<PAGE>
As filed with the Securities and Exchange Commission on August 26, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
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)
105 First Avenue Southwest
Aberdeen, South Dakota 57401
(605) 622-4400
(Address, including zip code, and telephone number, including area code,
of registrants' 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:
Michael E. Reeslund, 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) 340-2960 (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.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed Proposed
Title of Each Amount Maximum Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Share* Offering Price Fee
- --------------------------------------------------------------------------------
Student Loan Asset-Backed
Notes, Series 1999-1 $1,000,000 100% $1,000,000 $278
- --------------------------------------------------------------------------------
* Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to Completion, Dated ______________, 1999
Prospectus Supplement
$ Student Loan Asset-Backed Notes, Series 1999-[X]
-------------------------
EDUCATION LOANS INCORPORATED
Consider carefully the risk factors beginning on page 4 in the prospectus and
page S-4 of this prospectus supplement
The notes will represent obligations of EdLinc only and will not represent
interests in or obligations of the servicer, the transferor or any of their
affiliates. The notes are not a deposit and are not insured or guaranteed by any
person. Except as noted in this document and the accompanying prospectus, the
underlying accounts and student loans are not insured or guaranteed by any
governmental agency.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
EdLinc will issue: Senior Notes Subordinate Notes Total
------------------ ------------ ----------------- -----
Principal Amount $_______________ $________________ $___________
Interest Rate One-Month One-Month
LIBOR plus [ ]%, LIBOR plus [ ]%,
subject to a cap subject to a cap
of [18%] and of [18%] and
the net loan rate the net loan rate
Interest Paid monthly monthly
First Interest
Payment Date [_______] [_______]
Stated Maturity
Date ____________ ____________
Price to Public ________________% ________________% $___________
Underwriting
Discount ________________% ________________% $___________
Proceeds to Issuer ________________% ________________% $___________
- --------------------
The Subordinate Notes are subordinated to the Senior Notes.
Neither the SEC nor any state securities commission has approved these
notes or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Salomon Smith Barney
_____________, 1999
<PAGE>
Important Notice About The Information in
Your Prospectus Supplement and Prospectus
EdLinc provides information to you about the notes in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information,
some of which may not apply to your notes; and
o this prospectus supplement, which describes the specific terms of
your notes.
If the terms of your series of notes disclosed in this prospectus
supplement vary from the disclosure in the accompanying prospectus, you should
rely on the information in this prospectus supplement.
This prospectus supplement includes cross-references to captions in this
prospectus supplement or the accompanying prospectus where you can find further
related discussions. These cross-references are to sections contained in this
prospectus supplement unless you are told otherwise. The following table of
contents and the table of contents included in the accompanying prospectus
provide the pages on which these captions are located.
[EdLinc will not list the notes on any trading exchange.]
[EdLinc has filed preliminary information with the SEC regarding the notes
and the assets making up the trust estate to be used to pay the notes. The
information contained in this document supersedes all of that preliminary
information, which was prepared by the underwriter for prospective investors.]
-----------------------
Until ________, all dealers that effect transactions in the notes of this
series, whether or not participating in this offering, may be required to
deliver a prospectus and prospectus supplement. This requirement is in addition
to the dealers' obligation to deliver a prospectus and prospectus supplement
when acting as underwriters for their unsold allotments or subscriptions.
S-2
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF TERMS..................................S-4
RISK FACTORS......................................S-9
USE OF PROCEEDS...................................S-9
THE FINANCED STUDENT LOANS.......................S-10
Incentive Programs..........................S-16
MATURITY AND PREPAYMENT
CONSIDERATIONS...................................S-16
Maturity and Prepayment
Assumptions.............................S-16
Weighted Average Life of
the Series 1999-[X] Notes...............S-18
SERVICING........................................S-19
General.....................................S-19
[Name of Sub-Servicer]......................S-19
THE GUARANTEE AGENCIES...........................S-19
General.....................................S-19
[Name of Guarantee Agency]..................S-20
DESCRIPTION OF THE SERIES 1999-[X]
NOTES......................................S-20
Generally...................................S-20
Interest Rate on the Series
1999-[X] Notes..........................S-21
Carry-Over Amounts on the Series
1999-[X] Notes..........................S-22
Page
Interest Limited to the Extent
Permissible by Law......................S-23
Prepayment and Redemption
of Series 1999-[X] Notes................S-23
SOURCE OF PAYMENT AND
SECURITY FOR THE SERIES
1999-[X] NOTES..............................S-25
Subordination of the Subordinate
Series 1999-[X] Notes...................S-25
[Prior Notes and Series 1999-[X]
Notes..................................S-25]
[Summary of Indenture Assets,
Liabilities and Fund Balances
and Statement of Revenue,
Expense and Changes in Fund
Balances of the Indenture..............S-25]
THE TRUSTEE......................................S-27
[CERTAIN RELATIONSHIPS AMONG
FINANCING PARTICIPANTS....................S-28]
UNDERWRITING.....................................S-28
LEGAL MATTERS....................................S-29
RATING ...................................S-29
S-3
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this document and does not
contain all of the information you need to make your investment decision. To
understand all of the terms of this offering, read this entire document and the
accompanying prospectus.
EDLINC
Education Loans Incorporated, a Delaware corporation and wholly-owned subsidiary
of Student Loan Finance Corporation, will issue the notes and acquire student
loans with the proceeds. EdLinc's principal place of business is located at 105
First Avenue Southwest, Suite 200, Aberdeen, South Dakota 57401, and its phone
number is (605) 622-4400.
THE TRANSFEROR
GOAL Funding, Inc., a Delaware corporation and wholly-owned subsidiary of
Student Loan Finance Corporation, will transfer to EdLinc on the closing date
most of the student loans to be financed with proceeds of the notes of this
series.
STUDENT LOAN FINANCE CORPORATION
Student Loan Finance Corporation, a South Dakota corporation:
o has acquired alternative student loans from unaffiliated lenders and
transferred them to the transferor (which loans will be transferred
to EdLinc on the closing date);
o will acquire alternative student loans from unaffiliated lenders and
transfer them directly to EdLinc during the 270-month period after
the closing date ; and
o will be the servicer and the administrator.
THE SERVICER
Student Loan Finance Corporation will be the servicer of the student loans
acquired by EdLinc from proceeds of the notes. It may, however, employ one or
more other institutions to service the loans on its behalf on a day-to-day
basis.
THE ADMINISTRATOR
Student Loan Finance Corporation will perform various administrative activities
and obligations for EdLinc in connection with acquiring student loans and
meeting reporting and other requirements under the indenture.
THE TRUSTEE
U.S. Bank National Association will be the trustee under the indenture.
TRUST ESTATE ASSETS
The student loans that secure your notes will consist of:
o a portfolio of loans to be transferred by the transferor to EdLinc
on the closing date, which had an aggregate principal balance as of
of approximately $ ;
S-4
<PAGE>
o loans to be acquired during the 270- month period after the closing
date, which will have an aggregate principal balance when acquired
of approximately $_________;
[o loans acquired with proceeds of previous series of notes, which had
an aggregate principal balance as of _________ of approximately
$_________;] and
o loans to be acquired with proceeds of any subsequent series of notes
and other available moneys under the indenture.
Student Loan Finance Corporation, the transferor or EdLinc have acquired or will
acquire these loans from unaffiliated lenders. Any loans not acquired by EdLinc
directly from unaffiliated lenders will be transferred to EdLinc by the
transferor or Student Loan Finance Corporation.
The moneys in the funds and accounts under the indenture will also secure your
notes.
[FFELP LOANS
_________% of the initial student loans are FFELP loans. Third party agencies
guarantee the payment of both principal and interest on FFELP loans. The extent
of the guarantee ranges from 98% to 100%. See "The Financed Student Loans" and
"The Guarantee Agencies" in this prospectus supplement and "Description of the
FFELP Program" and "Description of the Guarantee Agencies" in the prospectus.]
[ALTERNATIVE LOANS
_________% of the initial student loans are alternative loans. No third party
guarantees payment of the alternative loans. See "The Financed Student Loans" in
this prospectus supplement and "Description of the Alternative Loan Programs" in
the prospectus.]
THE TRUSTEE
U.S. Bank National Association will be the trustee under the indenture, as well
as the eligible lender trustee for purposes of holding legal title to all FFELP
loans.
CLOSING DATE
Issuance _________ of the notes is scheduled for , 1999.
THE DAY OF THE MONTH SCHEDULED PAYMENTS ARE MADE
All payments due in a given month will be paid on the 1st day of that month. If
the 1st is not a business day, payments will be made on the business day
following the 1st.
INTEREST
Senior Notes
Interest is paid monthly on the senior notes of this series. The initial
interest rate on the senior notes of this series is fixed at ___% per year.
Beginning _________, ____, the interest rate on the senior notes of this series
will be adjusted monthly to equal the lesser of:
S-5
<PAGE>
o one-month LIBOR plus _________% per year; or
o [18%] per year.
The adjusted monthly interest rate on the senior notes of this series for each
period will be capped, however, at the net loan rate for that period.
Subordinate Notes
Interest is paid monthly on the subordinate notes of this series. The initial
interest rate on the subordinate notes of this series is fixed at ___% per year.
Beginning _________, ____, the interest rate on the subordinate notes of this
series will be adjusted monthly to equal the lesser of:
o one-month LIBOR plus ___% per year; or
o [18%] per year.
The adjusted monthly interest rate on the subordinate notes of this series for
each period also will be capped at the net loan rate for that period.
The Net Loan Rate
The net loan rate for notes of this series equals the weighted average interest
rate of the student loans financed with proceeds of these notes minus the
administrative cost and note fee rate.
The administrative cost and note fee rate initially is ___% per year, though it
may be increased from time to time with approval from the rating agencies. You
may obtain the applicable interest rates by telephoning (___) ___-____.
PRINCIPAL
Stated Maturity Dates
The stated maturity date of the senior notes of this series is _________, _____.
The stated maturity date of the subordinate notes of this series is _________,
_______.
Prepayment of Principal
Principal prepayments on the notes of this series will generally equal the
reduction in the principal balance of the student loans financed with the
proceeds of these notes. Principal prepayments could also occur if EdLinc is
unable to use all of the proceeds of the notes deposited in the acquisition fund
to acquire student loans. Prepayments will generally be made pro rata on each
note until the principal balance of all notes of this series has been reduced to
zero.
Special Redemption
All of the notes of this series may, at the option of EdLinc, be redeemed prior
to stated maturity after the principal balance of the student loans acquired
with the proceeds of these notes is less than 10% of the principal balance at
the time the loans were acquired.
See "Description of the Series 1999-[X] Notes--Prepayment and Redemption of
Series 1999-[X] Notes" in this prospectus supplement and "Maturity and
Prepayment Considerations" in the prospectus and this
prospectus supplement.
S-6
<PAGE>
PRIORITY OF PAYMENTS
On each interest payment date, available funds will be applied generally in the
following priority:
o first, to pay interest on the senior notes of this series and any
other series at the time outstanding and on any other senior
obligations under the indenture;
o second, to pay principal due on the senior notes of this series and
any other series at the time outstanding and on any other senior
obligations under the indenture;
o third, to the acquisition fund, the amount necessary to repay any
prior transfers therefrom to pay interest or principal on the notes;
o fourth, to pay interest on the subordinate notes of this series and
any other series at the time outstanding and on any other
subordinate obligations under the indenture;
o fifth, to pay principal due on the subordinate notes of this series
and any other series at the time outstanding and on any other
subordinate obligations under the indenture;
o sixth, to the administration fund, the amount necessary to pay
administrative and servicing fees and expenses;
o seventh, to the reserve fund, the amount necessary to reach its
required balance;
o eighth, to make sinking fund installments to redeem subordinate term
notes;
o ninth, to make prepayments of principal on, or to provide for the
special redemption of, notes;
o tenth, to the alternative loan guarantee fund, the amount necessary
to reach its required balance; and
o eleventh, to the surplus fund.
See "Source of Payment and Security for the Notes--Priorities" and "Description
of the Indenture--Funds and Accounts" in the prospectus.
RESERVE FUND
$________ of the proceeds of the notes of this series will be deposited into a
reserve fund for the notes. This initial deposit will be supplemented monthly,
if necessary, and otherwise upon the issuance of any new series of notes.
PARITY OBLIGATIONS
The notes of this series will be issued under the indenture. Additional notes
and other obligations [have been and] may be issued under the indenture which
have the same right to payment from the trust estate as the senior notes of this
series or the subordinate notes of this series.
S-7
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
In Dorsey & Whitney LLP's opinion, your notes will be characterized as debt
obligations for federal income tax purposes. Interest paid or accrued on the
notes will be taxable to you.
By accepting your note, you agree to treat your note as a debt instrument for
income tax purposes.
Original Issue Discount
We do [not] expect that your notes will be issued with original issue discount.
The final determination, however, depends on the actual sales price of the notes
to a substantial portion of investors.
See "Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
We expect that the notes will be treated as debt obligations without significant
equity features for purposes of applicable ERISA regulations of the Department
of Labor. See "ERISA Considerations" in the prospectus.
REGISTRATION, CLEARING AND SETTLEMENT
You will hold your interest in the notes through DTC in the United States or
Cedel Bank, societe anonyme or the Euroclear System in Europe. You will not be
entitled to receive definitive certificates representing your interests in the
notes, except in certain limited circumstances. See "Description of the Notes--
Book Entry Registration" in the prospectus.
MINIMUM DENOMINATIONS
The notes of this series will be offered in minimum denominations of [$50,000]
and integral multiples of [$1,000] for denominations greater than [$50,000].
RATING
Senior Notes
Fitch Moody's
----- -------
AAA Aaa
Subordinate Notes
Fitch Moody's
----- -------
A A2
See "Risk Factors--Credit Ratings Address Limited Scope of Investor Concerns" in
the prospectus.
S-8
<PAGE>
RISK FACTORS
In addition to the Risk Factors in the prospectus, you should note the
following:
[The Principal Balance of Notes is Greater than the
Principal Balance of the Collateral
The aggregate principal balance of the notes [(including
notes of each prior series currently outstanding)]
exceeds the sum of:
o the aggregate principal balance of and accrued
interest on the initial student loans as of
________, _____,
o the remainder of the acquisition fund deposit
after acquisition of the initial student loans,
[o the aggregate principal balance of and accrued
interest on the student loans financed with
proceeds of prior series of notes as of _______,
_____,] and
o the reserve fund balance,
by approximately $___________.
Payment of principal and interest on the notes is
dependent upon collections on the student loans,
particularly interest collections. If the yield on the
financed student loans does not generally exceed the
interest rate on the notes and expenses relating to the
servicing of the financed student loans and
administration of the indenture, EdLinc may have
insufficient funds to repay the notes.]
USE OF PROCEEDS
The net proceeds from the sale of the Notes of this series (the "Series
1999-[X] Notes") will be used as follows:
o $_____ will be used to acquire Financed Student Loans (the "Initial
Financed Student Loans") from the Transferor on the Closing Date;
o $_____ will be deposited in the Acquisition Fund and used to acquire
Financed Student Loans (the "Additional Financed Student Loans")
during the 270-month period following the Closing Date (the
"Pre-Funding Period"); and
S-9
<PAGE>
o $_____ will be used to make the required Reserve Fund deposit.
The Transferor is expected to use the proceeds of its sale of the
Initial Financed Student Loans to repay indebtedness incurred in the acquisition
of such loans or for general corporate purposes.
THE FINANCED STUDENT LOANS
The Financed Student Loans to be acquired with proceeds of the Series
1999-[X] Notes include the Initial Financed Student Loans in the approximate
principal amount of $__________ (which will be purchased from the Transferor on
the Closing Date pursuant to the Transfer Agreement, dated as of __________, and
consist of FFELP Loans in the approximate principal amount of $__________ and
Alternative Loans in the approximate principal amount of $__________) and
Additional Financed Student Loans in the approximate principal amount of
$__________ (which will be purchased during the Pre-Funding Period from [the
Transferor,] SLFC or Lenders pursuant to Student Loan Purchase Agreements). The
discussion of Financed Student Loans in the remainder of this section, unless
otherwise specified, refers to the Initial Financed Student Loans and the
Additional Financed Student Loans only.
The Financed Student Loans will meet certain criteria, including the
following: each Financed Student Loan (1) will have been originated in the
United States or its territories or possessions under and in accordance with the
FFEL Program or an Alternative Loan Program to or on behalf of a student who has
graduated or is expected to graduate from an institution of higher education
qualifying under the FFEL Program or such Alternative Loan Program, as
applicable, and (2) will contain terms in accordance with those required by the
FFEL Program and the Guarantee Agreements (as to FFELP Loans) or the related
Alternative Loan Program (as to Alternative Loans) and other applicable
requirements. As of __________, no more than 20% by principal balance of the
Initial Financed Student Loans [and all other Financed Student Loans under the
Indenture as of such date,] were delinquent for 30 days or more. For this
purpose, delinquency refers to the number of days for which a payment is past
due.
Each Financed FFELP Loan is required to be guaranteed as to principal and
interest by a Guarantee Agency and reinsured by the Department of Education to
the extent provided under the Higher Education Act and eligible for Special
Allowance Payments and, with respect to each Financed FFELP Loan that is a
Stafford Loan, Interest Subsidy Payments paid by the Department of Education.
See "Description of the FFEL Program" in the Prospectus.
The Additional Financed Student Loans will consist of FFELP Loans and
Alternative Loans. [Describe restrictions on types or characteristics of
Additional Financed Student Loans.]
Except as described above, there will be no required characteristics of
the Additional Financed Student Loans. Therefore, following the acquisition of
Additional Financed Student Loans, the aggregate characteristics of the entire
pool of Student Loans Financed with proceeds of the Series 1999-[X] Notes
[together with those Student Loans previously Financed under the
S-10
<PAGE>
Indenture], including the composition of the Financed Student Loans and of the
borrowers thereof, the distribution by interest rate and the distribution by
principal balance described in the following tables, will vary from those of the
Initial Financed Student Loans [and previously Financed Student Loans] as
described herein. Furthermore, the issuance of additional series of Notes and
the acquisition of Financed Student Loans with the proceeds thereof, as well as
the acquisition of Financed Student Loans from moneys in the Surplus Account,
will cause the aggregate characteristics of the pool of Student Loans Financed
with proceeds of all Notes to vary still further from those of the Initial
Financed Student Loans [and previously Financed Student Loans] as described
herein.
Each of the Financed FFELP Loans provides for the amortization of the
outstanding principal balance of such Financed FFELP Loan over a series of
periodic payments. Each periodic payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of such
Financed FFELP Loan multiplied by the applicable interest rate and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received in respect of
such Financed FFELP Loan, the amount received is applied first to outstanding
late fees, if collected, then to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular installment before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if a borrower pays a
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, subject to any applicable Deferment
Periods or Forbearance Periods, the borrower pays installments until the final
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance of such Financed FFELP Loan.
[Describe characteristics of Alternative Loans.]
Set forth below in the following tables is a description of certain
additional characteristics of the Initial Financed Student Loans [and previously
Financed Student Loans] as of __________.
Composition of the Initial [and Previously] Financed Student Loans as of ____
Aggregate Outstanding Principal Balance........................... $
Number of Borrowers...............................................
Average Outstanding Principal Balance Per Borrower................
Number of Loans (Promissory Notes)................................
Average Outstanding Principal Balance Per Loan....................
S-11
<PAGE>
Repayment Status Loans:
Weighted Average Remaining Term (months).................
Weighted Average Payments Received (months)..............
Weighted Average Interest Rate....................................
Distribution of the Initial [and Previously] Financed Student Loans by
Loan Type as of __________
Percent of Loans
Outstanding by Outstanding
Loan Type Number of Loans Principal Balance Principal Balance
- ----------------------- ---------------- ----------------- ------------------
Stafford-Subsidized....
Stafford-Unsubsidized..
PLUS...................
SLS....................
Consolidation..........
Alternative............
Total...........
Distribution of the Initial [and Previously] Financed Student Loans by
Borrower Interest Rate as of _______________
Percent of Loans
Outstanding by Outstanding
Interest Rate (1) Number of Loans Principal Balance Principal Balance
- ---------------------- --------------- ----------------- ------------------
Less than 7.50%.......
7.50% to 7.99%........
8.00% to 8.49%........
8.50% to 8.99%........
9.00% to 9.49%........
9.50% or greater......
Total...........
- ---------------------------
(1) Determined using the interest rates applicable to the Initial [and
Previously] Financed Student Loans as of ___________. However, because certain
of the Initial [and Previously] Financed Student Loans bear interest at variable
rates per annum, the existing interest rates are not indicative of future
interest rates on the Financed Student Loans. See "Description of the FFEL
Program" in the Prospectus.
S-12
<PAGE>
Distribution of the Initial [and Previously] Financed Student Loans by
Range of Outstanding Principal Balances as of _______________
Percent of Loans
Outstanding by Outstanding
Principal Balance Number of Loans Principal Balance Principal Balance
- ------------------------ ---------------- ----------------- -----------------
Less than $1,000........
$1,000-$1,999...........
$2,000-$2,999...........
$3,000-$3,999...........
$4,000-$4,999...........
$5,000-$5,999...........
$6,000-$6,999...........
$7,000-$7,999...........
$8,000-$8,999...........
$9,000-$9,999...........
$10,000-$10,999.........
$11,000-$11,999.........
$12,000-$12,999.........
$13,000-$13,999.........
$14,000-$14,999.........
$15,000 or greater......
Total..........
Distribution of the Initial [and Previously] Financed Student Loans by
Borrower Payment Status as of ______________
Percent of Loans
Outstanding by Outstanding
Borrower Payment Status Number of Loans Principal Balance Principal Balance
- ------------------------- --------------- ----------------- -----------------
In School................
Grace....................
Repayment................
Deferment................
Forbearance..............
Claims
Total......
S-13
<PAGE>
Distribution of the Repayment Status Initial [and Previously] Financed Student
Loans by Remaining Term to Scheduled Maturity as of ______________
Percent of Loans
Remaining Months Outstanding by Outstanding
Until Scheduled Maturity Number of Loans Principal Balance Principal Balance
- ------------------------ ---------------- ----------------- -----------------
1 to 12
13 to 24
25 to 36
37 to 48
49 to 60
61 to 72
73 to 84
85 to 96
97 to 108
109 to 120
121 to 180
181 to 240
241 to 300
Over 300
Total........
Distribution of the Initial [and Previously] Financed Student Loans by
Borrower's Address as of _______________
Percent of Loans
Outstanding by Outstanding
State of Borrower's (1) Number of Loans Principal Balance Principal Balance
- ------------------------- --------------- ----------------- -----------------
.........................
.........................
.........................
.........................
.........................
Others (2)...............
Total.............
- ---------------------------
(1) Based on the current permanent billing addresses of the borrowers of the
Initial [and Previously] Financed Student Loans shown on the Servicer's records.
S-14
<PAGE>
(2) Consists of locations that include [__] other states, U.S. territories,
possessions and commonwealths, foreign countries, overseas military
establishments, and unknown locations, none of the aggregate principal balance
of the Financed Student Loans relating to which exceeds ___% of the aggregate
principal balance of all Initial [and Previously] Financed Student Loans.
To the extent that states with a large concentration of Financed Student
Loans experience adverse economic or other conditions to a greater degree than
other areas of the country, the ability of such borrowers to repay their
Financed Student Loans may be impacted to a larger extent than if such borrowers
were dispersed more geographically.
Distribution of the Initial [and Previously] Financed FFELP Loans by
Guarantee Status as of ________________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Guarantee Level Number of Loans Principal Balance Principal Balance
- -------------------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100%......
FFELP Loan Guaranteed 98%.......
FFELP Loan Non-Guaranteed
Total...............
</TABLE>
Distribution of the Initial [and Previously] Financed FFELP Loans by
Guarantee Agency as of _________
Percent of Loans
Outstanding by Outstanding
Guarantee Agency Number of Loans Principal Balance Principal Balance
- ----------------------- --------------- ----------------- -----------------
Other Guarantors.......
Total.......
S-15
<PAGE>
Distribution of the Initial [and Previously] Financed Student Loans
by School Types as of _______________
Percent of Loans
Outstanding by Outstanding
School Type Number of Loans Principal Balance Principal Balance
- ------------------------- --------------- ----------------- -----------------
Under 4 Year ............
4 and 5 Year.............
Proprietary..............
Consolidation............
Other/Unknown............
.........................
Total..........
Incentive Programs
EdLinc currently reduces the interest rate on Financed Student Loans by
.25% per annum for borrowers that arrange to have their loan payments
automatically withdrawn from a bank account.
[Description of any other incentive programs.]
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity and Prepayment Assumptions
The rate of prepayment of principal of the Series 1999-[X] Notes and the
yield on the Series 1999-[X] Notes will be affected by (1) prepayments of the
Student Loans Financed with proceeds of the Series 1999-[X] Notes that may occur
as described below, (2) principal payment requirements of any additional series
of Notes, and (3) the ability of EdLinc to expend all of the Series 1999-[X]
Note proceeds on the purchase of Student Loans. All of the Student Loans
Financed with proceeds of the Series 1999-[X] Notes are prepayable in whole or
in part by the borrowers at any time without penalty (including, in the case of
Financed FFELP Loans, by means of Consolidation Loans) and may be prepaid as a
result of a borrower default, death, disability or bankruptcy, certain school
closures and other events specified in the Higher Education Act or the
Alternative Loan Program, as applicable, and subsequent liquidation or
collection of Guarantee Payments (as to FFELP Loans) or transfers from the
Alternative Loan Guarantee Fund (as to Alternative Loans) with respect thereto.
The rate of such prepayments cannot be predicted and may be influenced by a
variety of economic, social and other factors, including those described below.
In general, the rate of prepayments may tend to increase to the extent that
alternative financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the Financed Student Loans.
However, because many of the Student Loans Financed with proceeds of the Series
1999-[X] Notes bear interest at a rate that either actually or effectively is
floating, it is impossible to determine
S-16
<PAGE>
whether changes in prevailing interest rates will be similar to or vary from
changes in the interest rates on the Financed Student Loans. To the extent
borrowers of Financed FFELP Loans elect to borrow Consolidation Loans, such
Financed Student Loans will be prepaid. See "Description of the FFEL
Program--Loan Terms--Consolidation Loans" in the Prospectus. In addition, the
lenders are obligated to repurchase any Financed Student Loan pursuant to the
related Student Loan Purchase Agreement as a result of a breach of any of their
respective representations and warranties with respect to such Financed Student
Loan, which breach is not cured within the applicable cure period. See
"Description of Financing of Eligible Loans--Student Loan Purchase Agreements"
in the Prospectus. See, also, "Description of the Notes--Prepayment and
Redemption of the Series 1999-[X] Notes--Call for Redemption of Series 1999-[X]
Notes Upon Reduction of Portfolio Balance" for a description of the conditions
under which EdLinc may, at its option, redeem all of the outstanding Series
1999-[X] Notes.
Scheduled payments with respect to, and maturities of, the Financed
Student Loans may be extended, including pursuant to Grace Periods, Deferment
Periods and, under certain circumstances, Forbearance Periods. The rate of
prepayment of principal of the Series 1999-[X] Notes and the yield on the Series
1999-[X] Notes may also be affected by the rate of defaults resulting in losses
on Financed Student Loans, by the severity of those losses and by the timing of
those losses (which also may affect the ability of the Guarantee Agencies to
make Guarantee Payments on Financed FFELP Loans and the sufficiency of the
Alternative Loan Guarantee Fund to cover losses on Financed Alternative Loans).
The rate of prepayment on the Student Loans Financed with proceeds of the
Series 1999- [X] Notes cannot be predicted, and any reinvestment risks resulting
from a faster or slower incidence of prepayment of Financed Student Loans will
be borne entirely by the Series 1999-[X] Noteholders. Such reinvestment risks
may include the risk that interest rates and the relevant spreads above
particular interest rate bases are lower at the time Series 1999-[X] Noteholders
receive prepayments than such interest rates and such spreads would otherwise
have been had such prepayments not been made or had such prepayments been made
at a different time.
In addition, the principal payment requirements of any additional series
of Notes could affect the rate of prepayment of principal of the Series 1999-[X]
Notes and the yield on the Series 1999-[X] Notes. The Notes of each class and
series have the same right to payment of principal and interest as the Notes of
the same class of all other series. It is anticipated that the timing of payment
of principal of each series of Notes will depend, at least in part, on the
timing of receipt of principal of the Student Loans Financed with the proceeds
of such series. However, it is possible that, due to losses, delinquencies or
slower than anticipated prepayments on the Financed Student Loans relating to
another series of Notes, amounts available from such Financed Student Loans may
not be sufficient to make required payments of principal on such series. If this
were to happen, payments of principal on the Student Loans Financed with the
proceeds of the Series 1999-[X] Notes could be used to make such required
payments, thus reducing, at least temporarily, the amounts available to make
prepayments on the Series 1999- [X] Notes.
S-17
<PAGE>
Finally, $______ of the proceeds of the Series 1999-[X] Notes will be
deposited in the Acquisition Fund and used to purchase Student Loans from
Lenders and SLFC during the Pre-Funding Period. EdLinc expects to be able to so
use all of these proceeds. However, any portion of the proceeds not so expended
as of ______, together with a portion of the Series 1999- [X] Note proceeds
deposited in the Reserve Fund, will be used to prepay Series 1999-[X] Notes on
the first regularly scheduled Interest Payment Date thereafter. See "Description
of the Series 1999-[X] Notes--Prepayment and Redemption of Series 1999-[X]
Notes--Prepayment from Unused Proceeds."
Weighted Average Life of the Series 1999-[X] Notes
The following information is given solely to illustrate the effect of
prepayments on the Student Loans Financed with the proceeds of the Series
1999-[X] Notes on the weighted average life of the Series 1999-[X] 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.
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 Series 1999-[X]
Notes will be primarily a function of the rate at which payments are made on the
Student Loans Financed with the proceeds of the Series 1999- [X] Notes. Payments
on such Financed Student Loans may be in the form of scheduled amortization of
principal or prepayments (including, without limitation, Guarantee Payments and
payments from the Alternative Loan Guarantee Fund).
The Constant Prepayment Rate prepayment model ("CPR") represents an
assumed constant rate of prepayment of Student Loans Financed with the proceeds
of the Series 1999-[X] Notes 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 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 is $______ and such Financed Student Loans have the
characteristics described under "The Financed Student Loans;" and (iii) payments
are made on the Series 1999-[X] Notes on the 1st day of each month commencing
_____________. No representation is made that these assumptions will be correct,
including the assumption that the Financed Student Loans held in the Trust will
not experience delinquencies or unanticipated losses.
In making an investment decision with respect to the Series 1999-[X]
Notes, investors should consider a variety of possible prepayment scenarios,
including the limited scenarios described in the table below.
S-18
<PAGE>
Weighted Average Life of the Series 1999-[X] Notes at the Respective CPRs Set
Forth Below:
<TABLE>
<CAPTION>
Weighted Average Life (years)
0% CPR 3% CPR 5% CPR 7% CPR 9% CPR 15% CPR
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Senior Series 1999-[X] Notes.......
Subordinate Series 1999-[X] Notes..
</TABLE>
SERVICING
General
SLFC will, pursuant to the SLFC Servicing Agreement, act as Servicer with
respect to the Financed Student Loans. The Servicer may enter into sub-servicing
agreements with one or more sub-servicers providing for the sub-servicers to
perform some or all of the obligations of the Servicer with respect to servicing
the Financed Student Loans. Pursuant to a sub-servicing agreement, each
sub-servicer will agree to service, and perform all other related tasks with
respect to, the Financed Student Loans in compliance with applicable standards
and procedures. See "Description of the SLFC Servicing Agreement" in the
Prospectus.
[Name of Sub-Servicer]
[Description of Sub-Servicer to be inserted]
THE GUARANTEE AGENCIES
General
Of the Initial Financed FFELP Loans, [for each Guarantee Agency covering
less than 10%] approximately [___]% by principal balance are guaranteed by
[________], a non-profit corporation ("[_______]"), organized in [_______] and
guaranteeing student loans since [_____], and as of [_______] had an approximate
aggregate principal amount of loans guaranteed of $[_______], approximately
[___]% by principal balance are guaranteed by [_________], an agency of
[_________] ("[_______]"), organized in [__________] and guaranteeing student
loans since [__________], and as of [________] had an approximate aggregate
principal amount of loans guaranteed of $[_______], and the remaining [___]% by
principal balance are guaranteed by one of the following Guarantee Agencies:
[____________________________] and [____________________]. See "Description of
the Guarantee Agencies" in the Prospectus for more detailed information
concerning the characteristics of the Guarantee Agencies.
