Time is of the essence in this Servicing Agreement.
i. No remedy by the terms of this Servicing Agreement conferred
upon or reserved to the Trustee or the Issuer is intended to
be
28
<PAGE>
exclusive of any other remedy, but each and every such
remedy shall be cumulative and in addition to every other
remedy given under this Servicing Agreement or existing at
law or in equity or by statute on or after the date of this
Servicing Agreement including, without limitation, the right
to such equitable relief by way of injunction, mandatory or
prohibitory, to prevent the breach or threatened breach of
any of the provisions of this Servicing Agreement or to
enforce the performance hereof.
j. This Servicing Agreement has been made and entered into not
only for the benefit of the Issuer, the Trustee and the
Servicer, but also for the benefit of all holders of
Outstanding Notes, and its provisions may be enforced not
only by the parties to this Servicing Agreement but also by
the holders of Outstanding Notes in the manner and to the
extent such holders may enforce provisions of the Indenture.
The Servicer specifically acknowledges the rights of the
Trustee pursuant to Section 6.3 of the Indenture.
k. Any information required by this Servicing Agreement to be
provided by the Servicer with respect to a Financed Student
Loan may in the case of Financed Student Loans that have
been consolidated be provided with respect to the
consolidated Financed Student Loan, provided that such
information at a minimum meets the requirements of the
Secretary of Education and the Guarantee Agency, as the case
may be, for the collection by the Trustee of interest
subsidy payments, Special Allowance Payments, and claim
payments, and provides sufficient information as requested
by the Issuer to enable the Issuer to comply with any
arbitrage requirements under the Internal Revenue Code of
1986, as amended, and the regulations thereunder.
l. The Servicer specifically acknowledges that the Issuer will
be making representations and warranties regarding the
Student Loans to be Financed as part of the proposed public
offering of the Notes based in part on the accuracy of the
Servicer's representations and warranties in this Servicing
Agreement. The Servicer agrees to cooperate with the Issuer
29
<PAGE>
and to furnish all information in its possession appropriate
for inclusion in the Issuer's Prospectus. The Servicer
agrees to indemnify and save the Trustee, the Issuer and the
underwriters for the Notes harmless of, from and against any
and all loss, cost, damage or expense, including reasonable
attorneys' fees, incurred by reason of any breach of the
Servicer's warranties or representations hereunder or any
false or misleading representations of the Servicer or any
failure to disclose any matter which makes the warranties
and representations herein misleading or any inaccuracy in
any information furnished by the Servicer in connection
herewith.
30
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands by their
officers thereunto duly authorized and executed this Servicing Agreement as of
the day and year first above written.
EDUCATION LOANS INCORPORATED
BY:_________________________________________
Its __________
STUDENT LOAN FINANCE CORPORATION
BY:_________________________________________
Its President
FIRST BANK NATIONAL ASSOCIATION
BY:_________________________________________
Its:________________________________________
31
<PAGE>
EXHIBIT A
Student Loan Finance Corporation
Noteholders' Statement Pursuant to Section 5.23 of the Indenture and Section 21
of the Servicing Agreement (Unaudited)
Education Loans Incorporated
Student Loan Asset-Backed Callable Notes, Series 1997-1
Report for the Month Ended __________, ____ [sample for July 31, 1997]
I. Noteholder Information
A. Identification of Notes
<TABLE>
<CAPTION>
Series Description Cusip # Due Date
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1997-1A Senior Tax Exempt Auction Rate Notes... #####___# June 1, 2020
