<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NO. 333-64009
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EFG FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3434429
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
495 STATION AVENUE
SOUTH YARMOUTH, MASSACHUSETTS 02664
(508) 760-2900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN J. GALVIN
495 STATION AVENUE
SOUTH YARMOUTH, MASSACHUSETTS 02664
(508) 760-2900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With copies to:
RICHARD C. SAMMIS, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019-6099
(212) 728-8263
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
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
investment 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 following box. / /
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Student Loan-Backed Securities.......... $1,000,000,000 100% $1,000,000,000 $278,000
</TABLE>
(1) The registration fee in the amount of $278,000 for the registration of
$1,000,000,000 of securities includes the $295 registration fee previously
paid in connection with the September 22, 1999 filing of the Registration
Statement.
(2) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(o).
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Information contained within these markers [ ] refers to transactions with
Revolving Periods (as defined herein)
SUBJECT TO COMPLETION, DATED MAY 3, 1999
[FORM OF]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED [ , 1999])
$
EFG STUDENT LOAN TRUST -
ISSUER
FLOATING RATE ASSET BACKED SENIOR NOTES
EFG FUNDING CORPORATION
DEPOSITOR
EDUCATIONAL FINANCE GROUP, INC.
SELLER
The EFG Student Loan Trust - (the "Trust") will issue $
aggregate principal amount of Floating Rate Student Loan-Backed Senior Notes
(the "Senior Notes") and $ aggregate principal amount of Floating Rate
Student Loan-Backed Subordinate Notes (the "Subordinate Notes" and, together
with the Senior Notes, the "Notes"). Only the Senior Notes are offered hereby.
The assets of the Trust will include a pool of guaranteed education loans to
students and parents of students sold by Educational Finance Group, Inc. ("EFG"
or the "Seller") to EFG Funding Corporation (the "Depositor") and transferred to
the Trust by the Depositor (such loans, together with any Additional Student
Loans (as defined herein), the "Student Loans"), collections and other payments
with respect to the Student Loans, and monies on deposit in certain trust
accounts (including the Collection Account[, and] the Reserve Account [and the
Collateral Reinvestment Account]). However, in all events legal title to loans
originated under and subject to the Federal Family Education Loan Program will
be held by an eligible lender under applicable law. The Notes will be
collateralized by the assets of the Trust. The rights of the Subordinate
Noteholders to receive payments of interest will be subordinate to the rights of
the Senior Noteholders to receive payments of interest and the rights of the
Subordinate Noteholders to receive payments of principal will be subordinate to
the rights of the Senior Noteholders to receive payments of interest and
principal to the extent described herein. [After the Closing Date, certain
Additional Fundings will be made from time to time during the Revolving Period
described herein, and in certain cases after the Revolving Period, by or on
behalf of the Trust, as described herein.] Capitalized terms used herein are
defined on the pages indicated in the "Index of Terms" in this Prospectus
Supplement and the Prospectus.
(Cover continued on next page)
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" HEREIN AT PAGE S-19 AND IN THE ACCOMPANYING
PROSPECTUS AT PAGE 15.
------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE DEPOSITOR, THE SERVICER OR
ANY AFFILIATE THEREOF. THE NOTES ARE NOT GUARANTEED OR INSURED
BY ANY GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO THE UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT(2) DEPOSITOR(1)(3)
<S> <C> <C> <C>
Senior Notes.............................................. % % %
Total..................................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from .
(2) The Seller and the Depositor has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
(3) Before deducting expenses payable by the Depositor, estimated at $ .
The Senior Notes are offered by the several Underwriters when and if issued
by the Trust, delivered and accepted by them and subject to their respective
rights to reject orders in whole or in part. It is expected that delivery of the
Senior Notes in book- entry form will be made through the facilities of The
Depository Trust Company on the Same Day Funds Settlement System and Cedel Bank,
societe anonyme, and the Euroclear System on or about , 1999.
------------------
The date of this Prospectus Supplement is , 1999.
<PAGE>
(Cover continued from previous page)
The per annum rate of interest on the Notes for each Quarterly Interest
Period will, subject to certain limitations described herein, be equal to the
T-Bill Rate (determined as described herein) plus % with respect to the Senior
Notes and plus % with respect to the Subordinate Notes.
Interest and principal on the Notes will be payable quarterly on or about
each January , April , July and October of each year (or, if such day is
not a business day, on the next succeeding business day), commencing
(each, a "Quarterly Payment Date"); provided, that no principal payments will be
made on the Notes until after the end of the Revolving Period (as defined
herein) and provided, further, that no principal payments on the Subordinate
Notes will be made until the Senior Notes are paid in full.
The final maturity date for the Senior Notes will be the
Quarterly Payment Date and the final maturity date for the Subordinate Notes
will be the Quarterly Payment Date. However, payment in full of the Notes
could occur other than on such dates as described herein. In addition, the
outstanding Notes will be redeemed on any Quarterly Payment Date on which the
Seller or an assignee of the Seller, exercises its option to purchase the
Student Loans, exercisable when the aggregate principal balance of the Student
Loans is reduced to % or less of the initial aggregate principal balance of
the Notes. The Notes will be, at the time of initial offer and issuance,
"investment grade securities" as defined under the Securities Act of 1933, as
amended.
EFG Technologies, a division of EFG (the "Servicer") will service all the
Student Loans. The Servicer will contract with sub-servicers to perform
substantially all of the servicing activities for the Student Loans. The Student
Loans will include loans guaranteed by the Federal Guarantors described herein
and reinsured by the United States Department of Education (the "Department")
under the Federal Family Education Loan Program ("FFELP") and the Private
Guarantors described herein.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SENIOR NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SENIOR NOTES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SENIOR NOTES.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SENIOR NOTES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that the information herein or
therein is correct as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Depositor since such date.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPORTS TO SECURITYHOLDERS............................................................................... S-4
SUMMARY OF TERMS......................................................................................... S-5
RISK FACTORS............................................................................................. S-19
Limited Liquidity; Stabilization.................................................................... S-19
Subordination; Limited Assets....................................................................... S-19
Risks Resulting From Excess of Principal Balance of Notes over Pool Balance......................... S-19
[Additional Fundings; Risk of Change in Characteristics of the Student Loan Pool]................... S-20
Maturity and Prepayment Considerations.............................................................. S-20
Certain Differences Between the Senior Notes and the Subordinate Notes.............................. S-23
Basis Risk.......................................................................................... S-23
Default Risk on Certain FFELP Student Loans......................................................... S-24
Fees Payable on Certain FFELP Student Loans......................................................... S-24
Ratings of the Notes................................................................................ S-24
Consolidation of Federal Benefit Billings and Receipts Under One Eligible Lender Number............. S-25
Incentive Programs.................................................................................. S-25
Risk of Year 2000................................................................................... S-26
FORMATION OF THE TRUST................................................................................... S-26
The Trust.............................................................................................. S-26
Eligible Lender Trustee................................................................................ S-27
The Student Loan Pool.................................................................................. S-28
Guarantee Of Student Loans............................................................................. S-39
General............................................................................................. S-39
Federal Guarantors.................................................................................. S-39
Guaranty Volume..................................................................................... S-39
Reserve Ratio....................................................................................... S-40
Recovery Rates...................................................................................... S-40
Claims Rate......................................................................................... S-41
Private Guarantors.................................................................................. S-41
Description of the Business and Guaranty of , Private Guarantor.......................... S-42
Financial and Operating Information Summary......................................................... S-42
DESCRIPTION OF THE NOTES................................................................................. S-43
General................................................................................................ S-43
Payments of Interest................................................................................... S-43
Distributions of Principal............................................................................. S-44
[Mandatory Redemption]................................................................................. S-45
Determination of T-Bill Rates.......................................................................... S-45
Book-Entry Registration................................................................................ S-46
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS..................................................... S-49
General................................................................................................ S-49
Sale of Student Loans; Representations and Warranties.................................................. S-49
[Revolving Period and Additional Fundings]............................................................. S-49
Accounts............................................................................................... S-52
Servicing Compensation; Administration Fee............................................................. S-52
Distributions.......................................................................................... S-53
Deposits to Collection Account...................................................................... S-53
Distributions from Collection Account............................................................... S-55
Credit Enhancement..................................................................................... S-57
Reserve Account..................................................................................... S-57
Subordination....................................................................................... S-58
Termination............................................................................................ S-59
Optional Redemption.................................................................................... S-59
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CERTAIN FEDERAL INCOME TAX AND STATE TAX CONSEQUENCES.................................................... S-59
ERISA CONSIDERATIONS..................................................................................... S-60
UNDERWRITING............................................................................................. S-60
LEGAL MATTERS............................................................................................ S-61
INDEX OF TERMS........................................................................................... S-62
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES............................................ A-I-1
Initial Settlement..................................................................................... A-I-1
Secondary Market Trading............................................................................... A-I-1
Trading between DTC Participants.................................................................... A-I-1
Trading between Cedel and/or Euroclear Participants................................................. A-I-1
Trading between DTC seller and Cedel or Euroclear purchaser......................................... A-I-1
Trading between Cedel or Euroclear seller and DTC purchaser......................................... A-I-2
Certain U.S. Federal Income Tax Documentation Requirements............................................. A-I-3
</TABLE>
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, quarterly and annual
unaudited reports containing information concerning the Student Loans will be
prepared by the Administrator and sent on behalf of the Trust only to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Senior Notes, and will not be sent to the beneficial owners of the
Senior Notes. Beneficial owners of Senior Notes will, however, be able to obtain
such reports by requesting them from the Indenture Trustee. Such reports will
contain the information described under "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Statements to Indenture Trustee and Trust" in the
Prospectus. Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. See "CERTAIN
INFORMATION REGARDING THE SECURITIES--Book-Entry Registration" and "--Reports to
Securityholders" in the Prospectus. The Trust will file with the Commission such
periodic reports as are required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder. Copies of such periodic reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, DC
20549, at prescribed rates.
S-4
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "INDEX OF TERMS" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
<TABLE>
<S> <C>
Issuer...................... EFG Student Loan Trust - (the "Trust").
Securities Offered.......... Floating Rate Asset Backed Senior Notes (the "Senior Notes") in the aggregate
principal amount of $[ ].
Persons acquiring beneficial ownership interests in the Senior Notes will hold their
interests in the Senior Notes through The Depository Trust Company ("DTC") in the
United States or in Europe, through Cedel Bank, societe anonyme ("Cedel"), or the
Euroclear System ("Euroclear"). Transfers within DTC, Cedel or Euroclear, as the
case may be, will be made in accordance with the usual rules and operating
procedures of the relevant system. Cross-market transfers between persons holding
directly or indirectly through DTC, on the one hand, and counterparties holding
directly or indirectly through Cedel or Euroclear, on the other, will be effected in
DTC through Citibank, N.A. ("Citibank") or Morgan Guaranty Trust Company of New York
("Morgan"), the relevant depositaries (collectively, the "Depositaries") of Cedel or
Euroclear, respectively, and each a participating member of DTC. See "DESCRIPTION OF
THE NOTES--Book-Entry Registration" herein.
Securities Other Than the
Securities.................. In addition to the Senior Notes, the Trust will issue Floating Rate Asset Backed
Offered Subordinate Notes (the "Subordinate Notes" and, together with the Senior
Notes, the "Notes") in the aggregate principal amount of $[ ]. The
Subordinate Notes are not offered hereby and the information herein with respect
thereto is provided only to permit a better understanding of the Senior Notes.
Depositor................... EFG Funding Corporation (the "Depositor"), a Delaware corporation. The Depositor is
a wholly owned subsidiary of Educational Finance Group, Inc., a Delaware
corporation.
Servicer.................... EFG Technologies, a division of EFG (the "Servicer"). Under certain circumstances,
the Servicer may transfer its obligations as Servicer. The Servicer will contract
with one or more of USA Group Loan Services Inc. ("USAG"), AFSA Data Corporation
("AFSA") or [ ], as sub-servicers (each a "Sub-Servicer") for servicing of the
Student Loans.
Eligible Lender
Trustee..................... For each of the Depositor, the Trust and trusts created by the Depositor from time
to time to hold legal title to guaranteed education loans to students and parents of
students made under the Federal Family Education Loan Program ("FFELP Loans"),
including the FFELP Student Loans ("Future Trusts") and their respective assigns,
The First National Bank of Chicago, as trustee (the "Eligible Lender Trustee") under
a trust agreement (the "Eligible Lender Trust Agreement") and holder of legal title
to FFELP Loans (the "Eligible Lender Trust"). See "FORMATION OF THE TRUST--Eligible
Lender Trustee". None of the Depositor, the Trust or Future Trusts is an institution
eligible to hold legal title to FFELP Loans; therefore, the Eligible Lender Trustee
will hold legal title to FFELP Loans on behalf of the Depositor, the Trust and
Future Trusts. References herein to the Depositor and the Trust shall mean the
Eligible Lender Trustee for all
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
purposes, where the context so requires, involving holding or transferring legal
title to FFELP Loans beneficially owned by the Depositor, the Trust or Future
Trusts.
The Seller.................. Educational Finance Group, Inc. (together with any successors or assigns thereto,
"EFG"), a Delaware corporation (the "Seller"). The Seller will sell the Student
Loans to the Depositor pursuant to the Loan Sale Agreement (as defined herein). EFG
is not an institution eligible to hold legal title to FFELP Loans; therefore, The
First National Bank of Chicago, as eligble lender trustee under a trust agreement
(the "EFG Eligible Lender Trustee") holds legal title to the FFELP Loans owned by
EFG. References to EFG or the Seller shall mean the EFG Eligible Lender Trustee for
all purposes, where the context so requires, involving holding or transferring legal
title to the FFELP Loans beneficially owned by EFG.
Indenture Trustee........... [ ], (the "Indenture Trustee"), as trustee under the indenture.
Administrator............... Educational Finance Group, Inc., as administrator (the "Administrator") on behalf of
the Trust pursuant to an Administration Agreement dated as of 1,
(as amended and supplemented from time to time, the "Administration Agreement")
among the Administrator, the Depositor, the Trust, the Trustee, the Eligible Lender
Trustee, the Servicer and the Indenture Trustee.
The Trust................... The Trust will be established under the laws of the state of Delaware by a trust
agreement to be dated as of 1, (as amended and supplemented from time to
time, the "Trust Agreement"), between the Depositor and the Trustee. The activities
of the Trust and the Trustee are limited by the terms of the Trust Agreement to
acquiring, originating, owning and managing the Student Loans and the other assets
of the Trust as described herein, issuing the Notes, making payments thereon and
other activities related thereto.
The Trustee................. The First National Bank of Chicago.
Assets of the Trust......... The assets of the Trust will include the following:
A. Student Loans.......... The Student Loans will consist of certain guaranteed or insured education loans to
students and parents of students made under (i) the Federal Family Education Loan
Program ("FFELP") (such loans, the "FFELP Student Loans"), and (ii) private loan
programs that are not related to the FFELP (the "Private Student Loans", and
together with the FFELP Student Loans, the "Student Loans"), and in either case,
will include rights to receive payments made with respect to such Student Loans and
the proceeds thereof. On or prior to (the "Closing Date"), the
Seller will sell to the Depositor, Student Loans [(the "Initial Student Loans")]
having an aggregate principal balance of approximately $ (the "Initial Pool
Balance") as of (the "Cutoff Date") pursuant to the Loan Sale
Agreement. On or prior to the Closing Date, the Depositor will transfer the
[Initial] Student Loans to the Trust pursuant to the Transfer Agreement (as defined
herein). [Following the Closing Date and during the Revolving Period (described
below), and in the case of [Serial Loans](described below) continuing after the
Revolving Period, it is anticipated that, subject to certain conditions described
herein, additional Student Loans (the "Additional Student Loans," and together with
the [Initial] Student Loans, the "Student Loans") will be acquired or originated by
the Trust, as described below.]
The Student Loans were originally acquired by EFG in the course of its student loan
financing business. [ %] of the Student Loans are guaranteed as to the payment of
principal and interest by the Federal Guarantors described herein which are
reinsured by the United States Department of Education (the "Department"). [ %] of
the Student Loans are guaranteed by the Private
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Guarantors described herein. [Guarantors of Initial Student Loans are sometimes
referred to herein as "Initial Guarantors".]
[An Additional Student Loan may be guaranteed, to the extent described herein, by a
Federal Guarantor or Private Guarantor other than an Initial Guarantor (each an
"Additional Guarantor", collectively, the "Additional Guarantors" and, together with
the Initial Guarantors, the "Guarantors") provided certain conditions are met.] See
"The Student Loan Pool--Guarantee of Student Loans".
FFELP Loans made before October 1, 1993 are 100% guaranteed by a Federal Guarantor,
and reinsured against default by the Department up to a maximum of 100% of Guarantee
Payments. FFELP Loans made on or after October 1, 1993 are 98% guaranteed by a
Federal Guarantor, and reinsured against default by the Department up to a maximum
of 98% of Guarantee Payments. All references herein to the guarantee and reinsurance
coverage with respect to the FFELP Student Loans should be understood to mean such
100% guarantee, and 100% maximum reinsurance coverage, respectively, with respect to
FFELP Student Loans made before October 1, 1993 and 98% guarantee and 98% maximum
reinsurance coverage, respectively, with respect to FFELP Student Loans made on or
after October 1, 1993. Private Student Loans are 100% guaranteed by a Private
Guarantor.
As of the Cutoff Date, the weighted average borrower interest rate per annum with
respect to the Student Loans was approximately % (based on the applicable
interest rates as of the Cutoff Date) and the weighted average remaining term to
scheduled maturity of the Student Loans was approximately months.
[During the period (the "Revolving Period") from the Closing Date until the first to
occur of (i) an Early Amortization Event as described herein under "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and Additional Fundings" or
(ii) the last day of the Collection Period preceding the Quarterly
Payment Date, the Eligible Lender Trustee on behalf of the Trust will be obligated
from time to time, subject to certain conditions described herein, to purchase from
the Depositor, subject to the availability thereof and to the availability of funds
therefor in the Collateral Reinvestment Account, and the Depositor will be obligated
to tender to the Trust, Student Loans which (i) are made to a borrower who is not a
borrower under any Student Loan, (ii) are made under loan programs which existed as
of the Closing Date, and (iii) are guaranteed by a Guarantor (each a "New Loan," and
collectively the "New Loans"). "Collection Period" means , with respect to a
Quarterly Payment Date (or any other date), each period of three calendar months
from and including the date next following the end of the preceding Collection
Period (or with respect to the first Collection Period, the period beginning on the
Cutoff Date and ending on ) through and including the last day of
the calendar month immediately preceding such Quarterly Payment Date (or, in the
case of a date other than a Quarterly Payment Date, the last day of the calendar
month immediately preceding the most recent Quarterly Payment Date). New Loans will
be acquired from the Seller by the Eligible Lender Trustee on behalf of the
Depositor. Each such New Loan will be transferred to the Trust by the Depositor
pursuant to a transfer agreement (each a "Transfer Agreement") between the
Depositor, the Trust and the Eligible Lender Trustee. During the Revolving Period,
each purchase of a New Loan will be funded by means of a transfer from the
Collateral Reinvestment Account of an amount equal to the sum of (i) the principal
balance owed by the applicable borrower thereon plus accrued interest thereon
expected to be capitalized upon repayment (the "Purchase Collateral Balance") and
(ii) an additional amount not to exceed [ ]% of the
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
principal balance owed by the applicable borrower thereon (the "Purchase Premium
Amount" and together with the Purchase Collateral Balance, the "Loan Purchase
Amount"). The purchase of New Loans by the Trust will be subject to the availability
of funds therefor in the Collateral Reinvestment Account. Following the end of the
Revolving Period, New Loans may not be purchased by the Trust. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and Additional Fundings"
herein.
In addition, following the Closing Date and both during and subsequent to the
Revolving Period, the Eligible Lender Trustee on behalf of the Trust will be
obligated from time to time, subject to certain conditions described under "The
Student Loan Pool" and "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Revolving Period and Additional Fundings" herein, to purchase from the
Depositor, subject to the availability thereof, FFELP Loans which (i) are made to a
borrower who is also a borrower under at least one outstanding Student Loan,
(ii) are made under the same loan program as such Student Loan, and (iii) are
guaranteed by the Guarantor that guaranteed such Student Loan (each a "Serial Loan,"
and collectively the "Serial Loans"). Serial Loans will be acquired from the Seller
by the Eligible Lender Trustee on behalf of the Depositor or another eligible lender
on behalf of the Depositor. Each such Serial Loan will be transferred to the Trust
by the Depositor pursuant to a Transfer Agreement. During the Revolving Period, each
purchase of a Serial Loan will be funded by means of a transfer from the Collateral
Reinvestment Account of an amount equal to the Loan Purchase Amount of such loan.
Following the end of the Revolving Period, the Purchase Collateral Balance for such
purchases will be funded by amounts representing distributions of principal on the
outstanding Student Loans which would otherwise have been part of the Available
Funds of the Trust, as described under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions" herein and the Purchase Premium Amounts for such
purchases will be funded on the next succeeding Quarterly Payment Date from amounts,
if any, on deposit in the Reserve Account in excess of the Specified Reserve Account
Balance as described under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Credit Enhancement--Reserve Account" herein. Alternatively, at the
Depositor's option, following the end of the Revolving Period, the Eligible Lender
Trustee will, in lieu of purchasing Serial Loans as described above, be obligated to
exchange with the Depositor existing Student Loans owned by the Trust for Serial
Loans purchased by the Depositor from the Seller, provided such Serial Loans and
Student Loans meet certain criteria described herein. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Revolving Period and Additional Fundings" herein.
In addition, following the Closing Date and prior to the end of the Revolving
Period, in the event that a borrower on a Student Loan who is also a borrower under
one or more FFELP Loans (whether or not all such loans are in the Trust) elects to
consolidate such loans, the Eligible Lender Trustee on behalf of the Trust will seek
to originate Federal Consolidation Loans pursuant to the Federal Consolidation Loan
Program described in the Prospectus under "FEDERAL FAMILY EDUCATION LOAN
PROGRAM--Federal Consolidation Loan Program". Any such origination by the Eligible
Lender Trustee on behalf of the Trust will be funded by means of a transfer from the
Collateral Reinvestment Account of the amount required to repay in full any Student
Loans not held by the Trust that are being discharged in the consolidation process,
which amount will be paid by the Eligible Lender Trustee on behalf of the Trust to
the holder or holders of such Student Loans to prepay such loans. No assurance can
be given that the
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Eligible Lender Trustee, rather than another lender, will be the lender which makes
such Federal Consolidation Loan. In the event that another lender makes such Federal
Consolidation Loan, any Student Loan which is being consolidated by such Federal
Consolidation Loan will be prepaid.
As described under "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM--Federal Consolidation
Loan Program" in the Prospectus, borrowers may consolidate additional Student Loans
("Add-on Consolidation Loans") with an existing Federal Consolidation Loan within
[180] days from the date that the existing Federal Consolidation Loan was made. As a
result of the addition of any Add-on Consolidation Loans, the related Federal
Consolidation Loan may, in certain cases, have a different interest rate and a
different loan term. Any Add-on Consolidation Loans added to a Federal Consolidation
Loan in the Trust during the Revolving Period will be funded by means of a transfer
from the Collateral Reinvestment Account of the amount required to repay in full any
Student Loans not held by the Trust that are being discharged in the consolidation
process, which amount will be paid by the Eligible Lender Trustee on behalf of the
Trust to the holder or holders of such Student Loans to prepay such loans. For a
maximum period of [210] days following the end of the Revolving Period (30 days
being attributed to the processing of any such Add-on Consolidation Loans), such
amounts will be funded by amounts representing distributions of principal on the
outstanding Student Loans which would otherwise have been part of the Available
Funds of the Trust, as described under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions" herein. The Eligible Lender Trustee will not be permitted
to originate Federal Consolidation Loans (including the addition of any Add-on
Consolidation Loans) on behalf of the Trust during the Revolving Period in an
aggregate principal amount in excess of $[ ]; additionally, no Federal
Consolidation Loan may be originated by the Trust having a scheduled maturity date
after [ ] if at the time of such origination the aggregate principal
amount of all Federal Consolidation Loans held by the Trust that have a scheduled
maturity date after exceeds or, after giving effect to such
origination, would exceed $[ ]; provided, however, that the Eligible Lender
Trustee will be permitted to fund the addition of Add-on Consolidation Loans in
excess of such amounts, as required by the Act. After the Revolving Period, the
Eligible Lender Trustee on behalf of the Trust will cease to originate Federal
Consolidation Loans, and any Federal Consolidation Loan made with respect to a
Student Loan will be made by another lender, thereby resulting in a prepayment of
such loan; provided, however, for a maximum period of 210 days following the end of
the Revolving Period, the Eligible Lender Trustee may be required to increase the
principal balance of Federal Consolidation Loans existing in the Trust by the
addition of Add-on Consolidation Loans.
As described under "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" in the Prospectus,
during certain qualifying periods, interest on certain of the Student Loans is not
required to be paid currently, but instead is added to the outstanding principal
balance of the loan at the end of the qualifying period. In order to minimize the
possibility that the failure to receive current interest payments on such loans
during such periods will result in a shortfall in the amount required to be
distributed on the Notes, amounts on deposit in the Collateral Reinvestment Account
will be transferred during the Revolving Period to make deposits to the Collection
Account in lieu of current interest payments on such loans as described herein under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and
Additional Fundings". Following the end of the Revolving Period, the Collateral
Reinvestment Account will cease to be available as a source to fund such interest
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
payments to Noteholders and thereafter such payments will be funded through the
application of amounts which would otherwise have been distributable in respect of
the Principal Distribution Amount for the related Quarterly Payment Date, as
described herein under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions".
The application, during the Revolving Period, of amounts in the Collateral
Reinvestment Account (i) by the Eligible Lender Trustee on behalf of the Trust to
purchase New Loans or Serial Loans, (ii) by the Eligible Lender Trustee on behalf of
the Trust to fund the origination of Federal Consolidation Loans and (iii) by the
Eligible Lender Trustee on behalf of the Trust to fund the addition of any Add-on
Consolidation Loans are referred to herein as "Additional Fundings." The
application, during the Revolving Period, of amounts in the Collateral Reinvestment
Account by the Trust to make deposits to the Collection Account in lieu of
collections of interest on Student Loans to the extent such interest is not paid
currently but will be capitalized and added to the principal balance of the Student
Loans, and the application, after the end of the Revolving Period, of amounts
representing distributions of principal on the outstanding Student Loans (i) by the
Eligible Lender Trustee on behalf of the Trust to purchase Serial Loans, (ii) for a
maximum period of [210] days following the end of the Revolving Period by the
Eligible Lender Trustee on behalf of the Trust to fund the addition of any Add-on
Consolidation Loans and (iii) by the Trust to apply amounts that would otherwise
have been distributable in respect of the Principal Distribution Amount for the
related Quarterly Payment Date to payments, in lieu of collections, of interest on
Student Loans to the extent such interest is not paid currently but will be
capitalized and added to the principal balance of the Student Loans, are also
referred to herein as "Additional Fundings".
B. Collateral Reinvestment
Account.............. During the Revolving Period, an account will be maintained in the name of the
Indenture Trustee (the "Collateral Reinvestment Account"). No money will be on
deposit in the Collateral Reinvestment Account on the Closing Date. During the
Revolving Period, deposits will be made to the Collateral Reinvestment Account as
described herein under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions" and withdrawals will be made from time to time for
Additional Fundings in accordance with the Loan Sale Agreement. Any amount remaining
on deposit in the Collateral Reinvestment Account at the end of the Revolving Period
will be distributed to Noteholders on the next succeeding Quarterly Payment Date as
a payment of principal. Any such principal payments shall be distributed first to
the Senior Noteholders until the Senior Notes have been paid in full, and then to
the Subordinate Noteholders until the Subordinate Notes have been paid in full. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and
Additional Fundings" herein.]
C. Collection
Account.............. The Servicer will be required to remit all collections received with respect to the
Student Loans, and the Eligible Lender Trustee will be required to remit Interest
Subsidy Payments and Special Allowance Payments it receives with respect to the
Student Loans, in each case within two business days of receipt of freely available
funds therefor to one or more accounts in the name of the Indenture Trustee (the
"Collection Account").
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
Pursuant to the Administration Agreement, the Administrator will have the power to
instruct the Indenture Trustee to withdraw Available Funds on deposit in the
Collection Account and to apply such funds [(a) on any date during the Revolving
Period, to the extent that such funds represent payments in respect of principal on
the Student Loans, to the Collateral Reinvestment Account for application to make
Additional Fundings, (b)] on each Monthly Payment Date that is not a Quarterly
Payment Date to the following (in the priority indicated): (i) the Servicing Fee and
all overdue Servicing Fees to the Servicer and (ii) the Administration Fee and all
overdue Administration Fees to the Administrator and (c) on each Quarterly Payment
Date to the following (in the priority indicated): (i) the Servicing Fee and all
overdue Servicing Fees to the Servicer; (ii) the Administration Fee and all overdue
Administration Fees to the Administrator; (iii) the Senior Noteholders' Interest
Distribution Amount to the Senior Noteholders; (iv) the Subordinate Noteholders'
Interest Distribution Amount to the Subordinate Noteholders; (v) [if the Revolving
Period has terminated,] the Senior Noteholders' Principal Distribution Amount to the
Senior Noteholders; (vi) [if the Revolving Period has terminated and] if the Senior
Notes have been paid in full, the Subordinate Noteholders' Principal Distribution
Amount to the Subordinate Noteholders; and (vii) any remaining amounts after
application of clauses (i) through (vi) above, to the Reserve Account. "Monthly
Payment Date" means the day of each month (or if any such date is not a
business day, the next succeeding business day), commencing , 199[_].
D. Reserve Account........ Pursuant to the Administration Agreement, an account in the name of the Indenture
Trustee (the "Reserve Account") will be established and maintained by the
Administrator with the Indenture Trustee and will be an asset of the Trust. The
Seller will make an initial deposit into the Reserve Account on the Closing Date of
cash or Eligible Investments equal to $ (the "Reserve Account Initial
Deposit"). The Reserve Account Initial Deposit will be augmented on each Quarterly
Payment Date by the deposit into the Reserve Account of any Available Funds for such
Quarterly Payment Date remaining after making all prior distributions required to be
made from Available Funds on such date. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Distributions" herein. Amounts in the Reserve Account on any
Quarterly Payment Date (after giving effect to all distributions required to be made
from Available Funds on such Quarterly Payment Date) in excess of the Specified
Reserve Account Balance for such Quarterly Payment Date (the "Reserve Account
Excess") will be applied [(a) during the Revolving Period, for deposit to the
Collateral Reinvestment Account; provided, however, if such date is on or after the
Parity Date (as defined below), to the extent that such funds represent payments of
interest with respect to the Student Loans, such funds shall be applied in the order
of priority set forth in clauses (b)(iii) through (vi) below, and (b) at and after
the termination of the Revolving Period,] to the following (in the priority
indicated): (i) [any unpaid Purchase Premium Amounts for any Serial Loans purchased
by the Trust prior to the end of the related Collection Period to the Seller; (ii)]
if such Quarterly Payment Date is on or prior to the Parity Date, payment of the
unpaid principal amount of the Senior Notes or, if the Senior Notes have been paid
in full, of the Subordinate Notes, until the aggregate principal balance of the
Notes is equal to the Pool Balance as of the close of business on the last day of
the related Collection Period; (ii) the aggregate unpaid amount of Senior
Noteholders' Interest T-Bill Carryover, if any, to the Senior Noteholders;
(iii) the aggregate unpaid amount of Subordinate Noteholders' Interest T-Bill
Carryover, if any, to the Subordinate Noteholders; (iv) the Servicing Fee Shortfall
and all prior unpaid Servicing Fee Shortfalls, if any, to the Servicer; and (v) any
remaining amounts after application of clauses (i) through (iv) ([v]) above will be
released to the
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
Seller and Noteholders will have no claim thereto. As of the Closing Date, the
aggregate principal balance of the Notes will equal approximately % of the
Initial Pool Balance. See "RISK FACTORS--Risk Resulting From Excess of Principal
Balance of Notes over Pool Balance" herein. The "Parity Date" is the first Quarterly
Payment Date on which the aggregate principal balance of the Notes, after giving
effect to all distributions on such date, is no longer in excess of the Pool Balance
as of the last day of the related Collection Period. [As described in the first
sentence of this paragraph, if at the termination of the Revolving Period the Parity
Date has not yet occurred, (i) all Reserve Account Excess, if any, for each
succeeding Quarterly Payment Date will, after payment to the Seller of any unpaid
Purchase Premium Amounts for any Serial Loans purchased by the Trust prior to the
end of the related Collection Period, be applied to pay principal of the Notes until
the Parity Date, (ii) on the Parity Date only such portion of the Reserve Account
Excess remaining after payment of any such unpaid Purchase Premium Amounts as is
necessary to reduce the aggregate principal balance of the Notes so that it is equal
to the Pool Balance will be applied to pay principal of the Notes, and (iii) after
the Parity Date no portion of the Reserve Account Excess will be available to pay
principal of the Notes. Moreover, as further described in the first sentence of this
paragraph, if at the termination of the Revolving Period the Parity Date has
previously occurred, no portion of Reserve Account Excess will at any time be
available to pay principal of the Notes; and regardless of whether the Parity Date
occurs before or after the termination of the Revolving Period, no funds will be
applied to the payment of any Senior Noteholders' Interest T-Bill Carryover or
Subordinate Noteholders' Interest T-Bill Carryover until the Parity Date, and on and
after the Parity Date application of funds for such purposes will be subject to the
availability of Reserve Account Excess therefor.] The "Specified Reserve Account
Balance" with respect to any Quarterly Payment Date generally will be equal to the
greater of (i) % of the aggregate principal balance of the Notes after taking
into account the effect of distributions on such Quarterly Payment Date, or
(ii) $ ; provided, however, that the Specified Reserve Account Balance shall
in no event exceed the sum of the outstanding principal balance of the Notes. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit Enhancement-Reserve
Account" herein and "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit
and Cash Flow Enhancement--Reserve Account" in the Prospectus.
Amounts on deposit in the Reserve Account will be available (a) on each Monthly
Payment Date that is not a Quarterly Payment Date, to cover any shortfalls (in the
priority indicated) in payments for such Monthly Payment Date of: (i) the Servicing
Fee and all overdue Servicing Fees and (ii) the Administration Fee and all overdue
Administration Fees, in each case, for which Monthly Available Funds for such
Monthly Payment Date are insufficient to make such payments and (b) on each
Quarterly Payment Date to cover any shortfalls (in the priority indicated) in
payments for such Quarterly Payment Date of: (i) the Servicing Fee and all overdue
Servicing Fees; (ii) the Administration Fee and all overdue Administration Fees;
(iii) the Senior Noteholders' Interest Distribution Amount; (iv) the Subordinate
Noteholders' Interest Distribution Amount; (v) [if the Revolving Period has
terminated,] the Senior Noteholders' Principal Distribution Amount; and (vi) [if the
Revolving Period has terminated,] the Subordinate Noteholders' Principal
Distribution Amount, in each case, for which Available Funds for such Quarterly
Payment Date are insufficient to make such payments and distributions. Amounts on
deposit in the Reserve Account (other than any Reserve Account Excess) will not be
available to cover any unpaid Purchase Premium Amount, Senior Noteholders' Interest
T-Bill Carryover, Subordinate Noteholders' Interest T-Bill Carryover, Servicing Fee
Shortfall and prior unpaid
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Servicing Fee Shortfalls or (except in the case of shortfalls in the Senior
Noteholders' Principal Distribution Amount or the Subordinate Noteholders' Principal
Distribution Amount as indicated in the preceding sentence) to make principal
payments on the Notes.
The funding and maintenance of the Reserve Account is intended to enhance the
likelihood of timely payment to the Senior Noteholders on each Quarterly Payment
Date of the Senior Noteholders' Interest Distribution Amount and to the Subordinate
Noteholders on each Quarterly Payment Date of the Subordinate Noteholders' Interest
Distribution Amount, and on each Quarterly Payment Date [at and after the
termination of the Revolving Period] of the Senior Noteholders' Principal
Distribution Amount to the Senior Noteholders and, after the Senior Notes have been
paid in full, of the Subordinate Noteholders' Principal Distribution Amount to the
Subordinate Noteholders. In certain circumstances, however, the Reserve Account
could be depleted and shortfalls in distributions and resulting losses to the
Noteholders could occur.
E. The Transfer and
Servicing Agreements. Pursuant to a loan sale agreement dated as of (the "Loan Sale
Agreement") between the Seller and the Depositor, the Seller will sell the Student
Loans to the Depositor and pursuant to a transfer agreement dated as of
(the "Transfer Agreement"), the Depositor will transfer the Student
Loans (together with all of its rights and remedies under the Loan Sale Agreement
pertaining thereto) to the Trust. The Trust and the Servicer will enter into two
separate loan servicing agreements, one with respect to the FFELP Student Loans and
one with respect to the Private Student Loans (the "FFELP Loan Servicing Agreement"
and the "Private Loan Servicing Agreement", respectively, and each a "Servicing
Agreement"). Pursuant to each Servicing Agreement, the Servicer will agree with the
Trust to be responsible for servicing, managing, maintaining custody of and making
collections on the Student Loans. The Seller will be obligated under the Loan Sale
Agreement to repurchase a Student Loan or, in the alternative, substitute an
eligible Student Loan, and the Servicer will be obligated (subject to the
limitations described under "RISK FACTORS--Maturity and Prepayment Considerations"
herein) under the FFELP Loan Servicing Agreement to purchase or arrange for the
purchase of a FFELP Student Loan, if the interests of the Noteholders therein are
materially adversely affected by a breach of any representation, warranty or
covenant (including the Servicer's covenant to service all the FFELP Student Loans
in accordance with applicable laws, restrictions and guidelines) made by the Seller
or the Servicer, as the case may be, with respect to such Student Loan, if the
breach has not been cured following the discovery by or notice to the Seller or the
Servicer, as the case may be, of the breach (it being understood that any such
breach that does not affect a Guarantor's obligation to guarantee payment of such
Student Loan will not be considered to have a material adverse effect for this
purpose). In addition, the Seller will be obligated to reimburse the Trust with
respect to a FFELP Student Loan for any accrued interest amounts not guaranteed by a
Federal Guarantor due to, or any lost Interest Subsidy Payments or Special Allowance
Payments as a result of, a breach of the Seller's representations and warranties
with respect to such FFELP Student Loan. The Servicer will not, however, have any
similar obligation to reimburse the Trust for non-guaranteed interest amounts or
lost Interest Subsidy Payments or Special Allowance Payments which result from a
breach of its representations and warranties with respect to the Student Loans. In
addition, the Seller may, at its option, repurchase a Student Loan if there is a
dispute with the related borrower which in the Servicer's reasonable judgment would
call into question whether such Student Loan will be repaid by the borrower.