S-19
<PAGE>
Information relating to the Guarantee Agencies set forth in this
Prospectus Supplement, which is particularly within each Guarantee Agency's
knowledge, has been requested of and has been provided by the respective
Guarantee Agencies. Such information and information included in the reports
referred to herein has not been verified or independently confirmed by EdLinc,
the Transferor, the Servicer or the Underwriter, and comprises all information
in respect of each such Guarantee Agency that EdLinc obtained after a reasonable
request and inquiry. No Guarantee Agency is affiliated with EdLinc, the
Transferor, the Servicer or any Underwriter.
[Name of Guarantee Agency]
[Description of Guarantee Agency to be inserted]
DESCRIPTION OF THE SERIES 1999-[X] NOTES
The Series 1999-[X] Notes will be issued pursuant to the Indenture, as
amended and supplemented by a [_____] Supplemental Indenture of Trust, dated as
of ____________ (the "[___] Supplemental Indenture"), between EdLinc and the
Trustee.
Generally
The Series 1999-[X] 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 to below, will mature as follows:
Stated Maturity
---------------
Senior Series 1999-[X] Notes
Subordinate Series 1999-[X] Notes
The Series 1999-[X] Notes will bear interest, payable on the first
business day of each month, commencing _______________, at rates determined as
described below under "Interest Rate on the Series 1999-[X] Notes." The Series
1999-[X] 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 Series 1999-[X]
Notes. Individual purchases of the Series 1999-[X] Notes will be made in
book-entry form only in the principal amount of [$50,000] or multiples of
[$1,000] in excess thereof. Purchasers of the Series 1999-[X] Notes will not
receive certificates representing their interest in the Series 1999-[X] Notes
purchased. See "Description of the Notes--Book-Entry Registration" in the
Prospectus.
S-20
<PAGE>
Interest Rate on the Series 1999-[X] Notes
During the initial Interest Period for the Series 1999-[X] Notes, being
the period from the date of delivery through ____________, the Senior and
Subordinate Series 1999-[X] Notes will bear interest at initial interest rates
of __% and __%, respectively, per annum. The interest rates for the Senior and
Subordinate Series 1999-[X] Notes for each Interest Period after the initial
Interest Period will be the applicable Series 1999-[X] Note LIBOR-Based Rate
based upon one-month LIBOR plus the appropriate spread, determined and subject
to certain limitations as hereinafter described.
Interest on the Series 1999-[X] 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 business day of each
calendar month, commencing ____________) prior to the maturity thereof and at
the maturity thereof. The interest payable on each Interest Payment Date for the
Series 1999-[X] 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 business 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. Each Series 1999-[X]
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 rates to be borne by the Series 1999-[X] 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 (1)
the sum of one-month LIBOR plus (a) for the Senior Series 1999-[X] Notes, a
spread of __% per annum (which sum is herein referred to as the "Senior Series
1999-[X] Note LIBOR-Based Rate"), or (b) for the Subordinate Series 1999-[X]
Notes, a spread of __% per annum (which sum is herein referred to as the
"Subordinate Series 1999-[X] Note LIBOR-Based Rate"), and (2) the Net Loan Rate
determined with respect to such Interest Period. The Trustee shall determine
such interest rates on each Interest Rate Determination Date and shall give
EdLinc 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 EdLinc and written notice
thereof given to the Trustee together with the Monthly Servicing Report for the
second preceding calendar month. For purposes of determining the Net Loan Rate
with respect to the Series 1999-[X] Notes, the Administrative Cost and Note Fee
Rate will initially be __% per year, though it may be increased from time to
time with approval from the rating agencies. See "Carry-Over Amounts on the
Series 1999-[X] Notes" below.
If that the Trustee no longer determines, or fails to determine, when
required, the Senior or Subordinate Series 1999-[X] Note LIBOR-Based Rate with
respect to an Interest Rate
S-21
<PAGE>
Determination Date, or if, for any reason, such manner of determination shall be
held to be invalid or unenforceable, the Senior or Subordinate Series 1999-[X]
Note LIBOR-Based Rate, as the case may be, for the related Interest Period shall
be the Net Loan Rate as determined with respect to such Interest Period. If
EdLinc 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 Series 1999-[X] Notes
If the Senior or Subordinate Series 1999-[X] Note LIBOR-Based Rate
determined with respect to a given Interest Period is greater than the Net Loan
Rate, then the Senior or Subordinate Series 1999-[X] Note interest rate for such
Interest Period will be the Net Loan Rate. If the Senior or Subordinate Series
1999-[X] 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
Senior or Subordinate Series 1999-[X] Notes, as applicable, for such Interest
Period. Each such CarryOver Amount shall bear interest calculated at a rate
equal to the applicable Series 1999-[X] 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 Series 1999-[X] 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.
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 Series 1999-[X] Note.
The Carry-Over Amount (and interest accrued thereon) for the Series
1999-[X] Notes shall be paid by the Trustee on Outstanding Series 1999-[X] Notes
on the first occurring Interest Payment Date for a subsequent Interest Period if
and to the extent that (a) the Eligible CarryOver 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 after taking into account all other amounts payable from the
Surplus Fund in accordance with the applicable provisions of the Indenture on
such Interest Payment Date. Any Carry-Over Amount (and any interest accrued
thereon) with respect to any Series 1999-[X] Note which is unpaid as of an
Interest Payment Date, which Series 1999-[X] Note is to be called for redemption
or deemed no longer Outstanding under the [____] 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 canceled with respect to such Series
1999-[X] 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
S-22
<PAGE>
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 1999-[X] Note, the Trustee shall give written notice to the holder of
such Series 1999-[X] Note of the Carry-Over Amount remaining unpaid on such
Series 1999-[X] Note.
The Interest Payment Date on which any Carry-Over Amount (or any interest
accrued thereon) for the Series 1999-[X] 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 Series 1999-[X] Notes on an Interest Payment
Date.
Any unpaid Carry-Over Amount, including any accrued and unpaid interest
thereon, on a Series 1999-[X] Note not payable on any redemption date with
respect to such Series 1999-[X] Note will be forfeited upon the redemption or at
maturity of such Series 1999-[X] Note, or on such earlier Interest Payment Date,
if any, on which such Series 1999-[X] Note ceases to be Outstanding under the
[____] Supplemental Indenture. Fitch's rating on the Series 1999-[X] Notes will
not apply to any Carry-Over Amount that may accrue on the Series 1999-[X] Notes.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on any
Series 1999- [X] Note exceed the amount permitted by applicable law. If the
applicable law is ever judicially interpreted so as to render any amount
received by the holder or any former holder of a Series 1999-[X] Note in excess
of that permitted by applicable law, then, notwithstanding any provision of the
Series 1999-[X] Notes or related documents to the contrary, all excess amounts
theretofore paid or received with respect to that Series 1999-[X] Note shall be
credited on the principal balance thereof (or, if the Series 1999-[X] Note has
been paid or would thereby be paid in full, refunded by the recipient thereof),
and the provisions of the Series 1999-[X] Note and related documents shall
automatically and immediately be deemed reformed and the amounts thereafter
collectible thereunder reduced.
Prepayment and Redemption of Series 1999-[X] Notes
Prepayment
Special Prepayment. Principal of the Series 1999-[X] Notes shall be
prepaid on any Interest Payment Date from moneys credited to the Retirement
Account as hereinafter described. EdLinc 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 EdLinc has not determined are reasonably expected to be required
to be transferred to the Note 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
S-23
<PAGE>
Note Fund, the Rebate Fund, the Reserve Fund or the Alternative Loan Guarantee
Fund. Such prepayments of principal of Series 1999-[X] Notes shall, subject to
the Senior Asset Requirement, be allocated between the Senior Series 1999-[X]
Notes and the Subordinate Series 1999-[X] Notes pro rata. Within a given class
of Series 1999-[X] Notes, the Principal Amount of such class to be prepaid shall
be allocated pro rata to the reduction of the Principal Amount of all Notes of
such class.
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 Initial Financed Student Loans
and Additional Financed Student Loans, plus (b) the amount of any balances from
the Acquisition Fund and the Reserve Fund used to prepay Series 1999-[X] Notes
as described under "Prepayment from Unused Proceeds" below, less (c) the
aggregate amount of interest on Initial Financed Student Loans and Additional
Financed Student Loans which has been capitalized after the Financing thereof,
less (d) the principal component of the repurchase price of Initial Financed
Student Loans and Additional Financed Student Loans 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 Series
1999-[X] Notes, plus (b) the aggregate Principal Amount of Series 1999-[X] 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 purchased by the
Trustee on behalf of EdLinc 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 EdLinc to
prepay Series 1999- [X] Notes in amounts related to the amount of principal
payments received with respect to Student Loans Financed with proceeds of the
Series 1999-[X] Notes in the Acquisition Fund. See "Maturity and Prepayment
Considerations--Weighted Average Life of the Series 1999-[X] Notes." Because of
the uncertainties relating to the timing of receipt of principal of Student
Loans expected to be Financed with proceeds of the Series 1999-[X] Notes, the
actual level of prepayments resulting therefrom cannot be definitively stated.
Prepayment from Unused Proceeds. EdLinc expects approximately $______ of
the Series 1999-[X] Note proceeds deposited in the Acquisition Fund to be used
to acquire Eligible Loans on or before ________. If such proceeds are not so
expended, they will be used, together with an allocable portion of the Series
1999-[X] Note proceeds deposited in the Reserve Fund, to prepay Series 1999-[X]
Notes on the next regularly scheduled Interest Payment Date. Any such amounts
will be applied to the prepayment of Senior Series 1999-[X] Notes and
Subordinate Series 1999-[X] Notes ratably based upon their respective principal
balances.
S-24
<PAGE>
Call for Redemption of Series 1999-[X] Notes Upon Reduction of Portfolio
Balance
The Series 1999-[X] Notes may, at EdLinc's option but subject to
compliance with the conditions in the Indenture relating to the Senior Asset
Requirement, 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 1999-[X] Notes is
less than 10% of the aggregate principal balance of Initial Financed Student
Loans and Additional Financed Student Loans.
SOURCE OF PAYMENT AND SECURITY FOR THE SERIES 1999-[X] NOTES
Subordination of the Subordinate Series 1999-[X] Notes
The rights of the holders of the Subordinate Series 1999-[X] Notes to
receive principal and interest payments will be subordinated to such rights of
the holders of the Senior Series 1999-[X] Notes, any other series of Senior
Notes and any Other Senior Obligations to the extent described herein. This
subordination is intended to enhance the likelihood of regular receipt of the
interest and principal by the holders of the Senior Series 1999-[X] Notes, any
other series of Senior Notes and any Other Senior Obligations. See "Source of
Payment and Security for the Notes--Priorities" and "Description of the
Indenture--Funds and Accounts" in the Prospectus.
[Prior Notes and Series 1999-[X] Notes
The Series 1999-[X] Notes are being issued on a parity with all previously
issued and Outstanding series of Notes and Other Obligations under the
Indenture. Thus, the Senior Series 1999-[X] Notes will have the same right to
payment of principal and interest from the Trust Estate as [describe prior
series of Senior Notes and any Other Senior Obligations currently outstanding].
Likewise, the Subordinate Series 1999-[X] Notes will have the same right to
payment of principal and interest from the Trust Estate as [describe prior
series of Subordinate Notes and any Other Subordinate Obligations currently
outstanding].]
Summary of Indenture Assets, Liabilities and Fund Balances and Statement of
Revenue, Expense and Changes in Fund Balances of the Indenture
The following is a summary of the Funds and Accounts under the Indenture
as of ________, and statement of revenue, expense and changes in fund balances
of Funds and Accounts under the Indenture for the _____ months ended ______ and
the years ended ______.
S-25
<PAGE>
SUMMARY OF ASSETS, LIABILITIES AND
FUND BALANCES OF INDENTURE
(000's)
ASSETS
Investments....................................
Student Loans Receivable, Net..................
Accrued Interest Receivable
U.S. Secretary of Education
Interest Subsidy.................
Special Allowance................
Investments..........................
Student Loan Borrowers...............
Other Assets ........................
Total Assets
LIABILITIES AND FUND
BALANCES
Accounts Payable and
Accrued Expenses.....................
Accrued Interest Payable..................
Notes Payable.............................
Total Liabilities
S-26
<PAGE>
STATEMENT OF REVENUE, EXPENSE AND
CHANGES IN FUND BALANCES OF THE INDENTURE
(000's)
Revenue:
Interest Income on Investments........
Interest on Student Loans.............
Special Allowance on
Student Loans......................
Total Revenue..............
Expense:
Note Interest.........................
Auction Agent/Broker Fees.............
Note Fees.............................
Uncollectible Accounts Expense
Consolidation and Origination
Fees ...........................
Servicing and Administration
Fees ...........................
Total Expense..............
Excess of Revenue over Expense............
Fund Balances, Beginning of
Period ...........................
Fund Balances, End of Period..............
THE TRUSTEE
U.S. Bank National Association, a national banking association organized
under the laws of the United States, is the Trustee under the Indenture. The
office of the Trustee for purposes of administering the Trust Estate and its
other obligations under the Indenture is located at U.S. Bank National
Association, 141 North Main Avenue, Suite 300, Sioux Falls, South Dakota
57104-6429, Attention: Corporate Trust Services.
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 FFEL Program. Because EdLinc does not qualify as an "eligible lender,"
the Trustee will hold title to all Financed FFELP Loans on behalf of EdLinc. The
Trustee will agree under the Indenture to maintain its status as an "eligible
lender" under the Higher Education Act. In addition, the Trustee on behalf of
EdLinc will enter into a Guarantee Agreement with each of the Guarantee Agencies
with respect to each Financed FFELP Loan. Failure of the Financed FFELP Loans to
be owned by an eligible lender would result in the loss of Guarantee Payments,
Interest Subsidy Payments and Special Allowance Payments with respect thereto.
See "Description of the FFEL
S-27
<PAGE>
Program" and "Risk Factors--Offset by Guarantee Agencies or the Department of
Education Could Reduce the Amount of Available Funds" in the Prospectus.
SLFC and its affiliates (including EdLinc and the Transferor) maintain
other banking relationships with U.S. Bank National Association and its
affiliates from time to time. See "Certain Relationships Among Financing
Participants."
[CERTAIN RELATIONSHIPS AMONG FINANCING PARTICIPANTS
As described under "EdLinc," "The Transferor" and "The Servicer" in the
Prospectus, EdLinc and the Transferor are wholly-owned subsidiaries of SLFC.
Except for its obligation to repurchase student loans under a Student Loan
Purchase Agreement upon a breach of a representation or warranty with respect
thereto or its obligations under the SLFC Servicing Agreement, SLFC will have no
obligations with respect to the Notes or the Indenture. EdLinc and the
Transferor will have no full-time employees, but will initially contract with
SLFC to perform EdLinc's obligations under the Indenture.
The boards of directors of EdLinc, the Transferor and SLFC presently
include the same three persons.
The Trustee is also the trustee for EdLinc's outstanding student loan
asset-backed note issues. The Trustee and its affiliates have in the past
entered into student loan purchase agreements with EdLinc, SLFC and the
Transferor, including Student Loan Purchase Agreements pursuant to which the
Transferor acquired, as of ______, approximately $______ million outstanding
principal amount of Eligible Loans which will be Financed under the Indenture.
EdLinc expects that the Trustee will enter into Student Loan Purchase Agreements
providing for the sale of a substantial amount of additional Eligible Loans.
SLFC also has obtained financial services from the Trustee and related entities.
Foley & Lardner, counsel to the Underwriter, has from time to time
represented, and is currently representing, SLFC in connection with various
matters. In addition, Foley & Lardner has from time to time represented EAC in
connection with various matters.
[For a discussion of certain relationships between the Underwriter or
affiliates of the Underwriter and EdLinc or SLFC, see "Underwriting."]]
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
dated ________ (the "Underwriting Agreement"), between EdLinc and Salomon Smith
Barney Inc. (the "Underwriter"), EdLinc has agreed to sell to the Underwriter,
and the Underwriter has agreed to purchase from EdLinc, the Series 1999-[X]
Notes.
S-28
<PAGE>
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Series 1999-[X]
Notes offered hereby, if any Series 1999-[X] Notes are purchased. EdLinc has
been advised by the Underwriter that the Underwriter proposes initially to offer
the Series 1999-[X] Notes to the public at the public offering price with
respect to each class set forth on the cover page of this Prospectus Supplement.
After the initial public offering, the public offering price may be changed.
The Underwriting Agreement provides that EdLinc will indemnify the
Underwriter against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriter may be required to
make in respect thereof.
The Underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with 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 1999-[X] Notes in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriter to reclaim a selling concession
from a syndicate member when the Series 1999-[X] 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 1999-[X] Notes
to be higher than it would otherwise be in the absence of such transactions.
EdLinc estimates that its expenses in connection with the issuance and
offering of the Series 1999-[X] Notes will be approximately $____________. This
information concerning EdLinc's fees and expenses is an approximation and is
subject to future contingencies.
LEGAL MATTERS
Certain legal matters relating to EdLinc, the Transferor, the Servicer and
the Administrator and federal income tax matters will be passed upon by Dorsey &
Whitney LLP. Certain legal matters will be passed upon for the Underwriter by
Foley & Lardner. [Foley & Lardner has performed legal services for the Servicer
and the Administrator and it is expected that they will continue to perform such
services in the future.]
RATING
It is a condition to the issuance and sale of the Senior Series 1999-[X]
Notes that they be rated "AAA" by [Fitch] and "Aaa" by [Moody's]. It is a
condition to the issuance of the Subordinate Series 1999-[X] Notes that they be
rated at least "A" by [Fitch] and at least "A2" by [Moody's]. 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.
The ratings of the Series 1999-[X] Notes address the likelihood of the ultimate
payment of principal of and
S-29
<PAGE>
interest on the Series 1999-[X] Notes pursuant to their terms. The Rating
Agencies do not evaluate, and the ratings on the Series 1999-[X] Notes do not
address, the likelihood of prepayments on the Series 1999-[X] Notes or the
likelihood of payment of any Carry-Over Amounts.
S-30
<PAGE>
Prospectus
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Notes
Consider carefully the risk factors beginning on page 4 in this prospectus.
The notes will represent obligations of EdLinc only and will not represent
interests in or obligations of the servicer, the transferor or any of their
affiliates. The notes are not a deposit and are not insured or guaranteed by any
person. Except as noted in this document and the accompanying prospectus
supplement, the underlying accounts and student loans are not insured or
guaranteed by any governmental agency.
This prospectus may be used to offer and sell any series of notes only if
accompanied by the prospectus supplement for that series.
EdLinc:
- -------
o may issue periodically student loan asset-backed notes in one or more
series with one or more classes, all of which will be part of a single
issue of notes.
The Notes:
- ----------
o will be secured by the student loans and other assets of EdLinc that are
acquired with the proceeds of the notes;
o will be rated in one of the four highest rating categories by at least one
nationally recognized rating organization;
o may have one or more forms of credit enhancement; and
o will be issued as part of a designated series, but each series of notes
will be a part of the same issue of notes.
The Noteholders:
- ----------------
o will receive interest and principal payments from collections on the
assets securing the notes; and
o will have the same right to be paid from the assets securing the notes as
all other noteholders of the same class, including noteholders of other
series, except in those cases where a form of credit enhancement has been
provided only for the notes of a particular series.
Neither the SEC nor any state securities commission has approved these
notes or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
___________, 1999
<PAGE>
Important Notice About Information Presented In This
Prospectus And The Accompanying Prospectus Supplement
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. EdLinc has not authorized anyone to provide you with different
information. The notes are not offered in any state where the offer is not
permitted.
EdLinc has included cross-references in this prospectus to captions in
this prospectus or the accompanying prospectus supplement where you can find
further related discussions. These cross-references are to sections contained in
this prospectus unless you are told otherwise. The following table of contents
and the table of contents included in the accompanying prospectus supplement
provide the pages on which the captions are located.
Some words and terms will be capitalized when used in this prospectus.
You can find the definitions for these words and terms in the Glossary of
Principal Definitions at the end of this prospectus.
------------------
2
<PAGE>
TABLE OF CONTENTS
Page
----
RISK FACTORS..................................... 4
USE OF PROCEEDS.................................. 14
EDLINC........................................... 14
THE TRANSFEROR................................... 14
THE SERVICER..................................... 15
MATURITY AND PREPAYMENT
CONSIDERATIONS................................ 15
DESCRIPTION OF FINANCING
OF ELIGIBLE LOANS............................. 16
Description of Eligible Loans to be Financed 16
Transfer Agreements........................... 18
Student Loan Purchase Agreements.............. 18
Servicing and "Due Diligence"................. 19
DESCRIPTION OF THE FFEL PROGRAM.................. 20
General....................................... 20
Loan Terms.................................... 21
Contracts with Guarantee Agencies............. 32
Federal Special Allowance Payments............ 37
Federal Student Loan Insurance Fund........... 38
Direct Loans.................................. 38
DESCRIPTION OF THE
GUARANTEE AGENCIES............................ 39
General....................................... 39
Department of Education Oversight............. 40
Federal Agreements............................ 41
Effect of Annual Claims Rate.................. 42
1998 Reauthorization Amendments............... 43
DESCRIPTION OF THE ALTERNATIVE
LOAN PROGRAMS................................. 46
DESCRIPTION OF THE NOTES......................... 48
General....................................... 48
General Terms of Notes........................ 48
Issuance of Notes............................. 49
Comparative Security of Noteholders
and Other Beneficiaries.................... 49
Call for Redemption, Prepayment or Purchase
of Notes; Senior Asset Requirement......... 50
Interest...................................... 50
Principal..................................... 52
Determination of LIBOR........................ 52
Auction Procedures............................ 52
Book-Entry Registration....................... 55
Definitive Notes.............................. 59
Denomination and Payment...................... 60
SOURCE OF PAYMENT AND SECURITY
FOR THE NOTES................................. 60
General....................................... 60
Additional Indenture Obligations.............. 61
Priorities.................................... 62
DESCRIPTION OF THE SLFC
SERVICING AGREEMENT........................... 63
General....................................... 63
Acquisition Process........................... 63
Origination Process........................... 63
Servicing..................................... 64
Right of Inspection and Audits................ 64
Administration and Management................. 65
Servicing Fees................................ 65
Sub-Servicers................................. 65
Term and Termination.......................... 65
Year 2000 Information Systems Procedures...... 65
DESCRIPTION OF THE INDENTURE..................... 68
General....................................... 68
Funds and Accounts............................ 68
Pledge; Encumbrances.......................... 83
Covenants..................................... 84
No Petition................................... 87
Investments................................... 87
Reports to Noteholders........................ 88
Events of Default............................. 88
Remedies...................................... 90
Application of Proceeds....................... 93
Trustee....................................... 94
Supplemental Indentures....................... 95
Discharge of Notes and Indenture.............. 97
Notices to Noteholders........................ 97
Rights of Other Beneficiaries................. 98
FEDERAL INCOME TAX CONSEQUENCES.................. 98
Certain United States Federal Income
Tax Consequences........................... 98
United States Holders......................... 99
Non-United States Holders..................... 102
Information Reporting and Back-up
Withholding................................ 103
STATE TAX CONSIDERATIONS......................... 105
ERISA CONSIDERATIONS............................. 105
AVAILABLE INFORMATION............................ 106
REPORTS TO NOTEHOLDERS........................... 107
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE........................ 107
PLAN OF DISTRIBUTION............................. 108
FINANCIAL INFORMATION............................ 108
RATING........................................... 108
GLOSSARY OF PRINCIPAL
DEFINITIONS................................... I-1
3
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the notes.
A secondary market for the notes may not develop, which means you may have
trouble selling them when you want.
The underwriters may assist in resales of the notes but they are not
required to do so. A secondary market for the notes may not develop. If
a secondary market does develop, it might not continue or it might not
be sufficiently liquid to allow you to resell any of your notes.
EdLinc will have limited assets to pay principal and interest, which could
result in delays in payment or losses on your notes.
EdLinc will have no assets or sources of funds to pay principal or
interest on the notes other than the student loans acquired with
proceeds of the notes and the other assets making up the trust estate.
The notes are obligations solely of EdLinc, and will not be insured or
guaranteed by the transferor, the servicer, the guarantee agencies, the
trustee or any of their affiliates, or by the Department of Education.
Noteholders must rely for repayment upon proceeds realized from the
student loans, credit enhancement, if any, and other assets in the
trust estate. See "Source of Payment and Security for the Notes."
Failure by loan holders or servicers to comply with student loan origination and
servicing procedures could cause delays in payment or losses on your notes.
The Higher Education Act requires loan holders and servicers to follow
specified procedures to ensure that the FFELP loans are properly
originated and serviced. Failure to follow these procedures may result
in:
o Loss of Reinsurance Payments, Interest Subsidies and Special
Allowance Payments. The Department of Education's refusal to
make reinsurance payments to the guarantee agencies or to make
interest subsidy payments and special allowance payments to
the trustee with respect to the FFELP loans; and
o Loss of Guarantee Payments. The guarantee agencies' inability
or refusal to make guarantee payments with respect to FFELP
loans.
Loss of any of these payments may adversely affect EdLinc's ability to
pay principal and interest on the notes. See "Description of Financing
of Eligible Loans--Servicing and 'Due Diligence'" and "Description of
the FFEL Program."
4
<PAGE>
Year 2000 problems with the servicer's or third parties' computers could delay
payments on your notes.
If computer programs and information systems used by the servicer or
third parties upon which the servicer depends for its programming and
financial operations or with which it conducts business (including,
without limitation, guarantee agencies, the Department of Education,
the trustee, the securities depository and utilities providing services
to the servicer or such parties), are not year 2000 compliant, the
servicer's and such parties' ability to provide services required in
connection with the servicer's administration of its student loan
program and the payment of the principal of and interest on your notes
in a timely manner may be adversely affected. See "Description of the
SLFC Servicing Agreement--Year 2000 Information Systems Procedures."
Subordinated classes of notes face a higher risk of delayed payments and losses.
If a class of notes is subordinated, interest and principal payments on
a payment date on such class generally will be made only after each
senior class has received its interest and principal entitlement on
that payment date. Consequently, a subordinated class will bear losses
on the student loans prior to such losses being borne by the more
senior classes. In addition, subordinated noteholders may be limited in
the legal remedies that are available to them until the more senior
noteholders are paid in full. See "Source of Payment and Security for
the Notes--Priorities."
Additional notes may be issued without your consent, which could affect the
make-up of the outstanding notes.
EdLinc may, from time to time, issue additional notes or incur other
obligations secured by the trust estate without the consent or approval
of any existing noteholders. These notes or other obligations may be
senior or subordinate to, or on a parity with, existing classes of
notes in right of payment.
If there is a problem with a loan that arose prior to its acquisition by the
trustee, the trust estate may incur losses on that loan unless the lender or
SLFC repurchases it because of a breach of a representation or warranty.
The transfer of the student loans from the transferor to the trustee on
behalf of EdLinc is without recourse against the transferor. Neither
EdLinc nor the trustee will have any right to resell the student loans
to the transferor or otherwise to make recourse to or collect from the
transferor if the student loans should fail to meet the requirements of
an eligible loan for any reason or if the transfer should fail to
provide the trustee with good title to the student loans.
The lenders and SLFC, however, will have made representations and
warranties in the related student loan purchase agreements in
connection with their sales of student loans to the transferor or the
trustee on behalf of EdLinc. If those representations and warranties
are breached as to a given student loan, the applicable
5
<PAGE>
lender or SLFC will be obligated to repurchase the student loan.
However, neither EdLinc nor the transferor examines the documents
relating to FFELP loans to the extent necessary to determine whether
the selling lenders have met all of the conditions necessary for such
loans to qualify for guarantee payments from the applicable guarantee
agency. Furthermore, the lender or SLFC may not have the financial
resources to repurchase any student loan. Finally, these
representations and warranties will not cover any problem arising after
the sale of the student loan to the transferor or the trustee on behalf
of EdLinc that was not caused by a breach of the representations and
warranties (such as a failure to service the student loan properly).
The failure of a lender or SLFC to repurchase a student loan is a
breach of the related student loan purchase agreement, enforceable by
the trustee, but is not an event of default, and would not permit the
exercise of remedies, under the indenture.
See "Description of Financing of Eligible Loans--Student Loan Purchase
Agreements."
Offset by guarantee agencies or the Department of Education could reduce the
amounts available for payment of your notes.
The trustee will use a Department of Education lender identification
number that is also being used for other student loans held by the
trustee on behalf of EdLinc and the transferor under other indentures,
and which may also be used similarly for SLFC or other entities
established by SLFC. The billings submitted to the Department of
Education will be consolidated with the billings for payments for
student loans under all of these indentures, and payments on the
billings will be made by the Department of Education or the guarantee
agency to the trustee in lump sum form. These payments will be
allocated by the trustee among the various indentures using the same
lender identification number.
If the Department of Education or a guarantee agency determines that
the trustee owes a liability to the Department of Education or the
guarantee agency on any FFELP loan for which the trustee is legal
titleholder, the Department of Education or the guarantee agency might
seek to collect that liability by offsetting against payments due the
trustee under the indenture for the notes. This offsetting or shortfall
of payments due to the trustee could adversely affect the amount of
available funds for any collection period and EdLinc's ability to pay
interest and principal on the
6
<PAGE>
notes.
Although the indenture contains provisions for cross-indemnification
with respect to such payments and offsets, there can be no assurance
that the amount of funds available with respect to such right of
indemnification may be adequate to compensate the indenture and
noteholders for any previous reduction in the available funds for a
collection period.
See "Description of the FFEL Program" and "Description of the Guarantee
Agencies."
The financial health of the guarantee agencies could decline, which could affect
the timing and amounts available for payment of your notes.
The FFELP loans are not secured by any collateral of the borrower.
Payments of principal and interest are guaranteed by guarantee agencies
to the extent described herein and in the related prospectus
supplement. Excessive borrower defaults could impair a guarantee
agency's ability to meet its guarantee obligations. In addition,
recently enacted legislation is expected to reduce the guarantee
agencies' reserves under the FFEL program. The financial health of a
guarantee agency could affect the timing and amount of available funds
for any collection period and EdLinc's ability to pay principal of and
interest on your notes. Although a holder of FFELP loans could submit
claims for payment directly to the Department of Education pursuant to
section 432(o) of the Higher Education Act if the Department determines
that a guarantee agency is unable to meet its insurance obligations,
there is no assurance that the Department of Education would make such
a determination or that it would pay claims in a timely manner. The
trustee may receive claim payments on FFELP loans directly from the
Department of Education under Section 432(o) if such a determination is
made. See "Description of the FFEL Program" and "Description of the
Guarantee Agencies."
The FFEL program could change, which could adversely affect the loans and the
timing and amounts available for payment of your notes.
The Higher Education Act and other relevant federal or state laws may
be amended or modified in the future. In particular, the level of
guarantee payments may be adjusted from time to time. EdLinc cannot
predict whether any changes will be adopted or, if so, what impact such
changes may have on EdLinc or your notes.
7
<PAGE>
Increased competition from FFEL program participants and the Federal Direct
Student Loan Program could adversely affect the availability of loans, the cost
of servicing, the value of loans and prepayment expectations.
The lenders that sell student loans to EdLinc and the transferor face
competition from other lenders and secondary markets that could
decrease the volume of eligible loans that could be acquired by EdLinc
and the transferor. Additionally, the Higher Education Act provides for
a Federal Direct Student Loan Program. This program could result in
reductions in the volume of loans made under the FFEL program. Reduced
volume in EdLinc's program in particular and in the FFEL Program in
general may cause the servicer to experience increased costs due to
reduced economies of scale. These cost increases could reduce the
ability of the servicer to satisfy its obligations to service the
student loans. This could also reduce revenues received by the
guarantee agencies available to pay claims on defaulted FFELP loans.
The competition currently existing in the secondary market for loans
made under the FFEL program also could be reduced, resulting in fewer
potential buyers of the FFELP loans and lower prices available in the
secondary market for those loans.
The Department of Education has implemented a direct consolidation loan
program, which may reduce the volume of loans made under the FFEL
program and, together with consolidation loans made by lenders in the
FFEL program, is expected to result in prepayments of student loans.
See "Description of the FFEL Program."
Prepayment of your notes with unspent proceeds may create reinvestment risks.