1997-1B Senior Tax Exempt Auction Rate Notes... #####___# June 1, 2020
1997-1C Senior Tax Exempt Auction Rate Notes... #####___# June 1, 2020
1997-1D Senior Tax Exempt Auction Rate Notes... #####___# June 1, 2020
1997-1E Senior Tax Exempt Auction Rate Notes... #####___# June 1, 2020
1997-1F Senior Tax Exempt Fixed Rate Notes..... #####___# June 1, 2010
1997-1F Senior Tax Exempt Fixed Rate Notes..... #####___# June 1, 2020
1997-1G Senior Taxable Auction Rate Notes...... #####___# June 1, 2020
1997-1H Senior Taxable Auction Rate Notes...... #####___# June 1, 2020
1997-1I Senior Taxable LIBOR Rate Notes........ #####___# June 1, 2002
1997-1J Senior Taxable LIBOR Rate Notes........ #####___# June 1, 2020
1997-1K Subordinate Tax Exempt Fixed Rate Notes #####___# June 1, 2020
1997-1L Subordinate Taxable LIBOR Rate Notes... #####___# June 1, 2020
</TABLE>
B. Notification of Prepayments of LIBOR Rate Notes
<TABLE>
<CAPTION>
Determination Date - Aug. 12, 1997 Record Date - Aug. 31, 1997 Prepayment Date - Sept. 1, 1997
---------------------------------- --------------------------- -------------------------------
Aggregate Payments
-------------------------------------------------------------------- Principal Applicable
Interest on Carry- Carry-Over Amount After Interest Rate
Series Principal Interest Over Amounts Amounts Total Prepayment On Notes
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997-1I $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 0.0000%
1997-1J 0.00 0.00 0.00 0.00 0.00 0.00 0.0000
1997-1L 0.00 0.00 0.00 0.00 0.00 0.00 0.0000
-----------------------------------------------------------------------------------------------------
Total $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
=====================================================================================================
Payment Per $100,000 Unit
-------------------------------------------------------------------- Principal Principal
Interest on Carry- Carry-Over Amount After Factor After
Series Principal Interest Over Amounts Amounts Total Prepayment Prepayment
- ----------------------------------------------------------------------------------------------------------------------
1997-1I $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 0.0000000
1997-1J 0.00 0.00 0.00 0.00 0.00 0.00 0.0000000
1997-1L 0.00 0.00 0.00 0.00 0.00 0.00 0.0000000
</TABLE>
32
<PAGE>
C. Principal Outstanding - July, 1997
----------------------------------
<TABLE>
<CAPTION>
Principal Principal Principal
Outstanding, Payments Outstanding
Series Start of Month During Month End of Month
- ------------------------------------------------------
<S> <C> <C> <C>
1997-1A $0.00 $0.00 $0.00
1997-1B 0.00 0.00 0.00
1997-1C 0.00 0.00 0.00
1997-1D 0.00 0.00 0.00
1997-1E 0.00 0.00 0.00
1997-1F:
6-1-10 0.00 0.00 0.00
6-1-20 0.00 0.00 0.00
1997-1G 0.00 0.00 0.00
1997-1H 0.00 0.00 0.00
1997-1I 0.00 0.00 0.00
1997-1J 0.00 0.00 0.00
1997-1K 0.00 0.00 0.00
1997-1L 0.00 0.00 0.00
-----------------------------------------
Totals $0.00 $0.00 $0.00
=========================================
</TABLE>
D. Accrued Interest Outstanding - July, 1997
-----------------------------------------
<TABLE>
<CAPTION>
Accrued Interest Interest Interest Accrued Interest Interest
Outstanding, Accrued Payments Outstanding, Rate As Of
Series Start of Month During Month During Month End of Month End of Month Net Loan Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997-1A $0.00 $0.00 $0.00 $0.00 0.0000%
1997-1B 0.00 0.00 0.00 0.00 0.0000
1997-1C 0.00 0.00 0.00 0.00 0.0000
1997-1D 0.00 0.00 0.00 0.00 0.0000
1997-1E 0.00 0.00 0.00 0.00 0.0000
1997-1F:
6-1-10 0.00 0.00 0.00 0.00 0.0000
6-1-20 0.00 0.00 0.00 0.00 0.0000
1997-1G 0.00 0.00 0.00 0.00 0.0000 0.0000%
1997-1H 0.00 0.00 0.00 0.00 0.0000 0.0000
1997-1I 0.00 0.00 0.00 0.00 0.0000 0.0000
1997-1J 0.00 0.00 0.00 0.00 0.0000 0.0000
1997-1K 0.00 0.00 0.00 0.00 0.0000
1997-1L 0.00 0.00 0.00 0.00 0.0000 0.0000