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
Under each Servicing Agreement, the Servicer will receive a monthly fee (the
"Servicing Fee") with respect to each Student Loan calculated as described under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Servicing Compensation;
Administration Fee". The Servicing Fee will be payable from (i) in the case of each
Monthly Payment Date that is not a Quarterly Payment Date, Monthly Available Funds
and (ii) in the case of each Quarterly Payment Date, Available Funds, in each case
on deposit in the Collection Account and, if such amounts are insufficient, from
amounts on deposit in the Reserve Account. The Servicer will also receive amounts
related to any Servicing Fee Shortfall, as defined herein, on each Quarterly Payment
Date. Such amounts will be payable only from any Reserve Account Excess available on
such Quarterly Payment Date after all other amounts required to be paid from such
excess have been paid. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--
Credit Enhancement--Reserve Fund". The Servicer will be obligated to perform its
servicing obligations whether or not it receives any amounts in respect of Servicing
Fee Shortfalls.
Pursuant to the Administration Agreement, the Administrator will agree with the
Trust to be responsible for, among other things, preparing and filing with the
Department all appropriate claims forms and other documents and filings on behalf of
the Eligible Lender Trustee in order to claim the Interest Subsidy Payments and
Special Allowance Payments from the Department in respect of the Student Loans
entitled thereto and preparing and providing monthly, quarterly and annual
statements to the Indenture Trustee with respect to distributions to Noteholders.
As compensation for the performance of the Administrator's obligations under the
Administration Agreement and as reimbursement for its expenses related thereto, the
Administrator will be entitled to receive a monthly administration fee (the
"Administration Fee") payable as provided herein on each Monthly Payment Date in an
amount equal to one-twelfth of the product of (i) % and (ii) the Pool Balance as
of the close of business on the last day of the calendar month immediately preceding
such Monthly Payment Date.
The Notes................... The Trust will issue the Notes pursuant to an indenture to be dated as of
, 199[_] (as amended and supplemented from time to time, the
"Indenture"), between the Trust and the Indenture Trustee. The Notes will be secured
by the assets of the Trust. The Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof and will be available in
book-entry form only.
A. Interest............... The Notes will bear interest during each Quarterly Interest Period at the respective
rates per annum, except as described below (the "Senior Note Rate" or the
"Subordinate Note Rate" and, collectively, the "Note Rates"), equal to the weighted
average of [the T-Bill Rates] within such Quarterly Interest Period (determined as
described herein) plus %, in the case of the Senior Notes (the "Senior Note
T-Bill Rate"), and plus %, in the case of the Subordinate Notes (the
"Subordinate Note T-Bill Rate" and, together with the Senior Note T-Bill Rate, the
"Note T-Bill Rates"). Each Note T-Bill Rate will be adjusted weekly on the calendar
day following each auction of 91-day Treasury Bills, except that (i) each Note Rate
in effect from the first day of each Quarterly Interest Period, including the
initial Quarterly Interest Period, through the day of the first 91-day Treasury Bill
auction on or after the first day of each Quarterly Interest Period will be based on
the results of the most recent 91-day Treasury Bill auction prior to such day and
(ii) each Note Rate will be subject to a Lock-In Period of six business days
preceding each Quarterly Payment Date. See "DESCRIPTION OF THE NOTES--Determination
of T-Bill Rates". Interest on the outstanding principal amount of each class of
Notes will accrue from and including the
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
preceding Quarterly Payment Date (or in the case of the first Quarterly Interest
Period, the Closing Date) to but excluding the following Quarterly Payment Date
(each a "Quarterly Interest Period") and will be payable on the th day of each
January, April, July and October, or, if any such date is not a business day, on the
next succeeding business day (each a "Quarterly Payment Date"), commencing
, 199[_], to holders of record of the Senior Notes (the "Senior
Noteholders") and the Subordinate Notes (the "Subordinate Noteholders" and, together
with the Senior Noteholders, the "Noteholders") on the related Record Date. "Record
Date" means, with respect to any Quarterly Payment Date, the day of the month in
which such Quarterly Payment Date occurs (whether or not such date is a business
day). Interest on the Notes will be calculated on the basis of the actual number of
days elapsed in each Quarterly Interest Period divided by 365 (or 366 in the case of
a leap year).
Notwithstanding the foregoing, if either Note Rate for any Quarterly Interest Period
(after the first Quarterly Interest Period) calculated on the basis of the
applicable Note T-Bill Rate is greater than the Student Loan Rate for such Quarterly
Interest Period, then such Note Rate for the applicable Quarterly Payment Date will
be the Student Loan Rate. The "Student Loan Rate" for any Quarterly Interest Period
will equal the product of (a) the quotient obtained by dividing (i) 365 (or 366 in
the case of a leap year) by (ii) the actual number of days elapsed in such Quarterly
Interest Period and (b) the percentage equivalent of a fraction, (i) the numerator
of which is equal to Expected Interest Collections for such Quarterly Interest
Period less the Servicing Fee and the Administration Fee with respect to such period
and (ii) the denominator of which is the aggregate principal balance of the Notes as
of the last day of such Quarterly Interest Period.
"Expected Interest Collections" means, with respect to any Quarterly Interest
Period, the sum of (i) the amount of interest accrued, net of any accrued Monthly
Rebate Fees and other amounts required by the Act to be paid to the Department (as
described under "RISK FACTORS--Fees Payable on Certain Student Loans" herein), with
respect to the Student Loans during the Collection Period preceding the applicable
Quarterly Payment Date (the "Student Loan Rate Accrual Period"), whether or not such
interest is actually paid, (ii) all Interest Subsidy Payments and Special Allowance
Payments estimated to have accrued for the applicable Student Loan Rate Accrual
Period whether or not actually received (after taking into account any expected
deduction therefrom of the Federal Origination Fee described under "RISK
FACTORS--Fees Payable on Certain Student Loans" herein) and (iii) Investment
Earnings (as defined in "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Accounts" in the Prospectus) for the applicable Student Loan Rate
Accrual Period.
If either Note Rate for any Quarterly Payment Date is based on the Student Loan
Rate, the excess of (a) the amount of interest on the related Notes that would have
accrued in respect of the related Quarterly Interest Period had interest been
calculated based on the related Note T-Bill Rate over (b) the amount of interest on
the related Notes actually accrued in respect of such Quarterly Interest Period
based on the Student Loan Rate (such excess, together with the unpaid portion of any
such excess from prior Quarterly Payment Dates (and interest accrued thereon at the
applicable Note Rate calculated based on the related Note T-Bill Rate) is referred
to as the "Senior Noteholders' Interest T-Bill Carryover", in the case of the Senior
Notes and the "Subordinate Noteholders' Interest T-Bill Carryover", in the case of
the Subordinate Notes) will be payable on the Quarterly Payment Date when incurred
or on any subsequent Quarterly Payment Date to the extent funds are available
therefor out of the amount of Reserve Account Excess, if any, for such Quarterly
Payment Date after making all required prior distributions
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
therefrom on such date (including, in the case of the Subordinate Noteholders'
Interest T-Bill Carryover, after paying any Senior Noteholders' Interest T-Bill
Carryover for such date) as described herein under "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Credit Enhancement--Reserve Account". Among other things, as
described under such heading, no Senior Noteholders' Interest T-Bill Carryover or
Subordinate Noteholders' Interest T-Bill Carryover will be paid until the Parity
Date. The rating of the Notes does not address the likelihood of the payment of any
Senior Noteholders' Interest T-Bill Carryover or Subordinate Noteholders' Interest
T-Bill Carryover, as the case may be.
B. Principal.............. [No principal will be payable on the Notes prior to the end of the Revolving
Period.] Principal of the Notes will be payable on each Quarterly Payment Date
beginning on [at and after the termination of the Revolving Period] in an amount
generally equal to the Principal Distribution Amount for such Quarterly Payment
Date. The "Principal Distribution Amount" [at and after the termination of the
Revolving Period] generally will be equal to the amount of principal paid or, in
certain cases, due to be paid with respect to the Student Loans (including any
realized losses thereon) during the related Collection Period less [the sum of
(i) any such amount applied by the Eligible Lender Trustee on behalf of the Trust
during such Collection Period to purchase Serial Loans, as described herein,
(ii) for a maximum period of 210 days following the end of the Revolving Period, any
such amount applied by the Eligible Lender Trustee on behalf of the Trust during
such Collection Period to fund the addition of any Add-on Consolidation Loans and
(iii)] accrued and unpaid interest on the Student Loans for such Collection Period
to the extent such interest will be capitalized and added to the principal balance
of such Student Loans, upon the commencement of repayment of such Student Loans, as
described herein. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions" herein.
In addition, on each Quarterly Payment Date beginning on [at and after the
termination of the Revolving Period] for so long as the aggregate principal balance
of the Notes is greater than the Pool Balance as of the close of business on the
last day of the related Collection Period,] any Reserve Account Excess will[, after
payment to the Seller of any unpaid Purchase Premium Amounts for any Serial Loans
purchased by the Trust prior to the end of the related Collection Period, be
applied, as described herein, to the unpaid principal balance of the Senior Notes
or, if the Senior Notes have been paid in full, the Subordinate Notes.
On each Quarterly Payment Date the aggregate amount distributable as principal to
the Notes shall be applied first, to the Senior Notes until the aggregate principal
balance thereof has been reduced to zero and then to the Subordinate Notes until the
aggregate principal balance thereof has been reduced to zero. The outstanding
principal amount, if any, of the Senior Notes will be payable in full on the
Quarterly Payment Date (the "Senior Note Final Maturity Date") and the outstanding
principal amount of the Subordinate Notes will be payable in full on the
Quarterly Payment Date (the "Subordinate Note Final Maturity Date"). However, the
actual maturity of the Notes could occur other than on such dates as a result of a
variety of factors including prepayments of the Student Loans. See "RISK
FACTORS--Maturity and Prepayment Considerations" herein.
[C. Mandatory
Redemption............ If any amount remains on deposit in the Collateral Reinvestment Account on the last
day of the Revolving Period after giving effect to all Additional Fundings to be
made on or prior to such date, such amount will be used on the Quarterly Payment
Date on or immediately following such date to redeem the Senior Notes
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
until the aggregate principal balance thereof has been reduced to zero, and then to
redeem the Subordinate Notes until the aggregate principal balance thereof has been
reduced to zero. The aggregate amount of the Notes to be redeemed will be an amount
equal to the amount on deposit in the Collateral Reinvestment Account.]
D. Subordination.......... The rights of the Subordinate Noteholders to receive payments of interest will be
subordinate to the rights of the Senior Noteholders to receive payments of interest
and the rights of the Subordinate Noteholders to receive payments of principal will
be subordinate to the rights of the Senior Noteholders to receive payments of
interest and principal to the extent described herein. See "RISK
FACTORS--Subordination; Limited Assets" and "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Credit Enhancement--Subordination of the Subordinate Notes"
herein.
Auction of Trust Assets..... Any Student Loans remaining in the Trust as of the end of the Collection Period
immediately preceding the Quarterly Payment Date will be offered for sale by
the Indenture Trustee. The Seller, its affiliates and unrelated third parties may
offer bids to purchase such Student Loans on such Quarterly Payment Date. If at
least two bids are received, the Indenture Trustee will accept the highest bid equal
to or in excess of the greater of (x) the Purchase Amounts of such Student Loans as
of the end of the Collection Period immediately preceding such Quarterly Payment
Date or (y) an amount that would be sufficient to (i) reduce the outstanding
principal amount of the Notes on such Quarterly Payment Date to zero and (ii) pay to
the Noteholders the Noteholders' Interest Distribution Amount payable on such
Quarterly Payment Date (the "Minimum Purchase Price"). If at least two bids are not
received or the highest bid is not equal to or in excess of the Minimum Purchase
Price, the Indenture Trustee will not consummate such sale. The proceeds of any such
sale will be used to redeem any outstanding Notes on such Quarterly Payment Date. If
the sale is not consummated in accordance with the foregoing, the Indenture Trustee
may, but shall not be under any obligation to, solicit bids for sale of the Student
Loans on future Quarterly Payment Dates upon terms similar to those described above.
No assurance can be given as to whether the Indenture Trustee will be successful in
soliciting acceptable bids to purchase the Student Loans on either the
Quarterly Payment Date or any subsequent Quarterly Payment Date. "Purchase Amount"
with respect to a Student Loan means the unpaid balance owed by the applicable
borrower thereon plus accrued interest thereon to the date of purchase. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Termination" herein.
Optional Redemption......... The Seller, or an assignee of the Seller, may, at its option, purchase all remaining
Student Loans, and thus effect the early retirement of the Notes, on any Quarterly
Payment Date on or after which the Pool Balance is equal to [10%] or less of the
aggregate initial principal balance of the Notes, at a price equal to the aggregate
Purchase Amounts for such Student Loans as of the end of the preceding Collection
Period. [From time to time the Depositor, or an assignee of the Depositor, may at
its option purchase from the Trust, as of the end of any Monthly Collection Period
immediately preceding a Monthly Payment Date, one or more Student Loans that are to
be refinanced by Federal Consolidation Loans.] See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Termination" herein, and "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Termination--Optional Redemption" in the Prospectus.
The "Pool Balance" at any time represents the aggregate principal balance of the
Student Loans at the end of the preceding Collection Period (including accrued
interest thereon through the end of such Collection Period to the extent such
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
interest will be capitalized upon commencement of repayment), after giving effect to
the following, without duplication: (i) all payments received by the Trust during
such Collection Period from or on behalf of borrowers, the Guarantors and, with
respect to certain payments on certain Student Loans, the Department (collectively,
"Obligors"), (ii) all Purchase Amounts received by the Trust for such Collection
Period from the Seller or the Servicer, [(iii) all Additional Fundings made with
respect to such Collection Period,] and ([iii]) all losses realized on Student Loans
liquidated during such Collection Period.
Tax Considerations.......... Upon the issuance of the Senior Notes, Willkie Farr & Gallagher, special federal tax
counsel for the Trust ("Special Federal Tax Counsel"), will deliver its opinion
that, although there is no specific authority with respect to the characterization
for federal income tax purposes of securities having the same terms as the Senior
Notes, the Senior Notes will be characterized as debt for federal income tax
purposes. [ ], special state tax counsel for the Trust, will deliver its
opinion that the Senior Notes will be characterized as debt for North Carolina and
Indiana, respectively, state income tax purposes, although there is no specific
authority with respect to the characterization for such income tax purposes of
securities having the same terms as the Senior Notes. In the opinion of Special
Federal Tax Counsel, for federal income tax purposes the Trust will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation. The Depositor, as owner of all amounts not otherwise required to be
distributed to Noteholders or to pay expenses of the Trust, will agree to treat the
Trust as a security arrangement for the issuance of debt represented by the Notes.
Alternative characterizations are possible, but would not result in materially
adverse federal income tax consequences to the Senior Noteholders. In the opinion of
special state tax counsel for the Trust, the same characterizations would apply for
North Carolina and Indiana state income tax purposes as for federal income tax
purposes. However, there are no cases or rulings on similar transactions involving a
trust that issues debt interests with terms similar to those of the Senior Notes.
Finally, Senior Noteholders may be required to accrue any Senior Noteholders'
Interest Carryover in income in advance of the receipt of cash with respect to such
amounts regardless of whether such Senior Noteholders are on the cash or accrual
methods of accounting.
See "CERTAIN FEDERAL INCOME TAX AND STATE TAX CONSEQUENCES" herein and "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES" and "CERTAIN STATE TAX CONSEQUENCES" in the
Prospectus for additional information concerning the application of federal and
Indiana state tax laws with respect to the Senior Notes.
ERISA Considerations........ Subject to the considerations discussed under "ERISA CONSIDERATIONS" herein and
"ERISA CONSIDERATIONS--The Notes" in the Prospectus, the Senior Notes are eligible
for purchase by employee benefit plans.
Rating of the Securities.... It is a condition to the issuance and sale of the Senior Notes that the Senior Notes
be rated in the highest investment rating category by at least two nationally
recognized rating agencies and that the Subordinate Notes be rated in the "BBB" or
equivalent rating category by at least two such rating agencies. A rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. The rating agencies do not
evaluate, and the ratings of the Senior Notes do not address, the likelihood of
payment of the Senior Noteholders' Interest T-Bill Carryover or the Subordinate
Noteholders' Interest T-Bill Carryover. There can be no assurance as to whether any
additional rating agency will rate the Senior Notes or the Subordinate Notes, or if
one does, what rating would be assigned by such other rating agency.
</TABLE>
S-18
<PAGE>
RISK FACTORS
Prospective purchasers of the Senior Notes should consider, among other
things, the following factors (as well as the factors set forth under "RISK
FACTORS" in the Prospectus) in connection with an investment therein:
LIMITED LIQUIDITY; STABILIZATION. There is currently no secondary market
for the Senior Notes. The Underwriter currently intends, but is not obligated,
to make a market in the Senior Notes. There can be no assurance that a secondary
market will develop or, if a secondary market does develop, that it will provide
the Senior Noteholders with liquidity of investment or that it will continue for
the life of the Senior Notes.
Certain persons participating in the offering of the Senior Notes may
engage in transactions that stabilize, maintain, or otherwise affect the price
of the Senior Notes. Such transactions could cause the price of the Senior Notes
to be higher than it might otherwise be in the absence of such transactions. See
"UNDERWRITING" herein.
SUBORDINATION; LIMITED ASSETS. The rights of the Subordinate Noteholders
to receive payments of interest are subordinated to the rights of the Senior
Noteholders to receive payments of interest and the rights of the Subordinate
Noteholders to receive payments of principal will be subordinate to the rights
of the Senior Noteholders to receive payments of interest and principal. Payment
to Subordinate Noteholders of amounts representing the Subordinate Noteholders'
Distribution Amount will not be subordinated to the payment of any Senior
Noteholders' Interest T-Bill Carryover that may exist from time to time. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Distributions" and
"--Credit Enhancement--Subordination" herein.
Moreover, the Trust does not have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the Student Loans (and the
related Guarantee Agreements), the Collection Account, [the Collateral
Reinvestment Account] and the Reserve Account. The Notes represent obligations
solely of the Trust and will not be insured or guaranteed by the Seller, the
Depositor, the Servicer, the Administrator, the Guarantors, the Eligible Lender
Trustee or the Department. Consequently, holders of the Notes must rely for
repayment upon payments with respect to the Student Loans and, if and to the
extent available under the circumstances described herein, amounts on deposit in
the accounts described above. [The Collateral Reinvestment Account will only be
available during the Revolving Period to cover obligations of the Trust relating
to Additional Fundings and is not intended to cover losses on the Student Loans.
Similarly,] amounts to be deposited in the Reserve Account are limited in amount
and will be reduced, subject to a specified minimum, as the principal balance of
the Notes is reduced. If the Reserve Account is exhausted, the Trust will depend
solely on payments with respect to the Student Loans to make payments on the
Notes and Noteholders could suffer a loss. Noteholders will have no claim to any
amounts properly distributed to the Depositor or the Servicer from time to time
as described herein and in the Prospectus and the Depositor and the Servicer
shall in no event be required to refund such distributed amounts. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Distributions" and
"--Credit Enhancement" herein.
RISKS RESULTING FROM EXCESS OF PRINCIPAL BALANCE OF NOTES OVER POOL
BALANCE. As of the Closing Date, the aggregate principal balance of the Notes
will be equal to approximately % of the Initial Pool Balance. As a result,
Noteholders will generally be reliant on the availability of Reserve Account
Excess to bring the aggregate principal balance of the Notes into parity with
the Pool Balance by [(a) during the Revolving Period, the application of Reserve
Account Excess deposited into the Collateral Reinvestment Account (other than
any Reserve Account Excess that may reflect principal collections on the Student
Loans) to fund the Purchase Collateral Balance of New Loans or Serial Loans
acquired by the Trust or to fund the origination of Federal Consolidation Loans
or any additions to the principal balances thereof caused by the addition of
Add-on Consolidation Loans or (b) after the Revolving Period,] the application
thereof to pay principal of the Notes until the Parity Date. The availability of
Reserve Account Excess will in turn generally be dependent on (a) the interest
component of Available Funds for any Quarterly Payment Date being in excess of
the amount necessary to pay (i) the Servicing Fee and all prior unpaid Servicing
Fees, (ii) the Administration Fee and all prior unpaid Administration Fees and
(iii) the Noteholders' Interest Distribution Amount for such Quarterly Payment
Date, and/or (b) declines in the Specified Reserve Account Balance that exceed
any amounts required to be withdrawn for any Quarterly Payment Date from the
Reserve Account to make up shortfalls required to be paid therefrom. At such
time as the aggregate principal balance of the Notes has been reduced so that it
equals the Pool Balance, any Reserve Account Excess will no longer be available
to pay principal of the Notes. See "DESCRIPTION OF
S-19
<PAGE>
THE TRANSFER AND SERVICING AGREEMENTS--Credit Enhancement--Reserve Account"
herein. To the extent that Noteholders are reliant on excess interest
collections on the Student Loans to repay a portion of the principal balance of
the Notes, Noteholders could be adversely affected by an increase in the rate of
prepayments on the Student Loans or an increase in the T-Bill Rate, since either
such increase would diminish the amount of such excess interest that would
subsequently be available to pay such principal. In addition, payments on the
Notes may be more sensitive to rates of default on the Student Loans than would
be the case were the principal balance of the Notes not issued in an amount in
excess of the Initial Pool Balance, particularly with respect to those Student
Loans first disbursed after October 1, 1993 which are 98% insured by a Guarantor
(rather than 100% so insured as is the case for such loans first disbursed prior
to such date). [Additionally, payment of Purchase Premium Amounts to the Seller
for New Loans and Serial Loans purchased by the Trust during the Revolving
Period and Serial Loans acquired by the Trust after the Revolving Period will
decrease the amount of funds that would otherwise be available to pay principal
of the Notes and will thereby delay reduction of the amount represented by the
excess of the aggregate principal balance of the Notes over the Pool Balance and
could, to the extent that during the Revolving Period the amount expended on
such Purchase Premium Amounts exceeds those amounts on deposit in the Collateral
Reinvestment Account that are other than amounts in respect of principal
collections on the Student Loans, cause such excess to increase.]
[ADDITIONAL FUNDINGS; RISK OF CHANGE IN CHARACTERISTICS OF THE STUDENT LOAN
POOL. Except for the criteria described under "The Student Loan Pool", there
will be no other required characteristics of the Additional Student Loans.
Therefore, upon the transfer of the Additional Student Loans to or on behalf of
the Trust, the aggregate characteristics of the entire pool of Student Loans,
including the composition of the Student Loans and of the borrowers thereof, the
Guarantors thereof (which may include Additional Guarantors whose ability to
fulfill their insurance obligations may vary from the Initial Guarantors), the
distribution by loan type, the distribution by interest rate, the distribution
by principal balance and the distribution by remaining term to scheduled
maturity may vary significantly from those of the [Initial] Student Loans as of
the Cutoff Date. See "The Student Loan Pool" herein.]
[MATURITY AND PREPAYMENT CONSIDERATIONS. During the Revolving Period,
amounts in respect of principal collections on the Student Loans and, so long as
the Parity Date has not occurred, other amounts constituting Available Funds
that are in excess, on each Quarterly Payment Date during the Revolving Period,
of the amounts necessary to pay (i) the Servicing Fee and all prior unpaid
Servicing Fees, (ii) the Administration Fee and all prior unpaid Administration
Fees, (iii) the Noteholders' Interest Distribution Amount for such Quarterly
Payment Date and (iv) the amount, if any, necessary to cause the amount on
deposit in the Reserve Account to equal the Specified Reserve Account Balance,
shall be deposited into the Collateral Reinvestment Account. If the sum of
(i) the Loan Purchase Amount of New Loans and Serial Loans available to be
acquired from the Depositor during the Revolving Period, (ii) the amount
required by the Trust to fund the origination by the Eligible Lender Trustee on
behalf of the Trust of Federal Consolidation Loans or to fund increases in the
principal balances of Federal Consolidation Loans existing in the Trust by the
addition of Add-on Consolidation Loans and (iii) the amount of interest on the
Student Loans capitalized and not paid currently by or on behalf of the
borrowers during the Revolving Period is less than the amount deposited in the
Collateral Reinvestment Account, the Trust will have insufficient opportunities
to make Additional Fundings during the Revolving Period, thereby resulting in a
prepayment of principal to Noteholders as described in the following paragraph.
The extent to which the Trustee will be able, during the Revolving Period, to
apply amounts in the Collateral Reinvestment Account to Additional Fundings
consisting of the purchase of New Loans and Serial Loans will be dependent, in
part, upon the ability of the Depositor and the Seller to originate or acquire
such loans and upon the opportunities the Trust may have to originate Federal
Consolidation Loans. A material adverse change in the operations or business or
financial condition of the Seller or in conditions in the market for Student
Loans could have a material adverse impact on the Seller's and the Depositor's
ability to originate or acquire such loans, which could, in turn, result in the
Trust being unable to apply some or all of the amounts in the Collateral
Reinvestment Account to Additional Fundings. If funds in the Collateral
Reinvestment Account cannot be invested in sufficient purchases of New Loans and
Serial Loans or originations of Federal Consolidation Loans, funds in the
Collateral Reinvestment Account may not be able to be invested at a sufficiently
high yield to avoid an Early Amortization Event.
To the extent that amounts on deposit in the Collateral Reinvestment
Account have not been fully applied to Additional Fundings by the Trust by the
end of the Revolving Period, whether on its scheduled termination date or
earlier following an Early Amortization Event, an amount equal to the entire
amount then on deposit in the
S-20
<PAGE>
Collateral Reinvestment Account will be paid on the next succeeding Quarterly
Payment Date as a prepayment of principal first to the Senior Noteholders, until
the aggregate principal balance of the Senior Notes has been reduced to zero,
and then to the Subordinate Noteholders, until the aggregate principal balance
of the Subordinate Notes has been reduced to zero. It is anticipated that the
amount of Additional Fundings made by the Trust will not be exactly equal to the
amount on deposit in the Collateral Reinvestment Account and that therefore
there will be at least a nominal amount of principal prepaid to the Noteholders
at the end of the Revolving Period.
There can be no assurance as to the amount of Additional Fundings that will
be available to be made by the Trust during the Revolving Period or that the
amount and timing of Additional Fundings will be sufficient to avoid the
occurrence of an Early Amortization Event or of a mandatory redemption of a more
than nominal portion of the Notes at the end of the Revolving Period.
No principal payments will be made on the Notes until after the end of the
Revolving Period which is scheduled to occur on the last day of the Collection
Period preceding the Quarterly Payment Date. If, however, an
Early Amortization Event, as described under "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Revolving Period and Additional Fundings," occurs prior to
the last day of such Collection Period, the Revolving Period will terminate
early, principal will be payable on the Notes as described herein, and the
average life and maturity of the Notes may be significantly reduced from what it
would have been had no such Early Amortization Event occurred.]
The rate of payment of principal of the Notes[, after the end of the
Revolving Period,] and the yield on the Notes will be affected by prepayments of
the Student Loans that may occur as described below. All the Student Loans are
prepayable in whole or in part by the borrowers at any time (including by means
of Federal Consolidation Loans as discussed below) or as a result of a borrower
default, death, disability or bankruptcy and subsequent liquidation or
collection of Guarantee Payments with respect thereto. The rate of such
prepayments cannot be predicted and may be influenced by a variety of economic,
social and other factors, including those described below. In general, the rate
of prepayments may tend to increase to the extent that alternative financing
becomes available at prevailing interest rates which fall significantly below
the interest rates applicable to the Student Loans. However, because a portion
of the Student Loans bear interest at a rate that either actually or effectively
is floating to the borrower, 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 Student Loans. In addition, to the extent that Noteholders
are reliant on a portion of the interest collections on the Financial Student
Loans to pay the portion of the initial principal balance of the Notes that is
in excess of the Initial Pool Balance, Noteholders could be adversely affected
by increased rates of prepayment on the Student Loans, since upon any such
prepayment no further interest would be collected on the loan so prepaid. To the
extent borrowers of Student Loans elect to borrow Federal Consolidation Loans,
such Student Loans will be prepaid[; provided, however, that if the Eligible
Lender Trustee on behalf of the Trust makes any such Federal Consolidation Loan
during the Revolving Period, the aggregate outstanding principal balance of
Student Loans (after giving effect to the addition of such Federal Consolidation
Loan and, if applicable the addition thereto of any Add-on Consolidation Loans)
will be at least equal to and in most cases greater than such balance prior to
such prepayment, although the guaranteed portion of the Federal Consolidation
Loan may be less than the Student Loan that is discharged as a result of such
consolidation.] See "FEDERAL FAMILY EDUCATION LOAN PROGRAM--Federal
Consolidation Loan Program" in the Prospectus. [There can be no assurance that
the Eligible Lender Trustee on behalf of the Trust rather than another lender
will make any particular Federal Consolidation Loan with respect to borrowers
with Student Loans during the Revolving Period.] The Department in administering
the Federal Direct Consolidation Loan Program (See "FEDERAL FAMILY EDUCATION
LOAN PROGRAM--Legislative and Administrative Matters" in the Prospectus) permits
borrowers with FFELP Loans to consolidate their outstanding student loans at
interest rates as much as 0.8% below those which would apply if they
consolidated their outstanding student loans by means of a Federal Consolidation
Loan under the Federal Consolidation Loan Program. The availability of such
lower-rate consolidation loans may [decrease the likelihood that the Eligible
Lender Trustee will be the originator of Federal Consolidation Loans with
respect to borrowers of Student Loans and may] increase the likelihood that a
Student Loan will be prepaid. [The Eligible Lender Trustee will not be permitted
to originate Federal Consolidation Loans (including the addition of any Add-on
Consolidation Loans) on behalf of the Trust during the Revolving Period in an
aggregate principal amount in excess of $ ; additionally, no Federal
Consolidation Loan may be originated by the Trust having a scheduled maturity
date after if at the time of such origination the aggregate
principal amount of all Federal Consolidation Loans held by the Trust that
S-21
<PAGE>
have a scheduled maturity date after exceeds or, after giving
effect to such origination, would exceed $ ; provided, however, that
the Eligible Lender Trustee will be permitted to fund Add-on Consolidation Loans
in excess of such amounts if required to do so by the Act. In addition, after
the end of the Revolving Period, the Eligible Lender Trustee will not make
Federal Consolidation Loans; provided, however, for a maximum period of
210 days following the end of the Revolving Period, the Eligible Lender Trustee
may increase the principal balance of Federal Consolidation Loans existing in
the Trust by the amount of any related Add-on Consolidation Loans.]
Furthermore, the Seller is obligated to repurchase or substitute for any
Student Loan pursuant to the Loan Sale Agreement which will be assigned in part
to the Trust by the Depositor as a result of a breach of any of its
representations and warranties, and the Servicer (subject to the limitations
described below) is obligated to purchase any Student Loan pursuant to the FFELP
Loan Servicing Agreement as a result of a breach of certain covenants with
respect to a FFELP Student Loan, in each case where such breach materially
adversely affects the interests of the Noteholders in such Student Loan and is
not cured within the applicable cure period (it being understood that any such
breach that does not affect the applicable Guarantor's obligation to guarantee
payment of such Student Loan will not be considered to have a material adverse
effect for this purpose); provided, however, that, during each 12-month period
following the Cutoff Date or an anniversary of the Cutoff Date, the Servicer
will be obligated to purchase Student Loans only to the extent its total
liability incurred during such period for such purchases and any other
liabilities under the FFELP Loan Servicing Agreement exceeds an amount (the
"Servicer Liability Limit") equal to % of the outstanding principal balance
of the FFELP Student Loans as of the Cutoff Date or, after the first anniversary
of the Cutoff Date, as of the preceding , and, after the Servicer
Liability Limit for any such period has been exceeded, the Servicer's total
liability during such period for losses for rejected claims by a Federal
Guarantor for any FFELP Student Loan based on a breach of its representations,
warranties or covenants (including, but not limited to, any such losses caused
by negligence or willful misfeasance by the Servicer) will not exceed that
amount which such Federal Guarantor would have been obligated to pay with
respect to such loan had its obligation to guarantee payment thereof not been
affected by the Servicer's breach.
In addition, the Depositor may, at its option, repurchase a Student Loan if
there is a dispute with the related borrower which in the Servicer's reasonable
judgment would call into question whether such Student Loan will be repaid by
the borrower. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Sale of
Student Loans; Representations and Warranties" and "--Servicer Covenants" in the
Prospectus. See also "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Termination", herein, regarding the Depositor, or its assignee's,
option to purchase the Student Loans when the aggregate Pool Balance is less
than or equal to % of the initial aggregate principal balance of the Notes.
On the other hand, scheduled payments with respect to, and maturities of,
the Student Loans may be extended[, including] pursuant to Grace Periods,
Deferral Periods and Forbearance Periods in the case of the FFELP Student
Loans[.] [as a result of the conveyance of New Loans to the Eligible Lender
Trustee on behalf of the Trust during the Revolving Period or as a result of the
conveyance of Serial Loans to the Eligible Lender Trustee on behalf of the Trust
during or after the Revolving Period as described herein or of refinancings
through Federal Consolidation Loans to the extent such Federal Consolidation
Loans are originated by the Eligible Lender Trustee on behalf of the Trust
during the Revolving Period as described herein. In that event, the fact that
such New Loans and Serial Loans will have varying maturities, the fact that New
Loans will be made to borrowers who were not borrowers on any of the Student
Loans and such new borrowers may themselves become borrowers under Serial Loans
or consolidate such loans by electing to borrow Federal Consolidation Loans, the
fact that Additional Student Loans purchased or originated during the Revolving
Period may, and Serial Loans purchased after the termination of the Revolving
Period will, be purchased with principal distributions on the Student Loans
which may otherwise have been applied to amortize the Notes and the fact that
such Federal Consolidation Loans will likely have longer maturities than the
Student Loans they are replacing may lengthen the remaining term of the Student
Loans and the average life of the Notes. In addition, any Add-on Consolidation
Loans added to the principal balance of a related Federal Consolidation Loan may
lengthen the remaining term of such Federal Consolidation Loan and after the
Revolving Period will be funded with principal distributions on Student Loans
which may otherwise have been applied to amortize the Notes. In addition, such
New Loans, Serial Loans or Federal Consolidation Loans may have, and certain of
the [Initial] Student Loans have, stated maturities which occur after the
Subordinate Note Final Maturity Date.] [The application, after the end of the
S-22
<PAGE>
Revolving Period,] of amounts which would otherwise have been distributable in
respect of the Principal Distribution Amount for a related Quarterly Payment
Date to make interest distributions to Noteholders and in lieu of collections of
interest on certain Student Loans on which interest is not currently required to
be paid will also have the effect of lengthening the average life of the Notes
over what it would have been had such amounts been applied to amortize the
Notes.
Any Student Loans remaining in the Trust as of the end of the Collection
Period immediately preceding the Quarterly Payment Date will be
offered for sale by the Indenture Trustee. If acceptable bids to purchase such
Student Loans on such Quarterly Payment Date are received, as described herein,
the proceeds of the sale will be applied on such Quarterly Payment Date to
redeem any outstanding Notes on such date. In addition, if acceptable bids to
purchase such Student Loans on such Quarterly Payment Date are not received, the
sale of such Financial Student Loans may occur on a subsequent Quarterly Payment
Date, as described herein, in which case the proceeds thereof will be applied on
such date to redeem any outstanding Notes. No assurance can be given as to
whether the Indenture Trustee will be successful in soliciting acceptable bids
to purchase the Student Loans on the Quarterly Payment Date or
any subsequent Quarterly Payment Date. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Termination" herein.
The rate of payment of principal of the Notes [after the end of the
Revolving Period] and the yield on the Notes may also be affected by the rate of
defaults resulting in losses on Liquidated Student Loans, by the severity of
those losses and by the timing of those losses, which may affect the ability of
the Guarantors to make Guarantee Payments with respect thereto [and such default
rates may be affected, among other things, by the conveyance to the Trust during
the Revolving Period of New Loans made to borrowers who are not borrowers under
any of the Student Loans.] The rate of prepayment on the Student Loans cannot be
predicted, and any reinvestment risks resulting from a faster or slower
incidence of prepayment of Student 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 from the Trust than such interest rates and
such spreads would otherwise have been had such prepayments not been made or had
such prepayments been made at a different time.
Because of the factors discussed above, and because of the number and
variability of the determinants affecting the rate of principal payments on the
Student Loans, no assurances can be given as to the timing of payments of
principal to Noteholders.
CERTAIN DIFFERENCES BETWEEN THE SENIOR NOTES AND THE SUBORDINATE
NOTES. Because the Subordinate Noteholders will receive no payments of
principal until the Senior Notes have been paid in full, the Senior Notes bear
relatively greater risk than do the Subordinate Notes of an increased rate of
principal prepayments with respect to the Student Loans (whether as a result of
voluntary prepayments[, Federal Consolidation Loans not made by the Eligible
Lender Trustee on behalf of the Trust] or liquidations due to default or
breach). [In addition, the Senior Noteholders generally bear the risk of
principal prepayments as a result of any mandatory redemption from amounts on
deposit in the Collateral Reinvestment Account at the end of Revolving Period or
of such redemption occurring prior to the scheduled end of the Revolving Period
on the last day of the Collection Period preceding the Quarterly Payment Date
occurring in due to an Early Amortization Event.] On the other
hand, Subordinate Noteholders bear a greater risk of loss of principal than do
Senior Noteholders in the event of a shortfall in Available Funds and amounts on
deposit in the Reserve Account because the Subordinate Notes do not receive
principal distributions until the Senior Notes are paid in full.