The proceeds of each series of notes may include an amount to be
deposited in the acquisition fund and used to acquire student loans
over a period of time after the closing date. If the amount of student
loans acquired by the trustee on behalf of EdLinc during such period is
less than the full amount so funded, EdLinc will prepay principal on
notes of that series equal to the difference plus any other related
unspent proceeds. See "Description of Financing of Eligible Loans" and
"Description of the Indenture--Funds and Accounts-- Acquisition Fund."
Reinvestment risk and prepayments may reduce your yield.
Student loans may be prepaid by borrowers at any time without penalty.
The rate of prepayments may be influenced by economic and other
factors, such as interest rates, the availability of other financing
and the general job market. In addition, under certain circumstances,
lenders or SLFC may be obligated to repurchase student loans from
EdLinc pursuant to the student loan purchase agreements as a result of
breaches of their representations and
8
<PAGE>
warranties. See "Description of Financing of Eligible Loans--Transfer
Agreements" and " --Student Loan Purchase Agreements."
To the extent borrowers elect to borrow money through consolidation
loans, the noteholders will receive as a prepayment of principal the
aggregate principal amount of the loan.
If loan prepayments result in your note being prepaid prior to its
expected maturity, you may not be able to reinvest your funds at the
same yield as the yield on the note. In addition, your yield may be
reduced if you purchased your note at a premium and the principal is
paid faster than you expected, or if you purchased your note at a
discount and the principal is paid slower than you expected. EdLinc
cannot predict the prepayment rate of any notes, and reinvestment risks
or reductions in yield resulting from a faster or slower prepayment
speed will be borne entirely by you and the other holders.
The maturity of your investment is uncertain.
Scheduled payments on the student loans and the maturities of the
student loans may be extended without your consent, which may lengthen
the weighted average life of your investment. Prepayments of principal
on the student loans may shorten the life of your investment. See
"Maturity and Prepayment Considerations."
The interest rates on the notes are subject to limitations, which could reduce
your yield.
The interest rate for any class of LIBOR rate notes will be based
generally on the level of LIBOR. The interest rate for any class of
auction rate notes will be based generally on the outcome of an auction
of notes. The interest rate for other classes of notes may be based on
the index, formula or other method described in the related prospectus
supplement. The student loans, however, generally bear interest at the
T-Bill rate (except for some alternative loans which bear interest at
the prime rate or another specified variable rate) plus a stated
margin.
The foregoing interest rates on the notes of a series generally will be
limited by the net loan rate for that series, which will equal the
weighted average effective interest rate of the student loans financed
by that series, less specified administrative costs for that series.
For an interest payment date on which the net loan rate applies, the
difference between the amount of interest at the rate described above
and the amount of interest at the net loan rate
9
<PAGE>
will be paid on succeeding interest payment dates to the extent of
available funds and may never be paid.
See "Description of the Notes--Interest."
The interest rates on our investments may be insufficient to cover interest on
your notes.
Unspent proceeds of the notes and moneys in the funds and accounts
under the indenture will be invested at fluctuating interest rates.
Although EdLinc will try to minimize this risk by entering into
investment agreements, there can be no assurance that the interest
rates at which these proceeds and moneys are invested will equal or
exceed the interest rates on the notes.
The principal amount of the notes may exceed the principal amount of the assets
in the trust estate, which could result in losses on your notes if there was a
liquidation.
The principal amount of notes issued by EdLinc may exceed the principal
amount of student loans and other assets in the trust estate held by
the trustee under the indenture. If an event of default occurs and the
assets in the trust estate are liquidated, the student loans would have
to be sold at a premium for the subordinated noteholders and possibly
the senior noteholders to avoid a loss. EdLinc cannot predict the rate
or timing of accelerated payments of principal or when the aggregate
principal amount of the notes may be reduced to the aggregate principal
amount of the student loans.
If the trustee is forced to sell loans after an event of default, there could be
losses on your notes.
Generally, during an event of default, the trustee is authorized with
certain noteholder consent to sell the related student loans. However,
the trustee may not find a purchaser for the student loans. Also, the
market value of the student loans plus other assets in the trust estate
might not equal the principal amount of notes plus accrued interest. In
either event, the noteholders may suffer a loss.
Insolvency of the transferor or SLFC could cause delays in payment or losses on
your notes.
EdLinc has taken steps in structuring these transactions that are
intended to ensure that the voluntary or involuntary application for
relief by the transferor or SLFC under the United States Bankruptcy
Code or other insolvency laws will not result in consolidation of the
assets and liabilities of EdLinc with those of the transferor and/or
SLFC. However, there can be no assurance that the activities of EdLinc
would not result in a court concluding that the assets and liabilities
of EdLinc should be consolidated with those of the transferor or SLFC
in a proceeding under any insolvency law. If a court were to reach this
conclusion or if a filing were made under any insolvency law by or
against
10
<PAGE>
EdLinc, 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.
The transferor and SLFC will transfer student loans to the trustee on
behalf of EdLinc in accordance with the applicable transfer agreement
or student loan purchase agreement. The transferor and SLFC each
intends that this transfer constitute a sale, rather than a pledge to
secure indebtedness. If, however, the transferor or SLFC were to become
subject to any insolvency law and a creditor or trustee-in-bankruptcy
of the transferor or SLFC were to take the position that the sale of
the student loans by the transferor or SLFC to EdLinc, as appropriate,
should instead be treated as a pledge of the student loans to secure a
borrowing from EdLinc, delays in payments on the notes from collections
on student loans could occur or reductions in the amounts of these
payments could result.
Bankruptcy of EdLinc could result in accelerated prepayment on your notes.
EdLinc is a limited purpose finance subsidiary of SLFC. If EdLinc
becomes bankrupt, the United States Bankruptcy Code could materially
limit or prevent the enforcement of EdLinc's obligations, including its
obligations under the notes. EdLinc's trustee in bankruptcy or EdLinc
itself as debtor-in-possession may seek to accelerate payment on the
notes and liquidate the assets held under the indenture. If principal
on the notes is declared due and payable, you may lose the right to
future payments and face reinvestment risks mentioned above.
Other parties may have or may obtain a superior interest in loans.
If any transfer of the student loans is deemed to be a secured
financing, other persons may have an interest in the loans prior to the
trustee.
The servicer will have custody of the promissory notes related to the
FFELP loans, except where the loan has been made under a master
promissory note retained by the lender. The student loans may not be
physically segregated in the servicer's or other custodian's offices.
If any interest in the student loans were assigned to another party,
that person could acquire an interest in the student loans superior to
the interest of the trustee.
11
<PAGE>
Application of consumer protection laws to the loans may increase costs and
uncertainties about the loans.
Consumer protection laws impose requirements upon lenders and
servicers. Some state laws impose finance charge restrictions on
certain transactions and require contract disclosures. Furthermore, to
the extent applicable, these laws can impose specific statutory
liabilities upon creditors who fail to comply with their provisions and
may affect the enforceability of the loan. These state laws are
generally preempted by the Higher Education Act. However, the form of
promissory notes required by the Department of Education for FFELP
loans provides that holders of such promissory notes evidencing certain
loans made to borrowers attending for-profit schools are subject to any
claims and legal defenses that the borrower may have against the
school. Alternative loan programs would be subject to applicable state
laws regulating loans to consumers.
Book-entry registration may limit your ability to participate directly as a
holder.
Your notes may be represented by one or more certificates registered in
the name of Cede & Co., the nominee for DTC, and will not be registered
in your name if specified in the accompanying prospectus supplement. If
so, you will only be able to exercise the rights of noteholders
indirectly through DTC and its participating organizations. See
"Description of the Notes--Book-Entry Registration."
Credit ratings only address a limited scope of your concerns.
A rating agency will rate each note in one of its four highest rating
categories. A rating is not a recommendation to buy or sell notes or a
comment concerning suitability for any investor. A rating only
addresses the likelihood of the ultimate payment of principal and
stated interest and does not address the likelihood of prepayments on
the notes or the likelihood of the payment of carry-over amounts. A
rating may not remain in effect for the life of the notes. See "Rating"
in this prospectus and in the accompanying prospectus supplement.
EdLinc may enter into swap agreements which could result in delays in payment or
losses on your notes if the counterparty fails to make its payments.
Under the indenture, EdLinc may enter into swap agreements if certain
requirements are met, including the requirement that the rating
agencies will not reduce or withdraw the rating on any notes. Swap
agreements carry risks relating to the credit quality of the
counterparty and the enforceability of the swap agreement. See "Source
of Payment and Security for the Notes--Additional Indenture
Obligations."
12
<PAGE>
The composition and characteristics of the loan portfolio will continually
change, and loans that bear a lower rate of return or have a greater risk of
loss may be acquired.
The eligible loans EdLinc intends to acquire with proceeds of a series
of notes on the closing date, together with any student loans
previously acquired under the indenture, will be described in the
prospectus supplement relating to such notes. A portion of the proceeds
of the notes may be deposited in the acquisition fund and used to
acquire eligible loans over a period of time after the closing date.
The characteristics of the student loan portfolio included in the trust
estate will change from time to time as new student loans are acquired
and as a result of amendments to the Higher Education Act, changes in
terms of alternative loan programs, sales or exchanges of loans and
scheduled amortization, prepayments, delinquencies and defaults on the
loans. In addition, the indenture permits EdLinc to use surplus moneys
under the indenture to acquire student loans, including loans that do
not qualify as eligible loans. Any student loans so acquired that are
not eligible loans may bear a lower rate of return and have a greater
risk of loss from borrower defaults.
The alternative loans have a higher risk of loss.
The alternative loans to be acquired with proceeds of the notes will
not be guaranteed by a third-party guarantor, as is the case with FFELP
loans. Therefore, the receipt by the trustee of principal and interest
on these loans will be dependent on the ability of the borrower to make
these payments. Moneys at any time on deposit in the alternative loan
guarantee fund will cover the principal balance of and accrued interest
on an alternative loan once any payment on that loan is 180 days late.
However, the trust estate will suffer losses if amounts available in
the alternative loan guarantee fund are not sufficient to cover all
defaulted alternative loans.
13
<PAGE>
USE OF PROCEEDS
EdLinc will use the net proceeds from the sale of a series of Notes to
purchase Financed Eligible Loans from the Transferor and Lenders or to originate
Financed Eligible Loans and to make various deposits to the Funds and Accounts
under the Indenture with respect to the Notes. The Transferor is expected to use
the proceeds of each sale of Eligible Loans to EdLinc to repay debt incurred in
the acquisition of the Eligible Loans.
EDLINC
EdLinc is a bankruptcy remote, limited purpose Delaware corporation and
a wholly owned subsidiary of SLFC.
As a bankruptcy-remote entity, EdLinc's operations will be restricted
so that (1) 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 EdLinc, and (2) the risk that it will be
consolidated into the bankruptcy proceedings of any other entity is diminished.
EdLinc has covenanted in the Indenture that it will 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
the Indenture and the activities incidental thereto.
EdLinc will have no substantial assets other than those pledged under
the Indenture or under other comparable indentures pursuant to which EdLinc has
issued, or will issue, student loan asset-backed notes similar to the Notes. Any
assets held under these other indentures would not be available to pay principal
or interest on the Notes. EdLinc will have no full-time employees. Certain
responsibilities of EdLinc under the Indenture will be administered by SLFC. See
"The SLFC Servicing Agreement."
EdLinc's address is 105 First Avenue Southwest, Suite 200, Aberdeen,
South Dakota 57401 and its phone number is (605) 622-4400.
THE TRANSFEROR
GOAL Funding, Inc. (the "Transferor") is a bankruptcy remote, limited
purpose Delaware corporation and a wholly owned subsidiary of SLFC.
The Transferor was created to provide a vehicle for the temporary
financing of Eligible Loans pending their sale to EdLinc. Thus, the Transferor
has entered into an indenture (the "Warehousing Indenture") and other related
agreements pursuant to which it borrows moneys to acquire Eligible Loans. These
Eligible Loans are purchased from Lenders (in the case of FFELP Loans) or from
SLFC (in the case of Alternative Loans) pursuant to Student Loan Purchase
Agreements.
14
<PAGE>
The Transferor will have no substantial assets other than those pledged
under the Warehousing Indenture to secure repayment of its borrowings
thereunder. The Transferor will have no full-time employees. Certain
responsibilities of the Transferor will be performed by SLFC pursuant to an
arrangement comparable to that set forth in the SLFC Servicing Agreement.
The Transferor's address is 105 First Avenue Southwest, Suite 104,
Aberdeen, South Dakota 57401 and its phone number is (605) 622-4400.
THE SERVICER
General
Student Loan Finance Corporation ("SLFC") is a South Dakota corporation
organized in 1997.
SLFC is in the business of purchasing, originating, holding, servicing
and collecting student loans. SLFC's employees and management had, since 1979,
operated the student loan program of Great Plains Education Foundation, Inc., a
South Dakota nonprofit corporation formerly known as Student Loan Finance
Corporation ("Great Plains"). In a reorganization completed in February, 1998,
Great Plains transferred all of its operating assets, including employees, to
SLFC, which was at the time a wholly-owned subsidiary of Great Plains. Great
Plains also transferred its liability on all of its indebtedness, together with
its rights to the student loans and other assets pledged to the repayment
thereof, to SLFC. SLFC, in turn, transferred such liability and pledged assets
to EdLinc. SLFC currently services the related student loans on behalf of
EdLinc.
As of ________, 1999, SLFC was the servicer for student loans to
approximately ______ borrowers representing approximately $_____ million
outstanding principal amount of student loans owned by its subsidiaries, EdLinc
and GOAL Funding. In addition, as of that date, SLFC also was the servicer for
student loans owned by other lenders representing approximately $____ million
outstanding principal amount. Of these amounts, approximately ____% was being
serviced by one or more sub-servicers on behalf of SLFC.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the Notes and the yield on the
Notes will be affected by (1) prepayments of the Financed Eligible Loans that
may occur as described below (including repurchases by the Lenders or SLFC upon
a breach of representations or warranties under the related Student Loan
Purchase Agreement), (2) the application of additional principal payments, if
any, and (3) the issuance of additional Notes. All the Financed Eligible Loans
are prepayable in whole or in part by the borrowers at any time (including by
means of Consolidation Loans as discussed below) and may be prepaid as a result
of a borrower default, death, disability or bankruptcy, certain school closures
and other events specified in the Higher Education Act and subsequent
liquidation or collection of Guarantee Payments with respect thereto. The rate
of
15
<PAGE>
such prepayments cannot be predicted and may be influenced by a variety of
economic, social and other factors, including those described below. In general,
the rate of prepayments may tend to increase to the extent that alternative
financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the Financed Eligible
Loans. However, because many of the Financed Eligible Loans bear interest at a
rate that either actually or effectively is floating, it is impossible to
determine whether changes in prevailing interest rates will be similar to or
vary from changes in the interest rates on the Financed Eligible Loans. 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 Eligible Loans through consolidation
programs regardless of the level of interest rates. The Lenders and SLFC are
obligated to repurchase any Financed Eligible Loan pursuant to the applicable
Student Loan Purchase Agreement as a result of a breach of certain of their
respective representations and warranties.
Scheduled payments with respect to, and maturities of, the Financed
Eligible Loans may be extended, including pursuant to Grace Periods, Deferment
Periods and, under certain circumstances, Forbearance Periods or as a result of
refinancings through Consolidation Loans to the extent such Consolidation Loans
are sold to the Trustee on behalf of EdLinc. In that event, the fact that such
Consolidation Loans will likely have longer maturities than the Financed
Eligible Loans they are replacing may lengthen the remaining term of the
Financed Eligible Loans and the average life of the Notes of one or more series.
The rate of payment of principal of the Notes of a series and the yield on the
Notes may also be affected by the rate of defaults resulting in losses on
Financed Eligible Loans, by the severity of those losses and by the timing of
those losses.
The rate of prepayment on the Financed Eligible Loans cannot be
predicted, and any reinvestment risks resulting from a faster or slower
incidence of prepayment of Financed Eligible Loans will be borne entirely by the
Noteholders. Such reinvestment risks may include the risk that interest rates
and the relevant spreads above particular interest rate bases are lower at the
time Noteholders receive payments of principal than such interest rates and such
spreads would otherwise have been had such prepayments not been made or had such
prepayments been made at a different time.
DESCRIPTION OF FINANCING OF ELIGIBLE LOANS
Description of Eligible Loans to be Financed
A portion of the proceeds of each series of Notes will be deposited in
the Acquisition Fund and used to originate Eligible Loans or to purchase
Eligible Loans from (1) the Transferor pursuant to a Transfer Agreement on or
about the date of issuance of the Notes, or (2) Lenders or SLFC pursuant to
Student Loan Purchase Agreements within 270 days thereafter. The Eligible
16
<PAGE>
Loans to be so acquired will either be FFELP Loans or Alternative Loans. See
"Description of the FFEL Program" and "Description of the Alternative Loan
Programs."
The Financed Eligible Loans to be purchased from the Transferor will be
selected from the Transferor's portfolio of FFELP Loans and Alternative Loans.
All such Eligible Loans will have been previously purchased by the Transferor
from a Lender (in the case of FFELP Loans) or SLFC (in the case of Alternative
Loans) pursuant to a Student Loan Purchase Agreement. The Transferor's rights
under each such Student Loan Purchase Agreement will be transferred to EdLinc.
The characteristics of the Eligible Loans to be purchased from the
Transferor pursuant to a Transfer Agreement, as well as all Financed Eligible
Loans at the time held under the Indenture, will be described in the related
Prospectus Supplement.
Each Prospectus Supplement will set forth various information with
respect to the Eligible Loans to be purchased from the Transferor pursuant to a
Transfer Agreement, as well as all Financed Eligible Loans at the time held
under the Indenture. Such information may include the composition of the
Financed Eligible Loans, the distribution by loan type, the distribution by
interest rates, the distribution by outstanding principal balance, the
distribution by geography, the distribution by insurance or guarantee level, the
distribution by school type, the distribution by Guarantee Agency (in the case
of FFELP Loans), the distribution by remaining term to scheduled maturity and
the distribution by borrower payment status. See "The Financed Eligible Loans"
in the accompanying Prospectus Supplement.
Each of the FFELP Loans provides or will provide for the amortization
of the outstanding principal balance of such Financed Eligible Loan over a
series of payments. Each payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of such Financed
Eligible Loan multiplied by the applicable interest rate and further multiplied
by the period elapsed (as a fraction of a calendar year) since the preceding
payment of interest was made. As payments are received in respect of such
Financed Eligible Loan, the amount received is applied first to interest accrued
to the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if a borrower pays a regular installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if a borrower pays a monthly installment after its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case,
subject to any applicable Grace Periods, Deferment Periods or Forbearance
Periods, the borrower pays an installment until the final scheduled payment
date, at which time the amount of the final installment is increased or
decreased as necessary to repay the then outstanding principal balance of such
Financed Eligible Loan. The Alternative Loans may contain different amortization
provisions.
17
<PAGE>
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 "Description of the Indenture--Funds and
Accounts--Surplus Fund."
Transfer Agreements
EdLinc, the Trustee and the Transferor will enter into a Transfer
Agreement in connection with the issuance of each series of Notes. Pursuant to
the Transfer Agreement, the Transferor will transfer to the Trustee, on behalf
of EdLinc, Eligible Loans upon payment of the purchase price therefor (equal to
the principal amount thereof plus accrued interest and, in the case of FFELP
Loans, Special Allowance Payments, thereon, plus, to the extent permitted by the
Indenture, a premium) from proceeds of the Notes deposited in the Acquisition
Fund. The Transferor will also transfer all of its rights under the Transferor
Student Loan Purchase Agreements pursuant to which such Eligible Loans were
acquired by the Transferor.
The Transferor will make no representations or warranties as to the
Eligible Loans so transferred, and will have no obligation to repurchase any
such loans. If there is a problem with an Eligible Loan that is attributable to
a breach of a representation or warranty of the Lender or SLFC under the related
Transferor Student Loan Purchase Agreement, the Lender or SLFC may be obligated
to repurchase such Eligible Loan. See "Description of Financing of Eligible
Loans--Student Loan Purchase Agreements."
Student Loan Purchase Agreements
EdLinc may enter into Student Loan Purchase Agreements (collectively,
the "EdLinc Student Loan Purchase Agreements") with Lenders (as to FFELP Loans)
and SLFC (as to Alternative Loans) for the purchase of Eligible Loans to be
financed with the proceeds of each series of Notes. In addition, the Transferor
will enter into Student Loan Purchase Agreements (collectively, the "Transferor
Student Loan Purchase Agreements" and, together with the EdLinc Student Loan
Purchase Agreements, collectively the "Student Loan Purchase Agreements") with
Lenders (as to FFELP Loans) and SLFC (as to Alternative Loans) for the purchase
of Eligible Loans. All Eligible Loans transferred to EdLinc pursuant to any
Transfer Agreement will have been purchased by the Transferor pursuant to a
Transferor Student Loan Purchase Agreement. Upon the transfer to EdLinc by the
Transferor of Eligible Loans pursuant to a Transfer Agreement, the Transferor
will also transfer its rights under the related Transferor Student Loan Purchase
Agreements. EdLinc's right, title and interest in the Student Loan Purchase
Agreements will be pledged to the Trustee.
EdLinc Student Loan Purchase Agreements will provide for the purchase
by the Trustee on behalf of EdLinc, of Eligible Loans at 100% of their
outstanding unpaid principal amount, plus accrued interest thereon payable by
the Borrower. EdLinc Student Loan Purchase Agreements will require the Lender,
in the case of FFELP Loans, 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 and SLFC reasonable
transfer, origination
18
<PAGE>
or assignment fees and a premium to the extent permitted by the Indenture. See
"Description of the Indenture--Funds and Accounts--Acquisition Fund."
Each Lender and SLFC makes representations as to the validity,
enforceability and transferability of each Eligible Loan and as to the legal
authority of the Lender or SLFC, as applicable, to engage in the transactions
contemplated by the respective Student Loan Purchase Agreement. In addition,
each Lender, with respect to each FFELP Loan purchased under a Student Loan
Purchase Agreement, has represented or will represent that at the date of sale
by the Lender, each FFELP Loan was or will be Guaranteed.
The Student Loan Purchase Agreements provide that if any representation
furnished by a Lender or SLFC with respect to an Eligible Loan sold to the
Transferor or the Trustee proves to have been materially incorrect, or, in the
case of a FFELP Loan, if the Guarantee Agency refuses to honor all or part of a
Guarantee claim filed with respect to thereto on account of any circumstance or
event occurring prior to the sale of such FFELP Loan to the Transferor or the
Trustee, or under certain other circumstances specified in the Student Loan
Purchase Agreement, the Lender or SLFC, as applicable, shall repurchase such
loan at a price equal to the then outstanding principal balance, plus accrued
interest and, in the case of a FFELP Loan, Special Allowance Payments, plus any
expenses incurred by the Transferor or the Trustee in connection therewith and
any other amounts paid to the Lender or SLFC, as applicable, by the Transferor
or the Trustee in connection with the acquisition of such loan.
Servicing and "Due Diligence"
The Servicer will service student loans acquired by the Trustee under
the Indenture. EdLinc will covenant in the Indenture to cause a Servicer to
administer and collect all Financed Eligible 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, the Guarantee Agreements and the Alternative Loan Programs.
The Higher Education Act requires that the Transferor, 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 FFELP 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 Trustee)
which hold loans that are guaranteed by the respective Guarantee Agencies. 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 a Lender or the Servicer fails to meet such standards, the
Trustee's ability to realize the benefits of Guarantee Payments, and
19
<PAGE>
(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.
To the extent provided in the Servicing Agreement, the Servicer may
enter into sub-servicing agreements with one or more sub-servicers providing for
the sub-servicers to perform some or all of the obligations of the Servicer with
respect to servicing the Financed Student Loans. See "Description of the SLFC
Servicing Agreement--Sub-Servicers."
DESCRIPTION OF THE FFEL PROGRAM
General
The Higher Education Act sets forth provisions establishing the FFEL
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 FFEL Program if they are contracted for and paid to the
student prior to September 30, 2004, unless a student has received a loan under
the FFEL Program prior to such date, in which case that student may receive a
student loan covered by the FFEL Program until September 30, 2008. 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 FFEL
Program from time to time. These amendments include, but are not limited to, the
Higher Education Amendments of 1998 (the "1998 Reauthorization Amendments"), the
Intermodal Surface Transportation Efficiency Act of 1998, the Balanced Budget
Act of 1997, the Higher Education Technical Amendments Act of 1993, the Omnibus
Budget Reconciliation Act of 1993 (the "1993 Amendments"), the Higher Education
Amendments of 1992, which reauthorized the FFEL Program, the Omnibus Budget
Reconciliation Act of 1990, the Omnibus Budget Reconciliation Act of 1989, the
Omnibus Budget Reconciliation Act of 1987, the Higher Education Technical
Amendments Act of 1987, the Higher Education Amendments of 1986, which
reauthorized the FFEL Program, the Consolidated Omnibus Budget Reconciliation
Act of 1985, the Postsecondary Student Assistance Amendments of 1981 and the
Education Amendments of 1980.
There can be no assurance that relevant federal laws, including the
Higher Education Act, will not be changed in a manner that may adversely affect
the receipt of funds by the Guarantee Agencies or by the Trustee with respect to
Financed FFELP Loans.
20
<PAGE>
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 FFEL 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 FFEL 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 FFEL 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 FFEL Program
only if he or she: (1) has been accepted for enrollment or is enrolled in good
standing at an eligible institution of higher education (which term includes
certain vocational schools), (2) 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), (3) has agreed
to notify promptly the holder of the loan concerning any change of address, (4)
if presently enrolled, is maintaining satisfactory progress in the course of
study he or she is pursuing, (5) does not owe a refund on, and is not (except as
specifically permitted under the Higher Education Act) in default under, any
loan or grant made under the Higher Education Act, (6) has filed with the
eligible institution a statement of educational purpose, (7) meets certain
citizenship requirements, and (8) except in the case of a graduate or
professional student, has received a preliminary determination of eligibility or
ineligibility for a Pell Grant.
The educational institution generally determines and documents the
amount of need for a loan and provides the lender with a statement containing
information relating to the loan amount for which a borrower is eligible. The
specific requirements of these determinations of need and statements to lenders
vary based on the type of loan (for example, Stafford, Unsubsidized
21
<PAGE>
Stafford or Plus) and the requirements applicable at the time a loan was made.
The amount of such need is generally based on the student's estimated cost of
attendance, the estimated financial assistance available to such student and,
for Stafford Loans, the expected family contribution with respect to the
student, all of which are computed in accordance with standards set forth in the
Higher Education Act.
Stafford Loans. Stafford Loans generally are made only to student
borrowers who meet certain financial needs tests.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans generally are
made to student borrowers without regard to financial 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 Higher
Education Amendments of 1986, 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. 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 FFEL
Program and/or certain other federal student loan programs, (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), and (c) effective October 1, 1998, not be subject to a
judgment secured through litigation with respect to certain Higher Education Act
loans or certain wage garnishment orders. 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. Various additional limitations on the amount and
type of loans that could be consolidated applied to loans made prior to July 1,
1994.
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 FFEL Program. The Higher Education Act allows
lesser rates of interest to be charged. Many lenders,
22
<PAGE>
including the Transferor, have offered repayment incentives or other programs
that involve reduced interest rates on certain loans made under the FFEL
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 FFEL Program (a "New Borrower"):
(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 FFEL 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:
23
<PAGE>
(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
(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
but prior to July 1, 1998, 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. 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 Stafford Loans made on or after July 1, 1998 but before October 1,
2003, the applicable interest rate 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 (x) 1.7% per annum prior to the time the loan enters
repayment and during any Deferment Periods, and (y) 2.3% per annum during
repayment, but not to exceed 8.25% per annum.
For Stafford Loans made on or after July 1, 2003, 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.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to
the same interest rate provisions as Stafford Loans.
24
<PAGE>
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, but 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);
(e) made on or after October 1, 1992, but before July 1, 1994,
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);
(f) made on or after July 1, 1994, but before July 1, 1998, is
the same as that described in clause (e) above, except that such rate
shall not exceed 9% per annum; or
(g) made on or after July 1, 1998, but before July 1, 2003,
shall be adjusted annually, and for any 12-month period beginning on
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 Plus Loans made on or after July 1, 2003, 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.
25
<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. Except as described in the next sentence, 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 Consolidation Loan for which the
application is received by an eligible lender (a) on or after November 13, 1997
but before October 1, 1998, the interest rate 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 8.25% per
annum, or (b) on or after October 1, 1998 but before July 1, 2003, the interest
rate shall be an annual rate equal to the weighted average of the interest rates
on the loans being consolidated, rounded upward to the nearest higher 1/8 of 1
percent, but not to exceed 8.25% per annum. Notwithstanding these general
interest rates, the portion, if any, of a Consolidation Loan that repaid a loan
made under the HEAL Program has a different variable interest rate. Such portion
is adjusted on July 1 of each year, but is the sum of the average of the T-Bill
Rates auctioned for the quarter ending on the preceding June 30, plus 3.0%,
without any cap on the interest 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." Additional limits are described below.
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
26
<PAGE>
professional student may borrow up to $8,500 in an academic year. The 1998
Reauthorization Amendments establish special loan limits for certain students
taking courses that may lead to enrollment in undergraduate ($2,625 for Stafford
and $4,000 for Unsubsidized Stafford) or in graduate or professional ($5,500 for
Stafford and $5,000 for Unsubsidized Stafford) degree or certificate programs,
or necessary for professional credential or certification from a state required
for employment as an elementary or secondary school teacher ($5,500 for Stafford
and $5,000 for Unsubsidized Stafford). 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 Higher Education Amendments
of 1992, the annual and aggregate loan limits were generally lower.
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 changes, the annual and aggregate loan
limits for SLS Loans were generally lower. The 1989 changes 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
Except for loans to certain new borrowers on or after October 7, 1998,
loans made under the FFEL Program (other than Consolidation Loans) generally
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
27
<PAGE>
exceed 25 years. The 1998 Reauthorization Amendments provide that, effective
October 1, 1998, a lender must offer the borrower of a Stafford Loan or an
Unsubsidized Stafford Loan, not more than six months prior to the date on which
the borrower's first payment is due, the option of repaying the loan in
accordance with a standard, graduated, income-sensitive, or extended repayment
schedule established by the lender in accordance with regulations of the
Secretary of Education. The borrower may choose from:
(a) a standard repayment plan, with a fixed annual repayment
amount paid over a fixed period of time, not to exceed 10 years;
(b) a graduated repayment plan paid over a fixed period of
time, not to exceed 10 years;
(c) an income-sensitive repayment plan, with income-sensitive
repayment amounts paid over a fixed period of time, not to exceed 10
years, except that the borrower's scheduled payments shall not be less
than the amount of interest due; and
(d) for new borrowers on or after October 7, 1998 who
accumulate (after such date) outstanding loans under the FFEL Program
totaling more than $30,000, an extended repayment plan, with a fixed
annual or graduated repayment amount paid over an extended period of
time, not to exceed 25 years, except that the borrower shall repay a
minimum annual amount as described in the next paragraph.
If a borrower does not select a repayment plan, the lender shall provide the
borrower with a standard repayment plan. Once established, the borrower may
annually change the selection of a repayment plan.
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. The six month Grace Period excludes any period not in excess of
three years during which a borrower who is a member of the Armed Forces reserves
is called or ordered to active duty for a period of more than 30 days (such
period of exclusion includes the period necessary to resume enrollment at the
borrower's next available regular enrollment period). 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 (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) or the interest that accrues
during the year. A borrower may agree, with concurrence of the lender, to repay
the loan in less than five
28
<PAGE>
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, since 1992, lenders of Consolidation Loans have been
required to establish graduated or income-sensitive repayment schedules and
lenders of Stafford and SLS Loans have been required to offer borrowers the
option of repaying in accordance with graduated or 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.