-----------------------------------------------------------
Totals $0.00 $0.00 $0.00 $0.00
===========================================================
</TABLE>
33
<PAGE>
E. Noteholders' Interest Carry-Over Amounts - July, 1997
<TABLE>
<CAPTION>
Carry-Over Carry-Over
Amounts, Additions Payments Amounts,
Series Start of Month During Month During Month End of Month
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997-1G $0.00 $0.00 $0.00 $0.00
1997-1H 0.00 0.00 0.00 0.00
1997-1I 0.00 0.00 0.00 0.00
1997-1J 0.00 0.00 0.00 0.00
1997-1L 0.00 0.00 0.00 0.00
-----------------------------------------------------------------
Totals $0.00 $0.00 $0.00 $0.00
=================================================================
</TABLE>
F. Noteholders' Accrued Interest on Carry-Over Amounts - July, 1997
<TABLE>
<CAPTION>
Accrued Interest Interest Accrued
Interest, Accrued Payments Interest,
Series Start of Month During Month During Month End of Month
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997-1G $0.00 $0.00 $0.00 $0.00
1997-1H 0.00 0.00 0.00 0.00
1997-1I 0.00 0.00 0.00 0.00
1997-1J 0.00 0.00 0.00 0.00
1997-1L 0.00 0.00 0.00 0.00
----------------------------------------------------------------
Totals $0.00 $0.00 $0.00 $0.00
================================================================
</TABLE>
II. Fund Information
A. Reserve Fund - July, 1997
<TABLE>
<CAPTION>
Tax Exempt Taxable Total
-----------------------------
<S> <C> <C> <C>
Balance, Start of Month.......................... $0.00 $0.00 $0.00
Additions During Month........................... 0.00 0.00 0.00
Withdrawals During Month......................... 0.00 0.00 0.00
-----------------------------
Balance, End of Month............................ $0.00 $0.00 $0.00
=============================
</TABLE>
B. Acquisition Fund (Unexpended Portion) - July, 1997
<TABLE>
<CAPTION>
Tax Exempt Taxable Total
-----------------------------
<S> <C> <C> <C>
Balance, Start of Month.......................... $0.00 $0.00 $0.00
Withdrawals for Acquisition of Eligible Loans:
Principal Acquired............................. 0.00 0.00 0.00
Premiums and Related Acquisition Costs......... 0.00 0.00 0.00
-----------------------------
Balance, End of Month............................ $0.00 $0.00 $0.00
=============================
</TABLE>
34
<PAGE>
III. Student Loan Information
A. Student Loan Principal Outstanding - July, 1997
<TABLE>
<CAPTION>
Tax Exempt Taxable Total
----------------------------------
<S> <C> <C> <C>
Balance, Start of Month..................... $ 0.00 $ 0.00 $ 0.00
Loans Purchased/Originated.................. 0.00 0.00 0.00
Capitalized Interest........................ 0.00 0.00 0.00
Less: Principal Payments Received.......... (0.00) (0.00) (0.00)
----------------------------------
Balance, End of Month....................... $ 0.00 $ 0.00 $ 0.00
==================================
</TABLE>
B. Composition of Student Loan Portfolio as of July 31, 1997
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Aggregate Outstanding Principal Balance........................... $0.00
Number of Borrowers............................................... 0
Average Outstanding Principal Balance per Borrower................ $ 0
Number of Loans (Promissory Notes)................................ 0
Average Outstanding Principal Balance Per Loan.................... $ 0
Repayment Status Loans:
Weighted Average Remaining Term (Months)....................... 0
Weighted Average Payments Received (Months).................... 0
Weighted Average Interest Rate.................................... 0.00%
</TABLE>
C. Distribution of Student Loan Portfolio by Loan Type as of July 31, 1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Loan Types Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Stafford - Subsidized................ 0 $1.00 100.0%
Stafford - Unsubsidized.............. 0 0.00 0.0
Stafford - Nonsubsidized............. 0 0.00 0.0
PLUS................................. 0 0.00 0.0