BASIS RISK. FFELP Student Loans generally bear interest at an effective
rate (taking into account any Special Allowance Payments) equal to the average
bond equivalent rates of 91-day Treasury Bills auctioned for each quarter (or,
in certain circumstances, 52-week Treasury bills) plus margins specified for
such Student Loans described under "FEDERAL FAMILY EDUCATION LOAN PROGRAM" in
the Prospectus calculated on the basis of the actual number of days since the
last day through which interest on such Student Loan was paid in full and the
actual number of days in the year. Moreover, the Pool Balance will initially be
less than the principal balance of the Notes, and therefore the principal amount
of Student Loans on which interest will be collected will be less than the
principal amount of Notes on which interest must be paid. Although the Senior
Note Rate and the Subordinate Note Rate are generally based on the weighted
average bond equivalent rates of 91-day Treasury Bills, it is possible that on
any Quarterly Payment Date there may not exist a positive spread between
(a) the Student Loan Rate and (b) the Senior Note Rate or the Subordinate Note
Rate based on the Senior Note T-Bill Rate or the Subordinate Note T-Bill Rate,
as the case may be. In such case, the Senior Note Rate or the
S-23
<PAGE>
Subordinate Note Rate, as applicable, for such Quarterly Payment Date will be
the Student Loan Rate. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions of Interest" herein. Any Senior Noteholders' Interest
T-Bill Carryover or Subordinate Noteholders' Interest T-Bill Carryover arising
as a result of the Senior Note Rate or the Subordinate Note Rate being
determined on the basis of the Student Loan Rate will be paid on any succeeding
Quarterly Payment Date (including, if incurred on a Quarterly Payment Date, such
Quarterly Payment Date) but only on or after the Parity Date and only then out
of any Reserve Account Excess available after payment out of such excess of
[(i) if the Revolving Period has terminated, any Purchase Premiums due the
Seller for Serial Loans purchased by the Trust prior to the end of the related
Collection Period, (ii) on the Parity Date (if the Parity Date occurs after the
end of the Revolving Period), any amount necessary to reduce to zero the
remaining amount by which the aggregate principal balance of the Notes exceeds
the Pool Balance and (iii)] in the case of the Subordinate Noteholders' Interest
T-Bill Carryover, payment of the Senior Noteholders' Interest T-Bill Carryover.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit
Enhancement--Reserve Account" herein.
DEFAULT RISK ON CERTAIN FFELP STUDENT LOANS. Under the Omnibus Budget
Reconciliation Act of 1993, FFELP Student Loans first disbursed on or after
October 1, 1993 are 98% insured by the applicable Guarantor. As a result, to the
extent a borrower of such a Student Loan defaults, the Trust will experience a
loss of 2% of outstanding principal and accrued interest on each such Student
Loan. A defaulted loan will be fully assigned to the applicable Guarantor in
exchange for a guarantee payment on the 98% guaranteed portion and the Trust may
have no right thereafter to pursue the borrower for the 2% unguaranteed portion.
Such 2% loss would diminish the amount of Available Funds, which would, in turn,
absent adequate collateralization in the Trust, adversely affect the ability of
the Trust to pay interest and principal on the Notes. Pursuant to the Higher
Education Amendments of 1998, the 98% insurance level was lowered to 95% for
FFELP Loans first disbursed on or after October 1, 1998. FFELP Student Loans
continue to be 100% guaranteed in the event of death, disability or bankruptcy
of the borrower and a closing of or false certification by the borrower's school
regardless of disbursement date.
FEES PAYABLE ON CERTAIN FFELP STUDENT LOANS. Under the Federal
Consolidation Program, the Trust will be obligated to pay to the Department a
monthly rebate fee (the "Monthly Rebate Fee") at an annualized rate of % of
the outstanding principal balance on the last day of each month plus accrued
interest thereon of each Federal Consolidation Loan which is a part of the
Trust, which rebate will be payable prior to distributions to the Noteholders
and which rebate will reduce the amount of funds which would otherwise be
available to make distributions on the Notes and will reduce the Student Loan
Rate. [In addition, the Trust must pay to the Department a 0.50% origination fee
(the "Federal Origination Fee") on the initial principal balance of each FFELP
Student Loan which is originated on its behalf by the Eligible Lender Trustee
(i.e., each Federal Consolidation Loan originated on its behalf by the Eligible
Lender Trustee during the Revolving Period and each Add-on Consolidation Loan
added to a Federal Consolidation Loan in the Trust), which fee will be deducted
by the Department out of Interest Subsidy and Special Allowance Payments.] If
sufficient Interest Subsidy and Special Allowance Payments are not due to the
Trust to cover the amount of the Federal Origination Fee, the balance of such
Federal Origination Fee may be deferred by the Department until sufficient
Interest Subsidy and Special Allowance Payments accrue to cover such fee or may
be required to be paid immediately. If such amounts never accrue, the Trust
would be obligated to pay any remaining fee from other assets of the Trust prior
to making distributions to Noteholders. The offset of Interest Subsidy and
Special Allowance Payments, and the payment of any remaining fee from other
Trust assets, will further reduce the amount of Available Funds from which
payments to Noteholders may be made. Furthermore, any offset of Interest Subsidy
and Special Allowance Payments will further reduce the Student Loan Rate.
RATINGS OF THE NOTES. It is a condition to the issuance and sale of the
Senior Notes that the Senior Notes be rated in the highest investment rating
category by at least two nationally recognized rating agencies and that the
Subordinate Notes be rated in the "BBB" or equivalent rating category by at
least two such rating agencies. A rating is not a recommendation to purchase,
hold or sell securities, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings of the Notes address
the likelihood of the ultimate payment of principal of and interest on such
Notes pursuant to their terms. However, the Rating Agencies do not evaluate, and
the ratings of the Notes do not address, the likelihood of payment of the Senior
Noteholders' Interest T-Bill Carryover or the Subordinate Noteholders' Interest
T-Bill Carryover, as the case may be. [In addition, the ratings do not address
the likelihood of an Early Amortization Event.] There can be no assurance that a
rating will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. There can be no assurance as to whether
any additional rating agency will rate the Senior Notes or the Subordinate
Notes, or if one does, what rating would be assigned by such other rating
agency.
S-24
<PAGE>
CONSOLIDATION OF FEDERAL BENEFIT BILLINGS AND RECEIPTS UNDER ONE ELIGIBLE
LENDER NUMBER. Due to a recent change in Department policy limiting the
granting of new lender identification numbers, the Eligible Lender Trustee will
use a common Department lender identification number under the Eligible Lender
Trust Agreement for all of the beneficiaries of the trust established thereunder
(i.e., the Depositor, the Trust and any Future Trusts). The billings submitted
to the Department for Interest Subsidy and Special Allowance Payments on FFELP
Student Loans in the Trust will be consolidated with the billings for such
payments for FFELP Loans in any Future Trusts, as well as FFELP Loans owned by
the Depositor or their permitted assigns, and payments on such billings will be
made by the Department in lump sum form. Such lump sum payments will then be
allocated among the various beneficiaries of the Eligible Lender Trust.
In addition, the sharing of a single lender identification number by the
beneficiaries of the Eligible Lender Trust will result in the receipt of claim
payments by Federal Guarantors in lump sum form. In that event, such payments
would be allocated among the beneficiaries in a manner similar to the allocation
process for Interest Subsidy and Special Allowance Payments.
The Department regards the Eligible Lender Trustee as the party primarily
responsible to the Department for any liabilities owed to the Department or
Federal Guarantors resulting from the Eligible Lender Trustee's activities in
FFELP. As a result, if the Department or a guarantor were to determine that the
Eligible Lender Trustee owed a liability to the Department or a guarantor on any
FFELP Loan for which the Eligible Lender Trustee is or was legal titleholder,
including loans held for the benefit of the Trust or Future Trusts, the
Department or guarantor may seek to collect that liability by offset against
payments due the Eligible Lender Trustee in respect of any FFELP Loans legally
owned by the Eligible Lender Trustee without regard to their beneficial
ownership.
In addition, certain beneficiaries of the Eligible Lender Trust may in a
given quarter incur Federal Origination Fees that exceed the Interest Subsidy
and Special Allowance Payments payable by the Department on the loans in the
Eligible Lender Trust beneficially owned by such beneficiaries, resulting in the
consolidated payment from the Department received by the Eligible Lender Trustee
for that quarter equaling an amount that is less than the amount owed by the
Department on all of the FFELP Student Loans in the Trust for that quarter.
The Trust Agreement for the Trust and the trust agreement for any Future
Trusts (the Trust and such Future Trusts, collectively, the "Seller Trusts")
will require a Seller Trust (including the Trust) to indemnify the other Seller
Trusts for a shortfall or an offset by the Department or a Federal Guarantor
arising from the FFELP Student Loans held by the Eligible Lender Trustee on such
trust's behalf.
INCENTIVE PROGRAMS. EFG has offered, and intends to continue to offer,
incentive programs to certain FFELP Loan borrowers. Two such programs are
currently made available by EFG and may apply to FFELP Loans owned by the
Trusts. Under the "Grad Advantage Program," which is made available for all
FFELP Loans which enter repayment after July 1993, if a borrower makes 36
consecutive scheduled payments in a timely fashion, the effective interest rate
charged to the borrower will be permanently reduced by 2% per annum thereafter.
Pursuant to the Grad Advantage program, a borrower who graduates will be
entitled to a reduction in the principal of the borrower's student loan equal to
the amount of the borrower's origination and guarantee fee on subsidized loans
(not to exceed 4% of the principal), and an amount equal to the guarantee fee on
unsubsidized loans (not to exceed 1% of the principal amount of the loan).
Pursuant to the "direct repay plan" or "Auto Advantage Repayment Plan" borrowers
who make student loan payments electronically through automatic monthly
deductions from a savings or checking account receive a 0.25% effective interest
rate reduction as long as they continue the Auto Advantage repayment plan. It
cannot be predicted with certainty the extent to which borrowers will decide to
participate in these programs. EFG may alter its incentive programs in the
future, and is currently updating its offerings to accommodate changes to
interest rates.
These incentives programs currently or hereafter made available by EFG to
borrowers may also be made available by the Servicer to borrowers of Student
Loans. Any such incentive program that effectively reduces borrower payments or
principal balances on Student Loans and is not required by the Act will be
applicable to Student Loans only if and to the extent that the Trust that owns
the subject Student Loan has received an amount that is adequate to offset such
effective yield reductions.
S-25
<PAGE>
RISK OF YEAR 2000. The transition from the year 1999 to the year 2000 may
disrupt the ability of computerized systems to process information (the "Year
2000 Problem"). The collection of payments on the Student Loans, the servicing
of Student Loans (which includes the timely notification of delinquent borrowers
as required under each Guaranty Agreement), and the distributions on the Notes
are highly dependent on the computer systems of the Servicer, any Sub-Servicer,
the Indenture Trustee, the Eligible Lender Trustee, the Guarantors, the Seller,
the Administrator and other third parties. The Depositor has not made any
independent investigation of the computer systems of any of such parties. If any
related third party is not year 2000 compliant, the ability of the Servicer,
each Sub-Servicer, the Eligible Lender Trustee or the Indenture Trustee to
service the Student Loans and to make distributions on the Notes may be
materially and adversely affected and Noteholders may suffer delays in payment
of interest and principal.
In addition, DTC (as defined herein) has further advised the Depositor that
management of DTC is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter Year 2000
Problems. DTC has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's direct and indirect participants and third-party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third-party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
FORMATION OF THE TRUST
THE TRUST
EFG Student Loan Trust - (the "Trust") will be a trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described herein and in the Prospectus. The Trust will not engage
in any activity other than (i) acquiring, holding and managing the Student Loans
and the other assets of the Trust and proceeds therefrom, (ii) issuing the
Notes, (iii) making payments thereon, [(iv) originating Federal Consolidation
Loans during the Revolving Period, and] ([iv]) engaging in other activities that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The proceeds from the sale of the Notes will be used by the Eligible Lender
Trustee to purchase on behalf of the Trust through the Transfer Agreement the
[Initial] Student Loans sold by the Seller to the Depositor pursuant to the Loan
Sale Agreement and to fund the Reserve Account Initial Deposit. Upon the
consummation of such transactions, the property of the Trust will consist of
(a) a pool of Student Loans, legal title to the FFELP Student Loans in which is
to be held by the Eligible Lender Trustee on behalf of the Trust, (b) all funds
collected in respect thereof on or after the Cutoff Date, and (c) all moneys and
investments on deposit in the Collection Account and the Reserve Account. The
Notes will be collateralized by the property of the Trust. The Collection
S-26
<PAGE>
Account[, and] the Reserve Account [and the Collateral Reinvestment Account]
will be maintained in the name of the Indenture Trustee for the benefit of the
Noteholders. To facilitate servicing and to minimize administrative burden and
expense, the Servicer and, in turn, any Sub-Servicer, will be appointed
custodian of the promissory notes representing the Student Loans.
[The Trust will use funds on deposit in the Collateral Reinvestment Account
during the Revolving Period to make Additional Fundings, including to make or
acquire Additional Student Loans which will constitute property of the Trust.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and
Additional Fundings" herein. In addition, after the Revolving Period, Additional
Student Loans will be added to the Trust to the extent that (i) the Eligible
Lender Trustee on behalf of the Trust purchases Serial Loans from the Depositor,
(ii) the Trust owns Student Loans which are exchanged for Serial Loans owned by
the Depositor as described herein or (iii) for 210 days after the end of the
Revolving Period, Add-on Consolidation Loans are added to Federal Consolidation
Loans owned by the Trust. Any such origination or conveyance during or after the
Revolving Period of Additional Student Loans is conditioned on compliance with
the procedures described in the Transfer Agreement and the Loan Sale Agreement.
The Depositor expects that the amount of Additional Fundings during the
Revolving Period will approximately equal the amount deposited during the
Revolving Period into the Collateral Reinvestment Account and that the timing of
such Additional Fundings will be sufficient so as not to cause a build-up of
funds in the Collateral Reinvestment Account that would cause an Early
Amortization Event to occur prior to the scheduled end of the Revolving Period
on the last day of the Collection Period preceding the Quarterly
Payment Date. The Depositor's expectations in this regard, based on current
facts and circumstances, but relating to future events, are inherently forward
looking. These expectations are based primarily upon current market conditions,
including conditions in the secondary market for Student Loans, and current
expectations as to when Additional Fundings will need to be made (based, in
part, on expectations as to the rate at which the [Initial] Student Loans will
repay). There is a risk that market conditions will change or that the actual
repayment experience on the [Initial] Student Loans will be other than as
expected. See "RISK FACTORS--Maturity and Prepayment Considerations" herein and
in the Prospectus. In addition, a material adverse change in the operations or
business or financial condition of the Seller could affect the amount or timing
of Additional Fundings of New Loans or Serial Loans during the Revolving Period.
Accordingly, there can be no assurance as to the amount or timing of Additional
Fundings during the Revolving Period. Upon an Early Amortization Event or in any
event if the amount on deposit in the Collateral Reinvestment Account has not
been reduced to zero by the end of the Revolving Period, any amounts remaining
on deposit in the Collateral Reinvestment Account will be paid on the Quarterly
Payment Date immediately following the end of the Revolving Period as a payment
of principal first to the Senior Noteholders, until the aggregate principal
balance of the Senior Notes has been reduced to zero, and then to the
Subordinate Noteholders, until the aggregate principal balance of the
Subordinate Notes has been reduced to zero. There can also be no assurance as to
the amount of Additional Fundings that will occur after the Revolving Period.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and
Additional Fundings" herein.]
The Trust's principal offices are in [ ], in care of The First
National Bank of Chicago, as Trustee, at the address listed below for the
Eligible Lender Trustee.
ELIGIBLE LENDER TRUSTEE
The First National Bank of Chicago is the Eligible Lender Trustee for the
Trust, the Depositor and Future Trusts under a trust agreement (the "Eligible
Lender Trust Agreement"). The First National Bank of Chicago is a national
banking association whose principal offices are located at One First National
Plaza, Suite 0126, Chicago, Illinois 60670 and whose New York offices are
located at First Chicago Trust Company of New York, 14 Wall Street, New York, NY
10005. The Eligible Lender Trustee will acquire on behalf of the Depositor and
the Trust legal title to all the FFELP Student Loans acquired [from time to
time] pursuant to the Loan Sale Agreement and the Transfer Agreement,
respectively. The Eligible Lender Trustee on behalf of the Trust will enter into
a Guarantee Agreement with each of the Guarantors with respect to such Student
Loans. The Eligible Lender Trustee qualifies as an eligible lender and owner of
all FFELP Loans for all purposes under the Higher Education Act and the
Guarantee Agreements. Failure of the FFELP Student Loans to be owned by an
eligible lender would result in the loss of any Guarantee Payments from any
Federal Guarantor and any federal assistance with respect to such Student Loans.
See "THE STUDENT LOAN POOLS" in the Prospectus. The Eligible
S-27
<PAGE>
Lender Trustee's liability in connection with the issuance and sale of the Notes
is limited solely to the express obligations of the Eligible Lender Trustee set
forth in the Eligible Lender Trust Agreement. See "DESCRIPTION OF THE NOTES"
herein and "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" herein and in
the Prospectus. The Seller and its affiliates may maintain normal commercial
banking relations with the Eligible Lender Trustee.
THE STUDENT LOAN POOL
The pool of Student Loans will include the [Initial] Student Loans
purchased by the Eligible Lender Trustee on behalf of the Trust as of the Cutoff
Date [and any Additional Student Loans made or acquired by the Eligible Lender
Trustee on behalf of the Trust after the Closing Date].
No [Initial] Student Loan as of the Cutoff Date is a Student Loan that was
subject to the Depositor's prior obligation to sell such loan to a third party.
As of the Cutoff Date, Student Loans which are more than 30 days delinquent
do not equal or exceed 20% (by principal amount) of the [Initial] Student Loans
and none of the [Initial] Student Loans is a non-performing Student Loan.
Non-performing Student Loans are Student Loans which are in default and which
the Seller expects to write off as a loss.
[Following the Closing Date and prior to the end of the Revolving Period,
the Trust will be obligated from time to time to purchase from the Depositor,
and the Depositor, subject to the availability thereof, will be obligated to
tender to the Trust, New Loans owned by the Depositor each of which will have
been made to a borrower who is not a borrower under any Student Loan. In
addition, following the Closing Date, and both during and after the Revolving
Period, the Trust will be obligated from time to time to purchase from the
Depositor, subject to the availability thereof, Serial Loans owned by the
Depositor. During the Revolving Period, the purchase of New Loans and Serial
Loans, including a Purchase Premium Amount for each New Loan or Serial Loan so
purchased of up to % of the principal balance owed by the applicable borrower
on such loan, will be funded by means of a transfer of amounts on deposit in the
Collateral Reinvestment Account as described herein. Following the end of the
Revolving Period, the purchase of Serial Loans will be funded by amounts
representing distributions of principal on the outstanding Student Loans which
would otherwise have been part of the Available Funds of the Trust or,
alternatively, at the Depositor's option, the Trust will be obligated to
exchange with the Depositor existing Student Loans owned by the Trust for such
Serial Loans, provided such Serial Loans and eligible Student Loans meet certain
criteria described herein. Any Purchase Premium Amounts for Serial Loans
purchased or exchanged for by the Trust after the Revolving Period will be
funded on the Quarterly Payment Date next succeeding the end of the Collection
Period during which such Serial Loan has been acquired by the Trust from
amounts, if any, on deposit in the Reserve Account in excess of the Specified
Reserve Account Balance.
In addition, following the Closing Date, and prior to the end of the
Revolving Period, the Eligible Lender Trustee on behalf of the Trust will seek
to originate Federal Consolidation Loans to borrowers on Student Loans who are
also borrowers under one or more FFELP Student Loans (whether or not all such
loans are in the Trust), which origination will be funded by means of a transfer
from the Collateral Reinvestment Account of the amount required to repay any
Student Loans not held by the Trust that are being consolidated with the Student
Loans in the Trust. Such amount will be paid by the Trust to the holder or
holders of such Student Loans to prepay such loans. The Eligible Lender Trustee
will not be permitted to originate Federal Consolidation Loans (including the
addition of any Add-on Consolidation Loans) on behalf of the Trust during the
Revolving Period in an aggregate principal amount in excess of $ ;
additionally, no Federal Consolidation Loan may be originated by the Trust
having a scheduled maturity date after if at the time of such
origination the aggregate principal amount of all Federal Consolidation Loans
held by the Trust that have a scheduled maturity date after
exceeds or, after giving effect to such origination, would exceed $ ;
provided, however, that the Eligible Lender Trustee will be permitted to fund
the addition of Add-on Consolidation Loans in excess of such amounts if required
to do so by the Act. After the Revolving Period, the Eligible Lender Trustee on
behalf of the Trust will cease to make Federal Consolidation Loans and
Additional Student Loans will consist solely of Serial Loans acquired in the
manner specified above; provided, however, that for a maximum period of
210 days following the end of the Revolving Period, the Eligible Lender Trustee
may be required to increase the principal balance of Federal Consolidation Loans
existing in the Trust by the amount of any related Add-on Consolidation Loans,
as described below.
S-28
<PAGE>
As described under "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM--Federal
Consolidation Loan Program" in the Prospectus, borrowers may consolidate
additional loans ("Add-on Consolidation Loans") with an existing Federal
Consolidation Loan within 180 days from the date that the existing Federal
Consolidation Loan was made. As a result of the addition of any Add-on
Consolidation Loans, the related Federal Consolidation Loan may, in certain
cases, have a different interest rate and a different loan term. Any Add-on
Consolidation Loans added to a Federal Consolidation Loan in the Trust during
the Revolving Period will be funded by means of a transfer from the Collateral
Reinvestment Account of the amount required to repay in full any Student Loans
not held by the Trust that are being discharged in the consolidation process,
which amount will be paid by the Eligible Lender Trustee on behalf of the Trust
to the holder or holders of such Student Loans to prepay such loans. For a
maximum period of 210 days following the end of the Revolving Period (30 days
being attributed to the processing of any such Add-on Consolidation loans), such
amounts will be funded by amounts representing distributions of principal on the
outstanding Student Loans which would otherwise have been part of the Available
Funds of the Trust, as described under "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Distributions" herein.]
No selection procedures believed by the Depositor to be adverse to the
Noteholders were used or will be used in selecting the Student Loans. [However,
except for the criteria described in the preceding paragraphs and under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Revolving Period and
Additional Fundings" herein or contained in the Loan Sale Agreement,] There will
be no required characteristics of [the Additional] Student Loans. [Therefore,
following the transfer of Additional Student Loans to the Eligible Lender
Trustee on behalf of the Trust, the aggregate characteristics of the entire pool
of Student Loans, including the composition of the Student Loans and of the
borrowers thereof, the Guarantors thereof, the distribution by loan type, the
distribution by interest rate, the distribution by principal balance and the
distribution by remaining term to scheduled maturity described in the following
tables, may vary significantly from those of the Initial Student Loans as of the
Cutoff Date. In addition,] The distribution by weighted average interest rate
applicable to the Student Loans on any date following the Cutoff Date may vary
significantly from that set forth in the following tables as a result of
variations in the effective rates of interest applicable to the Student Loans.
Moreover, the information described below with respect to the original term to
maturity and remaining term of maturity of the [Initial] Student Loans as of the
Cutoff Date may vary significantly from the actual term to maturity of any of
the Student Loans as a result of the granting of deferral and forbearance
periods with respect thereto.
S-29
<PAGE>
Set forth below in the following tables is a description of certain
additional characteristics of the [Initial] Student Loans as of the Cutoff Date:
COMPOSITION OF THE [INITIAL] STUDENT LOANS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PRIVATE
FFELP STUDENT STUDENT
LOANS LOANS
------------- -------
<S> <C> <C>
Aggregate Outstanding Principal Balance(1).................................... $
Number of Borrowers...........................................................
Average Outstanding Principal Balance Per Borrower............................ $
Number of Loans...............................................................
Average Outstanding Principal Balance Per Loan................................ $
Weighted Average Original Term to Maturity(2).................................
Weighted Average Remaining Term to Maturity(2)................................
Weighted Average Annual Interest Rate(3)...................................... % %
</TABLE>
- ------------------
(1) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
(2) Determined from the date of origination or the Cutoff Date, as the case may
be, to the stated maturity date of the applicable [Initial] Student Loans,
assuming repayment commences promptly upon expiration of the typical grace
period following the expected graduation date and without giving effect to
any deferral or forbearance periods that may be granted in the future. See
"THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" in the Prospectus.
(3) Determined using the interest rates applicable to the [Initial] Student
Loans as of the Cutoff Date. However, because a portion of the [Initial]
Student Loans effectively bear interest generally at a variable rate per
annum to the borrower, there can be no assurance that the foregoing
percentage will remain applicable to the [Initial] Student Loans at any time
after the Cutoff Date. See "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" in
the Prospectus.
DISTRIBUTION OF THE [INITIAL] STUDENT LOANS BY LOAN TYPE
AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
LOAN TYPE STUDENT LOANS PRINCIPAL BALANCE(1) PRINCIPAL BALANCE
- ------------------------------------------------------------ ------------- -------------------- -----------------
<S> <C> <C> <C>
FFELP STUDENT LOANS
Federal Stafford Loans(2).................................
Federal SLS Loans.........................................
Federal PLUS Loans........................................
Federal Consolidation Loans...............................
PRIVATE STUDENT LOANS
Total [100%]
</TABLE>
- ------------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
(2) Includes Unsubsidized Stafford Loans having an aggregate outstanding
principal balance as of the Cutoff Date of $ .
S-30
<PAGE>
DISTRIBUTION OF THE [INITIAL] FFELP STUDENT LOANS BY BORROWER
INTEREST RATES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
OUTSTANDING BY OUTSTANDING
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF INTEREST RATES(1) STUDENT LOANS BALANCE(2) BALANCE
- ------------------------------------------------------------ ------------- -------------------- -----------------
<S> <C> <C> <C>
7.00% to 7.49%..............................................
7.50% to 7.99%..............................................
8.00% to 8.49%..............................................
8.50% to 8.99%..............................................
9.00% to 9.49%..............................................
9.50% and above.............................................
[Total].....................................................
</TABLE>
- ------------------
(1) Determined using the interest rates applicable to the [Initial] Student
Loans as of the Cutoff Date. However, because a portion of the [Initial]
Student Loans effectively bear interest at a variable rate per annum to the
borrower, there can be no assurance that the foregoing information will
remain applicable to the [Initial] Student Loans at any time after the
Cutoff Date. See "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" in the
Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
DISTRIBUTION OF THE [INITIAL] PRIVATE STUDENT LOANS BY BORROWER
INTEREST RATES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
OUTSTANDING BY OUTSTANDING
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF INTEREST RATES(1) STUDENT LOANS BALANCE(2) BALANCE
- ------------------------------------------------------------ ------------- -------------------- -----------------
<S> <C> <C> <C>
7.00% to 7.49%..............................................
7.50% to 7.99%..............................................
8.00% to 8.49%..............................................
8.50% to 8.99%..............................................
9.00% to 9.49%..............................................
9.50% and above.............................................
[Total].....................................................
</TABLE>
- ------------------
(1) Determined using the interest rates applicable to the [Initial] Student
Loans as of the Cutoff Date. However, because a portion of the [Initial]
Student Loans effectively bear interest at a variable rate per annum to the
borrower, there can be no assurance that the foregoing information will
remain applicable to the [Initial] Student Loans at any time after the
Cutoff Date. See "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" in the
Prospectus.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
S-31
<PAGE>
DISTRIBUTION OF THE [INITIAL] FFELP STUDENT LOANS BY OUTSTANDING PRINCIPAL
BALANCE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
RANGE OF OUTSTANDING PRINCIPAL BALANCES ($) STUDENT LOANS PRINCIPAL BALANCE(1) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Less than 2,000.......................................
2,000 to 3,999.......................................
4,000 to 5,999.......................................
6,000 to 7,999.......................................
8,000 to 9,999.......................................
10,000 to 11,999.......................................
12,000 to 13,999.......................................
14,000 to 15,999.......................................
16,000 to 17,999.......................................
18,000 to 19,999.......................................
20,000 to 21,999.......................................
22,000 to 23,999.......................................
24,000 to 25,999.......................................
26,000 to 27,999.......................................
28,000 and above.......................................
</TABLE>
- ------------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
DISTRIBUTION OF THE [INITIAL] PRIVATE STUDENT LOANS BY OUTSTANDING PRINCIPAL
BALANCE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
RANGE OF OUTSTANDING PRINCIPAL BALANCES ($) STUDENT LOANS PRINCIPAL BALANCE(1) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Less than 2,000.......................................
2,000 to 3,999.......................................
4,000 to 5,999.......................................
6,000 to 7,999.......................................
8,000 to 9,999.......................................
10,000 to 11,999.......................................
12,000 to 13,999.......................................
14,000 to 15,999.......................................
16,000 to 17,999.......................................
18,000 to 19,999.......................................
20,000 to 21,999.......................................
22,000 to 23,999.......................................
24,000 to 25,999.......................................
26,000 to 27,999.......................................
28,000 and above.......................................
</TABLE>
- ------------------
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
S-32
<PAGE>
DISTRIBUTION OF THE [INITIAL] FFELP STUDENT LOANS BY REMAINING TERM
TO SCHEDULED MATURITY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
NUMBER OF MONTHS REMAINING TO SCHEDULED MATURITY(1) STUDENT LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Less than 24..........................................
24 to 35.............................................
36 to 47.............................................
48 to 59.............................................
60 to 71.............................................
72 to 83.............................................
84 to 95.............................................
96 to 107.............................................
108 to 119.............................................
120 to 131.............................................
132 to 143.............................................
144 to 155.............................................
156 to 167.............................................
168 to 179.............................................
180 to 191.............................................
192 and above..........................................
</TABLE>
- ------------------
(1) Determined from the Cutoff Date to the stated maturity date of the
applicable [Initial] Student Loan, assuming repayment commences promptly
upon expiration of the typical grace period following the expected
graduation date and without giving effect to any deferral or forbearance
periods that may be granted in the future. See "THE FEDERAL FAMILY EDUCATION
LOAN PROGRAM" in the Prospectus.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
DISTRIBUTION OF THE [INITIAL] PRIVATE STUDENT LOANS BY REMAINING TERM
TO SCHEDULED MATURITY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
NUMBER OF MONTHS REMAINING TO SCHEDULED MATURITY(1) STUDENT LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Less than 24..........................................
24 to 35.............................................
36 to 47.............................................
48 to 59.............................................
60 to 71.............................................
72 to 83.............................................
84 to 95.............................................
96 to 107.............................................
108 to 119.............................................
120 to 131.............................................
132 to 143.............................................
144 to 155.............................................
156 to 167.............................................
168 to 179.............................................
180 to 191.............................................
192 and above..........................................
</TABLE>
- ------------------
(1) Determined from the Cutoff Date to the stated maturity date of the
applicable [Initial] Student Loan, assuming repayment commences promptly
upon expiration of the typical grace period following the expected
graduation date and without giving effect to any deferral or forbearance
periods that may be granted in the future. See "THE FEDERAL FAMILY EDUCATION
LOAN PROGRAM" in the Prospectus.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
S-33
<PAGE>
DISTRIBUTION OF THE [INITIAL] FFELP STUDENT LOANS BY BORROWER PAYMENT STATUS AS
OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
BORROWER PAYMENT STATUS(1) STUDENT LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
In-School..............................................
Grace..................................................
Deferral...............................................
Forbearance............................................
Repayment..............................................
</TABLE>
- ------------------
(1) Refers to the status of the borrower of each [Initial] Student Loan as of
the Cutoff Date: such borrower may still be attending school ("In-School"),
may be in a grace period prior to repayment commencing ("Grace"), may be
repaying such loan ("Repayment") or may have temporarily ceased repaying
such loan through a deferral ("Deferral") or a forbearance ("Forbearance")
period. See "The Federal Family Education Loan Program" in the Prospectus.
For purposes of this table, "In-School" excludes, and "Deferral" includes,
all SLS or PLUS Loans of borrowers still attending school.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
S-34
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE [INITIAL] FFELP STUDENT LOANS AS OF
THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
LOCATION STUDENT LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Alabama................................................
Alaska.................................................
Arizona................................................
Arkansas...............................................
California.............................................
Colorado...............................................
Connecticut............................................
Delaware...............................................
District of Columbia...................................
Florida................................................
Georgia................................................
Guam...................................................
Hawaii.................................................
Idaho..................................................
Illinois...............................................
Indiana................................................
Iowa...................................................
Kansas.................................................
Kentucky...............................................
Louisiana..............................................
Maine..................................................
Maryland...............................................
Massachusetts..........................................
Michigan...............................................
Minnesota..............................................
Mississippi............................................
Missouri...............................................
Montana................................................
Nebraska...............................................
Nevada.................................................
New Hampshire..........................................
New Jersey.............................................
New Mexico.............................................
New York...............................................
North Carolina.........................................
North Dakota...........................................
Ohio...................................................
Oklahoma...............................................
Oregon.................................................
Pennsylvania...........................................
Puerto Rico............................................
Rhode Island...........................................
South Carolina.........................................
South Dakota...........................................
Tennessee..............................................
Texas..................................................
Utah...................................................
Vermont................................................
Virgin Islands.........................................
Virginia...............................................
Washington.............................................
West Virginia..........................................
Wisconsin..............................................
Wyoming................................................
Other..................................................
Total..............................................
</TABLE>
- ------------------
(1) Based on the permanent billing addresses of the borrowers of the [Initial]
Student Loans shown on the Servicer's records as of the Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
S-35
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE [INITIAL] PRIVATE STUDENT LOANS AS OF
THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENT OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
LOCATION STUDENT LOANS PRINCIPAL BALANCE(2) PRINCIPAL BALANCE
- ------------------------------------------------------- ------------- -------------------- ----------------------
<S> <C> <C> <C>
Alabama................................................
Alaska.................................................
Arizona................................................
Arkansas...............................................
California.............................................
Colorado...............................................
Connecticut............................................
Delaware...............................................
District of Columbia...................................
Florida................................................
Georgia................................................
Guam...................................................
Hawaii.................................................
Idaho..................................................
Illinois...............................................
Indiana................................................
Iowa...................................................
Kansas.................................................
Kentucky...............................................
Louisiana..............................................
Maine..................................................
Maryland...............................................
Massachusetts..........................................
Michigan...............................................
Minnesota..............................................
Mississippi............................................
Missouri...............................................
Montana................................................
Nebraska...............................................
Nevada.................................................
New Hampshire..........................................
New Jersey.............................................
New Mexico.............................................
New York...............................................
North Carolina.........................................
North Dakota...........................................
Ohio...................................................
Oklahoma...............................................
Oregon.................................................
Pennsylvania...........................................
Puerto Rico............................................
Rhode Island...........................................
South Carolina.........................................
South Dakota...........................................
Tennessee..............................................
Texas..................................................
Utah...................................................
Vermont................................................
Virgin Islands.........................................
Virginia...............................................
Washington.............................................
West Virginia..........................................
Wisconsin..............................................
Wyoming................................................
Other..................................................
Total..............................................
</TABLE>
- ------------------
(1) Based on the permanent billing addresses of the borrowers of the [Initial]
Student Loans shown on the Servicer's records as of the Cutoff Date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
S-36
<PAGE>
DISTRIBUTION OF [INITIAL] FFELP STUDENT LOANS BY DATE OF DISBURSEMENT
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
DISBURSEMENT DATE(1) STUDENT LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------------------------------- ------------- ----------------- ----------------------
<S> <C> <C> <C>
Pre-October 1, 1993.....................................
October 1, 1993 and thereafter..........................
Total.............................................. [100%]
</TABLE>
- ------------------
(1) FFELP Loans disbursed prior to October 1, 1993 are 100% guaranteed by the
applicable Guarantor, and reinsured against default by the Department up to
a maximum of 100% of the Guarantee Payments. FFELP Loans disbursed on or
after October 1, 1993 are 98% guaranteed by the applicable Guarantor, and
reinsured against default by the Department up to a maximum of 98% of the
Guarantee Payments.
(2) Includes net principal balance due from Obligors, plus accrued interest
thereon estimated to be $ as of the Cutoff Date to be capitalized
upon commencement of repayment.
DISTRIBUTION OF [INITIAL] FFELP STUDENT LOANS
BY NUMBER OF DAYS OF DELINQUENCY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
% OF
AGGREGATE POOL BY PERCENT AGGREGATE WEIGHTED
NUMBER OUTSTANDING OUTSTANDING OF POOL ORIGINAL AVERAGE UNCAPITALIZED AVERAGE
OF PRINCIPAL PRINCIPAL BY NUMBER PRINCIPAL PRINCIPAL ACCRUED INTEREST
DAYS DELINQUENT LOANS BALANCE (1) BALANCE (2) OF LOANS BALANCE BALANCE INTEREST RATE (3)
- -------------------- ------ ----------- ----------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current.............
31- 60..............
61- 90..............
91-120..............
Total...............
<CAPTION>
WEIGHTED
AVERAGE
MARGIN
DAYS DELINQUENT (3)
- -------------------- --------
<S> <C>
Current.............
31- 60..............
61- 90..............
91-120..............
Total...............
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING TERM
WEIGHTED AVERAGE ORIGINAL TERM (IN MONTHS) (IN MONTHS)
- ------------------------------------------------------- ----------------
<S> <C>
Current................................................
31- 60.................................................
61- 90.................................................
91-120.................................................
Total..................................................
</TABLE>
- ------------------
(1) Current outstanding balance provided by [EFG Technologies].
(2) As a percent of current outstanding balance.
(3) Weighted by current outstanding balance.
(4) Original term defined as period from loan origination date until loan
maturity date.
(5) Remaining term defined as period from Cutoff Date until loan maturity date.
S-37
<PAGE>
DISTRIBUTION OF [INITIAL] PRIVATE STUDENT LOANS
BY NUMBER OF DAYS OF DELINQUENCY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
% OF
AGGREGATE POOL BY PERCENT AGGREGATE WEIGHTED
NUMBER OUTSTANDING OUTSTANDING OF POOL ORIGINAL AVERAGE UNCAPITALIZED AVERAGE
OF PRINCIPAL PRINCIPAL BY NUMBER PRINCIPAL PRINCIPAL ACCRUED INTEREST
DAYS DELINQUENT LOANS BALANCE (1) BALANCE (2) OF LOANS BALANCE BALANCE INTEREST RATE (3)
- -------------------- ------ ----------- ----------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current.............
31- 60..............
61- 90..............
91-120..............
Total...............
<CAPTION>
WEIGHTED
AVERAGE
MARGIN
DAYS DELINQUENT (3)
- -------------------- --------
<S> <C>
Current.............
31- 60..............
61- 90..............
91-120..............
Total...............
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING TERM
WEIGHTED AVERAGE ORIGINAL TERM (IN MONTHS) (IN MONTHS)
- ------------------------------------------------------- ----------------
<S> <C>
Current................................................
31- 60.................................................
61- 90.................................................
91-120.................................................
Total..................................................
</TABLE>
- ------------------
(1) Current outstanding balance provided by [EFG Technologies].
(2) As a percent of current outstanding balance.
(3) Weighted by current outstanding balance.
(4) Original term defined as period from loan origination date until loan
maturity date.
(5) Remaining term defined as period from Cutoff Date until loan maturity date.