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 (1) 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, (2) during a period not in excess
of three years while the borrower is a volunteer under the Peace Corps Act, (3)
during a period not in excess of three years while the borrower is a full-time
volunteer under the Domestic Volunteer Act of 1973, (4) during a period not
exceeding three years while the borrower is in service, comparable to the
service referred to in clauses (2) and (3), as a full-time volunteer for an
organization which is exempt from taxation under Section 501(c)(3) of the
Internal Revenue Code, (5) 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, (6) 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, (7) during a period not to exceed twenty-four
months while the borrower is seeking and unable to find full-time employment,
(8) 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 FFEL 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, (9) during a
period, not in excess of 6 months, while the borrower is on parental leave, and
(10) 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
29
<PAGE>
(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 changes, only the Deferment
Periods described above in clauses (6) and (7) (with respect to the parent
borrower) and the Deferment Period described in clause (8) (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 (6), (7) and (8) were available to Consolidation Loan borrowers. Prior
to the 1986 changes, 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 "Forbearance Period"). 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 FFEL 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
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. The 1998 Reauthorization Amendments authorize forbearance for up to 60
days if the lender reasonably determines that such a suspension of collection
activity is warranted following a borrower's request for deferment, forbearance,
a change in repayment plan, or a request to consolidate loans, in order to
collect or process appropriate supporting documentation related to the request
(during which period interest shall accrue but not be capitalized). 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 Forbearance Periods and, if the loan is not eligible for Interest Subsidy
Payments, while the borrower is in school and during the Grace and Deferment
Periods,
30
<PAGE>
may be paid monthly or quarterly or capitalized (added to the principal balance)
not more frequently than quarterly. Interest on Unsubsidized Stafford Loans
disbursed on or after October 7, 1998, that accrues during such periods,
however, may be capitalized only when the loan enters repayment, at the
expiration of the Grace Period (if the loan qualifies for Grace Period), the
Deferment Period or the Forbearance Period, or when the borrower defaults.
The Secretary of Education has proposed regulations which will, if
finalized in their current form, apply the new capitalization rules that apply
to Unsubsidized Stafford Loans disbursed on or after October 7, 1998, to
Stafford Loans disbursed on or after July 1, 2000 (as they relate to interest
accruing during Forbearance Periods not covered by Interest Subsidy Payments).
In addition, such regulations will, if finalized in their current form, permit
capitalization to occur on Unsubsidized Stafford Loans (and Stafford Loans with
respect to Forbearance) disbursed on or after July 1, 2000, at the end of each
covered period rather than at the end of a series of consecutive covered
periods.
Disbursement
Loans made under the FFEL 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.
Origination Fee. An eligible lender is authorized to charge the
borrower of a Stafford, Unsubsidized Stafford or Plus Loan an origination fee in
an amount not to exceed 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 lender, but must be
passed on to the Secretary of Education. Effective October 1, 1998, eligible
lenders that charge origination fees must assess the same fees to all student
borrowers, unless a borrower demonstrates greater financial need based on
income. 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. For all FFEL Program loans made during the period when a
sequestration order is in effect, origination fees shall be increased by 0.50
percentage point.
31
<PAGE>
Lender Loan Fee. The lender of any loan under the FFEL 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.
The Secretary of Education is authorized to collect from the lender or
a subsequent holder of the loan the maximum origination fee authorized to be
charged by the lender (regardless of whether the lender actually charges the
borrower) and the lender loan fee, either through reductions in Special
Allowance Payments and interest subsidy payments or directly from the lender or
holder.
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; provided that, for
Consolidation Loans based on applications received during the period from
October 1, 1998 through January 31, 1999, the monthly fee shall equal .0517%
(0.62% per annum).
Loan Guarantees
Under the FFEL Program, Guarantee Agencies are required to guarantee
the payment of not less than 98% of the principal amount of loans made on or
after October 1, 1993 and 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." 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 FFEL Program, the Secretary of Education is authorized to
enter into guaranty and interest subsidy agreements with Guarantee Agencies. The
FFEL 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 FFEL Program.
The 1998 Reauthorization Amendments significantly modify requirements
regarding Guarantee Agencies' reserves and sources of revenues and authorized
the Secretary of Education to enter into agreements with Guarantee Agencies
which modify or waive many of the requirements of the FFEL Program covered under
existing agreements and otherwise required by the Higher Education Act. See
"Description of the Guarantee Agencies--1998 Reauthorization Amendments."
32
<PAGE>
The Secretary of Education has certain oversight powers over Guarantee
Agencies. Guarantee Agencies are required to maintain their Federal Funds (as
hereinafter defined) at a current minimum reserve level of at least 0.25 percent
of the total amount of all outstanding loans guaranteed by such Agency
(excluding certain loans transferred to the Guarantee Agency from an insolvent
Guarantee Agency pursuant to a plan of the Secretary of Education). If a
Guarantee Agency falls below the required level in two consecutive years, its
claims rate exceeds 5% in any year, or the Secretary of Education determines
that the Agency's administrative or financial condition jeopardizes its ability
to meet its obligations, the Secretary of Education 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 of Education determines that the
Guarantee Agency is in danger of financial collapse, the Secretary of Education
may terminate the Guarantee Agency's reimbursement contract. The Secretary of
Education also may terminate such reimbursement contracts if the Secretary of
Education determines that such action is necessary to protect the federal fiscal
interest or to ensure continued availability of student loans.
The Secretary of Education is authorized 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 FFEL
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. The Secretary
of Education currently agrees to reimburse the Guarantee Agency for up to 100%
of the amounts so expended with respect to loans made prior to October 1, 1993;
98% of the amount expended with respect to guaranteed loans made on or after
October 1, 1993 but before October 1, 1998; and 95% of the amount expended with
respect to guaranteed loans made on or after October 1, 1998. Depending on the
claims rate experience of a Guarantee Agency, such 100%, 98% or 95%
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
33
<PAGE>
Agency in discharging its guarantee 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, or if a school fails to
make a refund of loan proceeds which the school owed to a student's lender,
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 FFEL 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% for loans made
before October 1, 1993; 98% for loans made on or after October 1, 1993 but
before October 1, 1998; and 95% for loans made on or after October 1, 1998.
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% for loans made before October 1, 1993; 88% for loans made on or after
October 1, 1993 but before October 1, 1998; and 85% for loans made on or after
October 1, 1998. 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% for loans made before October 1,
1993; 78% for loans made on or after October 1, 1993 but before October 1, 1998;
and 75% for loans made on or after October 1, 1998. 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 a 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 (1) a percentage amount equal to the complement of
the reimbursement percentage in effect at the time the loan was reimbursed, and
(2) an amount equal to 24% (or 23% beginning on October 1, 2003, and 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.
34
<PAGE>
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 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 (for which the first
day of delinquency is on or after October 7, 1998) must be delinquent for 270
days if it is repayable in monthly installments or 330 days if it is payable in
less frequent installments before a lender may obtain payment on a guarantee
from the Guarantee Agency (such time periods are 180 days and 240 days,
respectively, for loans for which the first day of delinquency is before October
7, 1998). 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
35
<PAGE>
have exercised reasonable care and diligence in making, servicing and collecting
the guaranteed loan. Generally, these procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower attending an eligible institution under the Higher Education
Act be made, the borrower's responsibilities under the loan be explained to him
or her, the promissory note evidencing the loan be executed by the borrower and
that 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, a lender
must perform certain collection procedures (primarily telephone calls, demand
letters, skiptracing procedures and requesting assistance from the applicable
Guarantee Agency) that vary depending upon the length of time a loan is
delinquent.
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, except that Consolidation Loans for which the application is
received by an eligible lender on or after November 13, 1997, are eligible for
Interest Subsidy Payments on that portion of the Consolidation Loan that repays
Stafford Loans or similar subsidized loans made under the direct loan program.
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 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
36
<PAGE>
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 "T-Bill Rate"). The quarterly rate for Special Allowance
Payments for Student Loans made on or after October 1, 1981 is computed by
subtracting the applicable interest rate on such loans from the T-Bill Rate,
adding a percent specified by the Higher Education Act (the "Applicable SAP
Percent") to the resulting percent, and dividing the resulting percent by four.
The Applicable SAP Percent varies based on the type of loan and when the loan
was made (often determined by when the first disbursement was made). In general,
the Applicable SAP Percent:
(a) for loans made before November 16, 1986, is 3.5%;
(b) for loans made 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, but made before October 1, 1992, is 3.25%;
(c) for loans made on or after October 1, 1992, is 3.1%
(except as noted below);
(d) for Stafford and Unsubsidized Stafford Loans made on or
after July 1, 1995 but before July 1, 1998, is 2.5% prior to the time
such loans enter repayment and during any Deferment Periods; or
(e) for Stafford and Unsubsidized Stafford Loans made on or
after July 1, 1998 and before July 1, 2003, is 2.2% prior to the time
such loans enter repayment and during any Deferment Periods, and 2.8%
while such loans are in repayment.
For loans other than Consolidation Loans made on or after July 1, 2003,
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."
37
<PAGE>
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. Special Allowance Payments are paid with respect
to Plus Loans made on or after July 1, 1994 but before July 1, 1998 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. For Consolidation Loans for
which the application is received on or after October 1, 1998 but before July 1,
2003, Special Allowance Payments are only made for quarters during which the
T-Bill Rate plus 3.1% exceeds the applicable interest rate on such loans. The
portion, if any, of a Consolidation Loan that repaid a loan made under the HEAL
Program is ineligible for 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 loan fee described above under "--Loan
Terms--Fees--Lender Loan 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" (the
"Federal Direct Student Loan Program") to be originated by schools with funds
provided by the Secretary of Education. Under the Federal Direct Student 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 1993 amendments established certain volume goals for the Federal Direct
Student
38
<PAGE>
Loan Program during academic years 1994 through 1999. The 1998 Reauthorization
Amendments repealed these goals.
The loan terms are generally the same under the Federal Direct Student
Loan Program as under the FFEL Program. At the discretion of the Secretary of
Education, students attending schools that participate in the Federal Direct
Student Loan Program (and their parents) may still be eligible for participation
in the FFEL Program, though no borrower could obtain loans under both programs
for the same period of enrollment.
It is difficult to predict the impact of the Federal Direct Student
Loan 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 FFEL Program
loans, how many students will seek loans under the Federal Direct Student Loan
Program instead of the FFEL Program. In addition, it is impossible to predict
whether future legislation will eliminate, limit or expand the Federal Direct
Student Loan Program or the FFEL Program.
DESCRIPTION OF THE GUARANTEE AGENCIES
General
The Financed Eligible Loans for a series of Notes may be guaranteed by
any one or more Guarantee Agencies identified in the related Prospectus
Supplement. The following discussion relates to Guarantee Agencies under the
FFEL Program.
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 (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 270 days (unless the
first day of delinquency occurred prior to October 7, 1998, in which case it may
be submitted after 180 days of delinquency). The default claim package must
include all information and documentation required under the FFEL 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 (which generally is expected
to be 390 days following the date a loan becomes delinquent). The Guarantee
Agency will pay the lender interest accrued on the loan for up to 450 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.
39
<PAGE>
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.
The Secretary of Education is required to demand payment on September
1, 2002 of a total of one billion dollars from all the Guarantee Agencies
participating in the FFEL 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 of Education has
made the determinations, and advised the Guarantee Agencies, of the amounts
required to be so transferred by the Guarantee Agencies. The 1998
Reauthorization Amendments include significant changes affecting the financial
structure of Guarantee Agencies in the FFEL Program and their sources of
revenue. These changes will affect the Guarantee Agencies and their Guarantee
Funds. See "--1998 Reauthorization Amendments" below.
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. 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. 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 the FFEL Program."
Information relating to the particular Guarantee Agencies guaranteeing
the Financed Eligible Loans will be set forth in the Prospectus Supplement. Such
information will be provided by the respective Guarantee Agencies, and neither
such information nor information included in the reports referred to therein has
been verified by, or is guaranteed as to accuracy or completeness by, EdLinc,
the Transferor or the Underwriters. No representation is made by EdLinc, the
Transferor 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.
Department of Education Oversight
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
40
<PAGE>
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 (except to the extent applicable to the "Operating Fund"
described below under "--1998 Reauthorization Amendments") shall be considered
to be the property of the United States to be used in the operation of the FFEL
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.
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 guarantee claim processing standards no more
stringent than those applied by the Guarantee Agency. The Department of
Education's obligation to pay guarantee claims directly in this fashion,
however, 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 FFEL Program."
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.
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 reimbursement of a portion 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 portion of reimbursement received by the Board of
Regents ranges from 80% to 100% for loans made prior to October 1, 1993; 78% to
98% for loans made on or after October 1, 1993 but before October 1, 1998; and
75% to 95% for loans made on or after October 1, 1998. 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
41
<PAGE>
by the Secretary of Education to protect the federal interest. See "Description
of the FFEL Program--Contracts with Guarantee Agencies--Federal Reimbursement."
In addition to guarantee benefits, qualified Stafford Loans (and
certain Consolidation Loans) acquired under the FFEL 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 (as amended, 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 the FFEL 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 since 1986 (1)
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, (2) 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, (3)
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 (4) 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.
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, which will be affected by 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.
In general, Guarantee Agencies are 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
42
<PAGE>
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, but before
October 1, 1998, are reduced from 100%, 90% and 80% to 98%, 88% and 78%,
respectively. The reimbursement percentages for loans made on or after October
1, 1998 are further reduced to 95%, 85% and 75%, respectively. See "Description
of the FFEL Program--Federal Reimbursement."
1998 Reauthorization Amendments
General
The 1998 Reauthorization Amendments, enacted October 7, 1998, made
various changes to the Higher Education Act affecting Guarantee Agencies in the
FFEL Program, including the following:
(a) each Guarantee Agency had to establish a federal student
loan reserve fund (the "Federal Fund") and an agency operating fund
(the "Operating Fund") prior to December 7, 1998, each of which must be
funded, invested and used as prescribed by the 1998 Reauthorization
Amendments;
(b) each Guarantee Agency's sources of revenue have been
modified;
(c) additional reserves of Guarantee Agencies have been
recalled; and
(d) the Secretary of Education and a Guarantee Agency may
enter into voluntary flexible agreements in lieu of existing
agreements.
The following briefly summarizes these changes.
The Federal Fund and the Operating Fund
Each Guarantee Agency was required to deposit prior to December 7,
1998, all funds, securities and other liquid assets contained in its reserve
fund into the Federal Fund that it established, which shall be an account
selected by the Guarantee Agency with the approval of the Secretary of
Education. The Federal Fund, and any nonliquid asset (such as a building or
43
<PAGE>
equipment) developed or purchased by the Guarantee Agency in whole or in part
with federal reserve funds of the Guarantee Agency, shall be considered to be
property of the United States (prorated based on the percentage of such asset
developed or purchased with federal reserve funds), which must be used in the
operation of the FFEL Program to pay lender guarantee claims, to pay Default
Aversion Fees (as defined below) into the Guarantee Agency's Operating Fund, and
to the extent permitted, to make certain transition payments into the Operating
Fund and for certain other uses permitted by the Secretary of Education's
regulations. The Secretary of Education may direct a Guarantee Agency, or its
officers and directors, to cease any activity involving expenditures, use or
transfer of the Federal Fund that the Secretary of Education determines is a
misapplication, misuse or improper expenditure of the Federal Fund or the
Secretary of Education's share of such asset. A Guarantee Agency is required to
maintain in the Federal Fund a current minimum reserve level of at least 0.25
percent of the total amount of all outstanding loans guaranteed by such Agency
(excluding certain loans transferred to the Guarantee Agency from an insolvent
Guarantee Agency pursuant to a plan of the Secretary of Education).
After the Federal Fund is established, the Guarantee Agency is required
to deposit into the Federal Fund all reinsurance payments received from the
Secretary of Education; from amounts collected from defaulted borrowers, a
percentage amount equal to the complement of the reinsurance percentage in
effect when the guarantee payment was made; all insurance premiums collected
from borrowers; all amounts received from the Secretary of Education as payment
for supplemental preclaims assistance activity performed prior to October 7,
1998; 70 percent of administrative cost allowances received from the Secretary
of Education after October 7, 1998 for loans guaranteed prior to that date; and
other receipts specified in regulations of the Secretary of Education. Funds
transferred to the Federal Fund are required to be invested in low-risk
securities and all earnings from the Federal Fund shall be the sole property of
the United States.
Each Guarantee Agency also was required to establish its Operating Fund
prior to December 7, 1998. The 1998 Reauthorization Amendments include various
transition rules allowing a Guarantee Agency to transfer certain transition
amounts from its Federal Fund to its Operating Fund from time to time during the
first three years following the establishment of the Operating Fund for use in
the performance of the Guarantee Agency's duties under the FFEL Program. In
determining the amounts that it may transfer, the Guarantee Agency must ensure
that sufficient funds remain in the Federal Fund to pay lender claims within the
required time periods and to meet reserve recall requirements. In general, the
transition rules require repayment to the Federal Fund of transition amounts
transferred therefrom to the Operating Fund.
The Operating Fund shall be considered to be the property of the
Guarantee Agency, except for transition amounts transferred from the Federal
Fund. The Secretary of Education may not regulate the uses or expenditure of
moneys in the Operating Fund (but may require necessary reports and audits),
except during any period in which transition funds are owed to the Federal Fund.
During such period, moreover, moneys in the Operating Fund may only be used for
expenses related to the FFEL Program.
44
<PAGE>
Funds deposited into the Operating Fund shall be invested at the
discretion of the Guarantee Agency in accordance with prudent investor standards
(except that transition amounts transferred to the Operating Fund from the
Federal Fund must be invested in the same manner as amounts in the Federal
Fund). After establishing the Operating Fund, the Guarantee Agency shall deposit
into the Operating Fund: Loan Processing and Issuance Fees and Account
Maintenance Fees (as such terms are defined below) paid by the Secretary of
Education; Default Aversion Fees; 30 percent of administrative cost allowances
received from the Secretary of Education after October 7, 1998 for loans
guaranteed prior to that date; 24 percent (decreasing to 23 percent on and after
October 1, 2003) of amounts collected on defaulted loans, excluding such
collected amounts required to be transferred to the Federal Fund; and other
receipts specified in regulations of the Secretary of Education.
In general, funds in the Operating Fund shall be used by the Guarantee
Agency for application processing, loan disbursement, enrollment and repayment
status management, default aversion activities, default collection activities,
school and lender training, financial aid awareness and related outreach
activities, compliance monitoring, and other student financial aid related
activities, as selected by the Guarantee Agency. The Guarantee Agency may
transfer funds from the Operating Fund to the Federal Fund, however, such
transfers are irrevocable and transferred funds would become the property of the
United States.
Modifications in Sources of Revenue
The 1998 Reauthorization Amendments made the following modifications
with respect to principal sources of Guarantee Agency revenues:
(a) reduced reinsurance payment percentages for loans made on
and after October 1, 1998 as described above under "--Effect of Annual
Claims Rate;"
(b) the percentage of the amount of collections on defaulted
loans that may be retained by the Guarantee Agency is reduced from 27
percent to 24 percent, with a further reduction to 23 percent on and
after October 1, 2003;
(c) establishes a loan processing and issuance fee (the "Loan
Processing and Issuance Fee"), payable by the Secretary of Education on
a quarterly basis, equal to: (i) for loans originated during fiscal
years beginning on or after October 1, 1998 and before October 1, 2003,
0.65 percent of the total principal amount of loans on which insurance
was issued under the FFEL Program during such fiscal year by the
Guarantee Agency, and (ii) for loans originated during fiscal years
beginning on or after October 1, 2003, 0.40 percent of the total
principal amount of loans on which insurance was issued under the FFEL
Program during such fiscal year by the Guarantee Agency;
(d) eliminates the discretionary administrative cost
allowances or expenses which had been paid at 0.85 percent of such
amount;
45
<PAGE>
(e) establishes a default aversion fee (the "Default Aversion
Fee") relating to default aversion activities required to be undertaken
by the Guarantee Agency, payable on a monthly basis from the Federal
Fund to the Operating Fund, in an amount equal to 1 percent of the
total unpaid principal and accrued interest on a loan for which a
default claim has not been paid as a result of the loan being brought
into current repayment status on or before the 300th day after the loan
becomes 60 days delinquent; and
(f) establishes an account maintenance fee (the "Account
Maintenance Fee"), payable by the Secretary of Education on a quarterly
basis (unless certain nationwide caps are met, in which case the fee
shall be transferred from the Federal Fund to the Operating Fund),
equal to (i) for fiscal years 1999 and 2000, 0.12 percent of the
original principal amount of outstanding loans on which insurance was
issued under the FFEL Program, and (ii) for fiscal years 2001, 2002 and
2003, 0.10 percent of the original principal amount of outstanding
loans on which insurance was issued under the FFEL Program.
Additional Recalls of Reserves
The 1998 Reauthorization Amendments direct the Secretary of Education
to demand payment from all the Guarantee Agencies participating in the FFEL
Program of amounts held in their Federal Funds in fiscal years 2002 aggregating
$85 million; 2006 aggregating $82.5 million; and 2007 aggregating $82.5 million.
The amounts demanded of each Guarantee Agency are determined in accordance with
formulas included in Section 422(i) of the Higher Education Act. If a Guarantee
Agency charges the maximum permitted 1 percent insurance premium, however, the
recall may not result in the depletion of such Guarantee Agency's reserve funds
below an amount equal to the amount of lender claim payments paid during the 90
days prior to the date of return.
Voluntary Flexible Agreements
The 1998 Reauthorization Amendments authorize the Secretary of
Education to enter into agreements with Guarantee Agencies which modify or waive
many of the requirements of the FFEL Program covered under existing agreements
and otherwise required by the Higher Education Act, including the sources and
uses of revenues and funds of Guarantee Agencies. In July 1999, the Secretary of
Education commenced a process to select up to six Guarantee Agencies to enter
into voluntary flexible agreements by December 1, 1999. The 1998 Reauthorization
Amendments authorize the Secretary of Education to enter into voluntary flexible
agreements with up to six Guarantee Agencies during federal fiscal years 1999,
2000 and 2001, and with any Guaranty Agency or consortium thereof beginning in
federal fiscal year 2002.
DESCRIPTION OF THE ALTERNATIVE LOAN PROGRAMS
To the extent described in the Prospectus Supplement for a series, the
proceeds of such series may be used to purchase Financed Alternative Loans
issued under one or more Alternative Loan Programs. The Alternative Loan
Programs will be specifically identified in the Prospectus
46
<PAGE>
Supplement with respect to such series. The Prospectus Supplement may specify a
maximum percentage of Financed Alternative Loans that may comprise part of the
Financed Eligible Loans securing the Notes. This summary identifies
characteristics common to most Alternative Loan Programs but is qualified by the
specific disclosure set forth in the related Prospectus Supplement.
Alternative Loans made under most Alternative Loan Programs are based
on the credit of the borrower or his or her parents or co-borrowers. In general,
applicants are required to have a minimum annual income and are evaluated as to
creditworthiness. In determining whether a student or co-borrower is
creditworthy, a credit bureau report is obtained for each applicant, including
the student. The various Alternative Loan Programs have different standards as
to what constitutes a satisfactory credit history.
Eligible post-secondary borrowers of an Alternative Loan often are
required to be engaged in a course of study at a qualifying educational
institution, which may include two-year colleges, four-year colleges and
for-profit schools. Certain Alternative Loan Programs are specifically designed
for graduate or professional students, or for students attending elementary or
secondary private schools. The institutions generally must be located in the
United States or Canada. Often, the borrower (or a co-applicant) must be a
citizen or resident of the United States. Some Alternative Loans may be a
consolidation of existing Alternative Loans.
The amount that may be borrowed under an Alternative Loan Program
varies based upon the Alternative Loan Program. Typically, borrowers must borrow
at least a minimum amount with respect to any academic year, and may not borrow
more than a maximum amount per academic year, or a maximum amount under the
Alternative Loan Program. However, the amount of the Alternative Loan plus other
financial aid received by a student, normally may not exceed the cost of
education, as determined by the school.
A loan origination fee typically is deducted from the Alternative Loan
proceeds. All or a portion of this fee is paid to the originator of the
Alternative Loan and set aside as a reserve against possible default.
The interest rate on an Alternative Loan varies based upon the
Alternative Loan Program and can either be fixed or variable. Floating rates may
be based upon the prime rate or the T-Bill Rate, or some other objective
standard. Interest typically accrues at a rate equal to the index plus a margin
(sometimes subject to a maximum rate per annum), with the interest rate being
adjusted periodically.
Alternative Loan Programs usually permit a borrower to defer the
repayment of principal and, in some cases, interest, while the student is in
school (often up to a maximum number of years). In such event, principal
repayments (including deferred interest) typically begin within six months after
the student has left school. In some cases, repayment of an Alternative Loan may
be required to commence within 45 to 90 days following the borrowing. Most
Alternative Loan Programs permit prepayment of the Alternative Loan at any time
without penalty.
47
<PAGE>
Borrowers typically may schedule repayment over a 10- to 30-year period, subject
to a minimum monthly payment obligation.
Alternative Loan Programs typically provide for an origination fee
(usually 4% to 6% of the amount of the loan) to be paid at the time of
origination of the loan.
DESCRIPTION OF THE NOTES
General
The Notes of each series will be issued pursuant to the terms of the
Indenture, as supplemented by a Supplemental Indenture relating to that series.
The following summary describes the material terms of the Notes. The summary
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the Notes, the Indenture and the applicable Supplemental
Indenture, which provisions are incorporated by reference herein.
General Terms of Notes
Each series of Notes will be created by and issued pursuant to a
Supplemental Indenture, which will designate the Notes of that series as Senior
Notes, Subordinate Notes or Class C Notes.
The stated maturities and sinking fund payment dates of all Notes will
occur on a June 1 or a December 1, unless otherwise specified with respect to
any series of variable rate Notes in the related Supplemental Indenture. All
EdLinc swap payments and other payments to be made by EdLinc to Credit Facility
Providers will 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 is due on a day other than a business day,
then payment thereof 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 will accrue for
the intervening period.
In the event a default occurs in the payment of any interest on any
Note, interest will 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
EdLinc, payable solely from the revenues and assets of EdLinc pledged therefor
under the Indenture.
48
<PAGE>
Issuance of Notes
Notes will be issued under the Indenture only for the purposes of (a)
providing funds for the purchase or origination of Eligible Loans, (b) refunding
at or before their stated maturity any or all Outstanding Notes, 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 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.
It is expected that each class of the Notes of a series will initially
be represented by one or more Notes registered in the name of the nominee of DTC
(together with any successor depository selected by EdLinc, the "Securities
Depository"). Notes generally will be available for purchase in denominations of
[$50,000] and integral multiples of $1,000 in excess thereof (for variable rate
Notes) or $5,000 and integral multiples thereof (for fixed rate Notes), as the
case may be, in book-entry form. EdLinc has been informed by DTC that DTC's
nominee will be Cede & Co. Accordingly, Cede & Co. is expected to be the holder
of record of the Notes. Unless and until Definitive Notes are issued under the
limited circumstances described herein or in the accompanying Prospectus
Supplement, no Noteholder will be entitled to receive a physical certificate
representing his Note. All references herein to actions by Noteholders refer to
actions taken by DTC upon instructions from its participating organizations (the
"Participants") and all references herein to distributions, notices, reports and
statements to Noteholders refer to distributions, notices, reports and
statements to DTC or Cede & Co., as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "--Book-Entry Registration" and "--Definitive Notes" below.
Comparative Security of Noteholders and Other Beneficiaries
The 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 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." 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.
EdLinc may at any time issue a series of Notes, either as Senior Notes,
Subordinate Notes or Class C Notes or any combination thereof. In connection
with any such Senior Notes or Subordinate Notes, EdLinc may enter into a Swap
Agreement or Credit Enhancement Facility as it deems in its best interest, and
the Swap Counterparty or the Credit Enhancement Provider may
49
<PAGE>
become a Senior Beneficiary or a Subordinate Beneficiary, as herein described.
See "Source of Payment and Security for the Notes--Additional Indenture
Obligations."
Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement
No call for redemption (other than mandatory sinking fund redemption of
Senior Notes), prepayment of principal or purchase (other than on a Purchase
Date or Mandatory Tender Date) of Notes by the Trustee will 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,
EdLinc furnishes the Trustee a certificate to the effect that:
1. if Senior Notes are to be called for redemption, prepaid or
purchased, either (A) after giving effect thereto, the Senior Asset
Requirement will be met, or (B) (i) prior thereto, the Senior Asset
Requirement is not being met, (ii) no Subordinate Notes or Class C
Notes will be called for redemption, prepaid or purchased, and (iii)
after giving effect thereto, 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 thereto, 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 thereto, the Senior Asset Requirement
will be met and there shall be no deficiency then existing in the Note
Fund or the Reserve 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.
Interest
Interest will accrue on the principal balance of each class of Notes of
a series at a specified rate per annum. Interest is expected to accrue initially
from and including the closing date on which the related series was issued, or
some other specified date, through and including the date set forth in the
related Prospectus Supplement. Thereafter, except as otherwise set forth in the
related Prospectus Supplement, interest will accrue for periods (each, an
"Interest Period")
50
<PAGE>
consisting of (1) with respect to LIBOR Rate Notes, generally a one-month or
three-month period beginning and ending on the dates set forth in the related
Prospectus Supplement, (2) with respect to Auction Rate Notes, as set forth in
the related Prospectus Supplement, (3) with respect to fixed rate Notes, the
six-month periods ending on May 31 and November 30, or (4) with respect to Notes
accruing interest based on some other method, the period set forth in the
related Prospectus Supplement. Interest on each class of Notes of each series
will be payable on the interest payment dates described in the applicable
Prospectus Supplement.
If on any Interest Rate Determination Date, an Auction for a class of
Auction Rate Notes of a series is not held for any reason, then the interest
rate for such class of Notes will be the Net Loan Rate or such other rate as may
be described in a Prospectus Supplement. The interest rate on each class of
Notes bearing interest based upon a method other than LIBOR or an Auction Rate
will be described in the related Prospectus Supplement.
With respect to Auction Rate Notes, EdLinc may, from time to time,
change the length of one or more Auction Periods to conform with then current
market practice or accommodate other economic or financial factors that may
affect or be relevant to the length of the Auction Period or any class interest
rate (an "Auction Period Adjustment"). An Auction Period Adjustment will not
cause an Auction Period to be less than 7 days nor more than one year and will
not be allowed unless certain conditions specified in the Auction Procedures
described in the related Prospectus Supplement are satisfied. If an Auction
Period Adjustment is made, the intervals between interest payment dates will be
adjusted accordingly.
Payment of Interest. Payments of interest will be made on each interest
payment date, as specified in the accompanying Prospectus Supplement. Interest
payments on the Notes will be made from amounts available therefor in the
Interest Account (including amounts transferred thereto from other Funds and
Accounts under the Indenture).
Carry-Over Amounts. If set forth in a Prospectus Supplement, with
respect to any class of Notes of a series for any Interest Period the LIBOR Rate
plus the applicable margin or the Auction Rate, as the case may be, exceeds the
Net Loan Rate, the applicable interest rate for such class for such Interest
Period will be the Net Loan Rate, and the excess of the amount of interest on
such class that would have accrued at a rate equal to the LIBOR Rate plus any
applicable margin or the Auction Rate, as appropriate, over the amount of
interest on such class actually accrued at the Net Loan Rate will accrue as the
Carry-Over Amount with respect to such class of Notes. Such determination of the
Carry-Over Amount will be made separately for each class of each series of
Notes. The Carry-Over Amount on any class of Notes will bear interest at a rate
equal to the rate set forth in the related Prospectus Supplement, from the
interest payment date for the Interest Period for which the Carry-Over Amount
was calculated until paid.
Carry-Over Amounts will be paid as described under "Description of the
Indenture--Funds and Accounts--Interest Account."
51
<PAGE>
Principal
All payments of principal of Notes of a series will be made in amounts
determined as set forth in the related Prospectus Supplement and will be paid at
the times and will be allocated among the classes of Notes of such series in the
order and amounts, all as specified in the related Prospectus Supplement.
Determination of LIBOR
Pursuant to the Indenture, for each Interest Period after the initial
Interest Period, the Trustee will determine the applicable LIBOR rate for
purposes of calculating the interest rate on the LIBOR Rate Notes for each given
Interest Period on a specified date preceding the commencement of each Interest
Period (each, an "Interest Rate Determination Date").