SLS.................................. 0 0.00 0.0
Consolidation........................ 0 0.00 0.0
-------------------------------------
Total................................ 0 $1.00 100.0%
=====================================
</TABLE>
D. Distribution of Student Loan Portfolio by Interest Rate as of July 31, 1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Interest Rate Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less Than 7.00%................ 0 $1.00 100.0%
7.00% to 7.49%................. 0 0.00 0.0
7.50% to 7.99%................. 0 0.00 0.0
8.00% to 8.49%................. 0 0.00 0.0
8.50% to 8.99%................. 0 0.00 0.0
9.00% to 9.49%................. 0 0.00 0.0
9.50% or Greater............... 0 0.00 0.0
-------------------------------------------
Total.......................... 0 $1.00 100.0%
===========================================
</TABLE>
35
<PAGE>
E. Distribution of Student Loan Portfolio by School Type as of July 31, 1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
School Type Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Under 4 Year............ 0 $1.00 100.0%
4 and 5 Year............ 0 0.00 0.0
Proprietary............. 0 0.00 0.0
Consolidation........... 0 0.00 0.0
Other/Unknown........... 0 0.00 0.0
--------------------------------------------------
Total................... 0 $1.00 100.0%
==================================================
</TABLE>
F. Distribution of Student Loan Portfolio by Borrower Payment Status as of
July 31, 1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Borrower Payment Status Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
School................... 0 $0.00 0.0%
Grace.................... 0 0.00 0.0
Repayment................ 0 1.00 100.0
Deferment................ 0 0.00 0.0
Forbearance.............. 0 0.00 0.0
Claims................... 0 0.00 0.0
--------------------------------------------
Total.................... 0 $1.00 100.0%
============================================
</TABLE>
G. Distribution of Repayment Status Loans by Year of Repayment as of July 31,
1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Year of Repayment Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First Year............... 0 $1.00 100.0%
Second Year.............. 0 0.00 0.0
Third Year............... 0 0.00 0.0
Fourth Year and Greater.. 0 0.00 0.0
------------------------------------------------
Total.................... 0 $1.00 100.0%
================================================
</TABLE>
36
<PAGE>
H. Distribution of Repayment Status Loans by Remaining Term as of July 31,
1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Remaining Term Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 to 12 Months........... 0 $1.00 100.0%
13 to 24 Months.......... 0 0.00 0.0
25 to 36 Months.......... 0 0.00 0.0
37 to 48 Months.......... 0 0.00 0.0
49 to 60 Months.......... 0 0.00 0.0
61 to 72 Months.......... 0 0.00 0.0
73 to 84 Months.......... 0 0.00 0.0
85 to 96 Months.......... 0 0.00 0.0
97 to 108 Months......... 0 0.00 0.0
109 to 120 Months........ 0 0.00 0.0
121 to 180 Months........ 0 0.00 0.0
181 to 240 Months........ 0 0.00 0.0
241 to 300 Months........ 0 0.00 0.0
Over 300 Months.......... 0 0.00 0.0
--------------------------------------------
Total.................... 0 $1.00 100.0%
============================================
</TABLE>
I. Distribution of Student Loan Portfolio by Delinquency Status as of July 31,
1997
<TABLE>
<CAPTION>
Percent by Outstanding Balance
-------------------------------
Outstanding Repayment,
Number Principal Deferment, All Loans in
Delinquency Status Of Borrowers Balance Forbearance and Portfolio
Claims Status
Loans Only
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
31 - 60 Days................ 0 $1.00 100.0% 100.0%
61 to 90 Days............... 0 0.00 0.0% 0.0%
91 to 120 Days.............. 0 0.00 0.0% 0.0%
121 to 180 Days............. 0 0.00 0.0% 0.0%
181 to 270 Days............. 0 0.00 0.0% 0.0%
Over 270 Days............... 0 0.00 0.0% 0.0%