Each of the Student Loans provides or will provide for the amortization of
the outstanding principal balance of such Student Loan over a series of regular
payments. Each regular payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of such Student
Loan multiplied by the applicable interest rate and further multiplied by the
period elapsed (as a fraction of a calendar year) since the preceding payment of
interest was made. As payments are received in respect of such Student Loan, the
amount received is applied first to interest accrued to the date of payment and
the balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular installment before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if a borrower pays a
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, subject to any applicable Deferral
Periods or Forbearance Periods in the case of FFELP Student Loans, the borrower
pays a regular installment until the final scheduled payment date, at which time
the amount of the final installment is increased or decreased as necessary to
repay the then outstanding principal balance of such Student Loan.
From time to time the Depositor may exchange FFELP Loans (the "Exchange
Loans") for FFELP Student Loans in the Trust if the Exchange Loans are such that
they would qualify to stand in lieu of a cash repurchase price payable by the
Seller if the FFELP Student Loans to be exchanged for the Exchange Loans were
the subject of a repurchase obligation of the Seller under the Loan Sale
Agreement. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Sale of
Student Loans; Representations and Warranties" in the Prospectus.
S-38
<PAGE>
GUARANTEE OF STUDENT LOANS
General. Each FFELP Student Loan is required to be guaranteed as to
principal and interest by one of the Federal Guarantors described below and
reinsured by the Department under the Act and must be eligible for Special
Allowance Payments and, with respect to certain Student Loans, Interest Subsidy
Payments paid by the Department. Each Private Student Loan is required to be
guaranteed by a Private Guarantor.
Federal Guarantors. The Eligible Lender Trustee has entered into a
separate Guarantee Agreement with each of the Guarantors listed below (each, a
"Federal Guarantor") pursuant to which each of the Federal Guarantors has agreed
to serve as guarantor for certain of the Student Loans.
Pursuant to the Higher Education Amendments of 1992 (the "1992
Amendments"), under Section 432(o) of the Act, if the Department has determined
that a Federal Guarantor is unable to meet its insurance obligations, the loan
holder may submit claims directly to the Department and the Department is
required to pay the full Guarantee Payment due with respect thereto in
accordance with guarantee claim processing standards no more stringent than
those of such Federal Guarantor. However, the Department's obligation to pay
guarantee claims directly in this fashion is contingent upon the Department
making the determination referred to above. There can be no assurance that the
Department would ever make such a determination with respect to a Federal
Guarantor or, if such a determination was made, whether such determination or
the ultimate payment of such guarantee claims would be made in a timely manner.
See "APPENDIX A--The Federal Family Education Loan Program--Federal Guarantors"
and "--Federal Insurance and Reinsurance of Federal Guarantors" in the
Prospectus.
The following table provides information with respect to the portion of the
Student Loans guaranteed by each Federal Guarantor under FFELP:
DISTRIBUTION OF THE FFELP STUDENT LOANS BY
FEDERAL GUARANTOR AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE
OUTSTANDING
NUMBER PRINCIPAL BALANCE PERCENT OF POOL
OF LOANS OF LOANS BY OUTSTANDING
NAME OF FEDERAL GUARANTOR GUARANTEED GUARANTEED(1) PRINCIPAL BALANCE
- ------------------------------------------------------------- ---------- ------------------- -----------------
<S> <C> <C> <C>
$ %
------ ----------- -----
Total........................................................ $ $ 100.0%
------ ----------- -----
------ ----------- -----
</TABLE>
- ------------------
(1) Includes principal balance due from Obligors, plus accrued interest thereon
of $ as of the Cutoff Date to be capitalized upon commencement of
repayment.
Set forth below is certain historical information with respect to each of
the Federal Guarantors which guarantees FFELP Student Loans comprising greater
than 5% of the [Initial] Pool Balance (the "Significant Federal Guarantors").
The information shown for each Significant Federal Guarantor relates to all
Student Loans (including but not limited to Student Loans) guaranteed by such
Significant Federal Guarantor:
Guaranty Volume. The following table sets forth the approximate aggregate
principal amount of FFELP Student Loans (excluding Federal Consolidation Loans)
that first became guaranteed by each Significant Federal
S-39
<PAGE>
Guarantor and by all Federal Guarantors (including but not limited to those
guaranteeing Student Loans) in each of the five federal fiscal years shown for
which information is available:*
<TABLE>
<CAPTION>
LOANS GUARANTEED
--------------------------------------------------------
FEDERAL FISCAL YEAR
--------------------------------------------------------
NAME OF FEDERAL GUARANTORS 1992 1993 1994 1995 1996
- ----------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
All Federal Guarantors............................... $ $ $ $ $
</TABLE>
- ------------------
* The information set forth in the table above has been obtained from the
Department's FY 1993 Loan Programs Data Book ("DOE Data Book") (with respect
to fiscal years 1992 and 1993) and from the Department's quarterly Loan Volume
Updates (with respect to fiscal years 1994, 1995 and 1996), and has not been
audited or independently verified for accuracy or completeness by the Seller,
the Depositor, the Servicer or the Underwriters.
Reserve Ratio. Each Significant Federal Guarantor's reserve ratio is
determined by dividing its cumulative cash reserves by the original principal
amount of the outstanding loans it has agreed to guarantee. The term "cumulative
cash reserves" refers to cash reserves plus (i) sources of funds (including
insurance premiums, state appropriations, federal advances, federal reinsurance
payments, administrative cost allowances, collections on claims paid and
investment earnings) minus (ii) uses of funds (including claims paid to lenders,
operating expenses, lender fees, the Department's share of collections on claims
paid, returned advances and reinsurance fees). The "original principal amount of
outstanding loans" consists of the original principal amount of loans guaranteed
by such Significant Federal Guarantor minus the original principal amount of
loans canceled, claims paid, loans paid in full and loan guarantees transferred
to such Significant Federal Guarantor from other guarantors.
The following table sets forth the Significant Federal Guarantors' reserve
ratios and the national average reserve ratio for all guarantors for the five
federal fiscal years shown for which information is available:*
<TABLE>
<CAPTION>
RESERVE RATIO AS OF CLOSE OF
--------------------------------------------------------
FEDERAL FISCAL YEAR
--------------------------------------------------------
FEDERAL GUARANTORS 1992 1993 1994 1995 1996
- ----------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
All Federal Guarantors............................... % % % % %
</TABLE>
- ------------------
* The information set forth in the table above with respect to the Significant
Federal Guarantors and the national average has been obtained from the DOE
Data Book (with respect to fiscal years 1992 and 1993), from the Department's
FY94-96 FFELP Loan Programs Data Book (with respect to fiscal years 1994 and
1995) and from the latest available Department of Education quarterly reports
(with respect to fiscal year 1996).
The information set forth in the table above has not been audited or
independently verified for accuracy or completeness by the Seller, the
Depositor, the Servicer or the Underwriters.
Recovery Rates. A Federal Guarantor's recovery rate, which provides a
measure of the effectiveness of the collection efforts against defaulting
borrowers after the guarantee claim has been satisfied, is determined by
dividing the amount recovered from borrowers by the Federal Guarantor by the
aggregate amount of default claims paid by the Federal Guarantor during the
applicable federal fiscal year with respect to borrowers. The table below sets
forth the recovery rates for each of the Significant Federal Guarantors for the
five federal fiscal years shown:*
<TABLE>
<CAPTION>
RECOVERY RATE
--------------------------------------------------------
FEDERAL FISCAL YEAR
--------------------------------------------------------
FEDERAL GUARANTORS 1992 1993 1994 1995 1996
- ----------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
% % % % %
</TABLE>
- ------------------
* The information set forth in the table above has been obtained from the latest
available Department of Education quarterly reports and has not been audited
or independently verified for accuracy or completeness by EFG, the Depositor,
the Servicer or the Underwriters.
S-40
<PAGE>
Claims Rate.* The following table sets forth the claims rates of each
Significant Federal Guarantor for each of the five federal fiscal years shown:**
<TABLE>
<CAPTION>
CLAIMS RATE
--------------------------------------------------------
FEDERAL FISCAL YEAR
--------------------------------------------------------
FEDERAL GUARANTORS 1992 1993 1994 1995 1996
- ----------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
% % % % %
</TABLE>
- ------------------
* The Department is required to make reinsurance payments to Federal Guarantors
with respect to FFELP loans in default that are subject to specified
reductions when the Federal Guarantor's claims rate for a fiscal year equals
or exceeds certain trigger percentages of the aggregate original principal
amount of FFELP loans guaranteed by such Guarantor that are in repayment on
the last day of the prior fiscal year. See Appendix A to the Prospectus.
** The information set forth in the table above has been obtained from the
latest available Department of Education quarterly reports and has not been
audited or independently verified for accuracy or completeness by the Seller,
the Depositor, the Servicer or the Underwriters.
Unless otherwise indicated, all the above information relating to the
Significant Federal Guarantors has been obtained from the Significant Federal
Guarantors, is not guaranteed as to accuracy or completeness by the Seller, the
Depositor or the Underwriters and is not to be construed as a representation by
the Seller, the Depositor or the Underwriters.
Each of the Federal Guarantor's guarantee obligations with respect to any
FFELP Student Loan is conditioned upon the satisfaction of all the conditions
set forth in the applicable Guarantee Agreement. These conditions include, but
are not limited to, the following: (i) the origination and servicing of such
Student Loan being performed in accordance with FFELP, the Act, such Federal
Guarantor's rules and other applicable requirements, (ii) the timely payment to
the Federal Guarantor of the guarantee fee payable with respect to such Student
Loan, (iii) the timely submission to the Federal Guarantor of all required
pre-claim delinquency status notifications and of the claim with respect to such
Student Loan. Failure to comply with any of the applicable conditions, including
the foregoing, may result in the refusal of the Federal Guarantor to honor its
Guarantee Agreements with respect to such Student Loan, in the denial of
guarantee coverage with respect to certain accrued interest amounts with respect
thereto or in the loss of certain Interest Subsidy Payments and Special
Allowance Payments with respect thereto.
Prospective investors should consult the DOE Data Books for further
information concerning the Guarantors.
Private Guarantors. Payment of principal and interest with respect to the
Private Student Loans will be guaranteed against default, death, bankruptcy or
disability of the applicable borrower by one of the Private Guarantors pursuant
to a guarantee agreement to be entered into among such Private Guarantor, the
Seller [and the Trustee] (such agreements, as amended or supplemented from time
to time, the "Private Guarantee Agreements"). The Private Guarantors are
sometimes individually referred to herein as a "Private Guarantor" and
collectively as the "Private Guarantors".
A Private Guarantor is not entitled to any federal reinsurance or
assistance from the Department. Although each Private Guarantor maintains a loan
loss reserve intended to absorb losses arising from its guarantee commitments,
there can be no assurance that the amount of such reserve will be sufficient to
cover the obligations of the Private Guarantor over the term of the Private
Student Loans. There can be no assurance that the Private Guarantors will have
the financial resources to make all Guarantee Payments to the Trustee that may
arise from time to time. The inability of any Private Guarantor to meet its
guarantee obligations could reduce the amount of principal and interest paid to
the holders of the Securities.
S-41
<PAGE>
The following table provides information with respect to the portion of the
Private Student Loans guaranteed by each Private Guarantor.
DISTRIBUTION OF THE PRIVATE STUDENT LOANS
BY PRIVATE GUARANTOR AS OF THE CUT OFF DATE
<TABLE>
<CAPTION>
AGGREGATE
OUTSTANDING
NUMBER OF PRINCIPAL BALANCE PERCENT OF POOL
LOANS OF LOANS BY OUTSTANDING
PRIVATE GUARANTOR GUARANTEED GUARANTEED PRINCIPAL BALANCE
- ------------------------------------------------------------- ---------- --------------------- -----------------
<S> <C> <C> <C>
$ %
</TABLE>
Set forth below is information regarding the Private Guarantors that was
provided for use in this Prospectus Supplement by the Private Guarantors.
Description of the Business and Guaranty of , Private
Guarantor.
The following sets forth certain current and historical financial and
operating information with respect to [ ] in its capacity as a
Private Guarantor:
Financial and Operating Information Summary. The following table is a
summary of certain financial and operating information of [ ] for
the [ ] calendar years referred to below:
S-42
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture
substantially in the form filed as an exhibit to the Registration Statement. The
following summary describes certain terms of the Notes, the Indenture and the
Trust Agreement pursuant to which the Trust will be formed. 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 Trust Agreement. The following
summary supplements, and to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Notes, the Indenture and
the Trust Agreement set forth in the Prospectus, to which description reference
is hereby made.
PAYMENTS OF INTEREST
Interest will accrue on the principal balance of the Senior Notes and the
Subordinate Notes at a rate per annum (calculated as provided below) equal to
the Senior Note Rate and the Subordinate Note Rate, respectively. Interest on
the Notes will accrue from and including the Closing Date or from the most
recent Quarterly Payment Date on which interest thereon has been paid to but
excluding the current Quarterly Payment Date (each a "Quarterly Interest
Period") and will be payable to the Senior Noteholders and the Subordinate
Noteholders, as the case may be, quarterly on each Quarterly Payment Date,
commencing , 199[_]. Interest accrued as of any Quarterly Payment
Date but not paid on such Quarterly Payment Date will be due on the next
Quarterly Payment Date, together with an amount equal to interest on such amount
at the applicable rate per annum specified above. Interest payments on the Notes
will generally be funded from Available Funds on deposit in the Collection
Account and from amounts on deposit in the Reserve Account remaining after the
distribution of the Servicing Fee and all overdue Servicing Fees and the
Administration Fee and all overdue Administration Fees for
such Quarterly Payment Date. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--DISTRIBUTIONS" and "--Credit Enhancement" herein.
The "Senior Note Rate" for each Quarterly Interest Period will be the
lesser of (a) the Senior Note T-Bill Rate for such Quarterly Interest Period and
(b) the Student Loan Rate for such Quarterly Interest Period. The "Subordinate
Note Rate" for each Quarterly Interest Period will be the lesser of (a) the
Subordinate Note T-Bill Rate for such Quarterly Interest Period and (b) the
Student Loan Rate for such Quarterly Interest Period.
The "Senior Note T-Bill Rate" shall be equal to the weighted average of the
T-Bill Rates within the applicable Quarterly Interest Period (determined as
described herein) plus %.
The "Subordinate Note T-Bill Rate" shall be equal to the weighted average
of the T-Bill Rates within the applicable Quarterly Interest Period (determined
as described herein) plus %.
The "Student Loan Rate" for any Quarterly Interest Period will equal the
product of (a) the quotient obtained by dividing (i) 365 (or 366 in the case of
a leap year) by (ii) the actual number of days elapsed in such Quarterly
Interest Period and (b) the percentage equivalent of a fraction, (i) the
numerator of which is equal to Expected Interest Collections for such Quarterly
Interest Period less the Servicing Fee and the Administration Fee with respect
to such Quarterly Interest Period and (ii) the denominator of which is the
aggregate principal balance of the Notes as of the last day of such Quarterly
Interest Period.
"Expected Interest Collections" means, with respect to any Quarterly
Interest Period, the sum of (i) the amount of interest accrued, net of accrued
Monthly Rebate Fees and other amounts required by the Act to be paid to the
Department, with respect to the Student Loans for the related Student Loan Rate
Accrual Period (whether or not such interest is actually paid), (ii) all
Interest Subsidy Payments and Special Allowance Payments estimated to have
accrued for such Student Loan Rate Accrual Period whether or not actually
received (taking into account any expected deduction therefrom of the Federal
Origination Fees described under "RISK FACTORS--Fees Payable on Certain Student
Loans", above) and (iii) Investment Earnings for such Student Loan Rate Accrual
Period.
Senior Noteholders' Interest T-Bill Carryover and Subordinate Noteholders'
Interest T-Bill Carryover may be incurred on any Quarterly Payment Date (after
the first Quarterly Payment Date). Any Senior Noteholders' Interest T-Bill
Carryover and Subordinate Noteholders' Interest T- Bill Carryover so incurred
prior to the Parity
S-43
<PAGE>
Date will, however, not be payable until on or after the Parity Date. On each
Quarterly Payment Date from and after the Parity Date, any Senior Noteholders'
Interest T-Bill Carryover and Subordinate Noteholders' Interest T-Bill Carryover
incurred and unpaid to any including such Quarterly Payment Date will be payable
on such Quarterly Payment Date but only out of any Reserve Account Excess
remaining after payment out of such excess of (i) [if the Revolving Period has
terminated, any Purchase Premiums due the Seller for Serial Loans purchased by
the Trust prior to the end of the related Collection Period, (ii)] on the Parity
Date (if the Parity Date occurs after the end of the Revolving Period), any
amount necessary to reduce to zero the remaining amount by which the aggregate
principal balance of the Notes exceeds the Pool Balance and ([ii)] in the case
of the Subordinate Noteholders' Interest T-Bill Carryover, payment of the Senior
Noteholders' Interest T-Bill Carryover.
DISTRIBUTIONS OF PRINCIPAL
[No principal payments will be made on the Notes during the Revolving
Period.] Commencing with [ ]] [the end of the Revolving Period,]
principal payments will be made to the Noteholders in the order of priority set
forth below on each Quarterly Payment Date in an amount generally equal to the
Principal Distribution Amount for such Quarterly Payment Date, until the
aggregate principal balance of the Notes is reduced to zero. Payments of the
Principal Distribution Amount will generally be derived from Available Funds
remaining after the distribution of the Servicing Fee and all overdue Servicing
Fees, the Administration Fee and all overdue Administration Fees and the
Noteholders' Interest Distribution Amount and, if such Available Funds are
insufficient, from amounts on deposit in the Reserve Account. See "DESCRIPTION
OF THE TRANSFER AND SERVICING AGREEMENTS--Distributions" and "--Credit
Enhancement" herein. If such Available Funds and such amounts on deposit in the
Reserve Account are insufficient to pay the Senior Noteholders' Principal
Distribution Amount or, after the Senior Notes have been paid in full, the
Subordinate Noteholders' Principal Distribution Amount for a Quarterly Payment
Date, such shortfall will be added to the principal payable to the Senior or
Subordinate Noteholders, respectively, on subsequent Quarterly Payment Dates.
In addition, on each Quarterly Payment Date commencing with
[ ] [the end of the Revolving Period,] for so long as the
aggregate principal balance of the Notes is greater than the Pool Balance, any
Reserve Account Excess for such Quarterly Payment Date will[, after payment to
the Seller of any unpaid Purchase Premium Amounts for any Serial Loans purchased
by the Trust prior to the end of the related Collection Period,] be applied to
pay the principal of the Notes in the order of priority set forth below.
Amounts, if any, available to be distributed as set forth in the preceding
sentence will not be part of the Principal Distribution Amount or the Senior or
Subordinate Noteholders' Principal Distribution Amount for a Quarterly Payment
Date and Noteholders will have no entitlement thereto except to the extent of
any such excess in the Reserve Account of which there can be no assurance. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit
Enhancement--Reserve Account" herein.
On each Quarterly Payment Date on which principal payments are made on the
Notes (whether in respect of the Principal Distribution Amount, amounts on
deposit in the Reserve Account constituting Reserve Account Excess (as described
in the preceding paragraph) or amounts in respect of a mandatory redemption[, as
described below, or otherwise),] all payments of principal will be applied to
pay principal of the Senior Notes until the aggregate principal balance of the
Senior Notes has been reduced to zero, and then to pay principal of the
Subordinate Notes until the aggregate principal balance of the Subordinate Notes
has been reduced to zero.
The aggregate outstanding principal amount of the Senior Notes will be
payable in full on the Quarterly Payment Date (the "Senior Note
Final Maturity Date") and the aggregate outstanding principal amount of the
Subordinate Notes will be payable in full on the Quarterly
Payment Date (the "Subordinate Note Final Maturity Date"). However, the actual
maturity of the Senior or Subordinate Notes could occur other than on the Senior
Note Final Maturity Date or the Subordinate Note Final Maturity Date,
respectively, as a result of a variety of factors including those described
above under "RISK FACTORS--Maturity and Prepayment Considerations."
S-44
<PAGE>
[MANDATORY REDEMPTION
If any amount remains on deposit in the Collateral Reinvestment Account on
the last day of the Revolving Period after giving effect to all Additional
Fundings on or prior to such date, the entire amount remaining on deposit in the
Collateral Reinvestment Account will be used on the Quarterly Payment Date on or
immediately following such date to redeem the Senior Notes until the aggregate
principal balance thereof has been reduced to zero, and then to redeem the
Subordinate Notes until the aggregate principal balance thereof has been reduced
to zero. The aggregate principal amount of Notes to be redeemed will be an
amount equal to the amount then on deposit in the Collateral Reinvestment
Account.]
DETERMINATION OF T-BILL RATES
Pursuant to the Administration Agreement, the Administrator will act as
calculation agent and will use the T-Bill Rate to determine the Senior Note T-
Bill Rate and Subordinate Note T-Bill Rate for each Quarterly Interest Period.
"T-Bill Rate" means, on any day, the weighted average per annum discount rate
(expressed on a bond equivalent basis and applied on a daily basis) for direct
obligations of the United States with a maturity of thirteen weeks ("91-day
Treasury Bills") sold at the most recent 91-day Treasury Bill auction prior to
such date, as reported by the U.S. Department of the Treasury. In the event that
the results of the auctions of 91-day Treasury Bills cease to be reported as
provided above, or that no such auction is held in a particular week, then the
T-Bill Rate in effect as a result of the last such publication or report will
remain in effect until such time, if any, as the results of auctions of 91-day
Treasury Bills shall again be reported or such an auction is held, as the case
may be. The T-Bill Rate will be subject to a Lock-In Period of six business
days.
"Lock-In Period" means the period of days preceding any Quarterly Payment
Date during which the T-Bill Rate in effect on the first day of such period will
remain in effect until the end of the Quarterly Interest Period related to such
Quarterly Payment Date.
Accrued interest on each class of Notes from and including the Closing Date
or the preceding Quarterly Payment Date, as applicable, to but excluding the
current Quarterly Payment Date is calculated by multiplying the principal amount
of such Notes by an "accrued interest factor." This factor is calculated by
adding the interest rates applicable to each day on which each such Note has
been outstanding since the Closing Date or the preceding Quarterly Payment Date,
as applicable, and dividing the sum by 365 (or by 366 in the case of accrued
interest which is payable on a Quarterly Payment Date in a leap year) and
rounding the resulting number to nine decimal places.
The following table sets forth the accrued interest factors that would have
been applicable to any Note bearing interest at the indicated rates, assuming
the 365-day year.
<TABLE>
<CAPTION>
ASSUMED INTEREST
-----------------------------------
DAYS RATE ON ACCRUED INTEREST
SETTLEMENT DATE OUTSTANDING THE NOTES RECEIVABLE FACTOR
- --------------------------------------- ----------- --------- -----------------
<S> <C> <C> <C>
1st.................................... 0 5.50000% 0.000000000
2nd.................................... 1 5.50000 0.000150685
3rd.................................... 2 5.50000 0.000301370
4th.................................... 3 5.50000 0.000452055
5th*................................... 4 5.65000 0.000602740
6th.................................... 5 5.65000 0.000757534
7th.................................... 6 5.65000 0.000912329
8th.................................... 7 5.65000 0.001067123
9th.................................... 8 5.65000 0.001221918
10th................................... 9 5.65000 0.001376712
10
</TABLE>
- ------------------
* First interest rate adjustment (91-day Treasury Bills are generally auctioned
weekly).
The numbers in this table are examples given for informational purposes
only and are in no way a prediction of interest rates on either class of Notes.
S-45
<PAGE>
BOOK-ENTRY REGISTRATION
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants include
the Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Senior Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Senior Notes may do so only through Participants and Indirect Participants.
In addition, Senior Noteholders will receive all distributions of principal of
and interest on the Senior Notes from the Indenture Trustee through DTC and its
Participants. Under a book-entry format, Senior Noteholders will receive
payments after the related Quarterly Payment Date because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each such date, DTC
will forward such payments to its Participants which thereafter will be required
to forward them to Indirect Participants or Senior Noteholders. It is
anticipated that the only "Senior Noteholder" will be Cede, as nominee for DTC
and that Senior Noteholders will not be recognized by the Indenture Trustee as
Noteholders, as such terms are used in the Indenture. Senior Noteholders will be
permitted to exercise the rights of Senior Noteholders indirectly through DTC
and its Participants (who in turn will exercise their rights through DTC).
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Senior Notes and is required to
receive and transmit distributions of principal of and interest on the Senior
Notes. Participants and Indirect Participants with which Senior Noteholders have
accounts with respect to the Senior Notes similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Senior Noteholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Senior
Noteholder to pledge Senior Notes to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of such Senior Notes,
may be limited due to the lack of a physical certificate for such Senior Notes.
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 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. 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.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 27 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
S-46
<PAGE>
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear, withdrawals of securities
and cash from the Euroclear, and receipts of payments with respect to securities
in Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Senior Notes held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Cedel or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Senior Noteholder under the Indenture on behalf of a
Cedel Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Senior Noteholders may hold their Senior Notes through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems.
The Senior Notes will initially be registered in the name of CEDE & Co.,
the nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. ("Citibank") will act as depositary
for Cedel and Morgan Guaranty Trust Company of New York ("Morgan") will act as
depositary for Euroclear (in such capacities, individually the "Depositary" and
collectively the "Depositaries").
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or Euroclear
Participant to a 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. For information with respect
to tax documentation procedures for the Senior Notes, see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES--Tax Consequences to Holders of the Notes--Foreign
Holders" in the Prospectus.
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
S-47
<PAGE>
in accordance with DTC Rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions to the Depositaries.
DTC has advised the Administrator that it will take any action permitted to
be taken by a Senior Noteholder under the Indenture, only at the direction of
one or more Participants to whose accounts with DTC the Senior Notes are
credited.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Senior Notes among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
NONE OF THE TRUST, THE SELLER, THE DEPOSITOR, THE SERVICER, THE
ADMINISTRATOR, THE ELIGIBLE LENDER TRUSTEE, THE INDENTURE TRUSTEE OR THE
UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS,
CEDEL PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS
NOMINEES WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC,
CEDEL OR EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL OR
EUROCLEAR OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN
RESPECT OF THE PRINCIPAL AMOUNT OR INTEREST ON THE SENIOR NOTES, (3) THE
DELIVERY BY ANY PARTICIPANT, CEDEL PARTICIPANT OR EUROCLEAR PARTICIPANT OF ANY
NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF
THE INDENTURE OR THE TRUST AGREEMENT TO BE GIVEN TO SENIOR NOTEHOLDERS OR
(4) ANY OTHER ACTION TAKEN BY DTC AS THE SENIOR NOTEHOLDER.
S-48
<PAGE>
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of certain terms of the Loan Sale Agreement,
pursuant to which the Depositor purchases the Student Loans from the Seller, the
Transfer Agreement pursuant to which the Depositor conveys the Student Loans
(together with all its rights and remedies under the Loan Sale Agreement) to the
Trust; the Servicing Agreements pursuant to which the Servicer will service the
Student Loans; the Administration Agreement, pursuant to which the Administrator
will undertake certain other administrative duties and functions with respect to
the Trust and the Student Loans; and the Trust Agreement, pursuant to which the
Trust will be created (collectively, the "Transfer and Servicing Agreements").
Forms of the Transfer and Servicing Agreements have been filed as exhibits to
the Registration Statement. A copy of the Transfer and Servicing Agreements will
be filed with the Commission following the issuance of the Notes. This summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Transfer and Servicing Agreements.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth in the Prospectus, to which description
reference is hereby made.
SALE OF STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
Information with respect to the sale of the [Initial] Student Loans from
the Seller to the Depositor on the Closing Date pursuant to the Loan Sale
Agreement and the representations and warranties made by the Seller in
connection therewith [and in connection with the purchase of Student Loans by
the Trust pursuant to Additional Fundings] is set forth under "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS" in the Prospectus. The Student Loans and
the Depositor's rights and remedies under the Loan Sale Agreement with respect
to the Student Loans will be conveyed to the Trust pursuant to the Transfer
Agreement. The net proceeds received from the sale of the Notes will be applied
to the purchase of the [Initial] Student Loans and to the deposit of the Reserve
Account Initial Deposit in the Reserve Account.
[REVOLVING PERIOD AND ADDITIONAL FUNDINGS
During the period (the "Revolving Period") from the Closing Date until the
first to occur of (i) an Early Amortization Event as described below or
(ii) the last day of the Collection Period preceding the
Quarterly Payment Date, the Trust will be obligated from time to time, subject
to certain conditions described herein, to purchase from the Depositor, and the
Depositor, subject to the availability thereof and to the availability of funds
therefor in the Collateral Reinvestment Account, will be obligated to tender to
the Trust, FFELP Student Loans which (i) are made to a borrower who is not a
borrower under any Student Loan, (ii) are made under loan programs which existed
as of the Closing Date, and (iii) are guaranteed by a Federal Guarantor (each a
"New Loan," and collectively the "New Loans"). New Loans may be acquired by the
Depositor, if available, from the Seller and are expected to be made or acquired
by the Seller at the discretion and in accordance with usual practices of the
Seller. Each such purchase of a New Loan will be made by the Eligible Lender
Trustee on behalf of the Depositor and the Trust pursuant to the Loan Sale
Agreement and the Transfer Agreement, respectively. During the Revolving Period,
each purchase of a New Loan will be funded by means of a transfer from the
Collateral Reinvestment Account of an amount equal to the sum of (i) the
principal balance owned by the applicable borrower thereon plus accrued interest
thereon expected to be capitalized upon repayment (the "Purchase Collateral
Balance") and (ii) an additional amount not to exceed % of the principal
balance owed by the applicable borrower thereon (the "Purchase Premium Amount"
and together with the Purchase Collateral Balance, the "Loan Purchase Amount").
Following the end of the Revolving Period, New Loans may not be purchased by the
Trust.
The term "Early Amortization Event" refers to any of the following events:
(i) an Event of Default occurring under the Indenture, a Servicer
Default occurring under the Servicing Agreement or an Administrator Default
occurring under the Administration Agreement;
(ii) certain events of insolvency occurring with respect to the
Seller;
(iii) the Trust becomes subject to registration as an investment
company under the Investment Company Act of 1940, as amended;
S-49
<PAGE>
(iv) as of the end of any Collection Period, the percentage by
principal balance of Student Loans the borrowers of which use such loans to
attend schools identified by the related Guarantor as proprietary or
vocational exceeds % of the Pool Balance;
(v) as of the end of any Collection Period, the percentage by
principal balance of Student Loans which are not in repayment and are not
eligible for Interest Subsidy Payments exceeds % of the Pool Balance;
(vi) the Excess Spread, with respect to each of any two successive
Quarterly Payment Dates, commencing with the Quarterly Payment Date in
199[_], is less than %; or
(vii) the arithmetic average of the Delinquency Percentage as of the
end of each of two successive Collection Periods exceeds %.
"Excess Spread" means, with respect to any Quarterly Payment Date, the
percentage equivalent of a fraction the numerator of which is the product of
(a) four and (b) the difference between (x) the Expected Interest Collections
for such Quarterly Payment Date and (y) the sum of (i) the Servicing Fee for
such Quarterly Payment Date and all prior unpaid Servicing Fees, (ii) the
Administration Fee for such Quarterly Payment Date and all prior unpaid
Administration Fees, and (iii) the Noteholders' Interest Distribution Amount for
such Quarterly Payment Date, and the denominator of which is the average of the
amount of the Pool Balance as of the first and the last day of the related
Collection Period.
"Delinquency Percentage" means, as of any date of determination, the
percentage equivalent of a fraction the numerator of which is the aggregate
principal balance of the Student Loans which are Repayment Loans and which
either (a) are over 120 days delinquent or (b) have had claims filed with the
Department for which payment is still awaited, and the denominator of which is
the aggregate principal balance of the Student Loans which are Repayment Loans.
In addition, following the Closing Date and both during and subsequent to
the Revolving Period, the Eligible Lender Trustee on behalf of the Trust will be
obligated from time to time, subject to the conditions described below, to
purchase from the Depositor FFELP Student Loans which (i) are made to a borrower
who is also a borrower under at least one outstanding Student Loan, (ii) are
made under the same loan program as such Student Loan, and (iii) are guaranteed
by the Guarantor that guaranteed such Student Loan (each a "Serial Loan" and
collectively, the "Serial Loans"). Serial Loans may be acquired, if available,
from the Seller by the Depositor.
During the Revolving Period, each purchase of a Serial Loan will be funded
by means of a transfer from the Collateral Reinvestment Account of an amount
equal to the Loan Purchase Amount of such loan. Following the end of the
Revolving Period, the Purchased Collateral Balance for such purchases will be
funded by amounts representing distributions of principal on the outstanding
Student Loans which otherwise would have been part of the Available Funds of the
Trust, as described under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions" herein, and Purchase Premium Amounts for such
purchases will be funded on the next succeeding Quarterly Payment Date from any
Reserve Account Excess for such Quarterly Payment Date as described under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit
Enhancement--Reserve Account". Alternatively, at the Depositor's option,
following the end of the Revolving Period, the Eligible Lender Trustee will be
obligated, in lieu of purchasing Serial Loans as described above, to exchange
with the Depositor existing Student Loans owned by the Trust for Serial Loans
purchased by the Depositor from the Seller, provided that each Student Loan so
exchanged (an "Exchanged Student Loan") meets certain criteria including that
(i) the Exchanged Student Loan was originated under the same loan program and is
guaranteed by the same Guarantor as such Student Loan and entitles the holder
thereof to receive interest based on the same interest rate index as the Serial
Loan to be exchanged into the Trust (the "Exchanged Serial Loan"), and (ii) the
Exchanged Student Loan will not, at any level of such interest rate index, have
an interest rate that is greater than the Exchanged Serial Loan. In addition, if
the outstanding principal amount of an Exchanged Student Loan is less than that
of the related Exchanged Serial Loan, an additional amount equal to such
difference will be remitted to the Depositor from amounts which would otherwise
have been part of the Available Funds of the Trust, as described under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Distributions" herein.
Any Purchase Premium Amount for an Exchanged Serial Loan will be paid in same
manner described above from Reserve Account Excess.
S-50
<PAGE>
A purchase of Serial Loans or acquisition of Exchanged Serial Loans will be
prohibited at any time after (i) an Event of Default occurs under the Indenture,
a Servicer Default occurs under the Servicing Agreement or an Administrator
Default occurs under the Administration Agreement, or (ii) certain events of
insolvency occur with respect to the Seller if the Serial Loans are to be
acquired by the Depositor from the Seller.
Any purchase of New Loans, Serial Loans or exchange of Exchanged Student
Loans for Exchanged Serial Loans will be made by the Trust on a date designated
by the Depositor (each, a "Transfer Date") pursuant to one or more Transfer
Agreements. On such Transfer Date, the Depositor will assign without recourse
(except as otherwise set forth in the Transfer and Servicing Agreements) to the
Trustee on behalf of the Trust, the Depsitor's entire beneficial interest in the
New Loans, Serial Loans or Exchanged Serial Loans being transferred on such
Transfer Date, in exchange for the Loan Purchase Amount thereof or the Exchanged
Student Loans being exchanged therefor (with the payment of any Purchase Premium
Amount for Serial Loans acquired by the Trust after the Revolving Period being
deferred to the next succeeding Quarterly Payment Date on which amounts in
excess of the Specified Reserve Account Balance are available in the Reserve
Account as described above). Legal title in such loans will remain in the
Eligible Lender Trustee.
In addition, following the Closing Date and prior to the end of the
Revolving Period, in the event that a borrower of a Student Loan who is also a
borrower under one or more FFELP Loans (whether or not all such loans are part
of the Trust) elects to consolidate such loans, the Eligible Lender Trustee on
behalf of the Trust will seek to originate a Federal Consolidation Loan pursuant
to the Federal Consolidation Loan Program described in the Prospectus under
"FEDERAL FAMILY EDUCATION LOAN PROGRAM--Federal Consolidation Loan Program".
Such origination will be funded by means of a transfer from the Collateral
Reinvestment Account of the amount required to repay in full any FFELP Loans not
held by the Trust that are being discharged in the consolidation process, which
amount will be paid by the Trust to the holder or holders of such FFELP Loans to
prepay such loans. No assurance can be given that the Eligible Lender Trustee,
rather than another lender, will be the lender which makes such Federal
Consolidation Loan. In the event that another lender makes such Federal
Consolidation Loan, any Student Loan which is being consolidated by such Federal
Consolidation Loan will be prepaid. The Eligible Lender Trustee will not be
permitted to originate Federal Consolidation Loans (including the addition of
any Add-on Consolidation Loans) on behalf of the Trust during the Revolving
Period in an aggregate principal amount in excess of $ ; additionally,
no Federal Consolidation Loan may be originated by the Trust having a scheduled
maturity date after if at the time of such origination the
aggregate principal amount of all Federal Consolidation Loans held by the Trust
that have a scheduled maturity date after exceeds or, after
giving effect to such origination, would exceed $ ; provided, however,
that the Eligible Lender Trustee will be permitted to fund Add-on Consolidation
Loans in excess of such amounts if required to do so by the Act. After the
Revolving Period, the Eligible Lender Trustee on behalf of the Trust will cease
to originate Federal Consolidation Loans, and any Federal Consolidation Loan
made with respect to a Student Loan will be made by another lender, thereby
resulting in a prepayment of such Student Loan; provided, however, that for a
maximum period of 210 days following the end of the Revolving Period, the
Eligible Lender Trustee may be required to increase the principal balance of
Federal Consolidation Loans existing in the Trust by the amount of any related
Add-on Consolidation Loans, as described below.
As described under "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM--Federal
Consolidation Loan Program" in the Prospectus, borrowers may consolidate
additional Student Loans ("Add-on Consolidation Loans") with an existing Federal
Consolidation Loan within 180 days from the date that the existing Federal
Consolidation Loan was made. As a result of the addition of any Add-on
Consolidation Loans, the related Federal Consolidation Loan may, in certain
cases, have a different interest rate and a different loan term.
Any Add-on Consolidation Loans added to a Federal Consolidation Loan in the
Trust during the Revolving Period will be funded by means of a transfer from the
Collateral Reinvestment Account of the amount required to repay in full any
Student Loans not held by the Trust that are being discharged in the
consolidation process, which amount will be paid by the Eligible Lender Trustee
on behalf of the Trust to the holder or holders of such Student Loans to prepay
such loans. For a maximum period of 210 days following the end of the Revolving
Period (30 days being attributed to the processing of any such Add-on
Consolidation Loans), such amounts will be funded by amounts representing
distributions of principal on the outstanding Student Loans which would
S-51
<PAGE>
otherwise have been part of the Available Funds of the Trust, as described under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Distributions" herein.