"LIBOR" means the rate of interest per annum equal to the London
interbank offered rate for deposits in U.S. dollars having the applicable
maturity (i.e., one month or three months) commencing on the related Interest
Rate Determination Date (the "Index Maturity") which appears on Telerate Page 5
as of 11:00 a.m., London time, on such Interest Rate Determination Date. If such
rate does not appear on Telerate Page 5, the rate for that day will be
determined by reference to the Reuters Screen LIBOR Page. If such rate does not
appear on Telerate Page 5 or the Reuters Screen LIBOR Page, the rate for that
day will be determined on the basis of the rates at which deposits in U.S.
dollars, having the Index Maturity and in a principal amount of not less than
U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on such
Interest Rate Determination Date to prime banks in the London interbank market
by the Reference Banks. The Trustee or a specified agent will request the
principal London office of each of such Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, LIBOR for that day
will be the arithmetic mean (rounded upwards, if necessary, to the nearest .01%)
of the quotations. If fewer than two quotations are provided, LIBOR for that day
will be the arithmetic mean (rounded upwards, if necessary, to the nearest .01%)
of the rates quoted by three major banks in New York City, selected by the
Trustee or a specified agent, as applicable, at approximately 11:00 a.m., New
York City time, on such Interest Rate Determination Date for loans in U.S.
dollars to leading European banks having the Index Maturity and in a principal
amount equal to an amount of not less than U.S. $1,000,000; provided, however,
that if the banks selected as aforesaid are not quoting as mentioned in this
sentence, LIBOR in effect for the applicable Interest Period will be LIBOR in
effect for the previous Interest Period.
Auction Procedures
A series of Notes may contain one or more classes of Auction Rate
Notes. The following discussion summarizes certain procedures that will be used
in determining the interest rates on the Auction Rate Notes. If any Auction Rate
Notes are included in a series, the Prospectus Supplement will contain a more
detailed description of these procedures in an Appendix. Prospective investors
in the Auction Rate Notes should read carefully the following summary, along
with the more detailed description in the Prospectus Supplement.
52
<PAGE>
The interest rate on each class of Auction Rate Notes will be
determined periodically (generally, for periods ranging from 7 days to one year)
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 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 Notes.
In the auction procedures, the following types of orders may be
submitted:
(1) Bid/Hold 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
Notes for the upcoming interest period;
(2) Sell Orders - an order by a current investor to SELL
a specified principal amount of Auction Rate Notes,
regardless of the upcoming interest rate; and
(3) Potential Bid Orders - the minimum interest rate that
a potential investor (or a current investor wishing
to purchase additional Auction Rate Notes) is willing
to accept in order to BUY a specified principal
amount of Auction Rate Notes.
If an existing investor does not submit orders with respect to all its
Auction Rate Notes of the applicable class, the investor will be deemed to have
submitted a Hold Order at the new interest rate for that portion of the Auction
Rate Notes for which no order was received.
In connection with each auction, Auction Rate 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 Notes.
(a) Assumptions:
1. Denominations (Units) = $100,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
(b) Summary of All Orders Received For The Auction
53
<PAGE>
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
100 Units at 3.10% 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
50 Units at 3.14%
100 Units at 3.15%
Total units under existing Bid/Hold Orders and Sell Orders must always
equal issue size (in this case 500 Units).
(c) Auction Agent Organizes Orders In Ascending Order
Cumulative Cumulative
Order Number Total Order Number Total
Number of Units (Units) % Number of Units (Units) %
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 60(W) 150 3.05% 11 50(L) 3.14%
6 50(W) 200 3.05% 12 100(L) 3.15%
- ------------------------
(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. 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 the lesser of the Net Loan Rate or the
maximum auction rate specified in the related Prospectus Supplement (the
"Maximum Auction Rate").
The above example assumes that a successful auction has occurred (i.e.,
all Sell Orders and all Bid/Hold Orders below the new interest rate were
fulfilled). In certain circumstances, there may be insufficient Potential Bid
Orders to purchase all the Auction Rate Notes offered for sale. In such
circumstances, the interest rate for the upcoming Interest Period will equal the
lesser of the Net Loan Rate and the Maximum Auction Rate. Also, if all the
Auction Rate Notes are subject to Hold Orders (i.e., each holder of Auction Rate
Notes wishes to continue holding its Auction Rate Notes, regardless of the
interest rate) the interest rate for the upcoming Interest
54
<PAGE>
Period will equal the lesser of the Net Loan Rate and the rate at which all
investors are willing to hold the Notes.
Book-Entry Registration
The description which follows of the procedures and record keeping with
respect to beneficial ownership interests in a series of Notes, payment of
principal of and interest on the Notes to DTC Participants, Cedel Participants
and Euroclear Participants or to purchasers of the Notes, confirmation and
transfer of beneficial ownership interests in the Notes, and other
securities-related transactions by and between DTC, Cedel, Euroclear, DTC
Participants, Cedel Participants, Euroclear Participants and Beneficial Owners,
is based solely on information furnished by DTC, Cedel and Euroclear and has not
been independently verified by EdLinc or the Underwriters.
If specified in the accompanying Prospectus Supplement, 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.
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 the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its Participants ("DTC Participants") and facilitates the
clearance and settlement among DTC Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic 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. Indirect 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 ("Indirect Participants"). The rules applicable to DTC
and its 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.
55
<PAGE>
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. Day traders that use Cedel or Euroclear and that purchase the globally
offered 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 Notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual owner of a Note (a "Beneficial Owner") is in
turn to be recorded on the DTC Participants' and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Transfers of ownership interests
in the Notes are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interest in Notes, except when
use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, all Notes deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Notes with DTC and their registration in the name of Cede & Co.
effects no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Notes; DTC's records reflect only the identity of the
DTC Participants to whose accounts such Notes are credited, which may or may not
be the
56
<PAGE>
Beneficial Owners. The DTC 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 them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails an omnibus proxy to the issuer as
soon as possible after the record date, which assigns Cede's consenting or
voting rights to those DTC Participants to whose accounts the Notes are credited
on the record date (identified in a listing attached thereto).
Principal and interest payments on the Notes will be made to DTC. DTC's
practice is to credit DTC Participants' accounts on the applicable interest or
principal payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on such interest or principal payment date. Payments by DTC 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 and not of DTC, the Trustee or EdLinc, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Trustee,
disbursement of such payments to DTC Participants will be the responsibility of
DTC, and disbursement of such payments to Beneficial Owners will be the
responsibility of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to EdLinc or
the Trustee. Under such circumstances, if a successor securities depository is
not obtained, Definitive Notes are required to be printed and delivered. EdLinc
may decide to discontinue use of the system of book-entry transfers through DTC
(or a successor securities depository). In that event, Definitive Notes will be
delivered to Noteholders. See " --Definitive Notes" below.
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
57
<PAGE>
certain other organizations and may include the underwriters of any series of
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 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 fundable
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
58
<PAGE>
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 Euroclear Participants credited with such interests in securities
on the Euroclear Operator's records, all Euroclear 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 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 "Federal Income Tax Consequences." Cedel or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Noteholder
under the Agreement 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 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.
Definitive Notes
If set forth in the accompanying Prospectus Supplement, Notes of any
series will be issued in fully registered, certificated form (the "Definitive
Notes") to Beneficial Owners or their nominees rather than to DTC or its
nominee, if (1) the Notes of such series are not eligible for the services of
DTC, (2) DTC determines to discontinue providing its services with respect to
the Notes of such series or (3) EdLinc determines that a system of book-entry
transfers for the Notes of such series, or the continuation thereof, through DTC
is not in the best interest of the Beneficial Owners or EdLinc. In that event,
EdLinc may either identify another qualified securities depository or direct or
cause 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
Notes of such series in authorized denominations and registration thereof in the
Beneficial Owners' or nominees' names, will become the holders of such Notes for
all purposes. In that connection, 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 Note
certificates to Beneficial Owners or their nominees, as applicable.
59
<PAGE>
Distribution of principal of and interest on the Notes will be made by
the Trustee directly to Noteholders of Definitive Notes in accordance with the
procedures set forth herein and in the Indenture.
Definitive Notes will be transferable and exchangeable at the offices
of the registrar for the Notes, which will initially be the Trustee. No service
charges will be imposed for any registration of transfer or exchange, but the
registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Denomination and Payment
The Notes of each series will be issued in the denominations specified
in the related Prospectus Supplement.
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 not a regularly scheduled interest payment date, will 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 Notes at the principal office of the Trustee, as paying agent
with respect to the Notes, or a duly appointed successor paying agent. Interest
on each series of Notes will 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 registered holder thereof
as of the regular record date for such interest payment date, or, if provided in
the related Prospectus Supplement, by electronic transfer 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 "Defaulted Interest")
will cease to be payable to the person who is the registered holder thereof at
the close of business on the regular record date and will be payable to the
person who is the registered holder thereof at the close of business on a
special record date established by the Trustee for the payment of any such
Defaulted Interest. Such special record date will be fixed by the Trustee
whenever moneys become available for payment of the Defaulted Interest. All
payments of principal of and interest on the Notes will be made in lawful money
of the United States of America.
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES
General
The Notes will be limited obligations of EdLinc payable solely from the
Trust Estate created under the Indenture, consisting of certain revenues and
Funds and Accounts pledged under the Indenture. The pledged revenues include:
(1) payments of interest and principal made by obligors of Financed Student
Loans, (2) Guarantee Payments made by the Guarantee Agencies to or for the
account of the Trustee as the holder of defaulted Financed FFELP Loans, (3)
interest subsidy payments and Special Allowance Payments made by the Department
of Education to or
60
<PAGE>
for the account of the Trustee as the holder of Financed FFELP Loans (excluding
any Special Allowance Payments and interest subsidy payments accrued prior to
the date of Financing the related FFELP Loan), (4) income from investment of
moneys in the pledged Funds and Accounts, (5) payments from a Swap Counterparty
under a Swap Agreement, (6) proceeds of any sale or assignment by EdLinc of any
Financed Student Loans, and (7) 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.
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 EdLinc (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 "Summary of the
Indenture--Funds and Accounts."
Additional Indenture Obligations
The Indenture provides that, upon the satisfaction of certain
conditions, EdLinc may issue one or more series of Notes thereunder. Notes may
be issued as Senior Notes on a parity basis with any previously issued Senior
Notes; as Subordinate Notes on a parity basis with any previously issued
Subordinate Notes; or as Class C Notes on a subordinate basis to the Senior
Notes and the Subordinate Notes. In addition, EdLinc may enter into Swap
Agreements and may obtain Credit Enhancement Facilities from one or more Credit
Facility Providers. EdLinc'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 "Description of the Notes--Issuance of Notes" and "Description
of the Indenture--Covenants--Credit Enhancement Facilities and Swap Agreements."
Under the Indenture, EdLinc 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
61
<PAGE>
specific rating category. No Swap Agreement shall be a Senior Obligation unless,
as of the date EdLinc 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 limitations are imposed by the Indenture on the ability of EdLinc 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.
The Indenture also permits EdLinc to issue Class C Notes from time to
time upon satisfaction of the conditions specified therein. See "Description of
the Notes--Issuance of Notes."
Priorities
The Senior Notes (and any other Senior Obligations) are entitled to
payment and certain other priorities over the 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 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 "Description 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 "Description of the Indenture--Funds and Accounts--Surplus Fund."
62
<PAGE>
DESCRIPTION OF THE SLFC SERVICING AGREEMENT
General
EdLinc and the Trustee have entered into a Servicing and Administration
Agreement, dated as of ________ 1, 1999 (the "SLFC Servicing Agreement"), with
SLFC, as servicer and administrator. The following is a summary of the material
terms of the SLFC Servicing Agreement. The summary does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
SLFC Servicing Agreement. The SLFC Servicing Agreement is in substantially the
form filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Pursuant to the SLFC Servicing Agreement, SLFC agrees to provide
services to EdLinc and the Trustee in connection with the acquisition of Student
Loans to be Financed, and to service the Financed Student Loans, all in
accordance with the SLFC Servicing Agreement. SLFC may perform all or part of
its acquisition and servicing activities through a subcontractor. See
"--Sub-Servicers" below. 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, each Alternative Loan Program, applicable requirements
of each Guarantee Agency and all other applicable federal, state and local laws
and regulations. SLFC also agrees to perform various duties of EdLinc under the
Indenture.
Acquisition Process
SLFC agrees to provide to the Trustee all certificates and directions
required to be delivered by EdLinc to the Trustee under the Indenture in
connection with the Financing of Eligible Loans and Student Loans thereunder.
SLFC also agrees to work with the Transferor and Lenders to obtain from them
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 EdLinc, SLFC agrees
to provide to the Trustee all certificates and directions required to be
delivered by EdLinc 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.
63
<PAGE>
Servicing
SLFC agrees to perform all servicing obligations relating to the
Financed Student Loans required of EdLinc or the Trustee, or which EdLinc 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 FFELP Loans; handling borrower requests for forbearance and deferments;
exercising due diligence (within the meaning of the Higher Education Act, the
Guarantee Program regulations and applicable Alternative Loan Programs) in the
servicing, administration and collection of all Financed Student Loans;
collecting payments of 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 will 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 EdLinc 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 FFELP
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 FFELP 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
FFELP Loan, taking such action as shall be necessary to allow EdLinc or the
Trustee to cause such Lender to repurchase such Financed FFELP Loan; preparing
and filing various reports with the Secretary of Education, the Guarantee
Agency, EdLinc 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, EdLinc, the Trustee, the Guarantee Agency, the Secretary of
Education and/or any governmental agency having jurisdiction over EdLinc 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. EdLinc 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.
64
<PAGE>
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
FFELP Loans, and any lender compliance audits required under the Higher
Education Act, the Guarantee Program regulations and applicable Alternative Loan
Programs relating to the Trustee (as the holder of the Financed Student Loans)
and the Financed Student Loans. SLFC agrees to provide to EdLinc 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 EdLinc under the SLFC Servicing Agreement. These
include providing all necessary personnel, facilities, equipment, forms and
supplies for operating EdLinc's student loan acquisition program in accordance
with the Indenture; disseminating information on EdLinc's program to Lenders and
to student financial aid officers and to other persons as necessary; controlling
and accounting for the receipt and expenditure of EdLinc's funds in accordance
with the resolutions of EdLinc'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 EdLinc 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 EdLinc to file, any
other reports required to be filed by EdLinc under the Indenture or under any
applicable law, including without limitation, the Higher Education Act and any
federal and state securities laws.
Servicing Fees
The SLFC Servicing Agreement provides that SLFC will 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 _______% 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 will provide a written request to EdLinc 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 will
not be increased unless the conditions for increasing such fees under the
Indenture have been satisfied.
65
<PAGE>
SLFC also acknowledges in the SLFC Servicing Agreement that EdLinc 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.
Sub-Servicers
Under the SLFC Servicing Agreement, SLFC may enter into sub-servicing
agreements with one or more sub-servicers providing for the sub-servicers to
perform some or all of the obligations of SLFC with respect to servicing the
Financed Student Loans. Pursuant to a sub-servicing agreement, each sub-servicer
will agree to service, and perform all other related tasks with respect to, the
Financed Student Loans in compliance with applicable standards and procedures.
SLFC will be responsible for the performance of its obligations under the SLFC
Servicing Agreement, whether such obligations are performed by SLFC or by a
sub-servicer, and SLFC will be responsible for any fees and payments required by
the sub-servicer. The Prospectus Supplement for each series of Notes will
identify each sub-servicer sub-servicing 10% or more by principal balance of the
Financed Student Loans.
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 may be
terminated upon the occurrence of certain events, including the insolvency of
SLFC and the failure by SLFC to perform its obligations thereunder.
SLFC agrees to promptly notify the Trustee and EdLinc 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.
Year 2000 Information Systems Procedures
SLFC utilizes a variety of computer programs and information systems in
its daily operations, including its accounting system, its imaging system, and
its student loan servicing system. Computer programs and information systems are
also utilized by the Trustee, each Guarantee Agency, the Department of Education
and other third parties upon which SLFC depends for its programmatic and
financial operations and/or with which it conducts business. Most existing
computer programs and information systems utilized by SLFC and such other third
66
<PAGE>
parties accept only two digits in date code fields to identify a year in the
date fields used for, among other things, calculation and report generation
features.
SLFC has completed its assessment of the computer related activities
that are involved in its programmatic and financial operations, including its
accounting, loan purchase, loan origination and loan servicing programs and the
items required for administration of its programs. The computer programs and
information systems, which SLFC utilizes in performing its administrative
activities, are generally widely used, commercially available hardware and
software or specific programs supplied by vendors. The vendors of these systems
have informed SLFC that their systems are either year 2000 compliant or have
informed SLFC of the necessary upgrades in releases of their software that are
necessary to achieve year 2000 compliance. SLFC has completed upgrades for all
releases of those software packages where upgrade is necessary to obtain year
2000 compliance. Failure of the providers of these software packages to be year
2000 compliant would not materially affect SLFC's ability to effectively perform
its administrative functions.
SLFC has surveyed its own student loan servicing software to determine
if its systems will be year 2000 compliant before January 1, 2000. SLFC's
software has been upgraded to be year 2000 compliant, and has been tested. Based
on the testing, minor revisions have been completed. Follow-up is now being
completed. Also, such software is now being tested for interface, data exchanges
and end-to-end year 2000 compliance. Such testing is expected to be completed by
the end of the third quarter of 1999.
SLFC has been monitoring the year 2000 efforts of its major providers
of guarantees in connection with its student loan financings (in particular,
Education Assistance Corporation, the Pennsylvania Higher Education Assistance
Agency and the Department of Education). Failure of any of these entities to
achieve year 2000 compliance could severely impact their ability to provide
timely payments to SLFC. Education Assistance Corporation and the Pennsylvania
Higher Education Assistance Agency have advised SLFC that they have completed
their inventory of current hardware and software products and major software
systems, and are in the process of replacing and upgrading hardware and software
products which are not presently year 2000 compliant. According to announcements
by the Department of Education, it completed its systems conversion effort with
the last system being implemented on March 8, 1999, ahead of the Office of
Management and Budget March 31, 1999 deadline. One hundred percent of the
Department's 175 systems are either retired (28) or are year 2000 compliant and
fully implemented (147).
SLFC is in the process of surveying its other business partners (such
as investment bankers, the Trustee, Guarantee Agencies and lenders with which it
does business) to determine their level of year 2000 compliance. The results of
these surveys are expected to be known by
September 30, 1999.
SLFC has not independently verified the assurances provided from the
entities with which it conducts business or the vendors that provide software
and can itself give no assurances
67
<PAGE>
that such entities have accurately assessed their level of compliance and will
not subsequently discover areas of non-compliance that will have a material
adverse impact on SLFC's operations. SLFC is presently completing development of
its testing and contingency plans for those systems where year 2000 compliance
is essential. These testing and contingency plan developments are expected to be
completed by September 30, 1999. It is SLFC's intent to complete all year 2000
testing by the end of the third quarter of 1999. SLFC expects to incur no
material costs in connection with its year 2000 efforts.
DESCRIPTION OF THE INDENTURE
General
EdLinc and the Trustee have entered into an Indenture of Trust, dated
as of ___________ 1, 1999 (the "Indenture"), under which each series of Notes
will be issued. The following is a summary of the material terms of the
Indenture. The summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Indenture. The Indenture is in
substantially the form filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
The Indenture establishes the general provisions of Notes issued by
EdLinc thereunder and sets forth various covenants and agreements of EdLinc
relating thereto, default and remedy provisions, responsibilities and duties of
the Trustee and establishes the various Funds into which EdLinc's revenues
related to the Notes are deposited and transferred for various purposes.
Funds and Accounts
Acquisition Fund
The Indenture establishes an Acquisition Fund. With respect to each
series of Notes, the Trustee will, 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 will also deposit in the
Acquisition Fund: (1) any funds to be transferred thereto from the Surplus Fund,
and (2) any other amounts specified in a Supplemental Indenture.
Balances in the Acquisition Fund will 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,
(c) the payment of debt service on the Senior Notes and Other Senior
Obligations, or (d) the payment of the purchase price of any Senior Notes
required to be purchased on a Purchase Date or a Mandatory Tender Date. The
Trustee will make, or authorize any deposit agent to make, payments to the
Transferor, Lenders or SLFC from the Acquisition Fund for the purchase of
Eligible Loans, such payments to be made 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
68
<PAGE>
limitations set forth in the applicable Supplemental Indenture. The Trustee will
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) will be (1) transferred to 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 (2) after such transfer, if any, to be made pursuant to the
preceding clause (1) has been taken into account, transferred to the Principal
Account on any Purchase Date or Mandatory Tender Date with respect to Senior
Notes, to the extent described under "--Note Fund" below. If any amounts have
been transferred to the Note Fund pursuant to this paragraph, the Trustee will,
to the extent necessary to cure the deficiency in the Acquisition Fund as a
result of such transfer, 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 will be invested in investment securities, as
described under "--Investments" below, and any income from said investments will
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 will credit to the Revenue Fund: (1) all amounts received as
interest and principal payments with respect to Financed Student Loans,
including all Guarantee payments, federal interest subsidy payments and Special
Allowance Payments with respect to Financed FFELP Loans, (2) unless otherwise
provided in a Supplemental Indenture, proceeds of the resale to a Lender or SLFC
of any Financed Student Loans pursuant to such Lender's or SLFC's repurchase
obligation under the applicable Student Loan Purchase Agreement, (3) all amounts
received as income from investment securities in the Acquisition Fund, the
Reserve Fund, the Administration Fund, the Surplus Fund and the Note Fund, and
(4) all amounts to be transferred to the Revenue Fund from the Alternative Loan
Guarantee Fund. The Trustee will 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.
Pending transfers from the Revenue Fund, the moneys therein will be
invested in investment securities as described under "--Investments" below, and
any income from said investments will 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
69
<PAGE>
Trustee will transfer the moneys received since the preceding Monthly Payment
Date in the Repayment Account as follows:
o first, to the appropriate party, amounts in respect of moneys
previously received from the Secretary of Education or a
Guarantee Agency on Financed FFELP Loans for which the
Secretary of Education or such Guarantee Agency has reimbursed
itself through withholding payments on other FFELP Loans;
o second, to the Interest Account, to the extent necessary to
increase the balance thereof to the amount required for the
payment of interest on Senior Notes or Other Senior
Obligations payable therefrom;
o third, to the Principal Account, to the extent necessary to
increase the balance thereof to the amount required for the
redemption of Senior Notes or payment of principal or the
purchase price of Senior Notes or the payment of Other Senior
Obligations payable therefrom;
o fourth, to the Retirement Account, to the extent and in the
manner provided in the Indenture with respect to the
redemption of Senior Notes from the Retirement Account or the
payment of Other Senior Obligations payable therefrom;
o fifth, to the Acquisition Fund, to the extent described above
under "--Acquisition Fund;"
o sixth, to the Interest Account, to the extent necessary to
increase the balance thereof to the amount required for the
payment of interest on Subordinate Notes or Other Subordinate
Obligations payable therefrom;
o seventh, to the Principal Account, to the extent necessary to
increase the balance thereof to the amount required for the
payment of principal at stated maturity or the purchase price
of Subordinate Notes or the payment of Other Subordinate
Obligations payable therefrom;
o eighth, to the Retirement Account, to the extent and in the
manner provided in the Indenture with respect to the
redemption of Subordinate Notes from the Retirement Account or
payment of Other Subordinate Obligations payable therefrom;
o ninth, to the Reserve Fund, to the extent necessary to
increase the balance thereof to the Reserve Fund Requirement;
o tenth, to 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 redemption of
Subordinate Notes on the next sinking fund payment date
therefor;
70
<PAGE>
o eleventh, to 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;
o twelfth, to the Alternative Loan Guarantee Fund, the lesser of
(1) the amount necessary to increase the balance thereof to
the Alternative Loan Guarantee Fund Requirement, and (2) the
aggregate amount received by the Servicer and deposited in the
Revenue Fund with respect to Financed Alternative Student
Loans for which a transfer has been made from the Alternative
Loan Guarantee Fund, less the aggregate amount transferred to
the Alternative Loan Guarantee Fund from the Revenue Fund on
previous Monthly Payment Dates; and
o thirteenth, any remainder to 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 will, after transferring all amounts
received in the Repayment Account pursuant to the preceding paragraph, transfer
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 FFELP Loans, and (2) transfer
the remainder of such moneys as follows:
o first, to the appropriate party, amounts in respect of moneys
previously received from the Secretary of Education or a
Guarantee Agency on Financed FFELP Loans for which the
Secretary of Education or such Guarantee Agency has reimbursed
itself through withholding payments on other FFELP Loans;
o second, to the Interest Account, to the extent necessary to
increase the balance thereof to the amount required for the
payment of interest on Senior Notes or Other Senior
Obligations payable therefrom;
o third, to the Principal Account, to the extent necessary to
increase the balance thereof to the amount required for the
redemption of Senior Notes or payment of principal or the
purchase price of Senior Notes or the payment of Other Senior
Obligations payable therefrom;
o fourth, to the Retirement Account, to the extent and in the
manner provided in the Indenture with respect to the
redemption of Senior Notes from the Retirement Account or
payment of Other Senior Obligations payable therefrom;
o fifth, to the Acquisition Fund, to the extent described above
under "--Acquisition Fund;"
71
<PAGE>
o sixth, to the Interest Account, to the extent necessary to
increase the balance thereof to the amount required for the
payment of interest on Subordinate Notes or Other Subordinate
Obligations payable therefrom;
o seventh, to the Principal Account, to the extent necessary to
increase the balance thereof to the amount required for the
payment of principal at stated maturity or the purchase price
of Subordinate Notes or the payment of Other Subordinate
Obligations payable therefrom;
o eighth, to the Retirement Account, to the extent and in the
manner provided in the Indenture with respect to the
redemption of Subordinate Notes from the Retirement Account or
payment of Other Subordinate Obligations payable therefrom;
o ninth, to the Administration Fund, to extent necessary to
increase the balance thereof to such amounts as an authorized
officer of EdLinc shall direct for certain costs and expenses;
o tenth, to the Reserve Fund, to the extent necessary to
increase the balance thereof to the Reserve Fund Requirement;
o eleventh, to 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 redemption of
Subordinate Notes on the next sinking fund payment date
therefor;
o twelfth, to 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;
o thirteenth, to the Alternative Loan Guarantee Fund, the lesser
of (1) the amount necessary to increase the balance thereof to
the Alternative Loan Guarantee Fund Requirement, and (2) the
aggregate amount received by the Servicer and deposited in the
Revenue Fund with respect to Financed Alternative Student
Loans for which a transfer has been made from the Alternative
Loan Guarantee Fund, less the aggregate amount transferred to
the Alternative Loan Guarantee Fund from the Revenue Fund on
previous Monthly Payment Dates;
o fourteenth, any remainder to 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 will 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
72
<PAGE>
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). The principal of and interest on the Class C Notes
are payable from the Surplus Fund.
Interest Account. The Trustee will deposit in the Interest Account (1)
that portion of the proceeds from the sale of Financed Student Loans
representing accrued interest and Special Allowance Payments thereon, (2) that
portion of the proceeds from the sale of EdLinc's bonds, notes or other
evidences of indebtedness, if any, to be used to pay interest on the Senior
Notes or the Subordinate Notes, (3) all counterparty swap payments, (4) all
payments under any Credit Enhancement Facilities to be used to pay interest on
the Notes and (5) 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 will be invested in investment securities as
described under "--Investments" below, and any income from such investments will
be deposited in the Revenue Fund.
To provide for the payment of interest on Senior Notes or Subordinate
Notes on each regularly scheduled interest payment date and all EdLinc swap
payments and fees to a Credit Facility Provider payable on such interest payment
date, the Trustee will make deposits to the Interest Account on each Monthly
Payment Date. 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 EdLinc
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 will deposit immediately to the Interest Account
an amount equal to such deficiency. Each deposit required by this paragraph will
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 will 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 will 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.
73
<PAGE>
Apart from transfers to the Principal Account as described under
"--Principal Account" below, balances in the Interest Account will be applied in
the following order of priority:
o first, to the payment of interest on all Senior Notes, EdLinc
swap payments under Senior Swap Agreements and fees payable to
Senior Credit Enhancement Providers due on an interest payment
date, and if such money is less than such interest and Other
Senior Obligations on such interest payment date, such money
will be applied, pro rata, among such indebtedness based upon
such amounts then owing to Senior Beneficiaries and to be paid
from the Interest Account;
o second, to the payment of interest on all Subordinate Notes,
EdLinc swap payments under Subordinate Swap Agreements and
fees payable to Subordinate Credit Enhancement Providers due
on an interest payment date, and if such money is less than
such interest and Other Subordinate Obligations on such
interest payment date, such money will be applied, pro rata,
among such indebtedness based upon such amounts then owing to
Subordinate Beneficiaries and to be paid from the Interest
Account;
o 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 will 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
o 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 money will 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 will have the same priority of payment
from the Interest Account as the interest so paid.
Principal Account. The Trustee will deposit to the Principal Account:
(1) that portion of the proceeds from the sale of Financed Student Loans
representing principal thereof, (2) that portion of the proceeds from the sale
of EdLinc's bonds, notes or other evidences of indebtedness, if any, to be used
to pay principal of the Senior Notes and the Subordinate Notes, (3) 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 (4) all
amounts required to be
74
<PAGE>
transferred thereto from the following Funds, in the following order of
priority: (a) 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 (b) 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 will
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, EdLinc 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 Notes or on a sinking fund payment date for Senior or
Subordinate Notes, the Trustee will make deposits to 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 Notes, subsequent monthly payments will 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 will be added to the amount of the
sinking fund installment due on the next sinking fund payment date, and the
increased amount thereupon will 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 Notes will not be construed to create
an Event of Default in the event of any such deficiency (other than in amounts
due with respect to the stated maturity of Subordinate Notes) unless a sinking
fund installment of such Subordinate Notes shall not only be due and not applied
to the redemption of Subordinate Notes, but also that all contingencies upon the
obligation so to apply it as of such time in fact have been satisfied.
If EdLinc is required to furnish moneys to a depositary to purchase
Notes on a Purchase Date or Mandatory Tender Date, the Trustee will, subject to
the applicable provisions of the related Supplemental Indenture, immediately
deposit to the Principal Account moneys sufficient to pay the purchase price
thereof.
Balances in the Principal Account will be applied in the following
order of priority:
75
<PAGE>
o first, 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;
o second, to the payment of Senior Notes at their stated
maturity or on their sinking fund payment date and Other
Senior Obligations payable therefrom;
o third, to the payment of the purchase price of Senior Notes on
a Purchase Date or Mandatory Tender Date;
o fourth, 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;
o fifth, to the payment of Subordinate Notes at their stated
maturity and Other Subordinate Obligations payable therefrom;
o sixth, to the payment of the purchase price of Subordinate
Notes on a Purchase Date or Mandatory Tender Date; and
o seventh, to the payment of Subordinate 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 will 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 "Description of the Notes--Call for Redemption, Prepayment or Purchase of
Notes; Senior Asset Requirement," balances in the Principal Account may also be
applied to the purchase of Senior Notes or Subordinate Notes at a purchase price
not to exceed the principal amount thereof plus accrued interest, as determined
by EdLinc at such time, provided the Trustee will have first certified that no
deficiencies exist at such time in the Note Fund. Any such purchase will 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 will be invested in investment
securities as described under "--Investments" below, and any income from such
investments will be deposited in the Revenue Fund.
Retirement Account. The Trustee will deposit to the Retirement Account
(1) any amounts transferred thereto from the Reserve Fund and the Surplus Fund,
(2) that portion of the proceeds from the sale of EdLinc's bonds, notes or other
evidences of indebtedness, if any, to be used to
76
<PAGE>
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 (3) 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 will
be retired or prepaid with moneys deposited to the Retirement Account.
Balances in the Retirement Account will be transferred to 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 will 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 "Description of the Notes--Call for Redemption, Prepayment or Purchase of
Notes; Senior Asset Requirement," 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 not to exceed the principal amount thereof plus
accrued interest plus any then applicable redemption premium, as determined by
EdLinc at such time; provided the Trustee shall have first certified that no
deficiencies exist at such time in the Note Fund.
The moneys in the Retirement Account will be invested in investment
securities as described under "--Investments" below, and any income from such
investment will be deposited in the Revenue Fund.
Administration Fund
With respect to each series of Notes, the Trustee will, 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 will also credit to the Administration Fund all amounts transferred
thereto from the Revenue Fund and the Surplus Account. Amounts in the
Administration Fund will be used to pay costs of issuance, Administrative
Expenses and Note Fees or to reimburse another fund, account or other source of
EdLinc for the previous payment of costs of issuance, Administrative Expenses or
Note Fees. Balances in the Administration Fund will also be applied to remedy
deficiencies in 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.
77
<PAGE>
The Trustee will 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 EdLinc shall direct; provided such officer 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 Administration Fund will be made from the following
sources in the following order of priority:
o the Income Account after transfers therefrom to 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
o the Surplus Account after transfers therefrom to 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 will 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 will
be invested in investment securities, as described under "--Investments" below,
and any income from such investments will be deposited in the Revenue Fund.