Claims Filed, Not Yet Paid.. 0 0.00 0.0% 0.0%
----------------------------------------------------------
Total....................... 0 $1.00 100.0% 100.0%
==========================================================
</TABLE>
J. Distribution of Student Loan Portfolio by Guarantee Status as of July 31,
1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Guarantee Status Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Guaranteed 100%....... 0 $1.00 100.0%
Guaranteed 98%........ 0 0.00 0.0%
Unguaranteed.......... 0 0.00 0.0%
-----------------------------------------------
Total................. 0 $1.00 100.0%
===============================================
</TABLE>
37
<PAGE>
K. Distribution of Student Loan Portfolio by Guarantee Agency as of July 31,
1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Guarantee Agency Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EAC.......................... 0 $1.00 100.0%
PHEAA........................ 0 0.00 0.0%
Other Guarantee Agencies..... 0 0.00 0.0%
Unguaranteed................. 0 0.00 0.0%
---------------------------------------------
Total........................ 0 $1.00 100.0%
=============================================
</TABLE>
L. Distribution of Student Loan Portfolio by Range of Principal Balance as of
July 31, 1997
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
Principal Balance Range Of Borrowers Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less Than $1,000......... 0 $1.00 100.0%
$1,000 to $1,999......... 0 0.00 0.0
$2,000 to $2,999......... 0 0.00 0.0
$3,000 to $3,999......... 0 0.00 0.0
$4,000 to $4,999......... 0 0.00 0.0
$5,000 to $5,999......... 0 0.00 0.0
$6,000 to $6,999......... 0 0.00 0.0
$7,000 to $7,999......... 0 0.00 0.0
$8,000 to $8,999......... 0 0.00 0.0
$9,000 to $9,999......... 0 0.00 0.0
$10,000 to $10,999....... 0 0.00 0.0
$11,000 to $11,999....... 0 0.00 0.0
$12,000 to $12,999....... 0 0.00 0.0
$13,000 to $13,999....... 0 0.00 0.0
$14,000 to $14,999....... 0 0.00 0.0
$15,000 or Greater....... 0 0.00 0.0
-------------------------------------------------
Total.................... 0 $1.00 100.0%
=================================================
</TABLE>
38
<PAGE>
M. Distribution of Student Loan Portfolio by Borrowers' Address as of July 31,
1997 (Based on Address as of August 4, 1997)
<TABLE>
<CAPTION>
Outstanding Percent By
Number Principal Outstanding
State of Borrowers' Address Of Loans Balance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
South Dakota................. 0 $1.00 100.0%
Minnesota.................... 0 0.00 0.0
North Dakota................. 0 0.00 0.0
Iowa......................... 0 0.00 0.0
Nebraska..................... 0 0.00 0.0
Colorado..................... 0 0.00 0.0
Washington................... 0 0.00 0.0
Oregon....................... 0 0.00 0.0
California................... 0 0.00 0.0
Texas........................ 0 0.00 0.0
Wisconsin.................... 0 0.00 0.0
Illinois..................... 0 0.00 0.0
Idaho........................ 0 0.00 0.0
Arizona...................... 0 0.00 0.0
Alaska....................... 0 0.00 0.0
Others Less Than 1% Each..... 0 0.00 0.0
---------------------------------------------
Total........................ 0 $1.00 100.0%
=============================================
</TABLE>
39
<PAGE>
N. Fees and Expenses Accrued For/Through July, 1997
<TABLE>
<CAPTION>
For The 1
Month Ended
July, 1997 July 31, 1997
----------------------------------
<S> <C> <C>
Servicing Fees........................ $0.00 $0.00
Indenture Trustee Fees................ 0.00 0.00
Broker/Dealer Fees.................... 0.00 0.00
Auction Agent Fees.................... 0.00 0.00
Other Permitted Expenses.............. 0.00 0.00
----------------------------------
Total................................. $0.00 $0.00
==================================
</TABLE>
O. Principal Write-Offs and Recoveries For/Through July, 1997
<TABLE>
<CAPTION>
For The 1
Month Ended
July, 1997 July 31, 1997