As described under "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" in the
Prospectus, during certain qualifying periods, interest on certain Student Loans
is not required to be currently paid, but instead is added to the outstanding
principal balance of the loan at the end of the qualifying period. In order to
minimize the possibility that the failure to receive current interest payments
on such loans during such periods will result in a shortfall of the amount
required to be distributed on the Notes, amounts on deposit in the Collateral
Reinvestment Account will be applied during the Revolving Period to make
interest payments to Noteholders, in lieu of current collections of interest on
such loans. Following the end of the Revolving Period, the Collateral
Reinvestment Account will cease to be available as a source to fund such
interest payments to Noteholders, and thereafter such payments will be funded
through the application of amounts which would otherwise have been distributable
in respect of the Principal Distribution Amount for the related Quarterly
Payment Date, as described under "--Distributions" below.]
ACCOUNTS
In addition to the Collection Account referred to in the Prospectus under
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Accounts", the
Administrator will establish and maintain the Collateral Reinvestment Account
and the Reserve Account, in the name of the Indenture Trustee on behalf of the
Noteholders.
SERVICING COMPENSATION; ADMINISTRATION FEE
Under the FFELP Loan Servicing Agreement, the Servicer will be entitled to
receive from the Trust monthly on each Monthly Payment Date or Quarterly Payment
Date a servicing fee (the "FFELP Servicing Fee") in an amount equal to the
lesser of (I) one-twelfth of % of the aggregate principal balance of the FFELP
Student Loans as of the last day of the preceding calendar month and (II) the
sum of (i) one-twelfth of the In-School Percentage of the principal balance of
each FFELP Student Loan as of the last day of the preceding calendar month which
was an In-School Loan (as defined herein) on such date or, if the average
principal balance of In-School Loans as of such date was $2,500 or less, [$1.50]
per account for each such loan, (ii) one-twelfth of the GRDF Percentage of the
principal balance as of the last day of the preceding calendar month of each
FFELP Student Loan which was a Grace, Repayment, Deferral or Forbearance Student
Loan (each as defined herein) as of such date or, if the average principal
balance of such loans as of such date was $3,000 or less, [$3.00] per account
for each such loan, (iii) a fee of [$1.00] for each notification sent by the
Servicer during the preceding calendar month on behalf of the Trust to a
borrower providing information to such borrower with respect to Federal
Consolidation Loan programs, (iv) [a one-time fee of [$75.00] for each Federal
Consolidation Loan originated by the Eligible Lender Trustee on behalf of the
Trust during the preceding calendar month,] ([iv]) a fee of [$25.00] for each
FFELP Student Loan for which, during the preceding calendar month, claim
documentation was completed and provided to the Guarantor or for which the
Servicer performed bankruptcy or ineligible borrower account processing (that,
in the case of ineligible account processing, resulted in a demand letter being
sent to the borrower), in each case as required by the claims processing
requirements of the Guarantor, ([v]) a fee of [$.05] per FFELP Student Loan for
storing and warehousing the applicable loan documentation for each such loan
during the preceding calendar month, [(vii) a one-time fee of $2.00 for each
Serial Loan transferred by the Seller to the Trust during the preceding calendar
month,] ([vi]) a fee equal to the one-twelfth of the product of (a) the
aggregate outstanding principal balance of the FFELP Student Loans as of the
last day of the preceding calendar month and (b) [.05%], which fee will be
payable so long as certain servicing regulations of the Department remain in
effect and ([vii]) a fee of $70.00 per hour for system development requests made
by the Eligible Lender Trustee on behalf of the Trust and provided by the
Servicer during the preceding calendar month.
S-52
<PAGE>
For purposes of making the determinations set forth in clauses (i) and
(ii) of the preceding sentence, the "In-School Percentage" and "GRDF Percentage"
shall each be determined based on the average principal balance of the In-School
Loans and the Grace, Repayment, Deferral and Forebearance Loans, respectively,
as of the last day of the preceding calendar month, as follows:
<TABLE>
<CAPTION>
AVERAGE
IN-SCHOOL PRINCIPAL GRDF
AVERAGE PRINCIPAL BALANCE PERCENTAGE BALANCE PERCENTAGE
- --------------------------------------------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
$2,501-$3,000........................................................
$3,001-$3,500........................................................
$3,501-$4,000........................................................
$4,001-$4,750........................................................
$4,751-$5,500........................................................
$5,501-$6,250........................................................
$6,251 and above.....................................................
</TABLE>
[Under the Private Loan Servicing Agreement, the Servicer will be entitled
to receive from the Trust monthly on each Monthly Payment Date or Quarterly
Payment, a servicing fee (the "Private Loan Servicing Fee", and together with
the FFELP Servicing Fee, the "Servicing Fee") in an amount equal to
].
The Servicing Fee (together with any portion of the Servicing Fee that
remains unpaid from prior Monthly Payment Dates) will be payable on each Monthly
Payment Date and will be paid solely out of Monthly Available Funds in the case
of each Monthly Payment Date that is not a Quarterly Payment Date (and out of
Available Funds in the case of each Quarterly Payment Date) and amounts on
deposit in the Reserve Account on such date. To the extent that, for any Monthly
Payment Date, the Servicing Fee is the amount calculated as described in clause
(I) of the first sentence of the preceding paragraph, then an amount (the
"Servicing Fee Shortfall") equal to the excess of the amount described in clause
(II) of such sentence over the amount described in clause (I) of such sentence
shall be payable on the next succeeding Quarterly Payment Date (or if such
Monthly Payment Date is also a Quarterly Payment Date, on such Quarterly Payment
Date) from any remaining amounts on deposit in the Reserve Account that are in
excess of the Specified Reserve Account Balance, pursuant to the priorities
described under "--Credit Enhancement--Reserve Account" below. The Servicer will
be obligated to perform its servicing obligations whether or not it receives any
amounts in respect of Servicing Fee Shortfalls.
As compensation for the performance of the Administrator's obligations
under the Administration Agreement and as reimbursement for its expenses related
thereto, the Administrator will be entitled to receive monthly in arrears on
each Monthly Payment Date that is not a Quarterly Payment Date and on each
Quarterly Payment Date the Administration Fee in an amount equal to one-twelfth
of the product of (i) % and (ii) the Pool Balance as of the close of business
on the last day of the calendar month immediately preceding such date.
DISTRIBUTIONS
Deposits to Collection Account. On or about the third business day prior to
each Monthly Payment Date (the "Determination Date"), the Administrator will
provide the Indenture Trustee with certain information with respect to the
preceding Monthly Collection Period or, in the case of a Monthly Payment Date
that is also a Quarterly Payment Date, the preceding Collection Period,
including the amount of Monthly Available Funds or Available Funds, as the case
may be, received with respect to the Student Loans and the aggregate Purchase
Amount relating to the Student Loans to be repurchased by the Seller or to be
purchased by the Servicer.
"Monthly Collection Period" means, with respect to any Monthly Payment Date
that is not a Quarterly Payment Date, the calendar month immediately preceding
the month of such Monthly Payment Date.
For purposes hereof, the term "Monthly Available Funds" means, with respect
to each Monthly Payment Date that is not a Quarterly Payment Date, the sum of
the following amounts with respect to the related Monthly Collection Period:
(i) all collections received by the Servicer on the Student Loans
(including any Guarantee Payments received with respect to the Student
Loans);
(ii) any Interest Subsidy Payments and Special Allowance Payments
received by the Eligible Lender Trustee during such Monthly Collection
Period with respect to the Student Loans;
S-53
<PAGE>
(iii) all proceeds of the liquidation of defaulted Student Loans
("Liquidated Student Loans"), which became Liquidated Student Loans during
such Monthly Collection Period in accordance with the Servicer's customary
servicing procedures, net of expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be
remitted to the borrower on such Liquidated Student Loans ("Liquidation
Proceeds"), and all recoveries in respect of Liquidated Student Loans which
were written off in prior Monthly Collection Periods;
(iv) [that portion of amounts released from the Collateral
Reinvestment Account with respect to Additional Fundings relating to those
interest costs on the Student Loans which are or will be capitalized;
(v)] the aggregate amount received for those Student Loans repurchased
by the Seller or purchased by the Servicer under an obligation which arose
during the related Monthly Collection Period;
([v]) Investment Earnings for such Monthly Payment Date; and
([vi]) with respect to each Monthly Payment Date other than a
Quarterly Payment Date and other than a Monthly Payment Date immediately
succeeding a Quarterly Payment Date, Monthly Available Funds remaining on
deposit in the Collection Account from the Monthly Collection Period
relating to the preceding Monthly Payment Date, after giving effect to the
application of such Monthly Available Funds on such preceding Monthly
Payment Date; provided, however, that if with respect to any Monthly
Payment Date there would not be sufficient funds, after application of
Monthly Available Funds (as defined above) and amounts available from the
Reserve Account, to pay any of the items specified in clauses (i) and
(ii) respectively under the second paragraph of
"--Distributions--Distributions from Collection Account", then Monthly
Available Funds for such Monthly Payment Date will include, in addition to
the Monthly Available Funds (as defined above), amounts on deposit in the
Collection Account on the Determination Date relating to such Monthly
Payment Date which would have constituted Monthly Available Funds for the
Monthly Payment Date succeeding such Monthly Payment Date up to the amount
necessary to pay such items, and the Monthly Available Funds for such
succeeding Monthly Payment Date will be adjusted accordingly; and provided,
further, that Monthly Available Funds will exclude (A) all payments and
proceeds (including Liquidation Proceeds) of any Student Loans the Purchase
Amount of which has been included in Monthly Available Funds for a prior
Monthly Collection Period; [and] [(B) except as expressly included in
clause (iv) above, amounts released from the Collateral Reinvestment
Account;] ([B]) any Monthly Rebate Fees paid during the related Monthly
Collection Period by or on behalf of the Trust as described under "RISK
FACTORS--Fees Payable on Certain Student Loans" herein[.] [; and (D) any
collections in respect of principal on the Student Loans applied during the
related Monthly Collection Period by the Eligible Lender Trustee on behalf
of the Trust prior to the end of the Revolving Period to make deposits to
the Collateral Reinvestment Account, as described under "--Distributions
from Collection Account" below, and after the end of the Revolving Period
to fund the addition of any Add-on Consolidation Loans, to purchase Serial
Loans or to fund the acquisition of Exchanged Serial Loans as described
under "--Revolving Period and Additional Fundings" above.]
"Available Funds" means, with respect to a Quarterly Payment Date and the
related Collection Period, the sum of the amounts specified in clauses (i)-([v])
of the definition of Monthly Available Funds for each of the three Monthly
Collection Periods included in such Collection Period; provided, however, that
if with respect to any Quarterly Payment Date there would not be sufficient
funds, after application of Available Funds (as defined above) and amounts
available from the Reserve Account, to pay any of the items specified in clauses
(i) through (vi) respectively under the third paragraph of "--Distributions from
Collection Account," below, then Available Funds for such Quarterly Payment Date
will include, in addition to the Available Funds (as defined above), amounts on
deposit in the Collection Account on the Determination Date relating to such
Quarterly Payment Date which would have constituted Available Funds for the
Quarterly Payment Date succeeding such Quarterly Payment Date up to the amount
necessary to pay such items, and the Available Funds for such succeeding
Quarterly Payment Date will be adjusted accordingly; and provided, further, that
Available Funds will exclude (A) all payments and proceeds (including
Liquidation Proceeds) of any Student Loans the Purchase Amount of which has been
included in Available Funds for a prior Collection Period; [(B) except as
expressly included in clause (iv) of the definition of Monthly Available Funds,
amounts released from the Collateral Reinvestment Account;] ([B]) any Monthly
Rebate Fees paid during the related Collection Period by or on behalf of the
Trust; [(D) any collections in respect of principal on the Student Loans applied
by the Eligible Lender Trustee
S-54
<PAGE>
on behalf of the Trust prior to the end of the Revolving Period to make deposits
to the Collateral Reinvestment Account, as described under "--Distributions from
Collection Account" below, and after the end of the Revolving Period to fund the
addition of any Add-on Consolidation Loans, to purchase Serial Loans or to fund
the acquisition of Exchanged Serial Loans during the related Collection Period;
and] ([C]) the Servicing Fee, all overdue Servicing Fees, the Administration Fee
and all overdue Administration Fees paid on each Monthly Payment Date that is
not a Quarterly Payment Date during the related Collection Period.
Distributions from Collection Account. [From time-to-time during the
Revolving Period, on any day therein, the Administrator may instruct the
Indenture Trustee to withdraw all collections in respect of principal on the
Student Loans then on deposit in the Collection Account and deposit such amounts
in the Collateral Reinvestment Account. In addition, from time to time during
the Revolving Period, the Administrator may instruct the Indenture Trustee to
withdraw funds on deposit in the Collateral Reinvestment Account to the extent
such funds are not needed to make Additional Fundings and redeposit such amounts
in the Collection Account.]
On each Monthly Payment Date that is not a Quarterly Payment Date, the
Administrator will instruct the Indenture Trustee to make the following deposits
and distributions to the extent of Monthly Available Funds for such Monthly
Payment Date in the Collection Account, in the following order of priority:
(i) to the Servicer, the Servicing Fee for such Monthly Payment Date
and all prior unpaid Servicing Fees (but not any Servicing Fee Shortfall or
prior unpaid Servicing Fee Shortfalls); and
(ii) to the Administrator, the Administration Fee for such Monthly
Payment Date and all prior unpaid Administration Fees.
On each Quarterly Payment Date, the Administrator will instruct the
Indenture Trustee to make the following deposits and distributions to the extent
of Available Funds for such Quarterly Payment Date in the Collection Account, in
the following order of priority:
(i) to the Servicer, the Servicing Fee for such Quarterly Payment Date
and all prior unpaid Servicing Fees (but not any Servicing Fee Shortfall or
prior unpaid Servicing Fee Shortfalls);
(ii) to the Administrator, the Administration Fee for such Quarterly
Payment Date and all prior unpaid Administration Fees;
(iii) to the Senior Noteholders, the Senior Noteholders' Interest
Distribution Amount;
(iv) to the Subordinate Noteholders, the Subordinate Noteholders'
Interest Distribution Amount;
(v) [if the Revolving Period has terminated,] to the Senior
Noteholders, the Senior Noteholders' Principal Distribution Amount;
(vi) after the Senior Notes have been paid in full, to the Subordinate
Noteholders, the Subordinate Noteholders' Principal Distribution Amount;
and
(vii) to the Reserve Account, any remaining amounts after application
of clauses (i) through (vi).
For purposes hereof, the following terms have the following meanings:
"Noteholders' Distribution Amount" means, with respect to any Quarterly
Payment Date, the sum of the Senior Noteholders' Distribution Amount and the
Subordinate Noteholders' Distribution Amount.
"Noteholders' Interest Distribution Amount" means, with respect to any
Quarterly Payment Date, the sum of the Senior Noteholders' Interest Distribution
Amount and the Subordinate Noteholders' Interest Distribution Amount.
"Principal Distribution Adjustment" means, with respect to any Quarterly
Payment Date [commencing ,] [if the Revolving Period has terminated,] the
amount of Available Funds on such Quarterly Payment Date to be used to make
additional principal distributions to Senior Noteholders (and, after the Senior
Notes have been paid in full, Subordinate Noteholders) to account for (i) the
amount of any insignificant balance remaining outstanding as of such Quarterly
Payment Date on a Student Loan after receipt of a final payment from a borrower
or Guarantor, when such insignificant balances are waived in the ordinary course
of business by the Servicer at the direction of the Administrator in accordance
with the Servicing Agreement or (ii) the amount of principal collections
erroneously treated as interest collections including, without limitation, by
reason of the failure by a borrower to capitalize interest that had been
expected to be capitalized; provided, however, that the
S-55
<PAGE>
Principal Distribution Adjustment for any Quarterly Payment Date shall not
exceed the lesser of (x) $ and (y) the amount of any Reserve Account
Excess remaining after giving effect to all distributions to be made therefrom
on such Quarterly Payment Date other than distributions to the Seller out of
such excess.
"Principal Distribution Amount" means, with respect to any Quarterly
Payment Date commencing , [(if the Revolving Period has terminated
prior to the end of the related Collection Period with respect to such Quarterly
Payment Date),] the sum of the following amounts with respect to the related
Collection Period: (i) that portion of all collections received by the Servicer
on the Student Loans that is allocable to principal (including the portion of
any Guarantee Payments received that is allocable to principal of the Student
Loans) less [the sum of (A) any such collections which are applied by the Trust
during such Collection Period to purchase Serial Loans, (B) any such collections
which are applied by the Trust during such Collection Period to fund the
addition of any Add-on Consolidation Loans and (C)] accrued and unpaid interest
on the Student Loans for such Collection Period to the extent such interest is
not currently being paid but will be capitalized upon commencement of repayment
of such Student Loans; (ii) all Liquidation Proceeds attributable to the
principal amount of Student Loans which became Liquidated Student Loans during
such Collection Period in accordance with the Servicer's customary servicing
procedures, together with all Realized Losses on such Student Loans; (iii) to
the extent attributable to principal, the amount received with respect to each
Student Loan repurchased by the Seller or purchased by the Servicer as a result
of a breach of a representation, warranty or covenant under an obligation which
arose during the related Collection Period; and (iv) the Principal Distribution
Adjustment, if any, provided, however, that the Principal Distribution Amount
will exclude all payments and proceeds (including Liquidation Proceeds) of any
Student Loans the Purchase Amount of which has been included in Available Funds
for a prior Collection Period [and, if the Revolving Period terminated during
the related Collection Period, will exclude all amounts representing collections
in respect of principal on the Student Loans during such Collection Period that
were deposited in the Collateral Reinvestment Account].
"Realized Losses" means the excess of the principal balance of the
Liquidated Student Loans over Liquidation Proceeds to the extent allocable to
principal.
"Senior Noteholders' Distribution Amount" means, with respect to any
Quarterly Payment Date, the sum of the Senior Noteholders' Interest Distribution
Amount and the Senior Noteholders' Principal Distribution Amount for such
Quarterly Payment Date.
"Senior Noteholders' Interest Carryover Shortfall" means, with respect to
any Quarterly Payment Date, the excess of (i) the Senior Noteholders' Interest
Distribution Amount on the preceding Quarterly Payment Date over (ii) the amount
of interest actually distributed to the Senior Noteholders on such preceding
Quarterly Payment Date, plus interest on the amount of such excess, to the
extent permitted by law, at the interest rate borne by the Senior Notes from
such preceding Quarterly Payment Date to the current Quarterly Payment Date.
"Senior Noteholders' Interest Distribution Amount" means, with respect to
any Quarterly Payment Date, the sum of (i) the amount of interest accrued at the
Senior Note Rate for the related Quarterly Interest Period on the outstanding
principal balance of the Senior Notes on the immediately preceding Quarterly
Payment Date after giving effect to all principal distributions to holders of
Senior Notes on such date (or, in the case of the first Quarterly Payment Date,
on the Closing Date) and (ii) the Senior Noteholders' Interest Carryover
Shortfall for such Quarterly Payment Date; provided, however, that the Senior
Noteholders' Interest Distribution Amount will not include any Senior
Noteholders' Interest T-Bill Carryover.
"Senior Noteholders' Principal Carryover Shortfall" means, as of the close
of any Quarterly Payment Date, the excess of (i) the Senior Noteholders'
Principal Distribution Amount on such Quarterly Payment Date over (ii) the
amount of principal actually distributed to the Senior Noteholders on such
Quarterly Payment Date.
"Senior Noteholders' Principal Distribution Amount" means, with respect to
any Quarterly Payment Date commencing [(if the Revolving Period has
terminated prior to the end of the related Collection Period with respect to
such Quarterly Payment Date)], the Principal Distribution Amount for such
Quarterly Payment Date plus the Senior Noteholders' Principal Carryover
Shortfall as of the close of the preceding Quarterly Payment Date; provided,
however, that the Senior Noteholders' Principal Distribution Amount will not
exceed the outstanding aggregate principal balance of the Senior Notes. In
addition, on the Senior Note Final Maturity Date, the principal required to be
distributed to Senior Noteholders will include the amount required to reduce the
outstanding principal balance of the Senior Notes to zero.
S-56
<PAGE>
"Subordinate Noteholders' Distribution Amount" means, with respect to any
Quarterly Payment Date, the Subordinate Noteholders' Interest Distribution
Amount for such Quarterly Payment Date plus, with respect to any Quarterly
Payment Date on and after which the Senior Notes have been paid in full, the
Subordinate Noteholders' Principal Distribution Amount for such Quarterly
Payment Date.
"Subordinate Noteholders' Interest Carryover Shortfall" means, with respect
to any Quarterly Payment Date, the excess of (i) the Subordinate Noteholders'
Interest Distribution Amount on the preceding Quarterly Payment Date over
(ii) the amount of interest actually distributed to the Subordinate Noteholders
on such preceding Quarterly Payment Date, plus interest on the amount of such
excess, to the extent permitted by law, at the rate borne by the Subordinate
Notes from such preceding Quarterly Payment Date to the current Quarterly
Payment Date.
"Subordinate Noteholders' Interest Distribution Amount" means, with respect
to any Quarterly Payment Date, the sum of (i) the amount of interest accrued at
the Subordinate Note Rate for the related Quarterly Interest Period on the
outstanding principal balance of the Subordinate Notes on the immediately
preceding Quarterly Payment Date, after giving effect to all principal
distributions to Subordinate Noteholders on such Quarterly Payment Date (or, in
the case of the first Quarterly Payment Date, on the Closing Date) and (ii) the
Subordinate Noteholders' Interest Carryover Shortfall for such Quarterly Payment
Date; provided, however, that the Subordinate Noteholders' Interest Distribution
Amount will not include any Subordinate Noteholders' Interest T-Bill Carryover.
"Subordinate Noteholders' Principal Carryover Shortfall" means, as of the
close of any Quarterly Payment Date on or after which the Senior Notes have been
paid in full, the excess of (i) the Subordinate Noteholders' Principal
Distribution Amount on such Quarterly Payment Date over (ii) the amount of
principal actually distributed to the Subordinate Noteholders on such Quarterly
Payment Date.
"Subordinate Noteholders' Principal Distribution Amount" means, on each
Quarterly Payment Date on and after which the aggregate principal balance of the
Senior Notes has been paid in full, the sum of (a) the Principal Distribution
Amount for such Quarterly Payment Date (or, in the case of the Quarterly Payment
Date on which the aggregate principal balance of the Senior Notes is paid in
full, any remaining Principal Distribution Amount not otherwise distributed to
Senior Noteholders on such Quarterly Payment Date) and (b) the Subordinate
Noteholders' Principal Carryover Shortfall as of the close of the preceding
Quarterly Payment Date; provided, however, that the Subordinate Noteholders'
Principal Distribution Amount will in no event exceed the outstanding principal
balance of the Subordinate Notes. In addition, on the Subordinate Note Final
Maturity Date, the principal required to be distributed to the Subordinate
Noteholders will include the amount required to reduce the outstanding principal
balance of the Subordinate Notes to zero.
CREDIT ENHANCEMENT
Reserve Account. The Reserve Account will be created with an initial
deposit by the Depositor on the Closing Date of cash or Eligible Investments in
an amount equal to the Reserve Account Initial Deposit. The Reserve Account will
be augmented on each Quarterly Payment Date by the deposit therein of the amount
of Available Funds remaining after payment of the Servicing Fee and all overdue
Servicing Fees, the Administration Fee and all overdue Administration Fees, the
Senior Noteholders' Interest Distribution Amount and the Subordinate
Noteholders' Interest Distribution Amount, and, [if the Revolving Period has
terminated,] the Senior Noteholders' Principal Distribution Amount and the
Subordinate Noteholders' Principal Distribution Amount, all for such Quarterly
Payment Date. See "--Distributions" herein. As described below, subject to
certain limitations, amounts on deposit in the Reserve Account will be released
to the Depositor to the extent that the amount on deposit in the Reserve Account
exceeds the Specified Reserve Account Balance.
"Specified Reserve Account Balance" with respect to any Quarterly Payment
Date generally will be the greater of: (a) % of the aggregate principal
balance of the Notes after taking into account the effect of distributions on
such Quarterly Payment Date, or (b) $ ; provided, however, that the
Specified Reserve Account Balance shall in no event exceed the sum of the
outstanding principal balance of the Notes.
If the amount on deposit in the Reserve Account on any Quarterly Payment
Date (after giving effect to all distributions required to be made from
Available Funds on such Quarterly Payment Date) is greater than the Specified
Reserve Account Balance for such Quarterly Payment Date, the Administrator will
instruct the Indenture Trustee to apply the amount of such Reserve Account
Excess [(a) during the Revolving Period, for
S-57
<PAGE>
deposit to the Collateral Reinvestment Account; provided, however, if such date
is on or after the Parity Date, to the extent that such funds represent payments
of interest with respect to the Student Loans, such funds shall be applied in
the order of priority set forth in clauses (b)(iii) through (vi) below, and
(b) at and after the termination of the Revolving Period, to the following] (in
the priority indicated): (i) [to the Seller for any unpaid Purchase Premium
Amounts for any Serial Loans purchased by the Trust prior to the end of the
related Collection Period; (ii)] (i) if such Quarterly Payment Date is on or
prior to the Parity Date, to the payment of the unpaid principal amount of the
Senior Notes or, if the Senior Notes have been paid in full, of the Subordinate
Notes, until the aggregate principal balance of the Notes is equal to the Pool
Balance as of the close of business on the last day of the related Collection
Period; (ii) to the Senior Noteholders, the aggregate unpaid amount of any
Senior Noteholders' Interest T-Bill Carryover; (iii) to the Subordinate
Noteholders, the aggregate unpaid amount of any Subordinate Noteholders'
Interest T-Bill Carryover; (iv) to the Servicer, the Servicing Fee Shortfall and
all prior unpaid Servicing Fee Shortfalls, if any; and (v) to the Depositor, any
excess remaining after application of clauses (i) through (iv) ([v]) above, and,
upon such payment to the Depositor, the Noteholders will not have any rights in,
or claims to, such amounts.
Subject to the limitation described in the preceding paragraph, amounts
held from time to time in the Reserve Account will continue to be held for the
benefit of the Trust. Funds will be withdrawn from cash in the Reserve Account
(a) on each Monthly Payment Date that is not a Quarterly Payment Date, to the
extent the amount of Monthly Available Funds on such Monthly Payment Date is
insufficient to pay: (i) the Servicing Fee and all overdue Servicing Fees and
(ii) the Administration Fee and all overdue Administration Fees, and (b) on any
Quarterly Payment Date to the extent that the amount of Available Funds on such
Quarterly Payment Date is insufficient to pay any of the items specified in
clauses (i) through (vi), respectively, of the third paragraph under
"--Distributions--Distributions from Collection Account" herein on such date.
Such funds will be paid from the Reserve Account to the persons and in the order
of priority specified for distributions out of the Collection Account on such
dates. As a result of the subordination of the Subordinate Notes to the Senior
Notes described elsewhere herein, however, any amounts that the Subordinate
Noteholders would otherwise receive from the Reserve Account in respect of the
Subordinate Noteholders' Interest Distribution Amount on any Quarterly Payment
Date will be paid to Senior Noteholders until the Senior Noteholders' Interest
Distribution Amount for such Quarterly Payment Date has been paid in full. In
addition, as a result of such subordination, Subordinate Noteholders will not
receive any amounts from the Reserve Account in respect of the Subordinate
Noteholders' Principal Distribution Amount until the Senior Notes have been paid
in full. See "--Subordination" herein.
The Reserve Account is intended to enhance the likelihood of timely receipt
by the Senior Noteholders and the Subordinate Noteholders of the full amount of
principal and interest due them and to decrease the likelihood that the Senior
Noteholders or the Subordinate Noteholders will experience losses. In certain
circumstances, however, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in the
amount of Available Funds exceeds the amount of cash in the Reserve Account,
Senior Noteholders or Subordinate Noteholders could incur losses or a temporary
shortfall in the amount of principal and interest distributed to the Senior
Noteholders or the Subordinate Noteholders could result which could, in turn,
increase the average life of the Senior Notes or the Subordinate Notes. Amounts
on deposit in the Reserve Account will not be available in any respect until the
Parity Date to cover any aggregate unpaid Senior Noteholders' Interest T-Bill
Carryover or Subordinate Noteholders' Interest T-Bill Carryover and after the
Parity Date only amounts on deposit in the Reserve Account that [(after paying,
for Quarterly Payment Dates occurring after the Revolving Period, any unpaid
Purchase Premium Amounts for any Serial Loans purchased by the Trust prior to
the end of the related Collection Period)] are in excess of the Specified
Reserve Account Balance will be available therefor.
Subordination. The rights of the Subordinate Noteholders to receive
payments of interest on any Quarterly Payment Date are subordinated to the
rights of the Senior Noteholders to receive payments of interest on such date,
and the rights of the Subordinate Noteholders to receive payments of principal
on any Quarterly Payment Date are subordinated to the rights of the Noteholders
to receive payments of interest and principal on such date. The Subordinate
Noteholders will not be entitled to any payments of principal until the Senior
Notes are paid in full.
S-58
<PAGE>
TERMINATION
Certain information regarding termination of the Trust is set forth in
"Description of the Transfer and Servicing Agreements--Termination" in the
Prospectus.
Any Student Loans remaining in the Trust as of the end of the Collection
Period immediately preceding the Quarterly Payment Date will be
offered for sale by the Indenture Trustee. The Depositor, its affiliates and
unrelated third parties may offer bids to purchase such Student Loans on such
Quarterly Payment Date. If at least two bids are received, the Indenture Trustee
will accept the highest bid equal to or in excess of the greater of (x) the
Purchase Amount of such Student Loans as of the end of the Collection Period
immediately preceding such Quarterly Payment Date or (y) an amount that would be
sufficient to (i) reduce the outstanding principal amount of the Notes on such
Quarterly Payment Date to zero and (ii) pay to the Noteholders the Noteholders'
Interest Distribution Amount payable on such Quarterly Payment Date, if any (the
"Minimum Purchase Price"). If at least two bids are not received or the highest
bid is not equal to or in excess of the Minimum Purchase Price, the Indenture
Trustee will not consummate such sale. The proceeds of any such sale will be
used to redeem any outstanding Notes on such Quarterly Payment Date. If the sale
is not consummated in accordance with the foregoing, the Indenture Trustee may,
but shall not be under any obligation to, solicit bids to purchase the Student
Loans on future Quarterly Payment Dates upon terms similar to those described
above. No assurance can be given as to whether the Trustee will be successful in
soliciting acceptable bids to purchase the Student Loans on either the
Quarterly Payment Date or any subsequent Quarterly Payment Date.
OPTIONAL REDEMPTION
The Depositor, or an assignee of the Depositor, may at its option purchase
from the Trust, as of the end of any Collection Period immediately preceding a
Quarterly Payment Date, if the then outstanding Pool Balance is % or less of
the aggregate initial principal balance of the Notes, all remaining Student
Loans at a price equal to the aggregate Purchase Amounts thereof as of the end
of such Collection Period, which amounts will be used to retire the Notes
concurrently therewith. Upon termination of the Trust, all right, title and
interest in the Student Loans and other funds of the Trust, after giving effect
to any final distributions to Noteholders therefrom, will be conveyed and
transferred to the Seller or such assignee.
From time to time the Depositor, or an assignee of the Depositor, may at
its option purchase from the Trust, as of the end of any Monthly Collection
Period immediately preceding a Monthly Payment Date, one or more Student Loans
that are to be refinanced by Federal Consolidation Loans. Such Student Loans
shall be purchased at a price equal to the aggregate Purchase Amounts thereof as
of the end of such Monthly Collection Period. The purchase price of the Student
Loans may be paid in cash or by delivery of a promissory note of the Depositor
secured by and payable solely from the Student Loans, including the amounts
received upon prepayment of the Student Loans with proceeds of the Federal
Consolidation Loans. If such amounts, together with other funds of the
Depositor, are not sufficient to retire the Depositor's note within three
(3) Business Days of release of the Student Loans, the Student Loans shall be
redeposited in the Trust and the note cancelled. Any such promissory note shall
bear interest at a rate that is equal to the yield on the Student Loans
purchased by the Depositor.
CERTAIN FEDERAL INCOME TAX AND STATE TAX CONSEQUENCES
Although as described in "SUMMARY OF TERMS--Tax Considerations," Special
Federal Tax Counsel will deliver its opinion that the Senior Notes will properly
be characterized as indebtedness, and that the Subordinate Notes (not offered
hereby) should be classified as indebtedness (or, if not, would be classified as
an interest in a partnership), for federal income tax purposes, such opinion is
not binding on the IRS and thus no assurance can be given that such
characterization will prevail. In the opinion of Special Federal Tax Counsel, if
the IRS were to contend successfully that the Subordinate Notes were not debt
for federal income tax purposes (assuming that the Senior Notes were not
recharacterized) the arrangement among the Depositor and the holders of the
Subordinate Notes would be classified as a partnership for federal income tax
purposes. If, however, the IRS were to contend successfully that the Subordinate
Notes and the Depositor Notes were not debt for federal income tax purposes, the
arrangement among Noteholders and the Seller might be classified for federal
income tax purposes as a publicly traded partnership taxable as a corporation.
If only the Subordinate Notes were treated as interests in a partnership,
it is Special Federal Tax Counsel's opinion that the partnership would not be
treated as a publicly traded partnership because it would qualify for an
S-59
<PAGE>
applicable "safe harbor" that the IRS has provided. Therefore, the partnership
would not be subject to federal income tax.
If, alternatively, the arrangement created by the Indenture were treated as
a publicly traded partnership taxable as a corporation, the resulting entity
would be subject to federal income taxes at corporate tax rates on its taxable
income generated by ownership of the Student Loans. Moreover, distributions by
the entity with respect to either or both classes of Notes would probably not be
deductible in computing the entity's taxable income and all or part of the
distributions to holders of Notes would probably be treated as dividends. Such
an entity-level tax could result in substantially reduced distributions to
Noteholders and the Noteholders could be liable for a share of such tax.
Because the Depositor will treat the Notes as indebtedness for federal
income tax purposes, the Trustee will not comply with the tax reporting
requirements that would apply under the foregoing alternative characterizations
of the Notes.
The Senior Notes provide for stated interest at a floating rate based upon
the T-Bill Rate, but are subject to certain restrictions on the maximum level of
the floating rate. Under Treasury regulations governing "original issue
discount" ("OID"), stated interest payable at a variable rate is not taxed as
original issue discount or contingent interest if the variable rate is a
qualified floating rate. The tax treatment of interest that is not based on a
qualified floating rate is not certain and the regulations do not address the
tax treatment of debt instruments bearing contingent interest, except in
circumstances not relevant to this discussion. While (because of the Senior
Noteholders' Interest T-Bill Carryover) the tax treatment of interest on the
Senior Notes, including, in particular, interest equal to the Senior
Noteholders' Interest T-Bill Carryover amounts, is not entirely clear under the
regulations, the Trust intends to treat the stated interest as a "qualified
floating rate" for OID purposes and thus such interest should not be taxable to
holders of Senior Notes as OID or as contingent interest.
Prospective purchasers should see "Certain Federal Income Tax Consequences"
and "Certain State Tax Consequences" in the Prospectus for a discussion of the
application of certain federal income tax laws and certain state tax laws to the
Trust and the Notes. For purposes of the discussion of certain state tax issues
under "Certain State Tax Consequences" in the Prospectus, the Applicable State
with respect to the Notes is [ ].
ERISA CONSIDERATIONS
The Senior Notes may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to ERISA or Section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase of a Senior Note is
consistent with its fiduciary duties under ERISA, including the requirements of
investment prudence and diversification, and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan, and
does not result in a nonexempt prohibited transaction as defined in Section 406
of ERISA or Section 4975 of the Code. Employee benefit plans which are
governmental plans (as defined in Section 3(32) of ERISA) or certain church
plans (as defined in Section 3(33) of ERISA) are not subject to the fiduciary
responsibility or prohibited transaction provisions of ERISA or the Code.
However, any such plan which is qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
relating to the Senior Notes (the "Underwriting Agreement"), the Seller has
agreed to cause the Trust to sell to each of the Underwriters named below
(collectively, the "Underwriters"), and each of the Underwriters has severally
agreed to purchase, the
S-60
<PAGE>
principal amount of Senior Notes set forth opposite its name below. The
Underwriters have agreed to reimburse the Seller for certain expenses relating
to the issuance and distribution of the Senior Notes.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- ---------------------------------------------------------------------------------- ---------
<S> <C>
...........................................................
...........................................................
...........................................................
...........................................................
Total............................................................................. [100%]
</TABLE>
The Seller has been advised by the Underwriters that they propose to offer
the Senior Notes to the public initially at the public offering prices set forth
on the cover page of this Prospectus Supplement, and to certain dealers at such
prices less a concession of % per Senior Note; that the Underwriters and such
dealers may allow a discount of % per Senior Note on sales to certain other
dealers; and that after the initial public offering of the Senior Notes, the
public offering prices and the concessions and discounts to dealers may be
changed by the Underwriters.
Until the distribution of the Senior Notes is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Senior Notes. As an exception to these
rules, the Representative is permitted to engage in certain transactions that
stabilize the price of the Senior Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Senior Notes.
If the Underwriters create a short position in the Senior Notes in
connection with the offering, i.e., if they sell more Senior Notes than are set
forth on the cover page of this Prospectus Supplement, the Representative may
reduce that short position by purchasing Senior Notes in the open market.
The Representative may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representative purchases
Senior Notes in the open market to reduce the Underwriters' short position or to
stabilize the price of the Senior Notes, it may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those Senior Notes as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it
discourages resales of the security.
Neither the Seller nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Senior Notes. In addition, neither
the Seller nor any of the Underwriters makes any representation that the
Representative will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Underwriting Agreement provides that the Depositor and the Seller will
jointly and severally indemnify the Underwriters against certain liabilities,
including liabilities under applicable securities laws, or contribute to
payments the Underwriters may be required to make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriters.
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon for
the Trust, the Depositor, the Seller, the Servicer and the Administrator by
Robert Vlach, Esq., General Counsel of the Seller, and by Willkie Farr &
Gallagher, New York, New York, as special counsel to the Seller and the
Depositor. Certain federal income tax and other matters will be passed upon for
the Trust by Willkie Farr & Gallagher. Certain Delaware state income tax matters
will be passed upon for the Trust by as Delaware tax counsel
for the Trust. Certain legal matters relating to the Securities will be passed
upon for the Underwriters by .