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. Immediately upon the delivery of any
series of Senior Notes or Subordinate Notes, and from the proceeds thereof or,
at the option of EdLinc, from any amounts to be transferred thereto from the
Surplus Fund and from any other available moneys of EdLinc 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 will 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 will 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 will only be made to the extent that portion of
the balance thereof not consisting of Eligible Loans is sufficient therefor.
78
<PAGE>
The balance in the Reserve Fund will be used and applied solely for 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
will be so used and applied by transfer by the Trustee to 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 Note Fund at such time (provided, however, that such amounts will 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
will, upon order of an authorized officer of EdLinc, be transferred to the
Principal Account, to the extent necessary to make the deposits required to be
made to 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 will be
invested in investment securities as described under "--Investments" below and
any income from such investments will be deposited in the Revenue Fund.
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 will deposit to 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 will 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 will be applied to the following purposes
in the following order of priority:
o first, 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;
79
<PAGE>
o second, to remedy deficiencies in the Principal Account (after
transfers thereto from the Revenue Fund) for the redemption of
Senior Notes or the payment of principal or the purchase price
of Senior Notes or the payment of Other Senior Obligations
payable therefrom;
o third, to remedy deficiencies in the Retirement Account (after
transfers thereto from the Revenue Fund) for the redemption of
Senior Notes or the payment of Other Senior Obligations
payable therefrom;
o fourth, 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;
o fifth, 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;
o sixth, to remedy deficiencies in the Retirement Account (after
transfers thereto from the Revenue Fund) for the redemption of
Subordinate Notes or the payment of Other Subordinate
Obligations payable therefrom;
o seventh, to make deposits (but only from the Surplus Account)
to the Administration Fund (after transfers thereto from the
Revenue Fund) to the extent required pursuant to an order of
an authorized officer of EdLinc for certain costs and
expenses;
o eighth, 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);
o ninth, to remedy deficiencies in the Principal Account (after
transfers thereto from the Revenue Fund) to meet the sinking
fund installment with respect to the redemption of Subordinate
Notes on a sinking fund payment date;
o tenth, to make transfers to 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 will be made only from
balances in the Special Redemption and Prepayment Account);
and
o eleventh, to make deposits (but only from the Surplus Account)
to the Interest Account for the payment of Carry-Over Amounts
(and accrued interest thereon).
80
<PAGE>
Notwithstanding the foregoing, Balances in the Surplus Fund consisting of
Eligible Loans will not be required to be applied (1) pursuant to priorities
first through sixth above until after any transfers from the Reserve Fund have
been taken into account, and (2) in any event pursuant to priorities seventh
through eleventh above. If the Surplus Fund is to be used to make such
transfers, transfers will 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.
Balances in the Special Redemption and Prepayment Account may also be
transferred to the Acquisition Fund for the purchase 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 "Description of the Notes--Call for Redemption, Prepayment or Purchase of
Notes; Senior Asset Requirement" 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 EdLinc 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 EdLinc.
Subject to compliance with the provisions of the Indenture described
under "Description of the Notes--Call for Redemption, Prepayment or Purchase of
Notes; Senior Asset Requirement," balances in the Surplus Account may also be
applied to any one or more of the following purposes at any time as determined
by EdLinc, provided the Trustee will have first certified that no deficiencies
exist at such time in the Note Fund, the Reserve Fund, the Special Redemption
and Prepayment Account or the Alternative Loan Guarantee Fund:
(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"; (b) to reimburse another fund, account or other source
of EdLinc for the previous payment of costs of issuance; and (c) for
such other purposes as EdLinc shall determine; provided, however, that
balances in the Surplus Account will not be applied to any of the
purposes specified in the preceding clause (3)(b) or (c) or to
81
<PAGE>
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 the value of the Trust Estate,
any Financed Student Loans which are not Eligible Loans and any moneys
reasonably expected to be needed 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 which, if Unenhanced
Senior Notes are Outstanding, will 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), and (ii)
the Subordinate Percentage will not be less than 102% (or such lower
percentage which, if Unenhanced Subordinate Notes are Outstanding, will
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); 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 Indenture.
The Trustee will 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, EdLinc 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 EdLinc'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 EdLinc
in connection with a sale of Financed Student Loans pursuant to this paragraph
will be deposited to the Surplus Account.
Pending transfers from the Surplus Fund, the moneys therein will be
invested in investment securities as described under "--Investments" below, and
any income from such investments will be deposited in the Revenue Fund.
Alternative Loan Guarantee Fund
The Indenture establishes an Alternative Loan Guarantee Fund. The
Trustee will, upon the purchase of Alternative Loans from the Transferor or
SLFC, deposit to the Alternative Loan
82
<PAGE>
Guarantee Fund amounts received in respect of origination fees relating to such
Alternative Loans. The Trustee will also deposit to the Alternative Loan
Guarantee Fund any amounts transferred thereto from the Revenue Fund.
To the extent, as of the end of any calendar month, any payment on a
Financed Alternative Loan has not been received within 180 days after the due
date therefor, such Financed Alternative Loan will be deemed a Liquidated
Alternative Loan. The Trustee will, on each Monthly Payment Date, transfer from
the Alternative Loan Guarantee Fund to the Revenue Fund an amount equal to the
unpaid principal balance of and accrued interest on each Financed Alternative
Loan that became a Liquidated Alternative Loan during the preceding calendar
month.
Pending transfers from the Alternative Loan Guarantee Fund, the moneys
therein will be invested in investment securities as described under
"--Investments" below, and any income from such investments will be retained
therein.
Pledge; Encumbrances
The Notes and all Other Indenture Obligations are special, limited
obligations of EdLinc 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, the Alternative Loan Guarantee 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 EdLinc's bonds, notes or
obligations or sold to another purchaser, or resold to a Lender or SLFC 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, 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.
EdLinc 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 assets 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
EdLinc, 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. EdLinc 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 assets pledged under the Indenture, creating a lien or charge
equal or superior to the lien of the Indenture; provided that nothing in the
Indenture is intended to prevent EdLinc from issuing
83
<PAGE>
obligations secured by revenues and assets of EdLinc other than the revenues and
other assets 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. EdLinc will cause all Financed
Student Loans to be endorsed and otherwise conveyed to the Trustee on behalf of
EdLinc in accordance with the provisions of the applicable Student Loan Purchase
Agreement or, in the case of any origination of Financed Student Loans, will
cause such Student Loans to be originated in the name of the Trustee. The
Trustee will be the legal owner of all Financed FFELP Loans for all purposes of
the Higher Education Act and each Guarantee Program. The Trustee will so hold
such Financed Student Loans in its capacity as trustee pursuant to the Indenture
and, in such capacity, will be acting on behalf of EdLinc, 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 FFELP Loans are
Guaranteed by a Guarantee Agency, EdLinc 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 FFELP 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. EdLinc agrees
that it will, except as provided with regard to the Surplus Fund (see "--Funds
and Accounts--Surplus Fund" above), cause the Trustee to purchase or originate
only Eligible Loans with moneys in any of the Funds and (subject to any
adjustments referred to in the following paragraph) will diligently cause to be
collected all principal and interest payments on all the Financed Student Loans
and other sums to which EdLinc 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. EdLinc will also make, or cause to
be made by Lenders or Servicers, every effort to perfect EdLinc'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
Financed FFELP Loans. EdLinc will cause the Trustee to assign such Financed
FFELP Loans for payment of guarantee or insurance benefits within the time
required under applicable law and regulations. EdLinc will cause all United
States and state statutes, rules and regulations which apply to Financed Student
Loans to be complied with.
84
<PAGE>
Enforcement of Financed Student Loans. EdLinc agrees that it will 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 (1) any discount EdLinc
may cause to be made available to borrowers who make payments on Financed
Student Loans through automatic withdrawals, and (2) 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 EdLinc or the
Trustee thereunder. Nothing in the provisions of the Indenture described in this
paragraph, however, shall be construed to prevent EdLinc from settling a default
or curing a delinquency on any Financed Student Loan on such terms as shall be
required by law. In addition, EdLinc 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. EdLinc may contract with other entities
to assist it in performing its duties under the Indenture, and any performance
of such duties by an entity so identified to the Trustee will be deemed to be
action taken by EdLinc. EdLinc is required to 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. EdLinc agrees
that all Financed Student Loans will be administered and collected by a Servicer
selected by EdLinc 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, each Guarantee Agreement and each Alternative
Loan Program.
Books of Account, Annual Audit. EdLinc agrees that it will cause to be
kept and maintained proper books of account 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 EdLinc, and within 120 days after the end of each fiscal year
will cause such books of account to be audited by an independent accountant. A
copy of each audit report, annual balance sheet and income and expense statement
showing in reasonable detail the financial condition of EdLinc 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, will be filed promptly with the Trustee and be available for
inspection by any Noteholder or Other Beneficiary.
Punctual Payments. EdLinc 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
85
<PAGE>
the manner provided, in the Notes and with respect to each Other Indenture
Obligation according to the true intent and meaning thereof, and EdLinc 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. EdLinc will prepare, or cause a Servicer to
prepare, a Monthly Servicing Report for each calendar month and will 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).
Limitation on Administrative Expenses and Note Fees. EdLinc 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 EdLinc to pay or perform, as the
case may be, any of its obligations under the Indenture or the security for any
Beneficiaries.
Amendment of Student Loan Purchase Agreements. EdLinc will notify the
Trustee in writing of any proposed amendments to the Student Loan Purchase
Agreements. No such amendment will become effective unless and until the Trustee
consents in writing thereto, which consent will 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.
Credit Enhancement Facilities and Swap Agreements. EdLinc may from time
to time enter into 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 will authorize the execution of a Swap
Agreement unless, as of the date EdLinc 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
will be designated as a Senior Swap Agreement unless, as of the date EdLinc
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 EdLinc 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 to the extent, if any, specifically provided in such
86
<PAGE>
Supplemental Indenture and no Beneficiary will 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 EdLinc, or join in any institution against EdLinc 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
Moneys from time to time on deposit in the Funds and Accounts may be
invested in one or more of the following investment securities:
o Government Obligations;
o 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;
o 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 will 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) will 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;
87
<PAGE>
o 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;
o 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;
o 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;
o 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
o 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.
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.
Events of Default
If any of the following events occur, it is an "Event of Default" under
the Indenture:
88
<PAGE>
(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; or
(C) default by EdLinc 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 EdLinc 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
(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; or
(G) if no Senior Obligations are Outstanding, default by
EdLinc 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 EdLinc 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; or
(K) default in the performance of any of EdLinc's obligations
with respect to the transmittal of moneys to be credited to the Revenue
Fund, the Acquisition Fund, the Alternative Loan Guarantee 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 EdLinc 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
EdLinc, which may give such notice in its discretion and will give such
notice at the written request of the Acting
89
<PAGE>
Beneficiaries Upon Default, or by the holders of not less than 10% in
aggregate principal amount of the Outstanding Notes to EdLinc and the
Trustee, provided that, if the default is such that it can be
corrected, but not within such 30 days, it will not constitute an Event
of Default if corrective action is instituted by EdLinc within such 30
days and is diligently pursued until the default is corrected; or
(M) certain events of bankruptcy or insolvency of EdLinc.
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 EdLinc, 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 EdLinc, declare the principal of
and interest on all Notes then Outstanding due and payable; and (2) the Trustee
will, upon the written request of the Acting Beneficiaries Upon Default, by
notice in writing delivered to EdLinc, declare the principal of and interest on
all Notes then Outstanding due and payable.
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 EdLinc
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 EdLinc, 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 EdLinc's obligations with respect to the transmittal of
moneys to be credited to the Revenue Fund, the Acquisition Fund, the
Alternative Loan Guarantee 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,
90
<PAGE>
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 EdLinc's obligations with respect to the
transmittal of moneys to be credited to the Revenue Fund, the
Acquisition Fund, the Alternative Loan Guarantee 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 EdLinc's obligations with respect
to the transmittal of moneys to be credited to the Revenue Fund, the
Acquisition Fund and the Alternative Loan Guarantee 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.
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 EdLinc 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
91
<PAGE>
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 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 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 will 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,
92
<PAGE>
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 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 will 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, EdLinc has paid or deposited with the Trustee a
sum sufficient to pay all amounts owed to such Beneficiary; (c) any Event of
Default arising from the failure of EdLinc 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, EdLinc has paid or deposited with the Trustee sums required to satisfy
such obligations of EdLinc under the provisions of the Indenture.
Application of Proceeds
All moneys received by the Trustee pursuant to any remedy will, 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 will be applied as follows:
o 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 will 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 will apply the amount so
apportioned to the Senior Noteholders first to the
payment of interest and thereafter to the payment of
principal;
o 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 will 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
93
<PAGE>
Trustee will apply the amount so apportioned to the
Subordinate Noteholders first to the payment of
interest and thereafter to the payment of principal;
and
o 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 will be applied as follows:
o FIRST, to the payment to the Senior Beneficiaries of
all principal and interest then due on the Senior
Notes and all Other Senior 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 Senior Beneficiary over any other Senior
Beneficiary, ratably, according to the amounts due,
to the persons entitled thereto without any
discrimination or preference; and
o 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 person
entitled thereto without any discrimination or
preference, and
o 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 will thereafter have
been rescinded and annulled, then (subject to the provisions described
in paragraph (B) above, if 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 will 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.
94
<PAGE>
Upon the occurrence and continuation of an Event of Default, the Trustee will
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 EdLinc 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 EdLinc 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 will be
effective until the appointment of a successor Trustee.
Supplemental Indentures
Supplemental Indentures Not Requiring Consent of Beneficiaries
EdLinc 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,
enter into an indenture or indentures supplemental to the Indenture to, among
other things:
(a) cure any ambiguity or formal defect or omission in the
Indenture or in any Supplemental Indenture,
(b) grant to the Trustee for the benefit of the Beneficiaries
any additional rights, remedies, powers, authority or security,
(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 "Description of the Notes
--Issuance of Notes"),
(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; provided that no
such modifications will 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 will determine that such modifications are to the
prejudice of any Class C Noteholder, or
95
<PAGE>
(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: (1) 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 EdLinc or a related person, (2) 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 EdLinc or a
related person, and (3) 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, will join with EdLinc
in the execution of such other Supplemental Indentures for the purpose of
modifying, altering, amending, adding to or rescinding any of the terms or
provisions contained in the Indenture; provided, however, that no such
Supplemental Indenture will 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 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.
96
<PAGE>
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
will 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 will be executed unless, prior to the
execution thereof, 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 EdLinc under the Indenture, and the liens, pledges,
charges, trusts, covenants and agreements of EdLinc therein made or provided
for, will be fully discharged and satisfied as to any Note and such Note will no
longer be deemed to be Outstanding thereunder:
(1) when such Note shall have been canceled, or shall have
been purchased by the Trustee from moneys held by it under the
Indenture; or
(2) 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 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, (i) moneys
sufficient to make such payment or (ii) 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, the
payment of all fees and expenses of the Trustee and any other
fiduciaries under the Indenture.
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
97
<PAGE>
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 will not affect the validity of any proceedings to be taken
(including, without limitation, for the redemption of Notes) 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 will
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.
FEDERAL INCOME TAX CONSEQUENCES
Certain United States Federal Income Tax Consequences
The following is a summary of the principal United States federal
income tax consequences resulting from the beneficial ownership of notes by
certain persons. This summary does not consider all the possible United States
Federal tax consequences of the purchase, ownership or disposition of the notes
and is not intended to reflect the individual tax position of any beneficial
owner. Moreover, except as expressly indicated, it addresses initial purchasers
of a note at its issue price, which is the first price to the public at which a
substantial amount of the notes in an issue is sold, and does not address
beneficial owners that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or currencies, purchasers that hold
notes (or foreign currency) as a hedge against currency risks or as part of a
straddle with other investments or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprised of a note
and one or more other investments, or purchasers that have a "functional
currency" other than the U.S. dollar. Except to the extent discussed below under
"--Non-United States Holders," this summary is not applicable to non-United
States persons not subject to United States Federal income tax on their
worldwide income. This summary is based upon the United States Federal tax laws
and regulations currently in effect and as currently interpreted and does not
take into account possible changes in the tax laws or the interpretations, any
of which may be applied retroactively. It does not discuss the tax laws of any
state, local or foreign governments. It does not discuss the tax treatment of
notes denominated in certain hyperinflationary currencies or dual currency
notes.
Persons considering the purchase of notes should consult their own tax
advisors concerning the United States Federal income tax consequences to them in
light of their particular situations as well as any consequences to them under
the laws of any other taxing jurisdiction.
98
<PAGE>
United States Holders
Characterization of the Trust Estate
In Dorsey & Whitney LLP's opinion, based upon certain assumptions and
certain representations of EdLinc, the Notes will be treated as debt of EdLinc,
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 Internal Revenue Service. It is possible that the
Internal Revenue Service could assert that, for purposes of the Internal Revenue
Code, the transaction contemplated by this Prospectus constitutes a sale of the
assets comprising the Trust Estate (or an interest therein) to the Noteholders
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 Notes issued by EdLinc as a corporate entity, the transaction were
treated as creating a partnership among the Noteholders, the Servicer and
EdLinc, which has purchased the underlying Trust Estate assets, the resulting
partnership would not be subject to federal income tax. Rather, the Servicer,
EdLinc 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 Notes were held to constitute partnership
interests, rather than indebtedness.
If, alternatively, it were determined that this transaction created an
entity other than EdLinc 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
EdLinc. However, as noted above, EdLinc has been advised that the Notes will be
treated as debt of EdLinc for federal income tax purposes.
Characterization of the Notes as Indebtedness
EdLinc and the Noteholders express in the Indenture their intent that,
for applicable tax purposes, the Notes will be indebtedness of EdLinc secured by
the Trust Estate. EdLinc and the Noteholders, by accepting the Notes, have
agreed to treat the Notes as indebtedness of EdLinc for federal income tax
purposes. EdLinc intends to treat this transaction as a financing reflecting the
Notes as its indebtedness for tax and financial accounting purposes.
In general, the characterization of a transaction as a sale of property
or a secured loan, for federal income tax purposes, is a question of fact, the
resolution of which is based upon the economic substance of the transaction,
rather than its form or the manner in which it is
99
<PAGE>
characterized. While the Internal Revenue 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.
EdLinc believes that it has retained the preponderance of the primary
benefits and burdens associated with the 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 Internal Revenue
Service were to successfully assert that this transaction should be treated as a
sale of the Trust Estate assets, the Internal Revenue 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.
Payments of Interest
In general, interest on a note will be taxable to a beneficial owner
who or which is (1) a citizen or resident of the United States, (2) a
corporation created or organized under the laws of the United States or any
State (including the District of Columbia) or (3) a person otherwise subject to
United States Federal income taxation on its worldwide income (a "United States
holder") as ordinary income at the time it is received or accrued, depending on
the holder's method of accounting for tax purposes. If a partnership holds
notes, the tax treatment of a partner will generally depend upon the status of
the partner and upon the activities of the partnership. Partners of partnerships
holding notes should consult their tax advisors.
Although the matter is not free from doubt, it is anticipated that the
Notes will be treated as providing for stated interest at "qualified floating
rates," and accordingly as having been issued without original issue discount.
EdLinc intends to report interest income in respect of the Notes in a manner
consistent with treatment of the Notes as having been issued without original
issue discount. If the Notes were treated as having been issued with original
issue discount, then holders of the Notes, whether on the cash or accrual method
of accounting, would be required to take into account each year as ordinary
income a portion of such original issue discount determined under a
constant-yield method, even if interest on the Notes that is attributable to
that portion will be paid in a subsequent year.
It is possible, however, that the Carry-Over Amounts may not be treated
as being interest payable at a "qualified floating rate." In that event, a
United States holder of the Notes, whether on the cash or accrual method of
accounting, would be required to accrue any Carry-Over Amounts on a current
basis, and would be deemed to realize a capital loss if the accrued CarryOver
Amounts are not collected ultimately.
100
<PAGE>
Notes Purchased at a Premium
Under the Internal Revenue Code, a United States holder that purchases
a note for an amount in excess of its stated redemption price at maturity may
elect to treat such excess as "amortizable bond premium," in which case the
amount of interest required to be included in the United States holder's income
each year with respect to interest on the note will be reduced by the amount of
amortizable bond premium allocable (based on the note's yield to maturity) to
that year. Under recently promulgated regulations, if the amortizable bond
premium allocable to a year exceeds the amount of interest allocable to that
year, the excess would be allowed as a deduction for that year but only to the
extent of the United States holder's prior interest inclusions on the note. Any
excess is generally carried forward and allocable to the next year. A holder who
elects to amortize bond premium must reduce his tax basis in the note as
described below under "Purchase, Sale and Retirement of the Notes." Any election
to amortize bond premium is applicable to all bonds (other than bonds the
interest on which is excludable from gross income) held by the United States
holder at the beginning of the first taxable year to which the election applies
or thereafter acquired by the United States holder, and may not be revoked
without the consent of the Internal Revenue Service.
Notes Purchased at a Market Discount
A note, other than a note that matures one year or less from the date
of issuance ("short-term note"), will be treated as acquired at a market
discount (a "market discount note") if the amount for which a United States
holder purchased the note is less than the note's issue price, unless such
difference is less than a specified de minimis amount.
In general, any partial payment of principal or any gain recognized on
the maturity or disposition of a market discount note will be treated as
ordinary income to the extent that such gain does not exceed the accrued market
discount on such note. Alternatively, a United States holder of a market
discount note may elect to include market discount in income currently over the
life of the market discount note. That election applies to all debt instruments
with market discount acquired by the electing United States holder on or after
the first day of the first taxable year to which the election applies and may
not be revoked without the consent of the Internal Revenue Service.
Market discount accrues on a straight-line basis unless the United
States holder elects to accrue such discount on a constant yield to maturity
basis. That election is applicable only to the market discount note with respect
to which it is made and is irrevocable. A United States holder of a market
discount note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to the note in an amount not exceeding the accrued market discount on
such note until the maturity or disposition of the note.
Purchase, Sale, Exchange and Retirement of the Notes
101
<PAGE>
A United States holder's tax basis in a note generally will equal its
cost, increased by any market discount and original issue discount included in
the United States holder's income with respect to the note, and reduced by the
amount of any amortizable bond premium applied to reduce interest on the note. A
United States holder generally will recognize gain or loss on the sale, exchange
or retirement of a note equal to the difference between the amount realized on
the sale or retirement and the United States holder's tax basis in the note.
Except to the extent described above under "--Market Discount," and except to
the extent attributable to accrued but unpaid interest, gain or loss recognized
on the sale, exchange or retirement of a note will be capital gain or loss and
will be long-term capital gain or loss if the note was held for more than one
year.
Non-United States Holders
The following is a general discussion of certain United States federal
income and estate tax consequences resulting from the beneficial ownership of
Notes by a person other than a United States holder or a former United States
citizen or resident (a "non-United States holder").
Subject to the discussions of Carry-Over Amounts and backup withholding
below, payments of principal, any premium and interest by us or any agent of
ours (acting in its capacity as agent) to any non-United States holder will not
be subject to United States Federal withholding tax, provided, in the case of
interest, that (1) the non-United States holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock entitled to vote, (2) the non-United States holder is not a
controlled foreign corporation for United States tax purposes that is related to
us (directly or indirectly) through stock ownership and (3) either (A) the
non-United States holder certifies to us or our agent under penalties of perjury
that it is not a United States person and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business and holds
the note certifies to us or our agent under penalties of perjury that such
statement has been received from the non-United States holder by it or by
another financial institution and furnishes the payor with a copy.
It is possible that any payments of Carry-Over Amounts may be treated
as contingent interest and that the Internal Revenue Service may accordingly
take the position that such payments do not qualify for the exemption from
withholding described above.
A non-United States holder that does not qualify for exemption from
withholding as described above generally will be subject to United States
Federal withholding tax at the rate of 30% (or lower applicable treaty rate)
with respect to payments of interest on the notes.
If a non-United States holder is engaged in a trade or business in the
United States and interest on the note is effectively connected with the conduct
of such trade or business, the non-United States holder, although exempt from
the withholding tax discussed above (provided that such holder timely furnishes
the required certification to claim such exemption), may be subject to United
States Federal income tax on such interest in the same manner as if it were a
102
<PAGE>
United States holder. In addition, if the non-United States holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or lower
applicable treaty rate) of its effectively connected earnings and profits for
the taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest on a note will be included in the earnings and profits of
the holder if the interest is effectively connected with the conduct by the
holder of a trade or business in the United States. Such a holder must provide
the payor with a properly executed IRS Form 4224 (or successor form) to claim an
exemption from United States Federal withholding tax.
Any capital gain or market discount realized on the sale, exchange,
retirement or other disposition of a note by a non-United States holder will not
be subject to United States Federal income or withholding taxes if (a) the gain
is not effectively connected with a United States trade or business of the
non-United States holder and (b) in the case of an individual, the non-United
States holder is not present in the United States for 183 days or more in the
taxable year of the sale, exchange, retirement or other disposition, and certain
other conditions are met.
Notes held by an individual who is neither a citizen nor a resident of
the United States for United States Federal tax purposes at the time of the
individual's death will not be subject to United States Federal estate tax,
provided that the income from the notes was not or would not have been
effectively connected with a United States trade or business of the individual
and that the individual qualified for the exemption from United States Federal
withholding tax (without regard to the certification requirements) described
above.
Recently finalized Treasury regulations, generally effective for
payments made after December 31, 2000, provide alternative procedures to be
followed by a non-United States holder in establishing eligibility for a
withholding tax reduction or exemption.
Purchasers of notes that are non-United States holders should consult
their own tax advisors with respect to the possible applicability of United
States withholding and other taxes upon income realized in respect of the notes.
Information Reporting and Back-up Withholding
For each calendar year in which the notes are outstanding, we are
required to provide the Internal Revenue Service with certain information,
including the holder's name, address and taxpayer identification number (either
the holder's Social Security number or its employer identification number, as
the case may be), the aggregate amount of principal and interest paid to that
holder during the calendar year and the amount of tax withheld, if any. This
obligation, however, does not apply with respect to certain United States
holders, including corporations, tax-exempt organizations, qualified pension and
profit sharing trusts and individual retirement accounts.
If a United States holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or under reports its tax liability, we,
our agents or paying agents or a broker may be required to
103
<PAGE>
"backup" withhold a tax equal to 31% of each payment of interest, principal and
any premium on the notes. This backup withholding is not an additional tax and
may be credited against the United States holder's Federal income tax liability,
provided that the holder furnishes the required information to the Internal
Revenue Service.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by us or any of our agents (in their
capacity as such) to a non-United States holder of a note if the holder has
provided the required certification that it is not a United States person as set
forth in clause (3) in the first paragraph under "non-United States holders"
above, or has otherwise established an exemption (provided that neither we nor
our agent has actual knowledge that the holder is a United States person or that
the conditions of an exemption are not in fact satisfied).
Payments of the proceeds from the sale of a note to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding. However, information reporting (but not backup withholding)
may apply to those payments if the broker is one of the following:
o a United States person,
o a controlled foreign corporation for United States tax
purposes,
o a foreign person 50 percent or more of whose gross income from
all sources for the three-year period ending with the close of
its taxable year preceding the payment was effectively
connected with a United States trade or business or
o for payments made after December 31, 2000, a foreign
partnership with certain connections to the United States.
Payment of the proceeds from a sale of a note to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
Recently finalized Treasury regulations unify current certification
procedures and forms relating to information reporting and backup withholding
for payments made after December 31, 2000. Among other things, these regulations
provide presumptions under which a Non-United States holder is subject to
information reporting and backup withholding unless we or our agent receives
certification from the holder regarding non-United States status.
The Federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon a holder's
particular situation. Holders should consult their tax advisors with respect to
the tax consequences to them of the purchase,
104
<PAGE>
ownership and disposition of the notes, including the tax consequences under
state, local, foreign and other tax laws and the possible effects of changes in
Federal or other tax laws.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors should consider
the state income tax consequences of the acquisition, ownership and disposition
of the Notes. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various state tax
consequences of an investment in the 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 Internal Revenue Code imposes essentially the same
prohibited transaction restrictions on tax-qualified retirement plans described
in Section 401(a) of the Internal Revenue Code ("Qualified Retirement Plans")
and on Individual Retirement Accounts ("IRAs") described in Section 408(b) of
the Internal Revenue 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 Internal
Revenue Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in Notes of a series 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 Internal Revenue Code, however, is subject to the
prohibited transaction rules set forth in the Internal Revenue 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 Internal Revenue 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 Internal Revenue Code) unless a
statutory or administrative exemption is available.
Certain transactions involving the purchase, holding or transfer of
Notes of a series might be deemed to constitute prohibited transactions under
ERISA and the Internal Revenue Code if
105
<PAGE>
assets of EdLinc 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 EdLinc would be treated as plan assets of a Benefit Plan for the
purposes of ERISA and the Internal Revenue Code only if the Benefit Plan
acquires an "equity interest" in EdLinc 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 Notes should be treated as debt without substantial equity
features for purposes of the Plan Assets Regulation. However, without regard to
whether the Notes are treated as an equity interest for such purposes, the
acquisition or holding of Notes by or on behalf of a Benefit Plan could be
considered to give rise to a prohibited transaction if EdLinc 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 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 Notes of a
series on behalf of an ERISA Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Internal Revenue 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
Internal Revenue Code.
AVAILABLE INFORMATION
EdLinc has filed with the Commission a registration statement (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Notes offered hereby. This Prospectus and
the accompanying Prospectus Supplement, which forms part of the Registration
Statement, does not contain all the information contained therein. For further
information, reference is made to the Registration Statement which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington D.C. 20549; and at the
Commission's regional offices at Seven World Trade Center, Suite 1300, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of all or any part thereof may be obtained from the Public
Reference Branch of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon the payment of certain fees prescribed by the Commission. In
addition, the Registration Statement may be accessed electronically through the
Commission's
106
<PAGE>
Electronic Data Gathering, Analysis and Retrieval system at the Commission's
site on the World Wide Web located at http:/ /www.sec.gov.
REPORTS TO NOTEHOLDERS
Unless Definitive Notes are issued for any series of Notes, monthly
unaudited reports and annual unaudited reports containing information concerning
the Financed Eligible Loans will be prepared by the Servicer and sent on behalf
of EdLinc only to Cede, as nominee of DTC and registered holder of the Notes but
will not be sent to any Beneficial Owner of the Notes. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. See "Description of the Notes--Book-Entry Registration"
and "Description of the Indenture--Reports to Noteholders." EdLinc will file
with the Commission such periodic reports as are required under the Exchange Act
and the rules and regulations of the Commission thereunder. EdLinc intends to
suspend the filing of such reports under the Exchange Act when and if the filing
of such reports is no longer statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the EdLinc pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of any series of
Notes will be deemed to be incorporated by reference into this Prospectus and
the accompanying Prospectus Supplement and to be a part hereof. After the
initial distribution of the Notes by the Underwriters, this Prospectus will be
distributed together with, and should be read in conjunction with, an
accompanying supplement to the Prospectus. Such supplement will contain the
reports described above and generally will include the information contained in
the monthly statements furnished to Noteholders. See "Description of the
Notes--Book-Entry Registration" and "Description of the Indenture--Reports to
Noteholders." Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Prospectus and the accompanying Prospectus
Supplement to the extent that a statement contained herein or therein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein or therein modifies or supersedes such statement. Any such
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus and the accompanying
Prospectus Supplement.
The Administrator will provide without charge to each person to whom a
copy of this Prospectus and the accompanying Prospectus Supplement are
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated herein by reference, except the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Written requests for such copies should be directed to Mr.
Larry Buckmeier, Student Loan Finance Corporation, 105 First Avenue Southwest,
Aberdeen, South Dakota 57401, or "[email protected]" on the Internet.
Telephone requests for such copies should be directed to (605) 622-4400.
107
<PAGE>
PLAN OF DISTRIBUTION
The Notes will be offered in one or more series and one or more classes
through one or more underwriters or underwriting syndicates ("Underwriters").
The Prospectus Supplement for each series of Notes will set forth the terms of
the offering of such series and of each class within such series, including the
name or names of the Underwriters, the proceeds to EdLinc, and either the
initial public offering price, the discounts and commissions to the Underwriters
and any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell the Notes will be
determined.