----------------------------------
<S> <C> <C>
Principal Write-Offs:
2% Losses on 98% Claims............ $0.00 $0.00
Other Write-Offs................... 0.00 0.00
Recoveries............................ 0.00 0.00
----------------------------------
Net Write-Offs........................ $0.00 $0.00
==================================
</TABLE>
P. Ratio of Assets to Liabilities as of July 31, 1997
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Total Indenture Assets................ $ 1.00
Total Indenture Liabilities........... 1.00
--------
Ratio................................. 100.0%
========
</TABLE>
40
<PAGE>
EXHIBIT 99.3
[FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT]
================================================================================
ASSIGNMENT AND ASSUMPTION AGREEMENT
by and among
EDUCATION LOANS INCORPORATED,
a South Dakota nonprofit corporation,
STUDENT LOAN FINANCE CORPORATION,
EDUCATION LOANS INCORPORATED,
a Delaware corporation,
and
FIRST BANK NATIONAL ASSOCIATION,
as Trustee,
_______________________________________
Dated as of November _______, 1997
_______________________________________
================================================================================
<PAGE>
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of November
_______, 1997 (this "Agreement"), is being entered into by and among EDUCATION
LOANS INCORPORATED, a South Dakota nonprofit corporation (the "Original
Issuer"), STUDENT LOAN FINANCE CORPORATION, a South Dakota corporation ("SLFC"),
EDUCATION LOANS INCORPORATED, a Delaware corporation ("EdLinc"), and FIRST BANK
NATIONAL ASSOCIATION, Minneapolis, Minnesota, a national banking association
duly established and existing under the laws of the United States of America, as
Trustee (the "Trustee") under a certain Indenture of Trust, as hereinafter
described;
W I T N E S S E T H:
WHEREAS, the Original Issuer and the Trustee have entered into an
Indenture of Trust and a First Supplemental Indenture of Trust, each dated as of
July 1, 1997 (such Indenture of Trust, as heretofore and hereafter supplemented
and amended, including by such First Supplemental Indenture of Trust, being
herein referred to as the "Indenture); and
WHEREAS, pursuant to the Indenture, the Original Issuer has issued its
Student Loan Asset-Backed Callable Notes, Series 1997-1 (together with any
additional notes hereafter issued under the Indenture, the "Notes"), and has
undertaken obligations with respect to the Notes, the proceeds thereof, assets
acquired with such proceeds and certain other matters; and
WHEREAS, the Original Issuer has entered into two Auction Agent
Agreements, each dated as of July 1, 1997 (the "Auction Agent Agreements"), with
the Trustee and Bankers Trust Company (the "Auction Agent"), under which it has
undertaken obligations with respect to the Notes, the holding of auctions in
respect thereof and certain other matters; and
WHEREAS, the Original Issuer has entered into Student Loan Purchase
Agreements with various Lenders, under which it has undertaken obligations with
respect to the purchase of student loans thereunder and related matters; and
WHEREAS, the Original Issuer has, in accordance with Section 150(d)(3)
of the Internal Code of 1954, as amended, agreed to transfer to SLFC, and SLFC
has, in turn, agreed to transfer to EdLinc, all of the Original Issuer's right,
title and interest in and to (i) the Trust Estate under the Indenture, (ii) the
Auction Agent Agreements and (iii) the Student Loan Purchase Agreements; and
WHEREAS, in consideration for such transfers, SLFC and EdLinc have
each, in turn, agreed to assume all of the Original Issuer's obligations under
the
-1-
<PAGE>
Indenture, the Notes, the Auction Agent Agreements and all Student Loan Purchase
Agreements;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Original Issuer, SLFC and EdLinc agree as
follows:
Section 1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings given such terms in the
Indenture.