S-61
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------- ---------------
<S> <C>
1992 Amendments................................................................................ S-39
91-day Treasury Bills.......................................................................... S-45
Add-on Consolidation Loans..................................................................... S-9, S-29, S-51
Additional Fundings............................................................................ S-10
Additional Guarantors.......................................................................... S-7
Additional Student Loans....................................................................... S-6
Administration Agreement....................................................................... S-6
Administration Fee............................................................................. S-14
Administrator.................................................................................. S-6
AFSA........................................................................................... S-5
Auto Advantage Repayment Plan.................................................................. S-25
Available Funds................................................................................ S-54
Cede........................................................................................... S-4
Cedel.......................................................................................... S-5
Cedel Participants............................................................................. S-46
Citibank....................................................................................... S-5, S-47
Closing Date................................................................................... S-6
Collateral Reinvestment Account................................................................ S-10
Collection Account............................................................................. S-10
Collection Period.............................................................................. S-7
Cooperative.................................................................................... S-47
Cutoff Date.................................................................................... S-6
Deferral....................................................................................... S-34
Delinquency Percentage......................................................................... S-50
Department..................................................................................... S-2, S-6
Depositaries................................................................................... S-5, S-47
Depositor...................................................................................... Cover, S-5
Determination Date............................................................................. S-53
DOE Data Book.................................................................................. S-40
DTC............................................................................................ S-4, S-5
Early Amortization Event....................................................................... S-49
EFG............................................................................................ Cover, S-6
EFG Eligible Lender Trustee.................................................................... S-6
Eligible Lender Trust.......................................................................... S-5
Eligible Lender Trust Agreement................................................................ S-5, S-27
Eligible Lender Trustee........................................................................ S-5
Euroclear...................................................................................... S-5
Euroclear Operator............................................................................. S-47
Euroclear Participants......................................................................... S-46
Excess Spread.................................................................................. S-50
Exchange Act................................................................................... S-4
Exchange Loans................................................................................. S-38
</TABLE>
S-62
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------- ---------------
<S> <C>
Exchanged Serial Loan.......................................................................... S-50
Exchanged Student Loan......................................................................... S-50
Expected Interest Collections.................................................................. S-15, S-43
Federal Guarantor.............................................................................. S-39
Federal Origination Fee........................................................................ S-24
FFELP.......................................................................................... S-2, S-6
FFELP Loan Servicing Agreement................................................................. S-13
FFELP Loans.................................................................................... S-5
FFELP Servicing Fee............................................................................ S-52
FFELP Student Loans............................................................................ S-6
Forbearance.................................................................................... S-34
Future Trusts.................................................................................. S-5
Grace.......................................................................................... S-34
Grad Advantage Program......................................................................... S-25
GRDF Percentage................................................................................ S-53
Guarantors..................................................................................... S-7
In-School...................................................................................... S-34
Indenture...................................................................................... S-14
Indenture Trustee.............................................................................. S-6
Indirect Participants.......................................................................... S-46
Initial Guarantors............................................................................. S-7
Initial Pool Balance........................................................................... S-6
Initial Student Loans.......................................................................... S-6
Liquidated Student Loans....................................................................... S-54
Liquidation Proceeds........................................................................... S-54
Loan Purchase Amount........................................................................... S-8, S-49
Loan Sale Agreement............................................................................ S-13
Lock-In Period................................................................................. S-45
Minimum Purchase Price......................................................................... S-17, S-59
Monthly Available Funds........................................................................ S-53
Monthly Collection Period...................................................................... S-53
Monthly Payment Date........................................................................... S-11
Monthly Rebate Fee............................................................................. S-24
Morgan......................................................................................... S-5, S-47
New Loan....................................................................................... S-7, S-49
New Loans...................................................................................... S-7, S-49
Note Rates..................................................................................... S-14
Note T-Bill Rates.............................................................................. S-14
Noteholders.................................................................................... S-15
Noteholders' Distribution Amount............................................................... S-55
Noteholders' Interest Distribution Amount...................................................... S-55
Notes.......................................................................................... Cover, S-5
Obligors....................................................................................... S-18
OID............................................................................................ S-60
Parity Date.................................................................................... S-12
</TABLE>
S-63
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------- ---------------
<S> <C>
Participants................................................................................... S-46
Plan........................................................................................... S-60
Pool Balance................................................................................... S-17
Principal Distribution Adjustment.............................................................. S-55
Principal Distribution Amount.................................................................. S-16, S-56
Private Guarantee Agreements................................................................... S-41
Private Guarantor.............................................................................. S-41
Private Loan Servicing Agreement............................................................... S-13
Private Loan Servicing Fee..................................................................... S-53
Private Student Loans.......................................................................... S-6
Purchase Amount................................................................................ S-17
Purchase Collateral Balance.................................................................... S-7, S-49
Purchase Premium Amount........................................................................ S-8, S-49
Quarterly Interest Period...................................................................... S-15, S-43
Quarterly Payment Date......................................................................... S-2, S-15
Realized Losses................................................................................ S-56
Record Date.................................................................................... S-15
Repayment...................................................................................... S-34
Reserve Account................................................................................ S-11
Reserve Account Excess......................................................................... S-11
Reserve Account Initial Deposit................................................................ S-11
Revolving Period............................................................................... S-7, S-49
Seller......................................................................................... Cover, S-6
Seller Trusts.................................................................................. S-25
Senior Note Final Maturity Date................................................................ S-16, S-44
Senior Note Rate............................................................................... S-14
Senior Note T-Bill Rate........................................................................ S-14, S-43
Senior Noteholders............................................................................. S-15
Senior Noteholders' Distribution Amount........................................................ S-56
Senior Noteholders' Interest Carryover Shortfall............................................... S-56
Senior Noteholders' Interest Distribution Amount............................................... S-56
Senior Noteholders' Interest T-Bill Carryover.................................................. S-15
Senior Noteholders' Principal Carryover Shortfall.............................................. S-56
Senior Noteholders' Principal Distribution Amount.............................................. S-56
Senior Notes................................................................................... Cover, S-5
Serial Loan.................................................................................... S-8, S-50
Serial Loans................................................................................... S-8, S-50
Servicer....................................................................................... S-2, S-5
Servicer Liability Limit....................................................................... S-22
Servicing Agreement............................................................................ S-13
Servicing Fee.................................................................................. S-14, S-53
Servicing Fee Shortfall........................................................................ S-53
Special Federal Tax Counsel.................................................................... S-18
Specified Reserve Account Balance.............................................................. S-12, S-57
Student Loan Rate.............................................................................. S-15, S-43
</TABLE>
S-64
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------------------------- ---------------
<S> <C>
Student Loan Rate Accrual Period............................................................... S-15
Student Loans.................................................................................. Cover, S-6
Subordinate Note Final Maturity Date........................................................... S-16, S-44
Subordinate Note Rate.......................................................................... S-14
Subordinate Note T-Bill Rate................................................................... S-14, S-43
Subordinate Noteholders........................................................................ S-15
Subordinate Noteholders' Distribution Amount................................................... S-57
Subordinate Noteholders' Interest Carryover Shortfall.......................................... S-57
Subordinate Noteholders' Interest Distribution Amount.......................................... S-57
Subordinate Noteholders' Interest T-Bill Carryover............................................. S-15
Subordinate Noteholders' Principal Carryover Shortfall......................................... S-57
Subordinate Noteholders' Principal Distribution Amount......................................... S-57
Subordinate Notes.............................................................................. Cover, S-5
Subservicer.................................................................................... S-5
Systems........................................................................................ S-26
Terms and Conditions........................................................................... S-47
Transfer Agreement............................................................................. S-7, S-13
Transfer and Servicing Agreements.............................................................. S-49
Transfer Date.................................................................................. S-51
Trust..........................................................................................Cover, S-5, S-26
Trust Agreement................................................................................ S-6
Underwriters................................................................................... S-60
Underwriting Agreement......................................................................... S-60
USAG........................................................................................... S-5
Year 2000 Problem.............................................................................. S-26
</TABLE>
S-65
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Senior Notes
of EFG Student Loan Trust - (the "Global Securities") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of DTC, Cedel or Euroclear. The Global Securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlements and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior asset backed certificates issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
CEDE & CO. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional asset backed securities.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel participant or Euroclear
Participant at
A-I-1
<PAGE>
least one business day prior to settlement. Cedel or Euroclear, as the case may
be, will instruct the respective Depositary to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date, on the basis of a calendar year consisting of twelve 30-day calendar
months. Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the Global Securities will
accrue from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended value date
(i.e., the trade fails), the Cedel or Euroclear cash debit will be valued
instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
Euroclear Participants, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or a Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct Euroclear Participants, to deliver the Global Securities to the
DTC Participant's account against payment. Payment will include interest accrued
on the Global Securities from and including the last coupon payment to and
excluding the settlement date, on the basis of a calendar year consisting of
twelve 30-day calendar months. The payment will then be reflected in the account
of the Cedel Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing system
and elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft incurred over that
one-day period. If settlement is not completed on the intended value date (i.e.,
the trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(1) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
A-I-2
<PAGE>
(2) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel or Euroclear account in order to
settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to 31% U.S. withholding tax that generally applies to payments of
interest on registered debt issued by U.S. Persons, unless (i) each clearing
system, bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the beneficial owner or
his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payee's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global Securities holder,
or in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom he holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of foreign income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of these Global Securities.
U.S. Person. As used herein the term "U.S. Person" means a beneficial
owner of a Senior Note that is for United States federal income tax purposes
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source,
(iv) any other person whose income or gain in respect of a Senior Note is
effectively connected with the conduct of a United States trade or business, or
(v) a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust. As used herein, the term "Non-U.S. Person" means a beneficial owner of a
Senior Note that is not a U.S. Person.
A-I-3
<PAGE>
PROSPECTUS
EFG STUDENT LOAN TRUSTS
STUDENT LOAN-BACKED NOTES
STUDENT LOAN-BACKED CERTIFICATES
EFG FUNDING CORPORATION, DEPOSITOR
The Student Loan-Backed Notes (the "Notes") and the Student Loan-Backed
Certificates (the "Certificates" and, together with the Notes, the "Securities")
described herein may be sold from time to time in one or more series, in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (a "Prospectus Supplement"). Each
series of Securities, which will include one or more classes of Notes and,
unless otherwise specified in the related Prospectus Supplement, one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "Trust"). Each Trust will be formed pursuant to a Trust
Agreement to be entered into among EFG Funding Corporation, as depositor (the
"Depositor") and the Trustee specified in the related Prospectus Supplement (the
"Trustee"). The Notes of each series will be issued and secured pursuant to an
Indenture between the Trust and the Indenture Trustee specified in the related
Prospectus Supplement (the "Indenture Trustee") and will represent indebtedness
of the related Trust. The Certificates of a series will represent fractional
undivided interests in the related Trust. The property of each Trust will
include a pool of education loans to students and parents of students ("Student
Loans") sold to the Depositor by Educational Finance Group, Inc. (the "Seller")
and transferred to the Trust by the Depositor, all funds collected or to be
collected on or in respect of such Student Loans on and after the applicable
Cutoff Date set forth in the related Prospectus Supplement, files to the Student
Loans, the Depositor's rights and remedies in respect of the Student Loans, and
amounts on deposit in the related trust accounts, all as described herein and in
the related Prospectus Supplement. However, in all events, legal title to loans
originated under and subject to the Federal Family Education Loan Program will
be held by an eligible lender under applicable law.
If so specified in the related Prospectus Supplement, each class of
Securities of any series will represent the right to receive a specified amount
of payments of principal and interest on the related Student Loans, at the
rates, on the dates and in the manner described herein and in the related
Prospectus Supplement. The right of each class of Securities to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of such series. Distributions on Certificates of a series may be subordinated in
priority to payments due on the related Notes to the extent described herein and
in the related Prospectus Supplement. A series may include one or more classes
of Notes and Certificates which differ as to the timing and priority of payment,
interest rate or amount of distributions in respect of principal or interest or
both. The rate of payment in respect of principal of the Notes and distributions
in respect of the Certificate Balance of the Certificates of any class will
depend on the priority of payment of such class and the rate and timing of
payments (including prepayments, defaults, guarantee payments, liquidations and
repurchases of Student Loans) on the related Student Loans. A rate of payment
lower or higher than that anticipated may affect the weighted average life of
each class of Securities in the manner described herein and in the related
Prospectus Supplement. All Securities offered pursuant to this Prospectus will
be, at the time of initial offer and issuance, "investment grade securities" as
defined by the Securities Act.
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, THE
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF SUCH
SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY,
EFG FUNDING CORPORATION. OR ANY OF ITS AFFILIATES.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" AT PAGE 15 AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
------------------------
The date of this Prospectus is May 3, 1999
<PAGE>
AVAILABLE INFORMATION
The Depositor, as the settlor of each Trust, has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus, 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 Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Registration Statement may be accessed electronically at the Commission's site
on the world wide web located at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor, as the settlor of any Trust, pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus and prior to the termination
of the offering of the Securities shall be deemed to be incorporated by
reference in this Prospectus. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
to be incorporated by reference herein modifies or supersedes such statement.
The Depositor will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to EFG Technologies, a division of Educational Finance
Group, Inc., 2400 Reynolds Blvd., Winston-Salem, North Carolina 27102
(Telephone: (336) 607-2828).
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
TABLE OF CONTENTS.......................................................................................... 3
SUMMARY OF TERMS........................................................................................... 7
RISK FACTORS............................................................................................... 15
Risk that Failure to Comply with Student Loan Origination and Servicing Procedures for Student Loans
May Adversely Affect the Trust's Ability to Pay Principal and Interest on the Related Notes and
Certificates......................................................................................... 15
Risk That Third Party Servicer Regulations Could Impair Servicer...................................... 15
Risks Related to Breaches of Representations, Warranties and Covenants by the Seller and the
Servicer............................................................................................. 16
Variability of Actual Cash Flows; Risk of Shortfalls to Holders of Notes and Certificates Resulting
from Inability of Related Indenture Trustee to Liquidate Student Loans............................... 16
Unsecured Nature of Student Loans; Risk that Financial Status of a Federal Guarantor Will Affect Its
Ability to Make Guarantee Payments................................................................... 17
Default Risk on Certain FFELP Student Loans........................................................... 17
Fees Payable on Certain FFELP Student Loans May Reduce Funds Available to Pay Principal and Interest
on the Related Notes and Certificates................................................................ 18
Risk that Change in Law Will Adversely Affect Student Loans, Guarantors, EFG or the Servicer.......... 18
Increased Fees; Decreased Assistance.................................................................. 19
Impact of Direct Lending.............................................................................. 19
Reserves.............................................................................................. 19
Consolidation of Federal Benefit Billings and Receipts Under One Eligible Lender Number............... 19
Risk Relating to Private Guarantors................................................................... 20
Risk of Loss of Private Guarantor Payments for Failure to Comply with Loan Origination and Servicing
Procedures for Private Student Loans................................................................. 20
Risks Resulting from Subordination of Principal and Interest Payments; Limited Assets................. 20
Risk Resulting from Use of the Pre-Funding Account or Collateral Reinvestment Account to Make
Additional Fundings.................................................................................. 21
Maturity and Prepayment Considerations................................................................ 22
Incentive Programs.................................................................................... 23
Risk of Removal of Servicer Upon Servicer Default..................................................... 23
Insolvency Risks...................................................................................... 24
Book-Entry Registration............................................................................... 24
Limited Liquidity..................................................................................... 25
Risk of Year 2000 May Adversely Affect Important Computer Systems..................................... 25
Year 2000 Compliance of the Department................................................................ 25
Sub-Servicing......................................................................................... 25
THE SELLER................................................................................................. 26
Consolidation/Repayment Programs......................................................................... 26
Incentive Programs....................................................................................... 26
THE DEPOSITOR.............................................................................................. 27
MANAGEMENT'S DISCUSSION AND ANALYSIS....................................................................... 29
THE TRUSTS................................................................................................. 30
General.................................................................................................. 30
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Eligible Lender Trustee.................................................................................. 30
Trustee.................................................................................................. 31
Payment of Notes......................................................................................... 31
Termination.............................................................................................. 32
The Servicer............................................................................................. 32
USE OF PROCEEDS............................................................................................ 32
THE STUDENT LOAN POOLS..................................................................................... 32
General.................................................................................................. 32
Origination and Marketing Process........................................................................ 33
Servicing and Collections Process........................................................................ 33
Claims and Recovery Rates................................................................................ 34
FEDERAL FAMILY EDUCATION LOAN PROGRAM...................................................................... 34
General.................................................................................................. 34
Legislative and Administrative Matters................................................................... 35
Recent Developments--Emergency Student Loan Consolidation Act of 1997.................................. 36
Recent Developments--FY 1998 Budget.................................................................... 36
Recent Developments--1998 Amendments................................................................... 36
Recent Developments--1998 Reauthorization Bill......................................................... 36
Eligible Lenders, Students and Educational Institutions.................................................. 37
Financial Need Analysis.................................................................................. 38
Special Allowance Payments............................................................................... 38
Federal Stafford Loans................................................................................... 39
Interest............................................................................................... 39
Interest Subsidy Payments.............................................................................. 40
Loan Limits............................................................................................ 41
Repayment.............................................................................................. 41
Grace Periods, Deferral Periods and Forbearance Periods................................................ 41
Federal Unsubsidized Stafford Loans.................................................................... 42
Federal PLUS and Federal SLS Loan Programs............................................................. 42
Loan Limits............................................................................................ 42
Interest............................................................................................... 43
Repayment, Deferments.................................................................................. 43
Federal Consolidation Loan Program....................................................................... 43
Federal Guarantors....................................................................................... 45
Federal Insurance and Reinsurance of Federal Guarantors.................................................. 46
PRIVATE LOAN PROGRAMS...................................................................................... 47
WEIGHTED AVERAGE LIFE OF THE SECURITIES.................................................................... 47
POOL FACTORS AND TRADING INFORMATION....................................................................... 48
DESCRIPTION OF THE NOTES................................................................................... 49
General.................................................................................................. 49
Principal and Interest on the Notes...................................................................... 49
The Indenture............................................................................................ 50
Modification of Indenture............................................................................. 50
Events of Default; Rights upon Event of Default....................................................... 50
Certain Covenants..................................................................................... 52
Annual Compliance Statement........................................................................... 52
Indenture Trustee's Annual Report..................................................................... 52
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
Satisfaction and Discharge of Indenture............................................................... 53
<S> <C>
The Indenture Trustee................................................................................. 53
DESCRIPTION OF THE CERTIFICATES............................................................................ 53
General.................................................................................................. 53
Principal and Interest in Respect of the Certificates.................................................... 53
CERTAIN INFORMATION REGARDING THE SECURITIES............................................................... 54
Fixed Rate Securities.................................................................................... 54
Floating Rate Securities................................................................................. 54
Book-Entry Registration.................................................................................. 55
Definitive Securities.................................................................................... 56
List of Securityholders.................................................................................. 56
Reports to Securityholders............................................................................... 57
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS....................................................... 57
General.................................................................................................. 57
Sale of Student Loans; Representations and Warranties.................................................... 57
Additional Fundings...................................................................................... 58
Accounts................................................................................................. 58
Servicing Procedures..................................................................................... 59
Payments on Student Loans................................................................................ 60
Servicer Covenants....................................................................................... 60
Servicer Compensation.................................................................................... 60
Evidence as to Compliance................................................................................ 61
Certain Matters Regarding the Servicer................................................................... 61
Servicer Default......................................................................................... 62
Rights Upon Servicer Default............................................................................. 62
Waiver of Past Defaults.................................................................................. 62
Distributions............................................................................................ 63
Credit and Cash Flow Enhancement......................................................................... 63
General............................................................................................... 63
Reserve Account....................................................................................... 63
Statements to Indenture Trustee and Trust................................................................ 64
Amendment................................................................................................ 64
Insolvency Event......................................................................................... 65
Payment of Notes......................................................................................... 65
Termination.............................................................................................. 65
Optional Redemption................................................................................... 65
Auction of Student Loans.............................................................................. 65
Administration Agreement................................................................................. 66
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS................................................................. 66
Transfer of Student Loans................................................................................ 66
Consumer Protection Laws................................................................................. 67
Loan Origination and Servicing Procedures Applicable to Student Loans.................................... 67
FFELP Student Loans Generally Not Subject to Discharge in Bankruptcy..................................... 68
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................... 68
Trusts for Which a Partnership Election Is Made.......................................................... 69
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
Tax Characterization of the Trust..................................................................... 69
<S> <C>
Tax Consequences to Holders of the Notes; Treatment of the Notes as Indebtedness...................... 69
Original Issue Discount............................................................................... 69
Interest Income on the Notes.......................................................................... 69
Optional Election..................................................................................... 70
Sale or Other Disposition............................................................................. 70
Foreign Holders....................................................................................... 70
Backup Withholding.................................................................................... 71
Tax Consequences to Holders of the Certificates.......................................................... 72
Classification as a Partnership; Treatment of the Trust as a Partnership.............................. 72
Partnership Taxation.................................................................................. 72
Computation of Income................................................................................. 73
Determining the Bases of Trust Assets................................................................. 73
Discount and Premium.................................................................................. 73
Disposition of Certificates........................................................................... 73
Allocations Between Transferors and Transferees....................................................... 74
Section 754 Election.................................................................................. 74
Administrative Matters................................................................................ 74
Tax Consequences to Foreign Certificateholders........................................................ 75
Tax Consequences to Certain Tax-Exempt Certificateholders............................................. 75
Backup Withholding.................................................................................... 75
Trusts in Which All Residual Interests Are Retained by the Depositor or an Affiliate
of the Depositor...................................................................................... 76
Tax Characterization of the Trust..................................................................... 76
Treatment of the Notes as Indebtedness................................................................ 76
CERTAIN STATE TAX CONSEQUENCES............................................................................. 76
Tax Consequences with Respect to the Notes............................................................ 77
Tax Consequences with Respect to the Certificates..................................................... 77
ERISA CONSIDERATIONS....................................................................................... 77
The Notes................................................................................................ 77
The Certificates......................................................................................... 78
PLAN OF DISTRIBUTION....................................................................................... 78
LEGAL MATTERS.............................................................................................. 79
INDEX OF TERMS............................................................................................. 80
</TABLE>
6
6
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this
Prospectus are defined elsewhere herein on the pages indicated in the "INDEX OF
TERMS" which begins on page 76 herein.
<TABLE>
<S> <C>
ISSUER............................. With respect to each series of Securities, the trust to be formed
pursuant to a Trust Agreement (as amended and supplemented from time
to time, a "Trust Agreement") between the Depositor and the Trustee
for such Trust (in each case the "Trust" or the "Issuer").
DEPOSITOR.......................... EFG Funding Corporation (the "Depositor"), a Delaware corporation. The
Depositor a wholly owned subsidiary of Educational Finance
Group, Inc., a Delaware corporation, (together with any successors
or assigns thereto, "EFG"). See "THE DEPOSITOR".
TRUSTEE............................ With respect to each Trust, the bank or trust company identified in
the related Prospectus Supplement that is serving as Trustee of such
Trust.
SERVICER........................... EFG Technologies (the "Servicer"), a division of Educational Finance
Group, Inc. The Servicer is expected to subcontract to sub-servicers
servicing and other duties for FFELP Student Loans (as defined
herein) and Private Student Loans (as defined herein). Under certain
circumstances described herein, the Servicer may transfer its
obligations as Servicer.
ELIGIBLE LENDER TRUST.............. The trust formed under the Eligible Lender Trust Agreement (defined
below) for the benefit of the Depositor and, unless the Trustee is
qualified as an eligible lender under FFELP, each Trust, and their
permitted assigns. Neither the Depositor nor any Trust, unless the
Trustee is qualified as an eligible lender under FFELP, is or will
be an institution eligible to hold legal title to guaranteed
education loans to students and parents of students made under the
Federal Family Education Loan Program ("FFELP Loans"); therefore,
the Eligible Lender Trustee will hold legal title to the FFELP
Student Loans through the Eligible Lender Trust on behalf of the
Depositor, each Trust and their permitted assigns pursuant to a
trust agreement between the Eligible Lender Trustee and the
Depositor (as amended and supplemented from time to time, "the
Eligible Lender Trust Agreement"). Investors in the Securities
assume certain risks because the Eligible Lender Trustee will act on
behalf of the Depositor and one or more Trusts. See "RISK
FACTORS--Consolidation of Federal Benefit Billings and Receipts with
Other Trusts". References to the Depositor or a Trust herein, unless
the Trustee is qualified as an eligible lender under FFELP, shall
mean the Eligible Lender Trustee for all purposes, where the context
so requires, involving the holding or transferring of legal title to
the FFELP Student Loans beneficially owned by the Depositor or a
Trust. If a Trustee is qualified as an eligible lender under FFELP,
which will be disclosed in the applicable Prospectus Supplement, it
will perform substantially the same function for the applicable
Trust as the Eligible Lender Trustee will perform for the Depositor
and would have performed for such Trust.
ELIGIBLE LENDER TRUSTEE............ The First National Bank of Chicago.
INDENTURE TRUSTEE.................. With respect to each series of Securities, the Indenture Trustee
specified in the related Prospectus Supplement.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
ADMINISTRATOR...................... EFG, as administrator (the "Administrator"). Under certain
circumstances described herein, EFG may transfer its obligations as
Administrator.
THE SELLER......................... Unless otherwise specified in the related Prospectus Supplement,
Educational Finance Group, Inc., a Delaware corporation, ("EFG") as
seller (the "Seller"). The Seller will sell Student Loans to the
Depositor pursuant to a Loan Sale Agreement. See "EFG" herein. EFG
owns 100% of the outstanding stock of the Depositor.
EFG ELIGIBLE LENDER TRUSTEE........ First National Bank of Chicago as trustee (the "EFG Eligible Lender
Trustee") on behalf of EFG pursuant to a trust agreement between EFG
and the EFG Eligible Lender Trustee (the "EFG Eligible Lender Trust
Agreement"). EFG is not an institution eligible to hold legal title
to FFELP Loans; therefore, the EFG Eligible Lender Trustee holds
legal title to the FFELP Student Loans owned by EFG. References to
EFG or the Seller herein shall mean the EFG Eligible Lender Trustee
for all purposes, where the context so requires, involving the
holding or transferring of legal title to the FFELP Student Loans
owned by EFG.
THE NOTES.......................... Each series of Securities will include one or more classes of Notes,
which will be issued pursuant to an Indenture between the related
Trust and the related Indenture Trustee (each, as amended and
supplemented from time to time, an "Indenture").
Unless otherwise specified in the related Prospectus Supplement, Notes
will be available for purchase in denominations of $1,000 and
integral multiples thereof and will be available in book-entry form
only. Unless otherwise specified in the related Prospectus
Supplement, Noteholders will be able to receive Definitive Notes
only in the limited circumstances described herein or in the related
Prospectus Supplement. See "CERTAIN INFORMATION REGARDING THE
SECURITIES--Definitive Securities."
Each class of Notes offered will have a stated principal amount
specified in the related Prospectus Supplement and will bear
interest at a specified rate or rates (with respect to each class of
Notes, the "Interest Rate"). Each class of Notes may have a
different Interest Rate, which may be a fixed, variable or
adjustable Interest Rate, or any combination of the foregoing. The
related Prospectus Supplement will specify the Interest Rate for
each class of Notes or the method for determining the Interest Rate.
With respect to a series that includes two or more classes of Notes,
each class may differ as to timing and priority of payments,
seniority, allocations of losses, Interest Rate or amount of
payments of principal or interest, or payments of principal or
interest in respect of any such class or classes may or may not be
made upon the occurrence of specified events.
THE CERTIFICATES................... Each series of Securities will, unless otherwise specified in the
related Prospectus Supplement, include one or more classes of
Certificates which will be issued pursuant to the related Trust
Agreement.
Unless otherwise specified in the related Prospectus Supplement,
Certificates will be available for purchase in a minimum
denomination of $1,000 and in integral multiples of $1,000 in excess
thereof and will
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
be available in book-entry form. Unless otherwise specified in the
related Prospectus Supplement, Certificateholders will be able to
receive Definitive Certificates only in the limited circumstances
described herein or in the related Prospectus Supplement. See
"CERTAIN INFORMATION REGARDING THE SECURITIES--Definitive
Securities."
Each class of Certificates offered will have a stated Certificate
Balance specified in the related Prospectus Supplement (the
"Certificate Balance") and will accrue interest on such Certificate
Balance at a specified rate (with respect to each class of
Certificates, the "Pass-Through Rate"). Each class of Certificates
may have a different Pass-Through Rate, which may be a fixed,
variable or adjustable Pass-Through Rate or any combination of the
foregoing. The related Prospectus Supplement will specify the
Pass-Through Rate for each class of Certificates or the method for
determining the Pass-Through Rate.
With respect to a series that includes two or more classes of
Certificates, each class may differ as to timing and priority of
distributions, seniority, allocations of losses, Pass-Through Rate
or amount of distributions in respect of principal or interest, or
distributions in respect of principal or interest in respect of any
such class or classes may or may not be made upon the occurrence of
specified events.
To the extent specified in the related Prospectus Supplement,
distributions in respect of the Certificates may be subordinated in
priority of payment to payments on the Notes.
ASSETS OF THE TRUST................ The assets of each Trust will include a pool of student loans (the
"Student Loans") consisting of (i) FFELP Loans made under the
Federal Family Education Loan Program ("FFELP") (the "FFELP Student
Loans") and/or (ii) if so specified in a Prospectus Supplement,
Private Loans, being other student loans made under private loan
programs not related to FFELP (the "Private Student Loans") and
(iii) in either case, the rights to receive payments made with
respect to such Student Loans and the proceeds thereof. On or prior
to the Closing Date specified in the related Prospectus Supplement
with respect to a Trust (a "Closing Date"), the Seller will sell
Student Loans having an aggregate principal balance specified in the
related Prospectus Supplement as of the date specified therein (a
"Cutoff Date"), to the Depositor pursuant to a Loan Sale Agreement.
On or prior to the Closing Date, the Depositor will transfer such
Student Loans (together with all of its rights and remedies under
the Loan Sale Agreement with respect to such Student Loans) to the
Trustee on behalf of the Trust pursuant to a Transfer Agreement. The
property of each Trust will also include amounts on deposit in
certain trust accounts, including the related Collection Account,
any Reserve Account, any Pre-Funding Account, any Collateral
Reinvestment Account and any other account identified in the
applicable Prospectus Supplement.
If so provided in the related Prospectus Supplement, during the period
(the "Funding Period") from the Closing Date until the first to
occur of (a) the amount on deposit in the Pre-Funding Account being
less than an amount specified in the related Prospectus Supplement,
(b) an Event of Default occurring under the Indenture, a Servicer
Default
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
occurring under the Loan Servicing Agreement or an Administrator
Default occurring under the Administration Agreement, (c) certain
events of insolvency occurring with respect to the Depositor, or
(d) the last day of the Collection Period preceding a Distribution
Date specified in the related Prospectus Supplement, an account will
be maintained in the name of the Indenture Trustee (the "Pre-Funding
Account"). The amount on deposit in the Pre-Funding Account (the
"Pre-Funding Amount") on the Closing Date will equal an amount
specified in the related Prospectus Supplement (which will be
deposited out of the net proceeds from the sale of the related
Securities) and, during the Funding Period, will be reduced from
time to time by the amount thereof used to make Additional Fundings
(as defined herein).
In addition, if so provided in the related Prospectus Supplement
during the period (the "Revolving Period") from the Closing Date
until the first to occur of (i) an event described in clauses
(b) or (c) of the preceding paragraph or of such additional event or
events as are described in the related Prospectus Supplement as
having such effect (each, an "Early Amortization Event") or
(ii) the last day of the Collection Period preceding a Distribution
Date specified in the related Prospectus Supplement, an account will
be maintained in the name of the Indenture Trustee (the "Collateral
Reinvestment Account"). The amount on deposit in the Collateral
Reinvestment Account on the Closing Date may, if so specified in the
related Prospectus Supplement, include an amount specified in the
related Prospectus Supplement (which will be deposited out of the
net proceeds from the sale of the related Securities) and, during
the Revolving Period principal will not be distributed on the
Securities of the related series and principal collections, together
with (if and to the extent described in the related Prospectus
Supplement) interest collections on the Student Loans that are in
excess of amounts required to be distributed therefrom will be
deposited from time to time in the Collateral Reinvestment Account
and will be used to make Additional Fundings.
"Additional Fundings" will consist of one or more of the following, in
each case if and to the extent specified in the related Prospectus
Supplement: (i) interest payments to Noteholders and
Certificateholders in lieu of collections of interest on certain of
the Student Loans to the extent such interest is not paid currently
but is capitalized and added to the principal balance of such
Student Loans; (ii) payments to purchase from the Depositor under
certain circumstances certain additional Student Loans during the
Funding Period or the Revolving Period; and (iii) payments to fund
the origination by the related Trust under certain circumstances of
certain additional Student Loans. If so provided in the related
Prospectus Supplement, Additional Fundings may continue to occur
after the Funding Period or Revolving Period. Additional Fundings
occurring after the Funding Period or Revolving Period will be
funded from collections on the related Student Loans in the manner
specified in the related Prospectus Supplement. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--Additional Fundings."
If so provided in the related Prospectus Supplement, the Depositor may
substitute Student Loans for Student Loans in the Trust, or purchase
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
certain Student Loans in the Trust, in the manner described in the
related Prospectus Supplement.
As of the related Cutoff Date for a Trust, Student Loans which are
more than 30 days delinquent will not equal or exceed 20% (by
principal balance) of the Student Loans included in such Trust and
none of the Student Loans included in such Trust will be
non-performing Student Loans. Non-performing Student Loans are
Student Loans which are in default and which the Seller expects to
write off as a loss.
GUARANTORS......................... Each Student Loan will, subject to compliance with specific
origination and servicing procedures prescribed by federal and
guarantee agency regulations, be guaranteed as to the payment of
principal and interest by (i) with respect to the FFELP Student
Loans, a state or private non-profit guarantor (each, a "Federal
Guarantor") which agency is re-insured by the United States
Department of Education (the "Department") for between 80% and 100%
of the amount of default claims paid by such Federal Guarantor for a
given federal fiscal year for FFELP Loans disbursed prior to October
1, 1993, for 78% to 98% of default claims for FFELP Loans disbursed
on or after October 1, 1993, for 75% to 95% of default claims for
FFELP Loans disbursed on or after October 1, 1998, and for 100% of
death, disability, bankruptcy, closed school and false certification
claims paid, or (ii) with respect to Private Student Loans, a state
or private guarantor (each, a "Private Guarantor", and together with
the Federal Guarantors, a "Guarantor") that is not reinsured by the
Department. Amounts paid by a Guarantor pursuant to its guarantee
are herein referred to as "Guarantee Payments". See "FEDERAL FAMILY
EDUCATION LOAN PROGRAM--Federal Guarantors", "--Federal Insurance
and Reinsurance of Federal Guarantors" and "Private Student Loan
Programs".
CREDIT AND CASH FLOW ENHANCEMENT... If and to the extent specified in the related Prospectus Supplement,
credit or cash flow enhancement with respect to a Trust or any class
or classes of Securities may include any one or more of the
following: subordination of one or more other classes of Securities,
a Reserve Account, a cash collateral account,
over-collateralization, letters of credit, credit or liquidity
facilities, surety bonds, guaranteed investment contracts, swaps
(including without limitation interest rate and currency swaps)
repurchase obligations, put and/or call options, yield protection
agreements, other agreements with respect to third-party payments or
other support, cash deposits or other arrangements. Any form of
credit or cash flow enhancement may have certain limitations and
exclusions from coverage thereunder, which will be described in the
related Prospectus Supplement.
RESERVE ACCOUNT.................... If so specified in the related Prospectus Supplement, an account in
the name of the related Indenture Trustee (the "Reserve Account") will
be established and maintained by the Administrator with the
Indenture Trustee in accordance with the directions of the
Administrator and will be an asset of the applicable Trust. To the
extent specified in the related Prospectus Supplement, the Depositor
will make an initial deposit into the Reserve Account on the Closing
Date having a value equal to the amount specified in the Prospectus
Supplement (the "Reserve Account Initial Deposit"); the Reserve
Account Initial Deposit will be augmented on each Distribution Date
by the deposit
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
into the Reserve Account of any remaining Available Funds for such
Distribution Date. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Distributions" in the related Prospectus Supplement.
Amounts in the Reserve Account will be available to cover shortfalls
in amounts due to the holders of those classes of Securities
specified in the related Prospectus Supplement in the manner and
under the circumstances specified therein. The related Prospectus
Supplement will also specify to whom and the manner and
circumstances under which amounts on deposit in the Reserve Account
(after giving effect to all other required distributions to be made
by the applicable Trust) in excess of the Specified Reserve Account
Balance (as defined in the related Prospectus Supplement) will be
distributed.
TRANSFER AND SERVICING
AGREEMENTS....................... With respect to each Trust, the Depositor will transfer the related
Student Loans (together with its rights and remedies under the Loan
Sale Agreement with respect to such Student Loans) to such Trust
pursuant to a transfer agreement between the Depositor and the
related Trustee (each "a Transfer Agreement"). The related Student
Loans and rights and benefits of such Trust and the Trustee under
the Loan Sale Agreement will be assigned to the Indenture Trustee as
collateral for the Notes of the related series. As specified in the
related Prospectus Supplement, each Trust, the Depositor, the
Servicer and the Eligible Lender Trustee will enter into a loan
servicing agreement with respect to the FFELP Student Loans and a
servicing agreement with respect to Private Student Loans (a "FFELP
Loan Servicing Agreement" and a "Private Loan Servicing Agreement",
respectively and each a "Loan Servicing Agreement"). Pursuant to the
related Loan Servicing Agreements, the Servicer will agree with such
Trust to be responsible for servicing, managing and maintaining the
custody of, and making collections on the pool of Student Loans, and
in the case of the FFELP Student Loans, preparing and filing with
the Department and the applicable Federal Guarantor all appropriate
claim forms and other documents and filings on behalf of the
Eligible Lender Trustee in order to claim the Interest Subsidy
Payments and Special Allowance Payments from the Department in
respect of the FFELP Student Loans. In addition, the Administrator
will undertake certain administrative duties with respect to such
Trust under an Administration Agreement.