The Notes may be acquired by Underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of any Underwriters will be subject to
certain conditions precedent, and such Underwriters will be jointly and
severally obligated to purchase all of a series of Notes described in the
related Prospectus Supplement, if any are purchased. If Notes of a series are
offered other than through Underwriters, the related Prospectus Supplement will
contain information regarding the nature of such offering and any agreements to
be entered into between the seller and purchasers of Notes of such series.
The time of delivery for the Notes of a series in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
FINANCIAL INFORMATION
EdLinc has determined that its financial statements are not material to
the offering made hereby. EdLinc will, in each Prospectus Supplement, include a
description of the Financed Student Loans and other assets at the time
comprising the Trust Estate, as well as a description of all outstanding Notes
and Other Obligations, if any.
RATING
It is a condition to the issuance and sale of each series and class of
Notes that they each be rated by at least one nationally recognized statistical
rating organization in one its four highest applicable rating categories. 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. See "Rating" in the accompanying Prospectus Supplement.
108
<PAGE>
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in
this Prospectus.
"Account" means any of the accounts created within the Funds
established by the Indenture.
"Acting Beneficiaries Upon Default" means:
(a) at any time that any Senior Obligations are Outstanding:
(i) with respect to directing the Trustee to accelerate the Outstanding
Notes upon an Event of Default (other than an Event of Default
described in paragraph (L) under "Description 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
determines that acceleration 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 Outstanding Notes upon an Event of Default described in paragraph
(L) under "Description of the Indenture--Events of Default:" (x) the
holders of all Senior Notes Outstanding; or (y) (unless the Trustee
determines that acceleration 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
rights and powers under the Indenture, directing the conduct of
proceedings in connection with the enforcement of the Indenture and
requiring the Trustee to waive Events of Default: (x) the holders of a
majority in aggregate principal amount of the Senior Notes Outstanding,
unless the Trustee shall receive conflicting requests or directions
from another Other Senior Beneficiary; or (y) any Other Senior
Beneficiary, unless the Trustee determines that the requested action is
not in the overall interest of the Senior Beneficiaries or receives
conflicting requests or directions from another Other Senior
Beneficiary 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 Outstanding Notes upon an Event of
Default (other than an Event of Default described in paragraph (L)
under "Description of the Indenture--Events of Default"): (x) the
holders of a majority in aggregate principal amount of Subordinate
Notes Outstanding; or (y) (unless the Trustee determines that
acceleration 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 Outstanding
Notes upon an Event of Default described in paragraph (L) under
"Description of the Indenture--Events of Default:" (x) the holders of
all Subordinate Notes Outstanding; or (y) (unless the Trustee
determines that acceleration 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 rights and powers under the Indenture, directing the
I-1
<PAGE>
conduct of proceedings in connection with the enforcement 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 receives conflicting requests or
directions from another Other Subordinate Beneficiary; or (y) any Other
Subordinate Beneficiary, unless the Trustee determines that the
requested action is not in the overall interest of the Subordinate
Beneficiaries or receives conflicting requests or directions from
another Other Subordinate Beneficiary 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
(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.
"Administrative Cost and Note Fee Rate" shall mean a rate per annum
specified for a series of Notes relating to certain Administrative Expenses and
Note Fees to be covered by the return on Student Loans Financed with the
proceeds of such series.
"Administrative Expenses" means EdLinc's actual expenses, excluding
Note Fees but including Servicing Fees and any other expenses of EdLinc 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 Guarantee Agreements, the Higher Education Act, any Alternative
Loan Program or any requirement of the laws of the United States, 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.
"Administrator" means SLFC, in its capacity as administrator under the
SLFC Servicing Agreement, and its successors and assigns in such capacity.
"Alternative Loans" means loans that are originated under Alternative
Loan Programs.
"AlternativeLoan Guarantee Fund Requirement" means, at any time, an
amount equal to ________________.
"Alternative Loan Programs" mean one or more of the Alternative Loan
Programs that are identified in the related Prospectus Supplement.
"Auction Period" means, with respect to each Auction Rate Note, the
Interest Period applicable to such Note during which time the applicable
interest rate is determined pursuant to the related Indenture.
I-2
<PAGE>
"Auction Period Adjustment" means, with respect to any Auction Rate
Notes, the ability of EdLinc to change the length of one or more Auction Periods
to conform with then current market practice or accommodate other economic or
financial factors that may affect or be relevant to the length of the Auction
Period or the interest rate thereon.
"Auction Procedures" means the auction procedures that will be used in
determining the interest rates on the Auction Rate Notes, as set forth in this
Prospectus and in an Appendix to any Prospectus Supplement relating to the
Auction Rate Notes of a series.
"Auction Rate Notes" means any Notes of a series bearing interest at an
Auction Rate, as identified in the Prospectus Supplement.
"Beneficial Owner" means, with respect to a Note held in Book-Entry
Form, the actual purchaser of such Note.
"Beneficiaries" means, collectively, all Senior Beneficiaries, all
Subordinate Beneficiaries and all holders of any Outstanding Class C Notes.
"Book-Entry Form" or "Book-Entry System" means a form or system under
which (1) the beneficial right to principal and interest may be transferred only
through a book entry, (2) 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 (3)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"Carry-Over Amount" means, if and to the extent specifically provided
for as such in a Supplemental Indenture with respect any 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, interest will accrue
on such Carry-Over Amount until paid. Any reference to "principal" or "interest"
in the Indenture and in the related Notes will not include, within the meanings
of such words, any Carry-Over Amount or any interest accrued on any Carry-Over
Amount.
"Cede" means Cede & Co., DTC's nominee with respect to book-entry
Notes.
"Cedel" means a professional depository incorporated under the laws of
Luxembourg which holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel Participants through electronic book-entry.
I-3
<PAGE>
"Cedel Participants" means recognized financial institutions around the
world that utilize the services of Cedel, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters of any series of Notes.
"Claims Rates" means those rates determined 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.
"Class C Notes" means 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.
"Commission" shall the United States Securities and Exchange
Commission.
"Consolidation Loan" means a Student Loan made pursuant to Section 428C
of the Higher Education Act.
"Credit Enhancement Facility" means, if and to the extent provided for
in a Supplemental Indenture 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, 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" means any institution engaged by EdLinc
pursuant to a Credit Enhancement Facility to provide credit enhancement or
liquidity for the payment of the principal of and interest on, or for EdLinc's
obligation to repurchase or redeem, Notes of one or more series.
"Default Aversion Fee" means the default aversion fee payable monthly
from a Guarantee Agency's Federal Fund to its Operating Fund relating to default
aversion activities required to be undertaken by each Guarantee Agency, pursuant
to the 1998 Reauthorization Amendments.
"Deferment Period" means certain periods when no principal repayments
need be made on certain Financed Student Loans.
"Definitive Notes" means Notes to be issued in fully registered,
certificated form to Beneficial Owners or their nominees rather than to DTC or
its nominee.
"Demand Note" means a Note required to be purchased by or on behalf of
EdLinc, at the option of the holder thereof, upon receipt of a purchase demand.
I-4
<PAGE>
"Department of Education" means U.S. Department of Education.
"Depositories" means DTC, Cedel and Euroclear, collectively.
"DTC" means The Depository Trust Company.
"DTC Participants" means the participating organizations that utilize
the services of DTC, including securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
"EdLinc" means Education Loans Incorporated, a Delaware corporation.
"EdLinc Student Loan Purchase Agreements" means all agreements between
EdLinc and a Lender (in the case of FFELP Loans) or SLFC (in the case of
Alternative Loans) providing for the sale by such Lender or SLFC to EdLinc or
the Trustee on behalf of EdLinc of Student Loans Financed or to be Financed
under the Indenture.
"Effective Interest Rate" means, 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" means a borrower who is eligible under the Higher
Education Act or an Alternative Loan Program 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 Loan" means: (A) a FFELP 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; 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 (including Alternative Student Loans) if
EdLinc shall have caused to be provided to the Trustee 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 consent to the treatment of
such type of loan as an Eligible Loan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
I-5
<PAGE>
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
"Euroclear Participants" means the participating organizations that
utilize the services of Euroclear, including banks, securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any series of Notes.
"Event of Default" means an event of default under the Indenture, as
described under "Description of the Indenture--Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Direct Student Loan Program" means the Federal Direct Student
Loan Program established by the Higher Education Act pursuant to which loans are
made by the Secretary of Education, and any predecessor or successor program
"Federal Fund" means the federal student loan reserve fund established
by each Guarantee Agency as required by the 1998 Reauthorization Amendments.
"Federal Reimbursement Contracts" means 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.
"FFEL Program" means the Federal Family Education Loan Program
established by the Higher Education Act pursuant to which loans are made to
borrowers pursuant to certain guidelines, and the repayment of such loans is
guaranteed by a Guarantee Agency, and any predecessor or successor program.
"FFELP Loans" means student loans made under the FFEL Program.
"Financed," when used with respect to Student Loans or Eligible Loans,
means Student Loans or Eligible Loans, as the case may be, acquired by EdLinc
with moneys in the Acquisition Fund or the Surplus Account and any Eligible
Loans received in exchange for Financed Student Loans upon the sale thereof or
substitution therefor in accordance with the Indenture, but does not include (1)
Student Loans released from the lien of the Indenture and sold to any purchaser,
or (2) for certain purposes under the Indenture, Liquidated Alternative Loans.
"Fitch" means Fitch IBCA, Inc., its successors and their assigns.
I-6
<PAGE>
"Forbearance Period" means a period of time during which a borrower, in
case of temporary financial hardship, may defer the repayment of principal.
"Government Obligations" means 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 Period" means a period of time, following a borrower's ceasing
to pursue at least a half-time course of study and prior to the commencement of
a repayment period, during which principal need not be paid on certain Financed
Student Loans.
"Guarantee" or "Guaranteed" means, with respect to a FFELP 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 FFELP
Loan.
"Guarantee Agency" means (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. [Add
additional Guarantee Agencies]
"Guarantee Agreement" means any 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 Financed FFELP Loans acquired by the Trustee from time
to time.
"Guarantee Fund" means cash and reserves used for the purchase of
defaulted FFELP Loans by a Guarantee Agency.
I-7
<PAGE>
"Guarantee Payments" means those payments made by a Guarantee Agency
with respect to a Financed FFELP Loan.
"Guarantee Program" means a Guarantee Agency's student loan insurance
program pursuant to which such Guarantee Agency guarantees or insures FFELP
Loans.
"Higher Education Act" means the Higher Education Act of 1965, as
amended or supplemented from time to time, and all regulations promulgated
thereunder.
"Indenture" means the Indenture of Trust, dated as of ________ 1, 1999,
between EdLinc and the Trustee, as amended and supplemented from time to time.
"Indenture Obligations" means the Senior Obligations, the Subordinate
Obligations and any Class C Notes.
"Indirect Participants" means organizations which have indirect access
to the Securities Depository, such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly
"Interest Period" means, with respect to a series and class of Notes,
the period of time in which interest may accrue, as set forth in the related
Prospectus Supplement.
"Interest Rate Determination Date" means the date preceding the
commencement of each Interest Period on which the interest rate is determined.
"Interest Subsidy Agreement" means, with respect to any Financed FFELP
Loans, the agreement between a Guarantee Agency and the Secretary of Education
pursuant to Section 428(b) of the Higher Education Act, as amended, which
entitles the holders of eligible loans guaranteed by the Guarantee Agency to
receive Interest Subsidy Payments from the Secretary of Education.
"Interest Subsidy Payments" means interest payments on certain student
loans authorized to be made by the Secretary of Education by Section 428(a) of
the Higher Education Act.
"Lender" means (1) as to a FFELP Loan, any "eligible lender" (as
defined in the Higher Education Act) which has received an eligible lender
designation from a Guarantee Agency, and (2) as to an Alternative Loan, any
entity eligible to be a lender under the related Alternative Loan Program.
"LIBOR" means the London Interbank Offered Rate that the most
creditworthy international banks dealing in Eurodollars charge each other for
large loans.
"LIBOR Rate Notes" means any series and class of Notes the interest
rate on which is based upon LIBOR.
I-8
<PAGE>
"Liquidated Alternative Loan" means a Financed Alternative Loan as to
which any payment has been delinquent for 180 days or more. Any Financed
Alternative Loan which becomes a Liquidated Alternative Loan shall cease to be
treated as a Financed Student Loan for purposes of valuing the Trust Estate
under the Indenture.
"London Banking Day" means a business day on which dealings in deposits
in United States dollars are transacted in the London interbank market.
"Mandatory Tender Date" means, with respect to any Note, a date on
which such Note is required to be tendered for purchase by or on behalf of
EdLinc in accordance with the provisions in the Supplemental Indenture providing
for the issuance thereof.
"Monthly Payment Date" means 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" means the monthly report prepared by EdLinc
or the Servicer in accordance with the Indenture.
"Moody's" means Moody's Investors Service, Inc., its successors and
their assigns.
"Net Loan Rate" for any Interest Period and series of Notes, will equal
(1) the weighted average Effective Interest Rate of the Financed Student Loans
in the Acquisition Fund acquired with proceeds of such series, determined as of
the last day of the second preceding month, less (ii) the Administrative Cost
and Note Fee Rate.
"New Borrower" means 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 FFEL Program.
"1998 Reauthorization Amendments" means the Higher Education Amendments
of 1998.
"Note Fees" means 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, note registrar or independent accountants incurred by EdLinc 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 Guarantee Agreements, the Higher Education Act, any Alternative
Loan Program or any requirement of the laws of the United States, 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
I-9
<PAGE>
remarketing agreement, depositary agreement, auction agent agreement or
broker-dealer agreement and (4) the Indenture.
"Notes" means any asset-backed student loan notes issued by EdLinc
under the Indenture.
"Operating Fund" means the agency operating fund established by each
Guarantee Agency as required by the 1998 Reauthorization Amendments.
"Other Beneficiary" means an Other Senior Beneficiary or an Other
Subordinate Beneficiary.
"Other Indenture Obligations" means, collectively, the Other Senior
Obligations and Other Subordinate Obligations.
"Other Senior Beneficiary" means a person or entity who is a Senior
Beneficiary other than as a result of ownership of Senior Notes.
"Other Senior Obligations" means EdLinc's obligations to pay any
amounts under any Senior Swap Agreements and any Senior Credit Enhancement
Facilities.
"Other Subordinate Beneficiary" means a person or entity who is a
Subordinate Beneficiary other than as a result of ownership of Subordinate
Notes.
"Other Subordinate Obligations" means EdLinc's obligations to pay any
amounts under any Subordinate Swap Agreements and any Subordinate Credit
Enhancement Facilities.
"Outstanding" means, 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, (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 EdLinc to the extent the Trustee
knows that such Notes are so owned, or (d) any Notes deemed tendered.
"Participants" means the participating organizations that utilize the
services of the Securities Depository.
"Plus Loan" means a Student Loan made pursuant to Section 428B of the
Higher Education Act.
"Purchase Date" means, with respect to a Demand Note, the date
specified in a purchase demand as the date on which the holder of the Demand
Note is demanding purchase of such Note in accordance with the applicable
provisions of the related Supplemental Indenture, or the next preceding or
succeeding business day if such date is not a business day.
I-10
<PAGE>
"Rating Agency" means any rating agency that shall have an outstanding
rating on any of the Notes pursuant to request by EdLinc.
"Reference Banks" means four leading banks, selected by the Trustee or
an agent of the Trustee, engaged in transactions in Eurodollar deposits in the
international Eurocurrency market and having an established place of business in
London.
"Registration Statement" means a registration statement (together with
all amendments and exhibits thereto) filed by EdLinc with the Commission under
the Securities Act with respect to the Notes offered hereby.
"Relief Act" means the Taxpayer Relief Act of 1997, as amended.
"Repayment Phase" means, with respect to any Financed Student Loan,
that period of time during which principal is repayable.
"Repeat Borrower" means 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 FFEL Program.
"Reserve Fund Requirement" means, 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, 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.
"Reuters Screen LIBOR Page" will be the display designated as page
"LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBOR page for the purposes of displaying London interbank offered
rates of major banks).
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., its successors and assigns.
"Secretary of Education" means 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.
"Securities Act" means the Securities Act of 1933, as amended.
I-11
<PAGE>
"Securities Depository" means DTC or any successor or other Clearing
Agency selected by EdLinc as securities depository for any Book-Entry Notes.
"Senior Asset Requirement" means that: (a) the Senior Percentage is at
least equal to 110% (or such lower percentage specified in a 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), and (b) the
Subordinate Percentage is at least equal to 100% (or such lower percentage
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).
"Senior Beneficiaries" means (1) the holders of any Outstanding Senior
Notes, and (2) any Senior Credit Facility Provider and any Senior Swap
Counterparty entitled to Other Senior Obligations then Outstanding.
"Senior Credit Enhancement Facility" means 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
EdLinc.
"Senior Credit Facility Provider" means any person or entity who
provides a Senior Credit Enhancement Facility.
"Senior Notes" means any 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" means, collectively, the Senior Notes and the
Other Senior Obligations.
"Senior Percentage" means the percentage resulting by dividing the
value of the Trust Estate by the sum of (1) the aggregate principal amount of
Outstanding Senior Notes plus accrued interest thereon, (2) accrued EdLinc swap
payments under Senior Swap Agreements and (3) other payments accrued and owing
by EdLinc on Other Senior Obligations.
"Senior Swap Agreement" means a Swap Agreement designated as a Senior
Swap Agreement in the Supplemental Indenture pursuant to which such Swap
Agreement is furnished by EdLinc.
"Senior Swap Counterparty" means any person or entity who provides a
Senior Swap Agreement.
I-12
<PAGE>
"Serial Loan" means a loan made to the same borrower under the same
loan program and guaranteed by the same Guarantee Agency (or a successor).
"Servicer" means SLFC and any other organization with which EdLinc and
the Trustee have entered into a Servicing Agreement.
"Servicing Agreement" means the SLFC Servicing Agreement, and any other
agreement among EdLinc, the Trustee and a Servicer under which the Servicer
agrees to act as EdLinc'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" means any fees payable by EdLinc to a Servicer in
respect of Financed Student Loans pursuant to the provisions of a Servicing
Agreement.
"SLFC" means Student Loan Finance Corporation, a South Dakota
corporation.
"SLFC Servicing Agreement" means the Servicing and Administration
Agreement, dated as of ___________ 1, 1999, among EdLinc, the Trustee and SLFC,
as Servicer and Administrator.
"SLS Loan" means a Student Loan made pursuant to former Section 428A of
the Higher Education Act.
"Special Allowance Payments" means 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 Redemption and Prepayment Account Requirement" means, with
respect to any series of Notes, the amount described in the Supplemental
Indenture providing for the issuance thereof.
"Stafford Loan" means a Student Loan made pursuant to Section 428 of
the Higher Education Act.
"Student Loan Purchase Agreements" means all EdLinc Student Loan
Purchase Agreements and Transferor Student Loan Purchase Agreements.
"Student Loan" means a loan to a borrower for post-secondary education.
"Subordinate Beneficiaries" means (1) the holders of any Outstanding
Subordinate Notes, and (2) any Subordinate Credit Facility Provider and any
Subordinate Swap Counterparty entitled to any Other Subordinate Obligations then
Outstanding.
I-13
<PAGE>
"Subordinate Credit Enhancement Facility" means 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 EdLinc.
"Subordinate Credit Facility Provider" means any person or entity who
provides a Subordinate Credit Enhancement Facility.
"Subordinate Notes" means any 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" means, collectively, the Subordinate Notes
and the Other Subordinate Obligations.
"Subordinate Percentage" means the percentage resulting by dividing the
value of the Trust Estate by the sum of (1) the aggregate principal amount of
Outstanding Senior Notes and Subordinate Notes plus accrued interest thereon,
(2) accrued EdLinc swap payments and (3) other payments accrued and owing by
EdLinc on Other Indenture Obligations.
"Subordinate Swap Agreement" means a Swap Agreement designated as a
Subordinate Swap Agreement in the Supplemental Indenture pursuant to which such
Swap Agreement is furnished by EdLinc.
"Subordinate Swap Counterparty" means any person or entity who provides
a Subordinate Swap Agreement.
"Supplemental Indenture" means any amendment of or supplement to the
Indenture made in accordance with the provisions thereof.
"Swap Agreement" means, collectively, (a) an interest rate exchange
agreement between EdLinc and a Swap Counterparty, and (b) any guarantee of the
Swap Counterparty's obligations under such interest rate exchange agreement.
"Swap Counterparty" means any person or entity with whom EdLinc shall,
from time to time, enter into a Swap Agreement.
"Telerate Page 5" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Transfer Agreement" means, with respect to each series of Notes, the
transfer agreement among the Transferor, EdLinc and the Trustee pursuant to
which the Transferor transfers to EdLinc Eligible Loans to be Financed with the
proceeds of such Notes.
I-14
<PAGE>
"Transferor" means GOAL Funding, Inc., a Delaware corporation.
"Transferor Student Loan Purchase Agreements" means, with respect to
Financed Student Loans transferred pursuant to a Transfer Agreement, all
agreements between the Transferor and a Lender (in the case of FFELP Loans) or
SLFC (in the case of Alternative Loans) providing for the sale of such Financed
Student Loans by such Lender or SLFC to the Transferor or its agent.
"Trust Estate" means (1) Financed Student Loans and moneys due or paid
thereunder after the applicable date of acquisition; (2) funds on deposit in
certain the Funds and Accounts held under the Indenture (including investment
earnings thereon); and (3) rights of EdLinc in and to certain agreements,
including the Servicing Agreement, the Student Loan Purchase Agreements, the
Transfer Agreements and the Guarantee Agreements, as the same relate to Financed
Student Loans.
"Trustee" means U.S. Bank National Association, in its capacity as
trustee under the Indenture, and any successor or assign in that capacity.
"Underwriter" means any firm that agrees to purchase Notes of a series
from EdLinc.
"Underwriting Agreement" means an agreement between EdLinc and the
Underwriter(s) for purchase of the Notes of a series.
"Unenhanced" means, 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" means a Student Loan made pursuant to
Section 428H of the Higher Education Act.
I-15
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR ON OTHER
INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. THIS DOCUMENT DOES NOT CONSTITUTE AN
OFFER TO SELL ANY SECURITIES OTHER THAN THE NOTES NOR AN OFFER OF SUCH NOTES TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AND PROSPECTUS SUPPLEMENT AT ANY TIME
DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS.............................S-4
RISK FACTORS.................................S-9
USE OF PROCEEDS..............................S-9
THE FINANCED STUDENT
LOANS.......................................S-10
MATURITY AND PREPAYMENT
CONSIDERATIONS..........................S-16
SERVICING...................................S-19
THE GUARANTEE AGENCIES......................S-19
DESCRIPTION OF THE SERIES
1999-[X] NOTES..........................S-20
SOURCE OF PAYMENT AND
SECURITY FOR THE SERIES
1999-[X] NOTES..........................S-25
THE TRUSTEE.................................S-27
[CERTAIN RELATIONSHIPS
AMONG FINANCING
PARTICIPANTS..........................S-28]
UNDERWRITING................................S-28
LEGAL MATTERS...............................S-29
RATING......................................S-29
PROSPECTUS
RISK FACTORS...................................4
USE OF PROCEEDS...............................14
EDLINC........................................14
THE TRANSFEROR................................14
THE SERVICER..................................15
MATURITY AND PREPAYMENT CONSIDERATIONS.......15
DESCRIPTION OF FINANCING OF ELIGIBLE LOANS....16
DESCRIPTION OF THE FFEL
PROGRAM...................................20
DESCRIPTION OF THE GUARANTEE AGENCIES.........39
DESCRIPTION OF THE ALTERNATIVE LOAN PROGRAMS..46
DESCRIPTION OF THE NOTES......................48
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES..60
DESCRIPTION OF THE SLFC SERVICING AGREEMENT...63
DESCRIPTION OF THE
INDENTURE................................68
FEDERAL INCOME TAX CONSEQUENCES98
STATE TAX CONSIDERATIONS.....................105
ERISA CONSIDERATIONS.........................105
AVAILABLE INFORMATION........................106
REPORTS TO NOTEHOLDERS.......................107
INCORPORATION OF CERTAIN
DOCUMENTS BY
REFERENCE................................107
PLAN OF DISTRIBUTION.........................108
FINANCIAL INFORMATION........................108
RATING.......................................108
GLOSSARY OF PRINCIPAL DEFINITIONS............I-1
<PAGE>
$ ____________
EDUCATION LOANS
INCORPORATED
STUDENT LOAN
ASSET-BACKED NOTES
SENIOR SERIES 1999-[X]
SUBORDINATE SERIES 1999-[X]
PROSPECTUS
SALOMON SMITH BARNEY
--------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS--
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
Item 14. 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:
SEC registration fee.............................. $ 278
Blue Sky fees and expenses........................ *
Trustees' fees and expenses....................... *
Printing and engraving expenses................... *
Legal fees and expenses........................... *
Accounting fees and expenses...................... *
Rating agency fees................................ *
Total.................................... $ *
----------
* To be filed by amendment.
All of the above expenses except the SEC registration fee are
estimated.
Item 15. Indemnification of Directors and Officers.
Education Loans Incorporated is incorporated under the laws of
Delaware. Section 145 of the Delaware General Corporation Law provides
that a Delaware corporation may indemnify any persons, including
officers and directors, who are, or are threatened to be made, parties
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of such corporation, by reason of the fact
that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as
a director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise). The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, for criminal
proceedings, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify officers and directors in
an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable
to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer
or director actually and reasonably incurred.
Article Eleven of the Bylaws of the registrant permits the
registrant to, under certain circumstances, indemnify such persons for
such liabilities in such manner under such circumstances and to such
extent as permitted by Section 145 of the Delaware General Corporation
Law.
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
II-1
<PAGE>
certain of its officers and persons who control the registrant within
the meaning of the Securities Act of 1933 against certain liabilities.
Item 16. Exhibits.
1.1 Proposed form of Underwriting Agreement*
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Form of Indenture*
4.2 Form of Supplemental Indenture*
4.3 Form of Auction Agent Agreement*
4.4 Form of Broker-Dealer Agreement*
5.1 Opinion of Dorsey & Whitney LLP as to legality*
8.1 Opinion of Dorsey & Whitney LLP as to tax matters*
10.1 Form of Servicing Agreement*
10.2 Form of Student Loan Purchase Agreement*
23.1 Consents of Dorsey & Whitney LLP (included in
Exhibits 5.1 and 8.1)
24.1 Powers of Attorney (included on Part II, page 4)
25.1 Statement of Eligibility of Trustee (Form T-1)*
----------
* To be filed by amendment.
Item 17. Undertakings.
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
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as a 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.
(2) 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
II-2
<PAGE>
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change to such information in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change in the
information set forth in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-3
<PAGE>
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized on August 24, 1999.
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
Registration Statement has been signed by the following persons in the
capacities indicated on August 24, 1999. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints A. Norgrin
Sanderson as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Registration Statement, and any
and all instruments or documents filed as part of or in connection with this
Registration Statement or the amendments thereto, and each of the undersigned
does hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ A. Norgrin Sanderson President, Treasurer August 24, 1999
- ---------------------------------------- and Director
A. Norgrin Sanderson (principal executive officer,
principal financial and accounting officer)
/s/ V. G. Stoia Chairman of the Board August 24, 1999
- ----------------------------------------
V. G. Stoia
/s/ Manley B. Feinstein Vice Chairman of the Board August 24, 1999
- ----------------------------------------
Manley B. Feinstein
/s/ Peter H. Sorensen Director August 24, 1999
- ----------------------------------------
Peter H. Sorensen
/s/ Dwight Jenkins Director August 24, 1999
- ----------------------------------------
Dwight Jenkins
</TABLE>
II-4
<PAGE>
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
EDUCATION LOANS INCORPORATED
Pursuant to Section 245 of the Delaware General Corporation Law,
Education Loans Incorporated does hereby adopt the following Restated
Certificate of Incorporation (originally filed May 7, 1997):
Article I. Name. The name of the Corporation is Education Loans
Incorporated (the "Corporation").
Article II. Registered Office and Agent. The address of the
Corporation's registered office in the State of Delaware is 1209 Orange Street,
Wilmington, New Castle County, Delaware, and the name of its registered agent at
such address is The Corporation Trust Company.
Article III. Purpose. The nature of the business or purpose to be
conducted or promoted by the Corporation is to engage exclusively in the
following business and financial activities:
(a) to receive the assets and assume the liabilities
transferred to it under that certain Contribution Agreement by and
among Education Loans Incorporated, a South Dakota not-for-profit
corporation, Student Loan Finance Corporation, a South Dakota
corporation, and the Corporation (the "Initial Transaction");
(b) to originate or acquire loans for post-secondary education
of students, to the extent of funds available therefor from the
proceeds of the Securities (defined below) ("Student Loans");
(c) to enter into any agreement relating to any Student Loans
that provides for the acquisition, origination, administration,
servicing and collection of amounts due on such Student Loans, to the
extent of funds available therefor from the proceeds of the Securities
(defined below);
(d) to issue any class of bonds, notes, asset-backed
certificates or other securities payable solely from Student Loans and
other assets pledged to the payment thereof (the "Securities"); and
(e) to engage in any lawful act or activity and to exercise
any powers permitted to corporations organized under the General
Corporation Law of the State of Delaware that are incidental to and
necessary, suitable or convenient for the accomplishment of the
purposes specified in clauses (a) through (d) above.
<PAGE>
The Corporation may not, however, incur indebtedness, other than
indebtedness in connection with the Initial Transaction, unless the Corporation
has received confirmation from each nationally recognized statistical rating
organization that then maintains a rating on any of the Corporation's Securities
(including Securities the indebtedness on which has been assumed by the
Corporation in conjunction with the Initial Transaction) that the incurrence of
such indebtedness will not cause such rating organization to withdraw, qualify
or lower its rating of such Securities.
Article IV. Duration. The Corporation is to have perpetual existence.
Article V. Number of Shares. The aggregate number of shares of all
classes of capital stock that the Corporation shall have authority to issue is
one hundred (100) shares of Common Stock, par value of $0.01 per share.
Article VI. Incorporator. The name and mailing address of the
incorporator is as follows:
Name Mailing Address
---- ---------------
Timothy S. Hearn Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
Article VII. Number of Directors; Initial Directors. The number of
directors of the Corporation will not be less than two nor more than seven. The
exact number of directors is to be fixed in the Bylaws. The number of directors
constituting the initial Board of Directors is four, and the names and addresses
of the persons who are to serve as directors until the first annual meeting of
shareholders or until their respective successors are elected and qualified are:
Name Address
---- -------
A. Norgrin Sanderson 105 First Avenue Southeast
Aberdeen, SD 57401
V.G. Stoia 105 First Avenue Southeast
Aberdeen, SD 57401
Manley B. Feinstein 105 First Avenue Southeast
Aberdeen, SD 57401
Harvey C. Jewett 105 First Avenue Southeast
Aberdeen, SD 57401
2
<PAGE>
The list above setting forth the names and addresses of the initial directors of
the Corporation does not include additional persons who may otherwise be elected
and qualified to serve as directors in accordance with the Bylaws.
Article VIII. Independent Directors. Within forty-five (45) days after
the closing of the Corporation's first registered offering of securities and at
all times thereafter, at least two directors of the Corporation must be
Independent Directors and at least one member of each committee of the Board of
Directors must be an Independent Director. "Independent Director" means a
director of the Corporation who is not, and for at least five years prior to the
time of his or her initial appointment was not, (i) a director, officer or
employee of, or direct or indirect beneficial owner of voting securities of, any
Affiliate of the Corporation (provided that such person may be serving or have
served as an "independent director" (meeting a definition substantially similar
to the definition of "Independent Director" in this Article VIII) of another
limited purpose entity similar to the Corporation and under common control with
the Corporation), (ii) a customer, supplier or other person who derives any of
its purchases or revenues from its activities with the Corporation or any
Affiliate of the Corporation; (iii) a person controlling or under common control
with any such stockholder, customer, supplier or other person; or (iv) a member
of the immediate family of any such stockholder, director, officer, employee,
customer, supplier or other person. For the purposes of this Certificate of
Incorporation, an "Affiliate" of a person or an entity is a person or an entity
controlling, controlled by, or under common control with such first person or
entity and the term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management, policies or activities
of a person or entity, whether through ownership of voting securities, by
contract or otherwise.