Section 2. Assignment to SLFC. The Original Issuer hereby conveys,
transfers and assigns to SLFC all of its right, title and interest in and to (i)
the Trust Estate under the Indenture, (ii) the Auction Agent Agreements and
(iii) the Student Loan Purchase Agreements.
Section 3. Assumption of Obligations by SLFC. SLFC hereby agrees to
be bound, as successor to the Original Issuer, by all of the terms, covenants
and conditions of the Indenture, the Notes, each Auction Agent Agreement and
each Student Loan Purchase Agreement. SLFC hereby assumes, for the benefit of
the Original Issuer, the Trustee, each Noteholder and each other party to the
Auction Agent Agreements and Student Loan Purchase Agreements, all of the
obligations of the Original Issuer under the Indenture, the Notes, each Auction
Agent Agreement and each Student Loan Purchase Agreement from and after the date
of this Agreement.
Section 4. Release of Original Issuer. The Trustee hereby
acknowledges and agrees that, upon the assumption by SLFC under Section 2
hereof, SLFC has become the successor to the Original Issuer as the Corporation
under the Indenture and the Notes for all intents and purposes, and the Original
Issuer has no further obligations or liabilities thereunder from and after the
date of this Agreement.
Section 5. Assignment to EdLinc. SLFC hereby conveys, transfers and
assigns to EdLinc all of its right, title and interest in and to (i) the Trust
Estate under the Indenture, (ii) the Auction Agent Agreements and (iii) the
Student Loan Purchase Agreements.
Section 6. Assumption of Obligations by EdLinc. EdLinc hereby
agrees to be bound, as successor to SLFC and the Original Issuer, by all of the
terms, covenants and conditions of the Indenture, the Notes, each Auction Agent
Agreement and each Student Loan Purchase Agreement. EdLinc hereby assumes, for
the benefit of SLFC, the Trustee, each Noteholder and each other party to the
Auction Agent Agreements and Student Loan Purchase Agreements, all of the
obligations of SLFC and the Original Issuer under the Indenture, the Notes, each
-2-
<PAGE>
Auction Agent Agreement and each Student Loan Purchase Agreement from and after
the date of this Agreement.
Section 7. Release of SLFC. The Trustee hereby acknowledges and
agrees that, upon the assumption by EdLinc under Section 4 hereof, EdLinc has
become the successor to SLFC and the Original Issuer as the Corporation under
the Indenture and the Notes for all intents and purposes, and neither the
Original Issuer or the SLFC has any further obligation or liability thereunder
from and after the date of this Agreement.
Section 8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Dakota applicable to
agreements made and to be performed in such state, it being understood that the
corporate powers and legal capacity of EdLinc shall be construed and interpreted
in accordance with the laws of the State of Delaware.
Section 9. Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof, and there
are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof.
Section 10. Benefits. Nothing herein, express or implied, shall
give to any person, other than the Trustee, acting on behalf of the beneficial
owners of the Notes, the Auction Agent under each Auction Agent Agreement, the
Lender under each Student Loan Purchase Agreement and their respective
successors and assigns, any benefit of any legal or equitable right, remedy or
claim hereunder.
Section 11. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a
written instrument signed by duly authorized representatives of the parties
hereto.
(b) Failure of a party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by any other party shall not
constitute a waiver of any such right or remedy with respect to any
subsequent breach.
Section 12. Successors and Assigns. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by the respective successors
and assigns of each of the Original Issuer, SLFC, EdLinc and the Trustee. This
Agreement may not be assigned by any party hereto absent the prior written
consent of the other parties hereto, which consents shall not be unreasonably
withheld.
-3-
<PAGE>
Section 14. Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
EDUCATION LOANS INCORPORATED,
a South Dakota nonprofit
corporation
By:
---------------------------
Title: President
STUDENT LOAN FINANCE
CORPORATION
By:
---------------------------
Title: President
EDUCATION LOANS INCORPORATED,
a Delaware corporation
By:
---------------------------
Title: President
FIRST BANK NATIONAL
ASSOCIATION, as Trustee
By:
-----------------------
Title: Trust Officer
-4-