The Seller will be obligated under the related Loan Sale Agreement to
repurchase any Student Loan, and the Servicer will be obligated
under the related FFELP Loan Servicing Agreement to purchase or
arrange for the purchase of any FFELP Student Loan, if the interest
of such Trust in such Student Loan is materially adversely affected
by a breach of any representation, warranty or covenant (including,
in the case of the Servicer to service all FFELP Student Loans in
accordance with applicable laws, restrictions and guidelines) made
by the Seller or the Servicer, as the case may be, if the breach has
not been cured following the discovery by or notice to the Seller or
the Servicer, as the case may be, of the breach (it being understood
that any such breach that does not affect any Guarantor's obligation
to guarantee payment of such Student Loan will not be considered to
have a material adverse effect for this purpose). In the event that
Notes of any series remain outstanding and there is a dispute
regarding whether the interests of the related Trust are materially
adversely affected by any such breach, the
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
determination as to whether the interests of such Trust are so
affected will be made by the Indenture Trustee. In such event, the
determination of the Indenture Trustee will be dispositive. In the
event only Certificates remain outstanding, any such determination
will be made by the Eligible Lender Trustee and its determination
will be dispositive. In addition, if so specified in the related
Prospectus Supplement, the Seller or the Servicer, as the case may
be, will be obligated to reimburse such Trust for any accrued
interest amounts not guaranteed by a Federal Guarantor due to, or
any Interest Subsidy Payments or Special Allowance Payments lost as
a result of, a breach of the Seller's representations and warranties
or the Servicer's covenants, as the case may be, with respect to any
FFELP Student Loan. The liability of the Seller or the Servicer, as
the case may be, will not exceed the amount that the Federal
Guarantor would have paid if such FFELP Student Loan had been
accepted and paid by such Federal Guarantor as a claim.
The Servicer will receive a fee (the "Servicing Fee") equal to a
specified percentage of the Pool Balance or a fee per Student Loan,
as set forth in the related Prospectus Supplement, together with any
other administrative fees and charges specified in the related
Prospectus Supplement. The Servicing Fee will be payable out of
Available Funds and amounts on deposit in the Reserve Account on the
dates specified in the related Prospectus Supplement. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Servicer
Compensation" herein and in the related Prospectus Supplement.
TERMINATION........................ The obligations of the Seller, the Depositor, the Servicer, the
Administrator, the Trustee, the Eligible Lender Trustee and the
Indenture Trustee relating to a particular Trust will terminate upon
(i) the maturity or other liquidation of the last Student Loan in
such Trust and the disposition of any amount received upon
liquidation of any such remaining Student Loans and (ii) the payment
to the Noteholders and the Certificateholders of the related series
of all amounts required to be paid to them. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Termination."
OPTIONAL REDEMPTION................ If so specified in the related Prospectus Supplement, in order
primarily to avoid administrative expense, the Depositor or another
party that is named in the related Prospectus Supplement will be
permitted at its option to purchase the Student Loans of a Trust in
the manner and on the respective terms and conditions described
under "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--
Termination-Optional Redemption." Following such a purchase, the
outstanding Notes will be redeemed and the Certificateholders will
receive a distribution as set forth in the related Prospectus
Supplement.
MANDATORY REDEMPTION............... To the extent that amounts on deposit in any Pre-Funding Account or
Collateral Reinvestment Account for a series have not been fully
applied to Additional Fundings by the Trust by the end of the
Funding Period or Revolving Period, respectively, the related
Noteholders may receive as a prepayment of principal an amount equal
to the amount remaining in such account on the Distribution Date
immediately following the end of such period. See "DESCRIPTION OF
THE NOTES--Principal and Interest on the Notes."
AUCTION OF STUDENT LOANS........... If so provided in the related Prospectus Supplement, all remaining
Student Loans held by a Trust will be offered for sale by the
Indenture Trustee on any Distribution Date occurring on or after a
date specified
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
in such Prospectus Supplement. The Depositor and related or
unrelated third parties may offer bids for such Student Loans. The
Indenture Trustee will accept the highest bid equal to or in excess
of the aggregate Purchase Amounts of such Student Loans as of the
end of the Collection Period immediately preceding the related
Distribution Date. The proceeds of such sale will be used to redeem
all related Notes and to retire the related Certificates. The
Trustee will not accept any bid for the Student Loans that is not
sufficient to redeem all the related Notes and to retire the related
Certificates. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Termination--Auction of Student Loans."
TAX CONSIDERATIONS................. Upon the issuance of each series of Securities, except as otherwise
provided in the related Prospectus Supplement, Willkie Farr &
Gallagher, federal tax counsel to the applicable Trust ("Federal Tax
Counsel"), will deliver an opinion to the effect that, for federal
income tax purposes: (i) the Notes of such series will be or, in
certain cases, should be, characterized as debt and (ii) the Trust
will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation.
Unless otherwise specified in the applicable Prospectus Supplement,
each Noteholder, by the acceptance of a Note of a given series, will
agree to treat such Note as indebtedness, and each
Certificateholder, if any, by the acceptance of a Certificate of a
given series, will agree to treat the related Trust as a partnership
in which such Certificateholder is a partner for federal income and
state income tax and franchise tax purposes. Alternative
characterizations of such Trust and such Certificates are possible,
but would not result in materially adverse tax consequences to
Certificateholders.
Due to the method of allocation of Trust income to the
Certificateholders, cash-basis holders may, in effect be required to
report income from the Certificates on an accrual basis. In
addition, because tax allocations and tax reporting will be done on
a uniform basis, but Certificateholders may be purchasing
Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns
taxable income that is greater or less than the amount reported to
them by the Trust.
The Trust related to each series of Securities will be established
under the laws of the state specified in the related Prospectus
Supplement and will be managed by the Administrator in
Massachusetts. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" for additional information concerning the application
of federal tax laws with respect to the Notes and the Certificates.
ERISA CONSIDERATIONS............... Unless otherwise specified in the related Prospectus Supplement and
subject to the considerations discussed under "ERISA CONSIDERATIONS"
herein and unless otherwise specified in the related Prospectus
Supplement, the Notes of each series are eligible for purchase by
employee benefit plans.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates may not be acquired by any employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or by any individual retirement account. See
"ERISA CONSIDERATIONS" herein.
</TABLE>
14
<PAGE>
RISK FACTORS
The payment of, and the timing of the payment of, the principal of and
interest on the Notes and distributions in respect of the Certificate Balance of
and return on the Certificates are subject to certain risks. Particular
attention should be given to the factors described below which, among others,
could materially and adversely affect the payment of, and the timing of the
payment of, the Notes and the Certificates, and which could also materially and
adversely affect the market price of the Notes and the Certificates to an extent
that cannot be determined. The items listed below do not include all risks to
which such payment is subject.
RISK THAT FAILURE TO COMPLY WITH STUDENT LOAN ORIGINATION AND SERVICING
PROCEDURES FOR STUDENT LOANS MAY ADVERSELY AFFECT THE TRUST'S ABILITY TO PAY
PRINCIPAL AND INTEREST ON THE RELATED NOTES AND CERTIFICATES. Title IV of the
Higher Education Act of 1965, as amended (the "Act"), including the implementing
regulations thereunder, requires lenders making and servicing FFELP Student
Loans and guarantors guaranteeing FFELP Loans to follow specified procedures,
including due diligence procedures, to ensure that the FFELP Loans are properly
made and disbursed to, and repaid on a timely basis by or on behalf of,
borrowers. Certain of those procedures, which are specifically set forth in the
Act, are summarized herein. See "FEDERAL FAMILY EDUCATION LOAN PROGRAM" and
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS." Generally, those
procedures require that completed loan applications be processed, a
determination of whether an applicant is an eligible borrower under the Act be
made, the borrower's responsibilities under the loan be explained to him or her,
the promissory note evidencing the loan be executed by the borrower and then
that the loan proceeds be disbursed in a specified manner by the lender. After
the loan is made, the lender must establish repayment terms with the borrower,
properly administer deferrals and forbearances and credit the borrower for
payments made thereon. If a borrower becomes delinquent in repaying a loan, the
lender must perform certain collection procedures (primarily telephone calls and
demand letters) which vary depending upon the length of time a loan is
delinquent.
With respect to each series of Securities, the Servicer will agree pursuant
to the related Loan Servicing Agreements to perform servicing and collection
procedures on behalf of each Trust. However, failure to follow these procedures
or failure of the originator of the loan to follow procedures relating to the
origination of any FFELP Student Loans may result in the Department's refusal to
make reinsurance payments to the Federal Guarantor or to make Interest Subsidy
Payments and Special Allowance Payments to the related Eligible Lender Trustee
with respect to such FFELP Student Loans or in the Federal Guarantor's refusal
to honor its Guarantee Agreements with the related Eligible Lender Trustee with
respect to such FFELP Student Loans. Failure of the Federal Guarantor to receive
reinsurance payments from the Department could adversely affect the Federal
Guarantor's ability or legal obligation to make Guarantee Payments to the
related Eligible Lender Trustee. Loss of any such Guarantee Payments, Interest
Subsidy Payments or Special Allowance Payments could adversely affect the amount
of Available Funds for any Collection Period and the Trust's ability to pay
principal and interest on the related Notes and Certificates which, in turn,
would result in a loss to Securityholders. Private loan programs and Private
Guarantees also require that prescribed servicing and collection procedures be
followed in order for the owner of the related Private Loans to obtain the
benefits of the related Guarantee Agreements. As in the case of the FFELP
Student Loans, non-compliance with these procedures may result in denial of
claims with respect to such Private Loans and could adversely affect the amount
of Available Funds for any Collection Period and the Trust's ability to pay
principal and interest on the related Notes and Certificates which, in turn,
would result in a loss to Securityholders.
RISK THAT THIRD-PARTY SERVICER REGULATIONS COULD IMPAIR SERVICER.
Effective July 1, 1995, the Department adopted FFELP regulations which, among
other things, established (i) requirements governing contracts between holders
of FFELP Loans and third-party servicers, (ii) standards of administrative and
financial responsibility for third-party servicers that administer any aspect of
a guarantee agency's or lender's participation in the FFELP and (iii) sanctions
and liabilities for third-party servicers.
Under these regulations, a third-party servicer (such as the Servicer) is
jointly and severally liable with its client lenders for liabilities to the
Department arising from the servicer's violation of applicable requirements. In
addition, if the servicer fails to meet standards of financial responsibility or
administrative capability included in the new regulations, or violates other
FFELP requirements, the regulations authorize the Department to fine the
servicer and/or limit, suspend or terminate the servicer's eligibility to
contract to service FFELP Loans. The
15
<PAGE>
effect of such a limitation or termination on the Servicer's eligibility to
service loans already on its system, or to accept new loans for servicing under
existing contracts, is unclear, although the financial, operational and
regulatory well being of the Servicer is a material consideration for all
Securityholders. If the Servicer were fined or held liable by the Department for
liabilities arising out of its FFELP activities for the Trust or other client
lenders, or its eligibility were limited, suspended or terminated, its ability
to properly service FFELP Student Loans and to satisfy its obligation to
purchase loans with respect to which it had breached its representations,
warranties or covenants under the related Servicing Agreement could be adversely
affected. Such adverse effects could have the result of diminishing Available
Funds for any Collection Period and, therefore, the Trust's ability to pay
principal and interest on the related Notes and Certificates. However, in the
event of a termination of eligibility, each Loan Servicing Agreement will
provide for the removal of the Servicer and the appointment of a substitute
servicer. The Servicer will also agree in each FFELP Loan Servicing Agreement to
hold the related Trust harmless for liabilities of the related Trust to the
Department arising from any violation by the Servicer of applicable
requirements.
RISKS RELATED TO BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS BY
THE SELLER AND THE SERVICER. If a breach of the representations, warranties or
covenants of the Seller with respect to a Student Loan or of the Servicer with
respect to a FFELP Student Loan, has a material adverse effect on the interest
of the related Trust therein and such breach is not cured within any applicable
cure period, with respect to a given series of Securities, such Trust will have
the right under the related Loan Sale Agreement and the related FFELP Loan
Servicing Agreement to cause the Seller to repurchase such Student Loan or the
Servicer to purchase or arrange for the purchase of such FFELP Student Loan,
respectively. In addition, unless otherwise specified in the Prospectus
Supplement with respect to a given series of Securities, each Trust will have
the right, pursuant to the related Loan Sale Agreement and Loan Servicing
Agreement, to cause the Seller or the Servicer, as the case may be, to reimburse
such Trust for any accrued interest amounts not guaranteed by a Federal
Guarantor, or any Interest Subsidy Payments and Special Allowance Payments lost
with respect to a FFELP Student Loan as a result of a breach of the Seller's
representations and warranties or the Servicer's covenants, as the case may be,
with respect to such FFELP Student Loan. The repurchase and reimbursement
obligations of the Seller and the Servicer will constitute the sole remedy
available to or on behalf of a Trust, the related Certificateholders or the
related Noteholders for any such uncured breach. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Sale of Student Loans; Representations and
Warranties" and "--Servicer Covenants." There can be no assurance, however, that
the Seller will have the financial resources, or the Servicer will have the
ability, to meet these obligations. The failure of the Seller to so repurchase,
or the Servicer to arrange for the repurchase of, a FFELP Student Loan would
constitute a breach of the related Loan Sale Agreement and Loan Servicing
Agreement, enforceable by the related Eligible Lender Trustee on behalf of such
Trust or by the related Indenture Trustee on behalf of the Noteholders of the
related series, but would not constitute an Event of Default under each
Indenture or permit the exercise of remedies thereunder. A Trust that acquires
Private Student Loans from the Seller will have similar rights with respect to
the Seller and the Servicer in connection with breaches by such parties of
representations, warranties and covenants which will be similar to those
pertaining to FFELP Student Loans. The failure of the Seller and the Servicer to
effect the repurchase of a defective Student Loan could, depending on the nature
of the defect, adversely affect the Trust's ability to pay principal of and
interest on the related Notes and Certificates. For example, if the defect
resulted in the particular Student Loan being ineligible for the benefits of
FFELP in the case of FFELP Student Loans or a guarantee in the case of a Private
Student Loan, the Trust would be limited to only recoveries obtainable from the
borrower.
VARIABILITY OF ACTUAL CASH FLOWS; RISK OF SHORTFALLS TO HOLDERS OF NOTES
AND CERTIFICATES RESULTING FROM INABILITY OF RELATED INDENTURE TRUSTEE TO
LIQUIDATE STUDENT LOANS. Amounts received with respect to the Student Loans for
a particular Collection Period may vary greatly in both timing and amount from
the payments actually due on the Student Loans as of such Collection Period for
a variety of economic, social and other factors, including both individual
factors, such as additional periods of deferral or forbearance prior to or after
a borrower's commencement of repayment, and general factors, such as a general
economic downturn which could increase the amount of defaulted Student Loans.
Failures by borrowers to pay timely the principal and interest on the Student
Loans will affect the amount of Available Funds on a Distribution Date, which
may reduce the amount of principal and interest paid to the Securityholders of
the related series on such Distribution Date. Moreover, failures by student loan
borrowers generally to pay timely the principal and interest due on their
Student Loans could obligate the respective Federal Guarantor or Private
Guarantor to make payments thereon,
16
<PAGE>
which could adversely affect the solvency of the Federal Guarantor or Private
Guarantor and its ability to meet its guarantee obligations (including with
respect to the Student Loans). The inability of any Guarantor to meet its
guarantee obligations could reduce the amount of principal and interest paid to
the Securityholders of the related series on a Distribution Date. The effect of
such factors, including the effect on a Guarantor's ability to meet its
guarantee obligations with respect to the Student Loans, or a Trust's ability to
pay principal and interest with respect to the Securities, is impossible to
predict. Pursuant to the 1992 Amendments, under Section 432(o) of the Act if the
Department has determined that a Federal Guarantor is unable to meet its
insurance obligations, the loan holder may submit claims directly to the
Department and the Department is required to pay the full Guarantee Payment due
with respect thereto in accordance with guarantee claim processing standards no
more stringent than those of such Federal Guarantor. However, the Department's
obligation to pay guarantee claims directly in this fashion is contingent upon
the Department making the determination referred to above. There can be no
assurance that the Department would ever make such a determination with respect
to a Federal Guarantor or, if such a determination was made, whether such
determination or the ultimate payment of such guarantee claims would be made in
a timely manner.
If an Event of Default occurs under the related Indenture, subject to
certain conditions, the related Indenture Trustee is authorized, without the
consent of the Certificateholders of the related series, to sell the Student
Loans pledged thereunder. There can be no assurance, however, that the related
Indenture Trustee will be able to find a purchaser for the Student Loans in a
timely manner or that the market value of such Student Loans is equal to the
aggregate outstanding principal amount of the Securities and accrued interest
thereon. If the proceeds of any such sale, together with amounts then available
in any Reserve Account or pursuant to any other credit enhancement specified as
being available therefor in the related Prospectus Supplement, do not exceed the
aggregate outstanding principal amount of Notes and accrued interest thereon,
the Noteholders of the related series will suffer a loss. In such circumstances,
the Certificateholders, to the extent the Certificates of such series are
subordinated to the Notes of such series, will also suffer a loss.
UNSECURED NATURE OF STUDENT LOANS; RISK THAT FINANCIAL STATUS OF A FEDERAL
GUARANTOR WILL AFFECT ITS ABILITY TO MAKE GUARANTEE PAYMENTS. The Act requires
all FFELP Loans to be unsecured. As a result, the only security for payment of
the FFELP Student Loans are the Guarantee Agreements between the related
Eligible Lender Trustee and the Federal Guarantors. A deterioration in the
financial status of the Federal Guarantors and their ability to honor guarantee
claims with respect to the FFELP Student Loans could result in a failure by the
Federal Guarantor to make Guarantee Payments to such Eligible Lender Trustee.
One of the primary causes of a possible deterioration in a Guarantor's financial
status is the amount and percentage of defaulting FFELP Student Loans guaranteed
by a Federal Guarantor. Moreover, to the extent that default reimbursement
claims submitted by a Federal Guarantor for any fiscal year exceed certain
specified levels, the Department's obligation to reimburse the Federal Guarantor
for default claim losses is reduced on a sliding scale from 100% to a minimum of
80% (98% to 78%, respectively, for default claim losses for FFELP Student Loans
made on or after October 1, 1993; 95% to 75%, respectively, for default claim
losses for FFELP Student Loans made on or after October 1, 1998). Death,
disability, bankruptcy, closed school and false certification claims are
reimbursed 100% by the Department. No assurance exists that any Federal
Guarantor will have the financial resources to make all Guarantee Payments to a
given Trust in respect of the related FFELP Student Loans that may arise from
time to time. Failure by Federal Guarantors to make Guarantee Payments on
defaulted FFELP Student Loans will affect the amount of Available Funds on a
Distribution Date, which may reduce the amount of principal and interest paid to
Securityholders of a related series on such Distribution Date. See "THE FEDERAL
FAMILY EDUCATION LOAN PROGRAM" and "--Federal Insurance and Reinsurance of
Federal Guarantors."
DEFAULT RISK ON CERTAIN FFELP STUDENT LOANS. Under the 1993 Act, FFELP
Loans first disbursed on or after October 1, 1993 are 98% insured by the
applicable Guarantor. As a result, to the extent a borrower of such a Student
Loan defaults, each Trust will experience a loss of 2% of outstanding principal
and accrued interest on each such Student Loan. A defaulted loan will be fully
assigned to the applicable Guarantor in exchange for a guarantee payment on the
98% guaranteed portion and the Trust may have no right thereafter to pursue the
borrower for the 2% unguaranteed portion. Such 2% loss would diminish the amount
of Available Funds, which would in turn, absent adequate collateralization in a
Trust, adversely affect a Trust's ability to pay interest and principal on the
related Notes and Certificates. FFELP Loans continue to be 100% guaranteed in
the event of
17
<PAGE>
death, disability or bankruptcy of the borrower and a closing of or false
certification by the borrower's school regardless of disbursement date.
FEES PAYABLE ON CERTAIN FFELP STUDENT LOANS MAY REDUCE FUNDS AVAILABLE TO
PAY PRINCIPAL AND INTEREST ON THE RELATED NOTES AND CERTIFICATES. Under the
Federal Consolidation Program, each Trust will be obligated to pay to the
Department a monthly rebate fee (the "Monthly Rebate Fee") at an annualized rate
of 1.05% (0.62% for applications received between October 1, 1998 and January
31, 1999) of the outstanding principal balance on the last day of each month
plus accrued interest thereon of each Federal Consolidation Loan which is a part
of such Trust, which rebate will be payable prior to distributions to the
Noteholders or the Certificateholders and which rebate will reduce the amount of
funds which would otherwise be available to make distributions on the Securities
and will reduce the Student Loan Rate. In addition, such Trust must pay to the
Department a 0.50% origination fee (the "Federal Origination Fee") on the
initial principal balance of each FFELP Student Loan which is originated on its
behalf by the related Eligible Lender Trustee (i.e., each Federal Consolidation
Loan originated on its behalf by such Eligible Lender Trustee during the Funding
Period), which fee will be deducted by the Department out of Interest Subsidy
and Special Allowance Payments. If sufficient Interest Subsidy and Special
Allowance Payments are not due to a Trust to cover the amount of the Federal
Origination Fee, the balance of such Federal Origination Fee will be deferred by
the Department until sufficient Interest Subsidy and Special Allowance Payments
accrue to cover such fee. If such amounts never accrue, which may occur as a
result of changes in the relevant interest rate indices on which such payments
are based or premature termination of a loan on account of default or otherwise,
a Trust would be obligated to pay any remaining fee from other assets of a
Trust, such as undisbursed proceeds of the issuance of Notes and Certificates
and principal payments on Student Loans received but not yet otherwise applied,
prior to making distributions to Noteholders or Certificateholders. The offset
of Interest Subsidy and Special Allowance Payments, and the payment of any
remaining fee from other Trust assets, will further reduce the amount of
Available Funds (or Monthly Available Funds) from which payments to Noteholders
and Certificateholders may be made. Also with respect to a series of floating
rate Notes or Certificates that is subject to the Student Loan Rate as described
under "CERTAIN INFORMATION REGARDING THE SECURITIES--Floating Rate Securities"
in this Prospectus, the Student Loan Rate, if so specified in the related
Prospectus Supplement, will be reduced by any offset of Interest Subsidy and
Special Allowance Payments. The effect of any such reduction in the Student Loan
Rate would be to reduce the minimum rate at which such Notes or Certificates
could bear interest. See "DESCRIPTION OF THE NOTES--Principal and Interest on
the Notes" and "CERTAIN INFORMATION REGARDING THE SECURITIES--Floating Rate
Securities" in this Prospectus.
RISK THAT CHANGE IN LAW WILL ADVERSELY AFFECT STUDENT LOANS, GUARANTORS,
EFG OR THE SERVICER. No assurance can be made that the Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder will not be amended or modified in the future in a manner that will
adversely impact the programs described in this Prospectus and the guaranteed
student loans made thereunder, including the Student Loans, the Guarantors, EFG
or the Servicer. In addition, existing legislation and future measures to reduce
the federal budget deficit or for other purposes may adversely affect the amount
and nature of federal financial assistance available with respect to these
programs. In recent years, federal budget legislation has provided for the
recovery of certain funds held by the Federal Guarantors in order to achieve
reductions in federal spending. No assurance can be made that future federal
budget legislation or administrative actions will not adversely affect
expenditures by the Department or the financial condition of the Federal
Guarantors, EFG or the Servicer. See "FEDERAL FAMILY EDUCATION LOAN
PROGRAM--Legislative and Administrative Matters" in this Prospectus.
For example, as described more fully under "FEDERAL FAMILY EDUCATION LOAN
PROGRAM--Legislative and Administrative Matters" (i) the Emergency Student Loan
Consolidation Act of 1997 changed, among other things, fixed interest rates to
variable interest rates and reduced the interest rate cap in the Federal
Consolidation Loan program, (ii) the 1997 Budget Reconciliation Act caused,
among other things, Federal Guarantors to return $1 Billion of reserves to the
U.S. Treasury, and (iii) the 1998 Reauthorization Bill (a) caused, among other
things, the recall of additional Federal Guarantor reserves and the reduction of
maximum federal reinsurance from 98% to 95% for Federal Student Loans first
disbursed on or after October 1, 1998 and (b) made permanent reductions in
borrower interest rates and Special Allowance Payments for Stafford Loans that
were introduced to FFELP by the 1998 Amendments. Changes in law such as those
described above
18
<PAGE>
generally reduce the amounts earned on FFELP Student Loans as well as the
resources of Federal Guarantors and therefore may adversely affect the financial
condition of Federal Guarantors, EFG or the Servicer which may, in turn,
adversely affect holders of Notes and Certificates by potentially reducing any
such party's ability to meet its obligations under the Guarantee Agreements or
Transfer and Servicing Agreements, as the case may be, with the result that
there may be a related reduction in the amounts paid to holders under the Notes
and Certificates. See "FEDERAL FAMILY EDUCATION LOAN PROGRAM" in this
Prospectus.
INCREASED FEES; DECREASED ASSISTANCE. The 1993 Act also made a number of
changes to the Federal Student Loan programs, including imposing on lenders or
holders of Student Loans certain fees and affecting the Department's financial
assistance to Federal Guarantors, including reducing the percentage of claim
payments the Department will reimburse to Federal Guarantors, reducing more
substantially the premiums and default collections that Federal Guarantors are
entitled to receive and/or retain and permitting the Department to reduce
administrative fees it pays to Federal Guarantors. These changes could affect a
Federal Guarantor's ability to make Guarantee Payments which in turn, could
adversely affect a Trust's ability to pay principal and interest on the related
Notes and Certificates.
IMPACT OF DIRECT LENDING. The 1993 Act made certain changes to the FFELP
and also provided for the implementation of a direct student loan program
("DSLP") pursuant to which the Department makes loans directly to students and
parents, which the statute contemplated would replace at least 60% of the FFELP
by the 1998-1999 academic year. The expansion of DSLP may involve increasing
reductions in the volume of loans made under the existing programs. The volume
of new FFELP Loans held and serviced by the Seller and the Servicer may decrease
due to DSLP. Such entities have not experienced a significant reduction to date
and any such reduction will not necessarily be equal to the percentage by which
existing Federal Student Loan programs are replaced by DSLP. As these reductions
occur, the Seller or the Servicer could experience increased costs due to
reduced economies of scale to the extent the volume of loans held and serviced
by the Seller and the Servicer is reduced. Such cost increases could affect the
ability of the Seller or the Servicer to satisfy their respective obligations to
repurchase or cause the repurchase of FFELP Student Loans in the event of
certain breaches of its representation and warranties as Seller or of its
covenants as Servicer and, in the case of the Servicer, to service the FFELP
Student Loans. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Sale
of Student Loans; Representations and Warranties" and "--Servicer Covenants."
Such volume reductions could also reduce revenues received by the Federal
Guarantors that are available to pay claims on defaulted Federal Student Loans
which in turn, could adversely affect a Trust's ability to pay principal and
interest on the related Notes and Certificates. Finally, the level of
competition in existence in the secondary market for loans made under the
existing programs could be reduced, resulting in fewer potential buyers of the
Federal Student Loans and lower prices available in the secondary market for
those loans.
RESERVES. The 1993 Act granted the Department broad powers over Federal
Guarantors and their reserves. These powers include the authority to require a
Federal Guarantor to return all reserve funds to the Department if the
Department determines such action is necessary to ensure an orderly termination
of the Federal Guarantor, to serve the best interests of the student loan
programs or to ensure the proper maintenance of such Federal Guarantor's funds
or assets. The Department is also now authorized to direct a Federal Guarantor
to return a portion of its reserve funds which the Department determines is
unnecessary to pay the program expenses and contingent liabilities of the
Federal Guarantor and/or to cease any activities involving the use of the
Federal Guarantor's reserve funds or assets which the Department determines is a
misapplication or otherwise improper. The Department may also terminate a
Federal Guarantor's reinsurance agreement if the Department determines that such
action is necessary to protect the federal fiscal interest or to ensure an
orderly transition to full implementation of direct federal lending. These
various changes create a significant risk that the resources available to the
Federal Guarantors to meet their guarantee obligations will be significantly
reduced. If a Federal Guarantor is unable to make Guarantee Payments, a Trust's
ability to make timely payments of interest and principal to the related
Securityholders may be adversely affected.
CONSOLIDATION OF FEDERAL BENEFIT BILLINGS AND RECEIPTS UNDER ONE ELIGIBLE
LENDER NUMBER. The Department limits the granting of new lender identification
numbers. The Eligible Lender Trustee will hold a single Department lender
identification number under the Eligible Lender Trust on behalf of all of the
beneficiaries thereof, i.e., the Depositor and each Trust for which the Trustee
is not qualified as an eligible lender under FFELP, as well as their permitted
assigns. The billings submitted to the Department for Interest Subsidy
19
<PAGE>
and Special Allowance Payments on FFELP Student Loans beneficially owned by a
Trust will be consolidated with the billings for such payments for FFELP Student
Loans beneficially owned by other Trusts or the Depositor, or such assigns, and
payments on such billings will be made by the Department in lump sum form. Such
lump sum payments will then be allocated by the Eligible Lender Trustee among
the Trusts and the Depositor, and such assigns.
In addition, sharing a common eligible lender identification number among
the beneficiaries of the Eligible Lender Trust, i.e., the Trusts and the
Depositor, and their permitted assigns, may result in the receipt of claim
payments from Federal guarantors in lump sum form. In that event, such payments
will be allocated among the Trusts and other beneficiaries in a manner similar
to the allocation process for Interest Subsidy and Special Allowance Payments.
The Department regards the Eligible Lender Trustee as the party primarily
responsible to the Department for any liabilities owed to the Department or
Federal Guarantors resulting from the Eligible Lender Trustee's activities in
the FFELP. As a result, if the Department or a Guarantor were to determine that
the Eligible Lender Trustee owed a liability to the Department or a Guarantor on
any FFELP Student Loan legally owned by the Eligible Lender Trustee, for
example, the Department or Guarantor may seek to collect that liability by
offset against payments due to the Eligible Lender Trustee with respect to any
FFELP Loans legally owned by the Eligible Lender Trustee without regard to their
beneficial ownership.
In addition, Trusts that are beneficiaries of the Eligible Lender Trust may
in a given quarter incur Federal Origination Fees that exceed the Interest
Subsidy and Special Allowance Payments payable by the Department on the loans
beneficially owned by such Trusts, resulting in the consolidated payment from
the Department received by the Eligible Lender Trustee under such lender
identification number for that quarter equaling an amount that is less than the
amount owed by the Department on all of the FFELP Student Loans in a Trust for
that quarter.
If a Trustee is qualified as an eligible lender under FFELP, which will be
disclosed in the applicable Prospectus Supplement, it will perform substantially
the same function for the applicable Trust as the Eligible Lender Trustee will
perform for the Depositor and would have performed for such Trust. The Trustee
for one or more Trusts may qualify as an eligible lender under FFELP and may
operate as such with a single lender identification number, thus presenting, as
among such Trusts, substantially the same risks as described immediately above
with respect to the Eligible Lender Trust and its multiple beneficiaries.
RISK RELATING TO PRIVATE GUARANTORS. Investors in Securities of any series
that finance Private Student Loans should evaluate the financial strength of
Private Guarantors and Federal Guarantors separately. As set forth in the
related Prospectus Supplement, Private Guarantors may be materially financially
weaker than Federal Guarantors. Most importantly, Private Guarantors will not
enjoy any federal support, unlike Federal Guarantors. Furthermore, the financial
condition of a Private Guarantor may material weaken after the Closing Date. The
inability of a Private Guarantor to pay any Guarantee Payments would likely have
a material adverse effect on payments of principal of and interest on the
Securities of a related series.
RISK OF LOSS OF PRIVATE GUARANTOR PAYMENTS FOR FAILURE TO COMPLY WITH LOAN
ORIGINATION AND SERVICING PROCEDURES FOR PRIVATE STUDENT LOANS. Certain rules
and procedures will govern originating and servicing Private Student Loans. In
many cases these procedures are analogous to those applicable to FFELP Loans.
Failure to make or service properly a Private Student Loan in accordance with
those procedures could adversely affect the Trustee's ability to obtain
guarantee payments from the applicable Private Guarantor. Loss of such guarantee
payments could adversely affect the Trust's ability to pay principal and
interest on the Notes and the Certificates. See "RISK FACTORS--Risk that Failure
to Comply with Student Loan Origination and Servicing Procedures for Student
Loans May Adversely Affect a Trust's Ability to Pay Principal and Interest on
the Related Notes and Certificates".
RISKS RESULTING FROM SUBORDINATION OF PRINCIPAL AND INTEREST PAYMENTS;
LIMITED ASSETS. To the extent specified in the related Prospectus Supplement,
distributions of interest and principal on the Certificates of a series may be
subordinated in priority of payment to interest and principal due on the Notes
of such series and distributions of interest and principal of certain classes of
Notes of a series may be subordinated in priority of payment to interest and
principal due on other classes of Notes of such series. Moreover, each Trust
will not have, nor is it permitted or expected to have, any significant assets
or sources of funds other than the Student
20
<PAGE>
Loans and, to the extent provided in the related Prospectus Supplement, a
Reserve Account and any other credit enhancement. The Notes of any series will
represent obligations solely of, and the Certificates of such series will
represent interests solely in, the related Trust and neither the Notes nor the
Certificates of such series will be insured or guaranteed by the Seller, the
Depositor, the Servicer, the Guarantors, the applicable Eligible Lender Trustee,
the applicable Indenture Trustee or any other person or entity. Consequently,
holders of the Securities of any series must rely for repayment upon payments on
the related Student Loans and, if and to the extent available, amounts on
deposit in the Reserve Account (if any) and other credit enhancement (if any),
all as specified in the related Prospectus Supplement.
RISK RESULTING FROM USE OF THE PRE-FUNDING ACCOUNT OR COLLATERAL
REINVESTMENT ACCOUNT TO MAKE ADDITIONAL FUNDINGS. The use of a Pre-Funding
Account or Collateral Reinvestment Account to add Student Loans to a Trust after
the applicable Closing Date will cause the aggregate characteristics of the
entire pool of Student Loans with respect to such Trust, including, if and to
the extent set forth in the related Prospectus Supplement, the composition of
such pool and of the borrowers thereof, the applicable Guarantors thereof (if,
as may be so specified in the related Prospectus Supplement, the Guarantors with
respect to Student Loans added after the Closing Date may include Guarantors
other than those represented in such pool as of the Closing Date and named in
such Prospectus Supplement) and the distribution by loan type, interest rate,
principal balance and remaining term to stated maturity to vary from those of
the applicable pool as existing on the Closing Date and described in the related
Prospectus Supplement. In the event that any of such pool characteristics vary
by 5% or more as a result of the use of a Pre-Funding Account or a Collateral
Reinvestment Account, the Depositor will report such fact, or cause it to be
reported, either in required filings with the Commission or in the periodic
servicing reports sent to investors.
If, as to any series for which a Pre-Funding Account or Collateral
Reinvestment Account is provided, the sum of (i) the principal amount plus
accrued interest thereon to be capitalized upon repayment of eligible Student
Loans acquired by or originated on behalf of the related Trust during the
Funding Period or Revolving Period, as the case may be, less the principal
amount of the Student Loans sold to the Depositor or prepaid by the related
Trust during such applicable period in connection with the making of Federal
Consolidation Loans or such other types of Student Loans as may be specified in
the related Prospectus Supplement and (ii) the amount of interest on the Student
Loans capitalized and not paid currently by or on behalf of the borrowers during
such applicable period is less, in the case of the Funding Period, than the
Pre-Funding Amount or, in the case of the Revolving Period, than the amount on
deposit in the Collateral Reinvestment Account at the end of the Revolving
Period, the related Trust will have insufficient opportunities to make
Additional Fundings during the Funding Period or Revolving Period, as the case
may be, thereby resulting in a prepayment of principal to Noteholders or
Certificateholders as described in the following paragraph. In addition, as to
any series for which a Collateral Reinvestment Account is provided, the making
of Additional Fundings during the Revolving Period at a rate lower than that
expected by the Depositor could cause a buildup of funds in the Collateral
Reinvestment Account at such a level as to cause an Early Amortization Event,
also thereby resulting in a prepayment of principal to Noteholders as described
in the following paragraph. Also, any conveyance of Student Loans to a Trust
through Additional Fundings is subject to the following conditions, among
others: (i) each such Student Loan must satisfy the eligibility criteria
specified in the related Loan Sale Agreement; and (ii) the Depositor will not
select such Student Loans in a manner that it believes is materially adverse to
the interests of the related Noteholders or the Certificateholders.
To the extent that amounts on deposit in the Pre-Funding Account or
Collateral Reinvestment Account for a series have not been fully applied to
Additional Fundings by the Trust by the end of the Funding Period or Revolving
Period, as the case may be, the related Noteholders or Certificateholders may
receive as a prepayment of principal an amount equal to the amount remaining in
the Pre-Funding Account or Collateral Reinvestment Account, as the case may be,
on the Distribution Date immediately following the end of such period.
Prepayments of principal could affect the yield realized by Noteholders and
Certificateholders and could require such holders to secure alternative
investments for the amounts prepaid. See "RISK FACTORS--Maturity and Prepayment
Considerations" below. For example, prepayments could accelerate the return of
principal to Securityholders who purchased their investments at a premium with
the result that the entire premium may not have been fully amortized at the time
of prepayment, thus reducing the investors actual yield on the Securities below
the yield originally expected. Noteholders and Certificateholders will bear all
reinvestment risk resulting
21
<PAGE>
from the rate of principal payments on their Securities. Thus, there is a risk
that Noteholders and Certificateholders will suffer a loss if they are unable to
secure alternative investments for such prepaid amounts that are of the same
credit quality and provide the same yield as the related Notes and Certificates.
It is anticipated that, in the case of each series, the amount of Additional
Fundings made by the Trust will be less than the amount on deposit in the
Pre-Funding Account or Collateral Reinvestment Account, as the case may be, and
that therefore there may be at least a nominal amount of principal prepaid to
the Noteholders or Certificateholders. In addition, various events (including,
in the case of a Revolving Period, Early Amortization Events) could cause any
Funding Period or Revolving Period to end prior to the last day of the
Collection Period set forth in the related Prospectus Supplement. Also, see
"RISK FACTORS--Maturity and Prepayment Considerations" below regarding the risk
to Noteholders and/or Certificateholders of prepayments in connection with the
making of Federal Consolidation Loans both during and after the Funding Period
or Revolving Period, as the case may be in the related Prospectus Supplement.
In no event will the prefunded amount deposited in a Pre-Funding Account on
the Closing Date exceed 50% of the initial aggregate principal amount of the
Notes and the Certificates of the related series of Securities. The maximum
Funding Period is three months following the related Closing Date.