Article IX. Directors' Powers. The Board of Directors shall have
general power and authority to manage the business, properties and affairs of
the Corporation, provided that, without the consent in writing of the
Independent Directors (as that term is defined in Article VIII of this
Certificate of Incorporation), the directors shall not have power (i) to make or
to alter or amend the Bylaws, (ii) to fix the amount to be reserved as working
capital, or (iii) to authorize or cause to be executed, mortgages or liens upon
the property and franchise of this Corporation except that such consent of the
Independent Directors shall not be required in connection with the Initial
Transaction and any actions incident thereto.
The Bylaws shall determine whether and to what extent the accounts and
books of this Corporation, or any of them, shall be open to the inspection of
the stockholders; and no stockholder shall have any right of inspecting any
account, or book, or document of this Corporation, except as conferred by law or
the Bylaws or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings
and keep the books, documents and papers of the Corporation outside the State of
Delaware, at such places as may be from time to time designated by the Bylaws or
by resolution of the stockholders or directors, except as otherwise required by
the laws of Delaware.
3
<PAGE>
Article X. Written Action by Directors. An action required or permitted
to be taken at a meeting of the Board of Directors of the Corporation may be
taken by written action signed, or counterparts of a written action signed in
the aggregate, by all of the directors.
Article XI. Reliance on Books and Records, Etc. A director shall, in
the performance of his duties, be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
Article XII. Liability of Directors. To the fullest extent permitted by
the General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of this Article XII shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
Article XIII. Internal Affairs. The Corporation:
(a) shall (i) 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 (ii) not
permit any Affiliate or any other person or entity independent access
to its bank accounts;
(b) shall 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;
(c) shall conduct its own business in its own name and shall
hold all of its assets in its own name;
(d) shall remain solvent and pay its debts and liabilities
(including employment and overhead expenses) from its assets as the
same shall become due;
(e) shall do all things necessary to observe corporate
formalities and preserve its existence as a single-purpose,
bankruptcy-remote entity in accordance with the
4
<PAGE>
standards of the Rating Agencies (as defined below) providing ratings
on any outstanding Securities, as such standards are in effect on the
date of issuance of such Securities;
(f) shall 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;
(g) shall have no employees who are not officers;
(h) shall 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;
(i) shall not guarantee, become obligated for, or hold itself
or its credit out to be responsible for, or available to satisfy, the
debts or obligations of any other person or entity or the decisions or
actions respecting the daily business or affairs of any other person or
entity;
(j) shall 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-grade securities, Student Loans and other
obligations and securities specified in Article III hereof;
(k) will 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 (such as asset management, legal and accounting) that are
provided jointly to the Corporation and one or more of its Affiliates;
(l) will 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;
(m) shall 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;
(n) shall be, and at all times shall hold itself out to the
public as, a legal entity separate and distinct from any other person
or entity;
5
<PAGE>
(o) shall, in the event that any authorized officer knows of
any misunderstanding regarding the separate identity of the
Corporation, correct such misunderstanding;
(p) shall not identify itself or any of its Affiliates as a
division or part of any other entity; and
(q) shall 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.
Article XIV. Meetings of Stockholders. Meetings of stockholders shall
be held at such place, within or without the State of Delaware, as may be
designated by or in the manner provided in the Bylaws or, if not so designated
or provided, at the registered office of the Corporation in the State of
Delaware. Elections of directors shall be by written ballot. The books of the
Corporation may be kept (subject to any provision contained in any applicable
statute) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
Article XV. Limitations on Actions.
(a) Notwithstanding any other provision of this Certificate of
Incorporation, the Bylaws or any provision of law that otherwise so
empowers the Corporation, the Corporation shall not, without (i) the
affirmative vote of 100% of the members of the Board of Directors of
the Corporation, including the affirmative vote of the Independent
Directors required by Article VIII, and (ii) the affirmative vote of
stockholders holding at least two-thirds (2/3) of the total number of
outstanding shares of Common Stock of the Corporation, make an
assignment for the benefit of creditors, file a petition in bankruptcy,
petition or apply to any tribunal for the appointment of a custodian,
receiver or any trustee for it or for a substantial part of its
property, commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereinafter in effect,
consent or acquiesce in the filing of any such petition, application,
proceeding or appointment of or taking possession by the custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Corporation or any substantial part of its property,
or admit its inability to pay its debts generally as they become due or
authorize any of the foregoing to be done or taken on behalf of the
Corporation; provided, that if there are not two Independent Directors
required by Article VIII of this Certificate of Incorporation then in
office and acting, a vote upon any matter set forth in this paragraph
(a) of this Article XV shall not be taken unless and until at least two
Independent Directors meeting the requirements of Article VIII of this
Certificate of Incorporation have been appointed and qualified.
6
<PAGE>
(b) The Corporation shall not:
(i) engage in any business or activity other than as
authorized in Article III hereof,
(ii) dissolve or liquidate, in whole or in part,
(iii) consolidate with or merge into any other
entity,
(iv) convey, transfer or lease its properties and
assets substantially as an entirety to any person or entity
(except in connection with the business and activities
authorized in Article III hereof),
(v) permit any entity to merge into it,
(vi) permit any person or entity to convey, transfer
or lease its properties and assets substantially as an
entirety to the Corporation (except in connection with the
business and activities authorized in Article III hereof),
(vii) incur any indebtedness (except in connection
with the business and activities authorized in Article III
hereof),
(viii) take any action that might cause the
Corporation to become insolvent or
(ix) form, or cause to be formed, any subsidiaries of
the Corporation.
(c) So long as any Securities remain outstanding, the
Corporation shall not amend or modify Article III, Article VIII,
Article XIII or this Article XV of this Certificate of Incorporation
unless the Corporation shall have first received written confirmation
from each of the nationally-recognized statistical ratings
organizations that provide ratings on such Securities on the date of
issuance of such Securities (each, a "Rating Agency") that such action,
in and of itself, will not cause such Rating Agency to qualify,
downgrade or withdraw any of its then-current ratings on any of such
Securities.
(d) No transfer of any direct or indirect ownership interest
in the Corporation such that the transferee owns more than a 49%
interest in the Corporation (or such other interest specified by a
Rating Agency with respect to any outstanding Securities) may be made
unless such transfer is conditioned upon the delivery of an acceptable
non-consolidation opinion to any trustee with respect to any
outstanding Securities and any Rating Agency providing ratings on any
outstanding Securities on the date of issuance of such Securities
concerning, as applicable, the Corporation, the transferee and/or their
respective owners.
7
<PAGE>
Article XVI. Amendment, Alteration or Repeal. The Corporation reserves
the right to amend, alter, or repeal any other provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
statute, and all rights of stockholders herein are subject to this reservation;
provided, however, that Article III, Article VIII, Article XIII and Article XV
may be amended only in accordance with Article XV of this Certificate of
Incorporation.
Executed this 19th day of February, 1998.
/s/ A. Norgrin Sanderson
------------------------
A. Norgrin Sanderson
Chairman of the Board
8
<PAGE>
Exhibit 3.2
BYLAWS
OF
EDUCATION LOANS INCORPORATED
ARTICLE I.
----------
Meetings of Stockholders
------------------------
Section 1. Annual Meetings. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such time, on such
day and at such place, within or without the State of Delaware as shall be
designated by the Board of Directors.
Section 2. Special Meetings. A special meeting of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute, may be called
at any time by the President or by the Secretary at the request in writing of a
majority of either the members of the Board of Directors or the stockholders
entitled to vote.
Section 3. Time and Place of Meetings. All meetings of the stockholders
shall be held at such times and places, within or without the State of Delaware,
as may from time to time be fixed by the Board of Directors or by the President
with respect to special meetings, or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 4. Notice of Meetings. Except as otherwise expressly required
by law, notice of each annual or special meeting of the stockholders shall be
given at least ten (10) days before the day on which the meeting is to be held,
to each stockholder of record entitled to vote at such meeting by mailing such
notice in a postage prepaid envelope addressed to the stockholder at the
stockholder's last postoffice address appearing on the stock records of the
Corporation. Except as otherwise expressly required by law, no publication of
any notice of a meeting of the stockholders shall be required. At special
meetings of stockholders no business other than that specified in the notice of
the meeting or germane thereto shall be transacted at such meeting. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given.
Section 5. Quorum. At each meeting of the stockholders, except as
otherwise expressly required by law, stockholders holding a majority of the
shares of stock of the Corporation, issued and outstanding, and entitled to be
voted thereat, shall be present in person or by proxy to constitute a quorum for
the transaction of business. In the absence of a quorum at any such meeting or
any adjournment or adjournments thereof, a majority
<PAGE>
in voting interest of those present in person or by proxy and entitled to vote
thereat, or in the absence therefrom of all the stockholders, any officer
entitled to preside at, or to act as secretary of, such meeting may adjourn such
meeting from time to time until stockholders holding the amount of stock
requisite for a quorum shall be present or represented. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders, one of
the following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(a) the President;
(b) the Vice President designated by the Board of
Directors to act as chairman of said meetings and to
preside thereat;
(c) a stockholder of record of the Corporation who shall
be chosen chairman of such meeting by a majority in
voting interest of the stockholders present in person
or by proxy and entitled to vote thereat.
The Secretary, or, if he shall be absent from such meeting, the person (who
shall be an Assistant Secretary, if an Assistant Secretary shall be present
thereat) whom the chairman of such meeting shall appoint, shall act as secretary
of such meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at each meeting of
the stockholders shall be determined by the chairman of such meeting, but such
order of business at any meeting at which a quorum is present may be changed by
the vote of a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat, provided that at special meetings
of stockholders no business other than that specified in the notice of the
meeting or germane thereto shall be transacted.
Section 8. Voting. Each stockholder shall, at each meeting of the
stockholders, be entitled to one vote in person or by proxy for each share of
stock of the Corporation held by the stockholder and registered in the
stockholder's name on the books of the Corporation on the date fixed or
determined pursuant to the provisions of Section 5 of Article V of these Bylaws
as the record date for the determination of stockholders who shall be entitled
to receive notice of and to vote at such meeting.
Shares of its own stock belonging to the Corporation shall not be voted
directly or indirectly. Any vote on stock of the Corporation may be given at any
meeting of the
2
<PAGE>
stockholders by the stockholder entitled thereto in person or by the
stockholder's proxy appointed by an instrument in writing delivered to the
Secretary or an Assistant Secretary of the Corporation or to the secretary of
the meeting. The attendance at any meeting of a stockholder who may theretofore
have given a proxy shall not have the effect of revoking the same unless the
stockholder shall in writing so notify the secretary of the meeting prior to the
voting of the proxy. At all meetings of the stockholders all matters, except as
otherwise provided in these Bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present in person or by proxy
and entitled to vote thereat, a quorum being present. Subject to Article II,
Section 3, the vote at any meeting of the stockholders on any question need not
be by ballot, unless so directed by the chairman of the meeting. On a vote by
ballot each ballot shall be signed by the stockholder voting, or by the
stockholder's proxy, if there be such proxy.
Section 9. List of Stockholders. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of its stock ledger to
prepare and make, at least ten (10) days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to said meeting either at a place within the city where said meeting is to
be held and which place shall be specified in the notice of said meeting, or, if
not so specified, at the place where said meeting is to be held, and such list
shall be produced and kept at the time and place of said meeting during the
whole time thereof, and may be inspected by any stockholder who is present. The
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger or such list or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
Section 10. Inspectors or Judges. The Board of Directors, in advance of
any meeting of stockholders, may appoint one or more inspectors or judges to act
at such meeting or any adjournment thereof. If the inspectors or judges shall
not be so appointed, or if any of them shall fail to appear or act, the chairman
of such meeting shall appoint the inspectors or judges, or such replacement or
replacements therefor, as the case may be. Such inspectors or judges, before
entering on the discharge of their duties, shall take and sign an oath or
affirmation faithfully to execute the duties of inspectors or judges at meetings
for which they are appointed. At such meeting, the inspectors or judges shall
receive and take in charge the proxies and ballots and decide all questions
touching the qualification of voters and the validity of proxies and the
acceptance or rejection of votes. An inspector or judge need not be a
stockholder of the Corporation, and any officer of the Corporation may be an
inspector or judge on any question other than a vote for or against his election
to any position with the Corporation.
3
<PAGE>
Section 11. Action Without a Meeting. Except as otherwise provided by
law or by the Certificate of Incorporation of the Corporation, any action which
may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II.
-----------
Board of Directors
------------------
Section 1. General Powers. Subject to the provisions of the Certificate
of Incorporation of the Corporation, the business, properties and affairs of the
Corporation shall be managed by the Board of Directors, which, without limiting
the generality of the foregoing, shall have power to elect and appoint officers
of the Corporation, to appoint and direct agents, to grant general or limited
authority to officers, employees and agents of the Corporation, to make, execute
and deliver contracts and other instruments and documents in the name and on
behalf of the Corporation and, if a seal has been adopted, over its seal,
without specific authority in each case, and, by resolution adopted by a
majority of the whole Board of Directors, to appoint committees of the Board of
Directors, the membership of which may consist of one or more directors, and
which may, except as limited by the Certificate of Incorporation of the
Corporation, advise the Board of Directors with respect to any matters relating
to the conduct of the Corporation's business. In addition, the Board of
Directors may exercise all the powers of the Corporation and do all lawful acts
and things which are not reserved to the stockholders by law or by the
Certificate of Incorporation of the Corporation or by these Bylaws.
Section 2. Number and Term. Subject to the requirements of the laws of
the State of Delaware, the number of directors shall be four, provided that,
such number shall automatically increase to six and shall include, on and at all
times after a date that is no more than forty-five (45) days after the closing
of the Corporation's first registered public offering of securities, at least
two Independent Directors (as described in Article VIII of the Certificate of
Incorporation). Subject to Article VIII of the Certificate of Incorporation of
the Corporation, each of the directors of the Corporation shall hold office
until the expiration of his term and until his successor shall be elected and
qualified or until his earlier death, resignation, retirement, disqualification
or removal. Directors need not be stockholders.
4
<PAGE>
Section 3. Election of Directors. Subject to the requirements of
Article VIII of the Certificate of Incorporation of the Corporation, at each
meeting of the stockholders for the election of directors, at which a quorum is
present, the persons receiving the greatest number of votes, up to the number of
directors to be elected, shall be the directors. Such election shall be by
ballot, provided, however, a nomination shall be accepted and votes cast for a
nominee shall be counted by the inspectors or judges of the election, only if
the Secretary of the Corporation has received at least 24 hours prior to the
meeting a statement over the signature of the nominee that he consents to being
a nominee and, if elected, intends to serve as a director.
Section 4. Organization and Order of Business. At each meeting of the
Board, one of the following shall act as chairman of the meeting and preside
thereat, in the following order of precedence:
(a) the President;
(b) any Vice President designated by the Board of
Directors; or
(c) any director chosen by a majority of the directors
present thereat.
The Secretary, or in case of his absence any Assistant Secretary (who shall be
present thereat) or the person (who shall be present thereat) whom the chairman
of such meeting shall appoint, shall act as secretary of such meeting and keep
the minutes thereof. The order of business at each meeting of the Board of
Directors shall be determined by the chairman of such meeting.
Section 5. Resignations. Subject to the requirements of Article VIII of
the Certificate of Incorporation of the Corporation, any director may resign at
any time by giving written notice of his resignation to the President or the
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time when it shall become effective shall not be
specified therein, then it shall take effect when accepted by action of the
Board of Directors. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective.
Section 6. Vacancies, etc. Subject to the requirements of Article VIII
of the Certificate of Incorporation of the Corporation, in case of any vacancy
on the Board, a director to fill the vacancy for the unexpired portion of the
term being filled may be elected by the holders of shares of stock of the
Corporation entitled to vote in respect thereof at a special meeting of said
holders or by a majority of the directors of the Corporation then in office
though less than a quorum.
5
<PAGE>
Section 7. Removal. Subject to the requirements of Article VIII of the
Certificate of Incorporation of the Corporation, any director or directors may
be removed either for or without cause at any time by the affirmative vote of
the holders of a majority of all the shares of stock outstanding and entitled to
vote, at a special meeting of the stockholders called for that purpose, and the
vacancies thus created may be filled, at the meeting held for the purpose of
removal, by the affirmative vote of a majority in interest of the stockholders
entitled to vote.
Section 8. Increase of Number. Subject to the requirements of Article
VIII of the Certificate of Incorporation of the Corporation, the number of
directors may be increased by amendment of these Bylaws to a number not to
exceed seven (7) which number shall include, on and at all times after a date
that is no more than forty-five (45) days after the closing of the Corporation's
first registered public offering of securities, at least two Independent
Directors (as described in Article VIII of the Certificate of Incorporation) by
the affirmative vote of a majority of the directors or by the affirmative vote
of a majority in interest of the stockholders, at the annual meeting or at a
special meeting called for that purpose, and by like vote the additional
directors may be chosen at such meeting to hold office until the next annual
election and until their successors are elected and qualified.
Section 9. Place of Meeting. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 10. First Meeting. As soon as practicable after each annual
election of directors, the Board shall meet for the purpose of organization, the
election of officers and the transaction of other business; provided that a
quorum of the whole Board of Directors, including on and at all times after a
date that is no more than forty-five (45) days after the closing of the
Corporation's first registered public offering of securities, at least two
Independent Directors (as described in Article VIII of the Certificate of
Incorporation), shall be present at such meeting. Such meeting shall be held at
the time and place theretofore fixed by the Board for the next regular meeting
of the Board and no notice thereof need be given; provided, however, that the
Board may determine that such meeting shall be held at a different place and
time but notice thereof shall be given in the manner hereinafter provided for
special meetings of the Board.
Section 11. Regular Meetings. Regular meetings of the Board shall be
held at such times as the Board shall from time to time determine. Notices of
regular meetings need not be given. If any day fixed for a regular meeting shall
be a legal holiday at the place where the meeting is to be held, then the
meeting which would otherwise be held on that day shall be postponed until the
same hour on the same day of the next succeeding week in
6
<PAGE>
which such day shall not be a legal holiday at such place, or at such other time
and place as the Board shall determine in which event notice thereof shall be
given.
Section 12. Special Meetings: Notice. Special meetings of the Board
shall be held whenever called by the President or by one of the directors at the
time in office. The Secretary shall give notice to each director as hereinafter
in this Section provided of each such special meeting, in which shall be stated
the time and place of such meeting. Notice of each such meeting shall be mailed
to each director, addressed to the director at his residence or usual place of
business, at least ten (10) days before the day on which such meeting is to be
held, or shall be sent addressed to him at such place by facsimile, telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held. Notice of any meeting of the Board need not, however, be
given to any director, if waived by him in writing or by facsimile, telegraph,
cable, wireless or other form of recorded communication, before, during or after
such meeting, or if he shall be present at such meeting, and any meeting of the
Board shall be a legal meeting without any notice thereof having been given if
all the directors of the Corporation then in office shall be present thereat.
Section 13. Quorum and Manner of Acting. Subject to the requirements of
the Certificate of Incorporation of the Corporation, and except as otherwise
provided in these Bylaws, the Certificate of Incorporation of the Corporation,
or by law, a majority of the members of the Board of Directors at the time in
office, including on and at all times after a date that is no more than
forty-five (45) days after the closing of the Corporation's first registered
public offering of securities, at least two Independent Directors (as described
in Article VIII of the Certificate of Incorporation), shall be present in person
at any meeting of the Board of Directors in order to constitute a quorum for the
transaction of business at such meeting, and the affirmative vote of a majority
of directors present at any such meeting, at which a quorum is present, shall be
necessary for the adoption of any resolution or act of the Board. In the absence
of a quorum, a majority of the Board of Directors may adjourn any meeting, from
time to time, until a quorum is present. No notice of any adjourned meeting need
be given other than by announcement at the meeting that is being adjourned.
Section 14. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting, if prior to such action a written consent thereto is signed
by all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
7
<PAGE>
Section 15. Committees. The Board of Directors may appoint standing
committees of its members, provided that on and at all times after a date that
is no more than forty-five (45) days after the closing of the Corporation's
first registered public offering of securities, each such committee shall have
at least one member who is an Independent Director (as described in Article VIII
of the Certificate of Incorporation). Unless otherwise restricted by the
Certificate of Incorporation of the Corporation, such committees shall have such
powers as are conferred by the Bylaws or authorized by the Board of Directors;
provided, however, that no committee shall have the power to act with respect to
any matter that, pursuant to the Certificate of Incorporation, requires the
consent of the Independent Directors. The members of all standing committees
shall be appointed annually at the first meeting of the Board of Directors after
the annual meeting of the stockholders and shall continue as members until their
successors are appointed, subject to the power of the Board to remove any member
of a committee at any time and to appoint a successor.
Section 16. Meeting by Communications Equipment. Members of the Board
of Directors or any committee appointed by the Board of Directors, may
participate in a meeting of the Board of Directors or of such committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
ARTICLE III.
------------
Officers
--------
Section 1. Election. Term of Office. The Executive Officers of the
Corporation shall consist of a President, a Treasurer and such number of Vice
Presidents, if any, as the Board of Directors may determine from time to time.
There shall also be a Secretary.
Any officer may hold two or more offices, the duties of which can be
consistently performed by the same person.
The Board of Directors may also elect such other officers and agents as
it may deem necessary, who shall have such authority and perform such duties as
may be prescribed by the Board.
All Executive Officers and other officers of the Corporation shall be
regularly elected by the majority vote of the whole Board of Directors at its
first meeting after the annual meeting of the stockholders and shall hold office
until the first meeting of the Board after the next annual meeting of the
stockholders, and until their successors are elected or appointed.
8
<PAGE>
If additional officers are elected during the year, they shall hold
office until the next annual meeting of the Board of Directors at which officers
are regularly elected and until their successors are elected or appointed.
A vacancy in any office may be filled for the unexpired portion of the
term in the same manner as provided for election to such office.
All officers and agents elected by the Board of Directors shall be
subject to removal at any time by the Board of Directors, either for or without
cause, by an affirmative vote of a majority of the entire Board of Directors, at
any regular meeting or at any special meeting.
Section 2. President. The President shall be the chief executive
officer of the Corporation, and shall have the powers and perform the duties
incident to that position. He shall be in general and active charge of the
entire business and all the affairs of the Corporation. He shall have the
primary responsibility for continuing the separate status of the Corporation
from any affiliated corporation and the proper segregation of corporate assets
from the assets of third parties who may have possession of assets of the
Corporation. He shall have general authority to execute bonds, deeds and
contracts in the name and on behalf of the Corporation within limits, if any,
established by the Board of Directors from time to time, and responsibility for
the employment or appointment of such employees, agents and officers (except
officers elected by the Board of Directors pursuant to Section 1 of this Article
III) as may be required to carry on the operations of the business, and he shall
have authority to fix the compensation of such agents and officers. He shall
have such other powers and perform such other duties as may be prescribed by the
Board of Directors or provided herein.
Section 3. Vice Presidents. Each Vice President shall have such powers
and duties as shall be prescribed by the Board of Directors at the time of his
election and such other powers and duties as may be assigned to him from time to
time by the President or the Board of Directors.
Section 4. Treasurer. The Treasurer shall be responsible for
safeguarding the cash and securities of the Corporation and the formulation of
the investment and financial policies of the Corporation. He shall keep a full
and accurate account of all monies received and paid on account of the
Corporation and shall render a statement of his accounts whenever the Board of
Directors shall require. He shall have such other powers and duties as may be
assigned to him by the President or the Board of Directors. In the absence of
the Treasurer, the President or such person as shall be designated by the
President shall perform the duties of the Treasurer.
9
<PAGE>
Section 5. Secretary. The Secretary shall attend to the giving of
notice of all meetings of stockholders and of the Board of Directors and
committees thereof, and as provided in Section 6 of Article I and Section 4 of
Article II, shall keep the minutes of all proceedings at meetings of the
stockholders and of the Board of Directors at which he is present, as well as of
all proceedings at all meetings of committees of the Board of Directors on which
he has served as secretary and, where some other person has served as secretary
thereto, the Secretary shall maintain custody of the minutes of such
proceedings. He shall perform such other duties as may be assigned to him from
time to time by the President or the Board of Directors.
ARTICLE IV.
-----------
Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------
Section 1. Execution of Documents by Officers. The Executive Officers
of the Corporation elected as provided in Section 1 of Article III of the
Bylaws, shall have power to execute and deliver any deeds, contracts, mortgages,
bonds, debentures and other documents for and in the name of the Corporation
within limits, if any, established by the Board of Directors from time to time.
The other officers shall have such powers with respect to execution and
delivery of deeds, contracts, mortgages, bonds, debentures and other documents
as may be assigned to them by the Board of Directors.
Section 2. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board of Directors, the President or the Treasurer shall
direct in such banks, trust companies or other depositories as the Board of
Directors may select or as may be selected by any officer or officers or agent
or agents of the Corporation to whom power in that respect shall have been
delegated by the Board of Directors. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation designated by the Board of Directors.
ARTICLE V.
----------
Shares and Their Transfer; Examination of Books
-----------------------------------------------
Section 1. Certificates for Stock. Every holder of stock of the
Corporation shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number of shares of stock of
the Corporation owned by the stockholder. The
10
<PAGE>
certificates representing shares of such stock shall be numbered in the order in
which they shall be issued and shall be signed in the name of the Corporation by
the person who was at the time of signing the President or a Vice President and
by a person who was at the time of signing the Secretary or an Assistant
Secretary and its seal, if one is adopted by the Board of Directors, shall be
affixed thereto; provided, however, that the signature of such Executive Officer
of the Corporation and of such Secretary or Assistant Secretary and the seal of
the Corporation may be facsimile. In case any officer or officers of the
Corporation who shall have signed, or whose facsimile signature or signatures
shall have been used on, any such certificate or certificates shall cease to be
such officer or officers, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon, had not ceased to be such officer or
officers. A record shall be kept of the respective names of the persons, firms
or corporations owning the stock represented by certificates for stock of the
Corporation, the number of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled and a new certificate or
certificates shall not be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled except in cases provided
for in Section 4 of this Article VI.
Section 2. Transfers of Stock. Transfers of shares of the stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, or with a
transfer clerk or a transfer agent appointed as in Section 3 of this Article V
provided, and upon surrender of the certificate or certificates for such shares
properly endorsed and payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation.
Section 3. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for stock of the Corporation.
The Board may appoint or authorize any officer or officers to appoint one or
more transfer clerks, any of whom may be employees of the Corporation, or one or
more transfer agents and one or more registrars, and may require all
certificates for stock to bear the signature or signatures of any of them;
provided, however, that the signature of any transfer clerk, transfer agent, or
registrar may be facsimile. In case any transfer clerk, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such transfer clerk, transfer agent, or
registrar before such certificate is issued, it may
11
<PAGE>
be issued by the Corporation with the same effect as if he were such transfer
clerk, transfer agent, or registrar at the date of issue.
Section 4. Lost, Stolen, Destroyed and Mutilated Certificates. The
owner of any stock of the Corporation shall immediately notify the Corporation
of any loss, theft, destruction or mutilation of the certificate therefor, and
the Corporation may issue a new certificate of stock in the place of any
certificate theretofore issued by the Corporation, which is delivered to the
Corporation, in the case of a mutilated certificate, or alleged to have been
lost, stolen or destroyed, and the Board may, in its discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representatives, to furnish evidence to the Corporation, which it shall in its
discretion determine is satisfactory, of the loss, theft or destruction of such
certificate and of the ownership thereof, and to give the Corporation a bond in
such sum, limited or unlimited, and in such form and with such surety or
sureties, as the Board shall in its uncontrolled discretion determine, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or the
issuance of such new certificate.
Section 5. Record Date. To determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If no record
date is fixed by the Board of Directors:
(a) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next
preceding the day on which notice is given.
(b) The record date for determining stockholders for any
other purpose shall be at the close of business on
the day on which the Board of Directors adopts the
resolution relating thereto. A determination of
stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any
adjournment of the meeting unless the Board of
Directors shall fix a new record date for the
adjourned meeting.
Section 6. Examination of Books by Stockholders. The Board may
determine, from time to time, whether and to what extent, at what times and
places, and under what conditions and regulations, the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right
12
<PAGE>
to inspect any account or book or document of the Corporation, except as
conferred by the laws of the State of Delaware or as authorized by resolution
adopted by the Board or by the stockholders of the Corporation entitled to vote
in respect thereof.
ARTICLE VI.
-----------
Offices, Etc.
-------------
Section 1. Registered Office. The registered office of the Corporation
in the State of Delaware shall be as stated in the Certificate of Incorporation
of the Corporation.
Section 2. Other Offices. The Corporation also may have an office or
offices other than said office in Section 1 of this Article VI at such place or
places, either within or without the State of Delaware, as provided in these
Bylaws or as the Board may from time to time appoint or as the business of the
Corporation may require.
Section 3. Books and Records. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, the Corporation may keep the books
and records of the Corporation in such place or places within or without the
State of Delaware as the Board may from time to time by resolution determine or
the business of the Corporation may require.
ARTICLE VII.
------------
Dividends
---------
Subject to the provisions of law, of the Certificate of Incorporation
of the Corporation and of these Bylaws, the Board may declare and pay dividends
upon the shares of the stock of the Corporation either (a) out of its surplus as
computed in accordance with the provisions of the laws of the State of Delaware
or (b) in case there shall be no such surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year,
whenever and in such amounts as, in the opinion of the Board, the condition of
the affairs of the Corporation shall render it advisable. Dividends upon the
shares of stock of the Corporation may be declared at any regular or special
meeting of the Board of Directors.
ARTICLE VIII.
-------------
Seal
----
The corporate seal, if one is adopted by the Board of Directors, shall
be in the form as prescribed by the Board of Directors and shall have inscribed
thereon the name of the
13
<PAGE>
Corporation and the words "Corporate Seal" and "Incorporated 1997 Delaware." If
the Board of Directors adopts a corporate seal, such seal or a facsimile thereof
may be impressed or affixed or reproduced or other use made thereof by the
Secretary or any Assistant Secretary or any other officer authorized by the
Board.
ARTICLE IX.
-----------
Fiscal Year
-----------
The fiscal year of the Corporation shall end on the 30th day of June in
each year.
ARTICLE X.
----------
Waiver of Notices
-----------------
Whenever any notice whatever is required to be given pursuant to these
Bylaws or by the Certificate of Incorporation of the Corporation or by the
Delaware General Corporation Law, a waiver thereof in writing, signed by the
person or persons entitled to said notice, or by facsimile, telegraph, cable,
wireless or other form of recorded communication, whether before or after the
time stated therein, or if such person shall attend a meeting, except when that
person attends such meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, shall be deemed equivalent thereto. Neither
the business to be transacted at, nor the purpose of, any meeting need be
specified in any notice or written notice of waiver unless so required by the
Certificate of Incorporation of the Corporation or by these Bylaws.
ARTICLE XI.
-----------
Indemnification
---------------
Section 1. Indemnification. The Corporation may indemnify, and the
Board of Directors may authorize the purchase and maintenance of insurance for
the purpose of such indemnification, such persons for such liabilities in such
manner under such circumstances and to such extent as permitted by Section 145
of the Delaware General Corporation Law, as now enacted or hereafter amended.
Section 2. Limitation on Indemnification. Except as expressly required
under Section 145 of the Delaware General Corporation Law, notwithstanding any
other provision hereof, the Corporation shall not indemnify nor purchase
insurance for the purpose of indemnifying, any person who is then serving as a
director of Education Loans Incorporated, a South Dakota nonprofit corporation
(formerly known as Student Loan
14
<PAGE>
Finance Corporation) ("Edlinc"), unless and until an opinion, reasonably
acceptable to the Corporation and its counsel, is delivered to the Corporation
by nationally recognized bond counsel to the effect that such indemnification
will not adversely impact the tax status of any outstanding debt obligations of
the Corporation.
ARTICLE XII.
------------
Miscellaneous
-------------
Section 1. Amendments. These Bylaws may be amended, altered or repealed
by the shareholders or the Board of Directors with the consent of each
Independent Director as provided in Article IX of the Certificate of
Incorporation at any regular or special meeting; provided that in no event shall
any amendment, alteration or repeal of any Bylaw in any manner impair, or impair
the intent of, or be inconsistent with, the Certificate of Incorporation of the
Corporation.
Section 2. Limitation on Compensation. Notwithstanding any other
provision of these Bylaws, the Corporation shall not pay any compensation,
directly or indirectly, to any person who is a member of the board of directors
of Edlinc for services performed in connection with the Corporation or for
services as a member of the board of directors or as an officer of the
Corporation, or which would otherwise cause such person not to qualify as an
"Independent Member" with respect to Edlinc within the meaning of Section
150(d)(3)(E) of the Internal Revenue Code of 1986, as amended.
15