MATURITY AND PREPAYMENT CONSIDERATIONS. All the Student Loans are
prepayable at any time. (For this purpose the term "prepayments" includes
prepayments in full or in part (including pursuant to Federal Consolidation
Loans) and liquidations due to default (including receipt of Guarantee
Payments). The rate of prepayments on the Student Loans may be influenced by a
variety of economic, social and other factors affecting borrowers, including
interest rates and the availability of alternative financing. In addition,
unless otherwise specified in the Prospectus Supplement for a given series of
Securities, under certain circumstances, the Seller or the Servicer will be
obligated to purchase or arrange for the purchase of Student Loans from the
Trust pursuant to the related Loan Sale Agreement or Loan Servicing Agreement,
as applicable, as a result of breaches of their respective representations,
warranties or covenants. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Sale of Student Loans; Representations and Warranties" and
"--Servicer Covenants." Moreover, a borrower of Student Loans may elect to
borrow a Federal Consolidation Loan to consolidate and refinance such Student
Loans. The related Prospectus Supplement will describe the circumstances under
which such Trust may originate or acquire the resulting Federal Consolidation
Loan. No assurance can be made that borrowers with FFELP Student Loans will not
seek to obtain Federal Consolidation Loans with respect to such FFELP Student
Loans or, if they do so, that such Federal Consolidation Loans will be held by
the related Eligible Lender Trustee on behalf of the Trust. See "THE FEDERAL
FAMILY EDUCATION LOAN PROGRAM."
On the other hand, scheduled payments with respect to, and maturities of,
the FFELP Student Loans may be extended as a result of Grace Periods, Deferral
Periods and, under certain circumstances, Forbearance Periods, which may
lengthen the remaining term of the FFELP Student Loans and the average life of
the Notes and the Certificates. See "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM."
Any reinvestment risks resulting from a faster or slower incidence of prepayment
of Student Loans will be borne entirely by the Noteholders and the
Certificateholders. See also "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS --Termination" regarding the Depositor's option to repurchase the
Student Loans.
Noteholders and Certificateholders should consider, in the case of Notes or
Certificates, as the case may be, purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Student Loans could
result in a longer average life of the Notes and Certificates and an actual
yield that is less than the anticipated yield and, in the case of Notes or
Certificates, as the case may be, purchased at a premium, the risk that a faster
than anticipated rate of principal payments on the Student Loans, as well as the
inability to apply funds on deposit in a Pre-funding Account or a Collateral
Reinvestment Account to the acquisition of Student Loans during a Funding Period
or a Revolving Period, as the case may be, could result in a shorter average
life of the Notes and Certificates and an actual yield that is less than the
anticipated yield. See "WEIGHTED AVERAGE LIFE OF THE SECURITIES."
On July 8, 1998, the Secretary published a notice in the Federal Register
reducing the interest rates on direct Federal Consolidation Loans for which
applications are received between July 1, 1998 and September 30, 1998 to a rate
equal to 91-day T-bill plus 2.3%, which rate was extended to applications
received by January 31, 1999
22
<PAGE>
under the 1998 Reauthorization Bill. This represents a reduction of 0.8% in the
interest rate compared to direct Federal Consolidation Loans for which
applications were received prior to that time. This interest rate reduction
could result in a higher incidence of prepayment of FFELP Student Loans due to
borrowers of such loans obtaining direct Federal Consolidation Loans to pay off
their outstanding indebtedness. The volume of such prepayments cannot be
determined at this time.
INCENTIVE PROGRAMS. EFG, the Seller, has offered, and intends to continue
to offer, incentive programs to borrowers of certain Student Loans. Two such
programs are currently made available by EFG and may apply to Student Loans
owned by the Trusts. The applicability of incentive programs to Student Loans to
be owned by particular Trusts will be disclosed in the Prospectus Supplements
relating to such Trusts. Under the "Grad Advantage Program," which is made
available for all Federal Stafford Loans which enter repayment after July 1993,
if a borrower makes 36 consecutive scheduled payments in a timely fashion, the
effective interest rate charged to the borrower will be permanently reduced by
2% per annum thereafter. Pursuant to the Grad Advantage Program, a borrower who
graduates will be entitled to a reduction in the principal of the borrower's
student loan equal to the amount of the borrower's origination and guarantee fee
on subsidized Federal Stafford Loans (not to exceed 4% of the principal), and an
amount equal to the guarantee fee on unsubsidized Federal Stafford Loans (not to
exceed 1% of the principal amount of the loan). Pursuant to the "direct repay
plan" or "Auto Advantage Repayment Plan," borrowers who make student loan
payments on Federal Stafford Loans electronically through automatic monthly
deductions from a savings or checking account receive a 0.25% effective interest
rate reduction as long as they continue the Auto Advantage repayment plan. The
effect of such principal and interest rate reductions will be to reduce the
amount of Available Funds held by a Trust to pay principal and interest to the
related Securityholders. The incentive programs currently or hereafter made
available by EFG to borrowers may also be made available by the Servicer to
borrowers of eligible Student Loans. The current terms of these incentive
programs will be changed in the near future to accommodate recently enacted
changes under FFELP.
EFG has held loans for its own account only since 1998 and thus has only
very recent experience with incentive programs for such loans. Moreover, the
nature of both the Grad Advantage Program and the Auto Advantage Repayment Plan
requires that a student graduate from school and enter repayment before he or
she will be eligible for participation in one of these incentive programs if it
applies to his or her loan. These incentive programs apply only to Federal
Stafford Loans and not all FFELP Loans. As a result of these facts, EFG does not
have at this time any statistically meaningful participation experience with
borrower incentive programs and, therefore, cannot predict with certainty the
extent to which borrowers will decide to participate in these programs. In
addition, EFG reserves the right to alter or eliminate its incentive programs in
the future and is currently updating its programs to accommodate changes to
FFELP interest rates.
Any borrower incentive program that can potentially reduce borrower
payments or principal balances on Student Loans and is not required by the Act
will be applicable to Student Loans only if and to the extent that the Trust
that beneficially owns the subject Student Loan has received an amount that is
adequate to offset such potential reductions or it is otherwise determined that
the assets of such Trust are sufficient to accommodate such potential
reductions.
RISK OF REMOVAL OF SERVICER UPON SERVICER DEFAULT. Unless otherwise
specified in the related Prospectus Supplement with respect to a given series of
Securities, in the event of (a) any failure by the Servicer to deliver to the
Indenture Trustee for deposit in any of the Trust Accounts any required payment
or to direct such Indenture Trustee to make any required distributions
therefrom, which failure continues unremedied for three business days after
written notice from such Indenture Trustee or the related Trustee is received by
the Servicer or after discovery by the Servicer, (b) any failure by the Servicer
to observe or perform in any material respect any other covenant or agreement of
the Servicer under the related Loan Servicing Agreement, (c) with respect to the
FFELP Student Loans, any limitation, suspension or termination by the Secretary
of Education (the "Secretary") of the Servicer's eligibility to service FFELP
Student Loans which materially and adversely affects its ability to service the
FFELP Student Loans in the related Trust or (d) any Insolvency Event with
respect to the Servicer (collectively, a "Servicer Default"), (x) pursuant to
the FFELP Loan Servicing Agreement, the Indenture Trustee or 75% (by principal
amount) of the Noteholders with respect to the series of Notes issued
thereunder, as described under "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Rights Upon Servicer Default," and (y) pursuant to the Private Loan
Servicing Agreement, the Trustee, may remove the
23
<PAGE>
Servicer without the consent of the Eligible Lender Trustee or any of the
Certificateholders. Moreover, for so long as the Notes of any Series are
outstanding, only the Indenture Trustee or the Noteholders with respect to such
series, and not the Eligible Lender Trustee or the Certificateholders, have the
ability to remove the Servicer if a Servicer Default occurs. In addition, the
Noteholders with respect to the FFELP Loan Servicing Agreement or the Trustee
under the Private Loan Servicing Agreement, have the ability, with certain
specified exceptions, to waive defaults by the Servicer, including defaults that
could materially adversely affect Certificateholders. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Waiver of Past Defaults."
INSOLVENCY RISKS. The Depositor has taken steps in structuring the
transactions contemplated hereby that are intended to ensure that the voluntary
or involuntary application for relief by EFG under the United States Bankruptcy
Code or other insolvency laws ("Insolvency Laws") will not result in
consolidation of the assets and liabilities of the Depositor with those of EFG.
These steps include the creation of the Depositor as a separate, limited-purpose
entity pursuant to articles of incorporation containing certain limitations
(including restrictions on the nature of the Depositor's business and a
restriction on the Depositor's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior affirmative vote of all of
the Depositor's directors, including at least two directors who must be
independent of the Depositor and affiliates). However, there can be no assurance
that the activities of the Depositor would not result in a court concluding that
the assets and liabilities of the Depositor should be consolidated with those of
EFG in a proceeding under any Insolvency Law. If a court were to reach such a
conclusion or a filing were made under any Insolvency Law by or against the
Depositor, or if an attempt were made to litigate any of the foregoing issues,
then delays in distributions on the Securities could occur or reductions in the
amounts of such distributions could result. See "THE DEPOSITOR."
It is intended by the Seller and the Depositor that the transfer of the
Student Loans by the Seller to the Depositor constitute a true sale of the
Student Loans to the Depositor. The Seller and Depositor expect to receive
advice of counsel substantially to this effect. If the transfer constitutes such
a true sale, the Student Loans and the proceeds thereof would not be property of
the Seller should it become the subject of any Insolvency Law subsequent to the
transfer of the Student Loans to the Depositor.
The Seller will warrant to the Depositor in the related Loan Sale Agreement
that the sale of the Student Loans by the Seller to the Depositor is a valid
sale of the Student Loans by the Seller to the Depositor. Notwithstanding the
foregoing, if the Seller were to become subject to an Insolvency Law and a
creditor or trustee-in-bankruptcy of the Seller or the Seller itself were to
take the position that the sale of Student Loans by the Seller to the Depositor
should instead be treated as a pledge of such Student Loans to secure a
borrowing of the Seller, delays in payments of collections of Student Loans to
the related Securityholders could occur or (should the court rule in favor of
the Seller or such trustee or creditor) reductions in the amounts of such
payments could result. If the transfer of Student Loans by the Seller to the
Depositor is treated as a pledge instead of a sale, a tax or government lien on
the property of the Seller arising before the transfer of such Student Loans to
the Depositor may have priority over such Trust's interest in such Student
Loans.
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, some state laws impose finance charge ceilings and other
restrictions on certain consumer transactions and require contract disclosures
in addition to those required under federal law. To the extent these
requirements may be applicable to Student Loans, these requirements impose
specific statutory liability that could affect an assignee's ability to enforce
consumer finance contracts. In addition, the remedies available to the related
Indenture Trustee or the Noteholders of the related series upon an Event of
Default under the Indenture may not be readily available or may be limited by
applicable state and federal laws.
BOOK-ENTRY REGISTRATION. If so provided in the related Prospectus
Supplement, each class of the Notes and the Certificates of a given series will
be initially represented by one or more certificates registered in the name of
Cede & Co. ("Cede"), or any other nominee for DTC set forth in the related
Prospectus Supplement (Cede, or such other nominee, "DTC's Nominee"), and will
not be registered in the names of the holders of the Securities of such series
or their nominees. Because of this, unless and until Definitive Securities (as
defined below) for such series are issued, holders of such Securities will not
be recognized by the applicable Indenture Trustee or Trustee as "Noteholders,"
"Certificateholders" or "Securityholders," as the case may be (as such terms are
used herein or in the related Indenture and Trust Agreement, as the case may
be). Hence, unless and until
24
<PAGE>
Definitive Securities are issued, holders of such Securities will only be able
to exercise the rights of Securityholders indirectly through DTC and its
participating organizations. See "CERTAIN INFORMATION REGARDING THE
SECURITIES--Book-Entry Registration" and "--Definitive Securities."
LIMITED LIQUIDITY. There can be no assurance that a secondary market for
the Notes or the Certificates will develop or, if it does develop, that it will
provide a Noteholder or a Certificateholder with liquidity of investment or will
continue for the life of the Notes or the Certificates. The related Prospectus
Supplement will indicate whether any of the underwriters identified therein
intends to make a secondary market in the Notes or the Certificates offered
thereby. No underwriter will be obligated to make any such secondary market.
RISK THAT YEAR 2000 MAY ADVERSELY AFFECT IMPORTANT COMPUTER SYSTEMS. The
Servicer (including any sub-servicer), the Guarantors, the Seller, the
Administrator, the Eligible Lender Trustee and the Indenture Trustee utilize a
significant number of computer software programs and operating systems. They are
also highly dependent on computer systems operated by third parties which
include, but are not limited to, their suppliers, customers, brokers and agents
and the telephone, electric and utility companies. To the extent that any
computer system relied upon by any such party has software applications and
contains source codes that are unable to appropriately interpret the upcoming
calendar year 2000, some level of modification or replacement of such
applications or hardware may be necessary. The year 2000 issue is the result of
prior computer programs being written using two digits, rather than four digits,
to define the applicable year. Any computer program that has time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. Any such occurrence could result in a major computer system failure or
miscalculation. Several federal regulatory agencies, including the Commission,
require the entities which they regulate to take steps to address problems which
may arise in relation to the year 2000.
No assurance can be given that any or all of the systems of the Servicer
(including any sub-servicer), the Guarantors, the Seller, the Administrator, the
Eligible Lender Trustee and the Indenture Trustee, or any third party on which
any of them relies, are or will be year 2000 compliant. Moreover, no assurance
can be given that the degree to which such systems are year 2000 non-compliant
and the costs required to address year 2000 issues will not adversely affect the
business, financial condition or results of operations of the respective party
or the performance of its obligations under any of the Transfer and Servicing
Agreements or an Indenture to the extent that the Securityholders are adversely
affected thereby.
YEAR 2000 COMPLIANCE OF THE DEPARTMENT. The United States Department of
Education (the "Department") has undertaken a year 2000 compliance project to
address year 2000 issues. Information regarding the Department's year 2000
efforts can be obtained at the Department's site on the World Wide Web at
http://www/ed.gov. Officials at the Department have made statements to the
public acknowledging that the Department has been placed on the Office of
Management and Budget's "watch list" for not meeting certain milestones toward
year 2000 compliance, but have further indicated that compliance for the
Department's mission-critical systems relating to FFELP are on schedule for
completion by the Office of Management and Budget's March 1999 deadline. Any
failure by the Department to resolve any year 2000 issues or any adverse effect
on the Department caused by a party on which the Department relies as a result
of year 2000 issues may have a material adverse effect on FFELP, the Federal
Guarantors and the Securityholders.
SUB-SERVICING. The Depositor expects that the Servicer for the Student
Loans held under one or more Trusts will be EFG Technologies. In such cases, the
Depositor further expects that one or more sub-servicers will be engaged to
carry out all or a substantial portion of the Servicer's duties. The initial
servicing arrangements for a particular Trust will be described in the related
Prospectus Supplement. EFG Technologies will not be substantially capitalized or
guaranteed by any affiliate. Its ability to honor any Servicer purchase or
indemnification requirement under the Loan Servicing Agreement may not be
adequate for all purposes. In such circumstances a Trust would look to the
Sub-Servicer and any additional source of security for the satisfaction of any
purchase or other indemnification responsibility which the Servicer may have
under a Loan Servicing Agreement. There can be no assurance that any
Sub-Servicer or any such additional source of security would be adequate to
satisfy the purchase or indemnification obligations imposed on the Servicer by
the Loan Servicing Agreement. Moreover, a Sub-Servicer may not be fully
obligated under the Loan Servicing Agreement to honor all of the Servicer's
purchase and indemnification obligations, in which case the source of funds to
satisfy any such omitted obligations would be either EFG Technologies or the
additional source of security, if any. Any such
25
<PAGE>
additional source of security would normally be in the form of an insurance, or
surety, policy issued by an insurance carrier. In the event that the Trust were
to look to a Sub-Servicer for purchase or other indemnification obligations and
such Sub-Servicer were unable or not obligated to satisfy such purchase or other
indemnification obligations, the holder of Certificates and Notes may be
adversely affected because, among other things, Available Funds to make payments
in respect of Notes and Certificates would be diminished.
THE SELLER
Educational Finance Group, Inc. is a Delaware corporation ("EFG") and the
ultimate successor to the business of Education Funding Services, Inc., which
was founded in 1992 as a student loan marketing firm, providing
discipline-specific loan programs for graduate health professionals. These loan
programs have generated $1.5 billion in federal and privately insured student
loans through a series of lender-guarantor-servicer partnerships.
In May 1997, EFG became a subsidiary of UICI (NASDAQ: UICI), a diversified
financial services company based in Dallas, Texas. Following the investment by
UICI, a series of acquisitions expanded the base of financial services that EFG
offers to include FFELP Loans, student health insurance, and campus-based loan
servicing. EFG markets its products to over 3,000 schools nationwide through its
25 person sales force, its direct mail and telemarketing division, and carefully
constructed affinity based relationships.
As of the date of this Prospectus the Seller is not aware of any legal
proceedings that would have a material impact on the Seller, its operations or
its ability to service Student Loans.
Student Loan Division EFG markets its loan products under various
programs, including ChiroLoan and Platinum Loan Programs, The National
Association for Equal Opportunity Loan Program and the American Medical Student
Association Loan Program. These student loan programs have generated over $1.5
billion dollars in government guaranteed and privately insured alternative
loans. EFG has made loans available to students at approximately 350
universities.
Student Health Insurance Division Through its relationship with UICI, EFG
now operates a student health insurance division in St. Petersburg Florida. The
Student Health Insurance Division is the leading provider of student health
insurance nationwide, providing coverage to 450 colleges and universities.
Loan Servicing Division EFG also acquired the campus-based loan servicing
division and part of the private loan servicing division of EduServ
Technologies. Located in Winston-Salem, North Carolina, these businesses include
servicing campus based federal Perkins loans and privately insured loans, as
well as tuition installment plans, for approximately 700 client schools.
Direct Mail & Telemarketing Division Education Loan Administration Group
("ELA") was acquired by EFG in 1997. ELA, one of the country's largest providers
of Federal Parent Loans for Undergraduate Students (PLUS Loans), is a leader in
marketing PLUS loans. Headquartered in San Diego, CA, this division of EFG
handles the marketing for PLUS Loans, as well as direct mail and phone contact
with prospective student borrowers.
CONSOLIDATION/REPAYMENT PROGRAMS
Consolidation and repayment programs are generally made available by EFG to
Student Loan borrowers. EFG has elected to participate through the EFG Eligible
Lender Trustee in the Federal Consolidation Loan Program, but maintains the
right to alter or cease such participation in the future if conditions dictate
exiting the market.
EFG offers the following repayment options via its "DebtMinder" Federal
Consolidation Loan Program. Through the "graduated repayment" feature, certain
Student Loans provide for an "interest only" period. During such period, the
borrower is required to make payment of accrued interest only; no payment of the
principal of the loan is required during such a period. At the conclusion of the
"interest only" period, such loan is required to be amortized through level
payments over the remaining term of the loan.
26
<PAGE>
In other cases, EFG offers certain borrowers a "graduated phased in"
amortization of the principal of the loans. For such loans, a greater portion of
the principal amortization of the loan is required in the later stages of the
loan than would be the case if amortization were on a level payment basis.
EFG also offers an income sensitive repayment plan, pursuant to which
repayments are based on the borrower's income. Under the plan, ultimate
repayment may be delayed for up to five years.
It cannot be predicted with certainty to what extent borrowers will decide
to participate in the programs described above.
INCENTIVE PROGRAMS
EFG has offered, and intends to continue to offer, incentive programs to
certain Student Loan borrowers. Two such programs are currently made available
by EFG and may apply to Student Loans owned by the Trusts. Under the "Grad
Advantage Program," which is made available for all FFELP Loans which enter
repayment after July 1993, if a borrower makes 36 consecutive scheduled payments
in a timely fashion, the effective interest rate charged to the borrower will be
permanently reduced by 2% per annum thereafter. Pursuant to the Grad Advantage
program, a borrower who graduates will be entitled to a reduction in the
principal of the borrower's student loan equal to the amount of the borrower's
origination and guarantee fee on subsidized loans (not to exceed 4% of the
principal), and an amount equal to the guarantee fee on unsubsidized loans (not
to exceed 1% of the principal amount of the loan). Pursuant to the "direct
repayment plan" or the "Auto Advantage Repayment Plan" borrowers who make
student loan payments electronically through automatic monthly deductions from a
savings or checking account receive a 0.25% effective interest rate reduction as
long as they continue the Auto Advantage repayment plan. It cannot be predicted
with certainty the extent to which borrowers will decide to participate in these
programs. EFG reserves the right to alter its incentive programs in the future,
and is currently updating its offerings to accommodate changes to FFELP Loan
interest rates.
The incentive programs currently or hereafter made available by EFG to
borrowers may also be made available by the Servicer to borrowers of eligible
Student Loans. Any such incentive program that effectively reduces borrower
payments or principal balances on Student Loans and is not required by the Act
will be applicable to Student Loans only if and to the extent that the Trust
that beneficially owns the subject Student Loan has received an amount that is
adequate to offset such effective yield reductions.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware in July, 1998. The
Depositor is a wholly owned subsidiary of the Seller. The Depositor was
organized for limited purposes, which include purchasing student loans from the
Seller and transferring such student loans to third parties and any activities
incidental to and necessary or convenient for the accomplishment of such
purposes. The principal executive offices of the Depositor are located at 495
Station Avenue, South Yarmouth, Massachusetts 02664. The telephone number of
such offices is (508) 760-2900.
The Depositor has taken steps in structuring the transactions contemplated
hereby that are intended to prevent any voluntary or involuntary application for
relief by the Seller under any Insolvency Law from resulting in consolidation of
the assets and liabilities of the Depositor with those of the Seller. These
steps include the creation of the Depositor as a separate, limited-purpose
entity pursuant to a certificate of incorporation containing certain limitations
(including restrictions on the nature of the Depositor's business and a
restriction on the Depositor's ability to commence a voluntary case or
proceeding under any Insolvency Law). However, there can be no assurance that
the activities of the Depositor would not result in a court concluding that the
assets and the liabilities of the Depositor should be consolidated with those of
the Seller in a proceeding under any Insolvency Law.
The Depositor has received the advice of its counsel to the effect that,
subject to certain facts, assumptions and qualifications, a court would not
disregard the separate corporate existence of the Depositor and require the
consolidation of the assets and liabilities of the Depositor with the assets and
liabilities of the Seller in the event of the application of the United States
Bankruptcy Code to the Seller. Among other things, it is assumed by counsel that
the Depositor will follow certain procedures in the conduct of its affairs,
including maintaining
27
<PAGE>
records and books of accounts separate from those of the Seller, refraining from
commingling its assets with those of the Seller and refraining from holding
itself out as having agreed to pay, or being liable for, the debts of the
Seller. The Depositor intends to follow and has represented to such counsel that
it will follow these and other procedures related to maintaining its separate
identity. However, there can be no assurance that a court would not conclude
that the assets and liabilities of the Depositor should be consolidated with
those of the Seller. If a court were to reach such a conclusion, or a filing
were made under any Insolvency Law by or against the Depositor, or if an attempt
were made to litigate any of the foregoing issues, delays in distributions on
the Notes and the Certificates could occur or reductions in the amounts of such
distributions could result.
It is intended by the Seller and the Depositor that the transfer of the
Student Loans by the Seller to the Depositor under the Loan Sale Agreements
constitutes a "true sale" or "contribution of capital" of the Student Loans to
the Depositor. If the transfer constitutes such a "true sale" or "contribution
of capital," the Student Loans and the proceeds thereof would not be property of
the Seller should the Seller become subject to any Insolvency Law subsequent to
the transfer of the Student Loans to the Depositor.
It will be a condition to the issuance of Securities by a Trust that the
Depositor receives the advice of counsel to the effect that, subject to certain
facts, assumptions and qualifications, in the event the Seller were to become
the subject of a proceeding under the United States Bankruptcy Code subsequent
to the transfer of Student Loans to the Depositor pursuant to the related Loan
Sale Agreement, the transfer of the Student Loans by the Seller to the Depositor
pursuant to such Loan Sale Agreement would be characterized as a "true sale" or
"contribution of capital" of the Student Loans by the Seller to the Depositor
and the Student Loans and the proceeds thereof would not be property of the
Seller under the United States Bankruptcy Code.
The Seller will also represent and warrant to the Depositor in the related
Sale Agreement that the sale of the applicable Student Loans by the Seller to
the Depositor is a valid sale of such Student Loans. In addition, the Seller,
the Depositor, the Trustee and such Trust will treat the conveyance by the
Depositor of the applicable Student Loans as a sale of such Student Loans by the
Depositor to the Trustee on behalf of such Trust, although counsel will not
render any opinion to that effect and there can be no assurance that a court
would view such conveyance as a valid and complete sale. Notwithstanding the
foregoing, if the Depositor or the Seller were to become a debtor in a
bankruptcy case and a creditor or trustee in bankruptcy of such debtor or such
debtor itself were to take the position that the sale of Student Loans by the
Seller to the Depositor or by the Depositor to a Trust should instead be treated
as a pledge of such Student Loans to secure a borrowing of such debtor, then
delays in payments of collections of such Student Loans could occur or (should
the court rule in favor of any such trustee, debtor or creditor) reductions in
the amount of such payments could result. If the transfer of Student Loans by
the Seller to the Depositor or by the Depositor to the Trustee on behalf of a
Trust is treated as a pledge instead of a sale, a tax or government lien on the
property of Seller or the Depositor arising before the transfer of Student Loans
to the Trustee on behalf of such Trust may have priority over such Trustee's
interest in such Student Loans. If for any reason the Depositor should desire
that, in the opinion of counsel, the assets of any Trust would not be considered
property of the estate of the Depositor were the Depositor to become the subject
of a proceeding under any Insolvency Law, the Depositor may elect to take steps
necessary to achieve that result, including the following steps. The Depositor
would seek to have the Seller establish an additional wholly owned special
purpose corporation that would be dedicated solely to the Trust in question. The
Depositor would sell all of its right, title and interest in and to the Trust to
the new, dedicated special purpose corporation in return for cash equal to the
fair value of such property. The Depositor would remain a party to the
applicable Trust Agreement but it would not retain any economic interest in the
assets of the Trust.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Descriptions of current trends having a material impact or expected to have
a material impact on FFELP Student Loans are set forth herein under the headings
"RISK FACTORS" AND "FEDERAL FAMILY EDUCATION LOAN PROGRAM". Descriptions of
current trends having a material impact or expected to have a material impact on
Private Student Loans will be set forth in the related Prospectus Supplement and
also herein under "RISK FACTORS".
An important trend affecting FFELP Student Loans includes continued
reductions in the levels of federal subsidies that are part of FFELP. As
discussed in "RISK FACTORS--Default Risk on Certain FFELP Student Loans", the
maximum amount that Federal Guarantors guarantee FFELP Student Loans was reduced
to 98% for FFELP Student Loans first disbursed on or after October 1, 1993. If
the trend of reducing levels of guarantees provided by Federal Guarantors
continues, FFELP Student Loans will be exposed to a greater risk of loss, which
in turn, will make the ownership and financing of FFELP Student Loans less
attractive.
Another important trend affecting FFELP Student Loans is the continued
reduction of borrower interest rates on FFELP Student Loans. As described in
"RISK FACTORS--Risk that Change in Law Will Adversely Affect Student Loans,
Guarantors, EFG or the Servicer", borrower interest rates and Special Allowance
Payments for Stafford Loans were again reduced, following an established trend.
If the trend of reducing borrower interest rates and Special Allowance Payments
continues, the spread between what any FFELP Student Loan portfolio may earn
over the cost of funds will also continue to narrow, thereby reducing the
profitability of such a portfolio. The potential result of such reduced
profitability could be increased difficulty for owners in financing such
portfolios and reduced security for lenders secured by such portfolios.
Finally, continued increases in student loans made directly to students and
parents by the federal government under the federal direct student loan program
("DSLP") is an important trend affecting FFELP Student Loans. As described in
"RISK FACTORS--Impact of Direct Lending", the federal government continues to
support the DSLP, thus maintaining the competitive and adverse pressures on
FFELP which the DSLP has applied since its creation in 1993. If this trend
continues, economic pressures due to reduced economies of scale, reduced revenue
and lower prices in the secondary market^ could have a negative financial impact
on student loan finance companies such as the Seller and student loan servicing
companies such as the Servicers.
FFELP Student Loans and Private Student Loans are also both affected by
large scale trends in the economy. Rising education costs and increased
participation in post secondary education have only expanded the demand for
education financial assistance. In a strong economy the student's ability to
generate sufficient income to service his or her debt should be commensurately
strong. In a recessionary environment with high unemployment, however, the
student's ability to service his or her debt is likely to diminish. Combining
this scenario with an ever increasing education debt burden could produce
negative results for the holders and guarantors of large amounts of education
debt such as FFELP Loans and Private Loans. See "RISK FACTORS--Variability of
Actual Cash Flows; Risk of Shortfalls to Holders of Notes and Certificates
Resulting from Inability of Related Indenture Trustee to Liquidate Student
Loans".
As in the case of all companies, the Depositor must consider its year 2000
compliance. Year 2000 compliance efforts are designed to identify, address and
resolve issues that may arise because many existing computer programs use only
the last two digits rather than four digits to refer to a year. Therefore, these
computer programs may recognize a date using "00" as the year 1900 rather than
the year 2000 (the "Year 2000 Problem"). The extent of the potential impact of
the Year 2000 Problem is not yet known; however, the problem could result in
system failures or miscalculations causing disruptions of operations. See "RISK
FACTORS--Risk that Year 2000 May Adversely Affect Important Computer Systems"
and "--Year 2000 Compliance of the Department."
The Depositor is a special purpose entity designed for the limited purposes
of effecting the transfers of Student Loans to Trusts and the activities
incidental to or necessary or convenient for the accomplishment of such
transfers. The Depositor currently does not have, and does not expect to have,
any information technology systems or embedded technology systems which may be
affected by the Year 2000 Problem.
29
<PAGE>
Notwithstanding the foregoing, each Securityholder must rely on the
activities of third parties such as the Servicer (including any sub-servicer),
the Administrator, the Seller, the Eligible Lender Trustee, the Indenture
Trustee, the Guarantors, and the Department. Each of these parties relies on
computer software and operating systems which may be affected by the Year 2000
Problem. The Year 2000 Problem may cause Securityholders to suffer delays, or
possibly even reductions, in the receipt of principal and interest payments. See
"RISK FACTORS--Risk of Year 2000" and "--Year 2000 Compliance of the
Department". The Depositor is not in a position to evaluate, validate or certify
as to the year 2000 readiness of such parties, the costs of each party to remedy
its Year 2000 Problem, or each party's contingency plans for worst case
scenarios. If applicable, year 2000 risks and/or issues specific to a series of
Securities will be disclosed in the related Prospectus Supplement.
THE TRUSTS
GENERAL
With respect to each series of Securities, the Depositor will establish a
separate Trust pursuant to the respective Trust Agreement for the transactions
described herein and in the related Prospectus Supplement. The property of each
Trust will consist of (a) a pool of Student Loans, legal title to which is held
on behalf of each Trust by the related Eligible Lender Trustee (or the Trustee
of the Trust if the Trustee has qualified as an eligible lender under FFELP) in
the case of FFELP Student Loans and the Trustee in the case of Private Student
Loans, (b) all the rights and remedies of the Depositor as purchaser of the
Student Loans under the related Loan Sale Agreement with respect to such Student
Loans, (c) all funds collected or to be collected in respect thereof (including
any Guarantee Payments with respect thereto) on or after the applicable Cutoff
Date and (d) all money and investments on deposit in the Collection Account, any
Reserve Account, any Pre-Funding Account or any Collateral Reinvestment Account
identified in the related Prospectus Supplement or any other form of credit or
cash flow enhancement that may be obtained for the benefit of holders of one or
more classes of such Securities. To the extent provided in the applicable
Prospectus Supplement, the Notes will be collateralized by the property of the
related Trust. To facilitate servicing and to minimize administrative burden and
expense, one or more custodians may be appointed to retain possession of the
promissory notes representing the Student Loans and the other documents related
thereto as custodian for each Trust and the related Indenture Trustee.
The principal offices of each Trust, the related Trustee and the Eligible
Lender Trustee will be specified in the applicable Prospectus Supplement.
ELIGIBLE LENDER TRUSTEE
The Eligible Lender Trustee for the Depositor and (unless a Trustee has
qualified as an eligible lender under FFELP) each Trust, and their permitted
assigns, will be such entity as is specified in the related Prospectus
Supplement. The Eligible Lender Trustee on behalf of the related Trust will
acquire legal title to all the related FFELP Student Loans acquired pursuant to
the related Loan Sale Agreement and will enter into a Guarantee Agreement with
each of the Federal Guarantors with respect to such FFELP Student Loans. The
Eligible Lender Trustee will qualify as an eligible lender and owner of legal
title to all FFELP Student Loans for all purposes under the Act and the Federal
Guarantee Agreements. Failure of the FFELP Student Loans to be owned by an
eligible lender would result in the loss of any Federal Guarantee Payments from
any Federal Guarantor and any federal assistance with respect to such Student
Loans. See "THE FEDERAL FAMILY EDUCATION LOAN PROGRAM--Eligible Lenders,
Students and Institutions" and "--Federal Insurance and Reinsurance of Federal
Guarantors."
If a Trustee is qualified as an eligible lender under FFELP, which will be
disclosed in the applicable Prospectus Supplement, it will perform substantially
the same function for the applicable Trust as the Eligible Lender Trustee will
perform for the Depositor and would have performed for such Trust.
30
<PAGE>
TRUSTEE
The Trustee for each Trust will be such entity as is specified in the
related Prospectus Supplement. The Trustee may also serve as the Eligible Lender
Trustee or itself be qualified as an eligible lender under FFELP. The Trustee's
liability in connection with the issuance and sale of the Notes and the
Certificates is limited solely to the express obligations of the Trustee set
forth in the related Trust Agreement. A Trustee may resign at any time, in which
event the Administrator, or its successor, will be obligated to appoint a
successor trustee. The Administrator of a Trust may also remove the Trustee if
the Trustee becomes insolvent. In such circumstances, the Administrator will be
obligated to appoint a qualified successor trustee. Any resignation or removal
of a Trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the Trustee will succeed to
all the rights of the Indenture Trustee, and the Certificateholders of such
series will succeed to all the rights of the Noteholders of such series, under
the related Loan and Sale Agreement, or as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Depositor,
the Administrator, the related Trustee and the related Indenture Trustee
pursuant to the related Transfer and Loan Servicing Agreements will terminate
upon (i) the maturity or other liquidation of the last related Student Loan and
the disposition of any amount received upon liquidation of any such remaining
Student Loan and (ii) the payment to the Noteholders and the Certificateholders
of the related series of all amounts required to be paid to them pursuant to
such Transfer and Loan Servicing Agreements.
The Depositor or any party named in the related Prospectus Supplement will
be permitted at its option to repurchase from, or arrange for the purchase from,
the related Trustee, as of the end of any Collection Period immediately
preceding a Distribution Date, if the then outstanding Pool Balance is a
percentage specified in the related Prospectus Supplement or less of the Initial
Pool Balance (as defined in the related Prospectus Supplement), all remaining
related Student Loans at a price equal to the aggregate Purchase Amounts thereof
(but not less than the minimum purchase amount specified in the related
Prospectus Supplement) as of the end of such Collection Period, which amounts
will be used to retire the related Notes and Certificates concurrently
therewith, as set forth in the related Prospectus Supplement. Upon termination
of a Trust, any remaining assets of such Trust, after giving effect to any final
distributions to Noteholders and Certificateholders of the related series, will
be transferred to the related Reserve Account and any assets credited to the
related Reserve Account will be transferred to the Depositor.
If so provided in the related Prospectus Supplement, any Student Loans
remaining in the Trust as of the end of the Collection Period immediately
preceding the Date specified in the related Prospectus Supplement will be
offered for sale by the Indenture Trustee in accordance with the auction
procedures set forth in the related Prospectus Supplement. EFG, its affiliates,
the Depositor, the Servicer and unrelated third parties may offer bids to
purchase such Student Loans on such Date, The Indenture Trustee will accept the
highest bid equal to or in excess of the aggregate Purchase Amounts of such
Student Loans as of the end of such Collection Period. The proceeds of such sale
will be used to redeem all related Notes and to retire the relatedCertificates.
The Trustee will not accept any bid for the Student Loans that is not sufficient
to redeem all related Notes and to retire the related Certificates.
From time to time the Depositor, or an assignee of the the Depositor, may
at its option purchase from the Trust, as of the end of any Monthly Collection
Period immediately preceding a Monthly Payment Date, one or more Student Loans
that are to be refinanced by Federal Consolidation Loans. Such Student Loans
shall be purchased at a price equal to the aggregate Purchase Amounts thereof as
of the end of such Monthly Collection Period. The purchase price of the Student
Loans may be paid in cash or by delivery of a promissory note of the Depositor
secured by and payable soley from the Student Loans, including the amounts
received upon prepayment of the Student Loans with proceeds of the Federal
Consolidation Loans. If such amounts, together
31
<PAGE>
with other funds of the Depositor, are not sufficient to retire the Depositor's
note within three (3) Business Days of release of the Student Loans, the Student
Loans shall be redeposited in the Trust and the note cancelled. Any such
promissory note shall bear interest at a rate that is equal to the yield on the
Student Loans purchased by the Depositor.
THE SERVICER
EFG Technologies (the "Servicer") is a division of EFG. If so specified in
the Prospectus Supplement for a series of Securities, pursuant to the related
Loan Servicing Agreements, the Servicer will agree to service and perform all
other related tasks with respect to all the Student Loans acquired by the
Trustee on behalf of the related Trust. The Servicer is required to perform in
accordance with the related Loan Servicing Agreements all services and duties
customary to the servicing of Student Loans and to do so in the same manner as
the Servicer has serviced Student Loans on behalf of other lenders and in
compliance with all applicable standards and procedures. See "THE SELLER--Loan
Servicing Division" and "RISK FACTORS" in this Prospectus.
The related Prospectus Supplement may set forth certain additional
information with respect to the Servicer. The Servicer is expected to act as a
master servicer and is expected to perform its servicing obligations under the
applicable Loan Servicing Agreements through subservicing agreements with
affiliated or unrelated third-party loan servicers. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Servicing Procedures" and "RISK
FACTORS--Sub-Servicing" in this Prospectus.
A Servicer in addition to or other than EFG Technologies may be specified
for a series of Securities in the related Prospectus Supplement. Moreover, EFG
Technologies may be moved into a separate subsidiary corporation by EFG.
USE OF PROCEEDS
The net proceeds from the sale of Securities of a given series will be
applied by the applicable Trust to purchase the related Student Loans on the
Closing Date from the Depositor and to make the initial deposit into the Reserve
Account or Pre-Funding Account, if any. The Depositor will use such net proceeds
paid to it with respect to any such Trust to purchase the Student Loans from the
Seller.
THE STUDENT LOAN POOLS
GENERAL
The Student Loans to be sold by the Seller to the Depositor (or the
Eligible Lender Trustee on behalf of the Depositor in the case of the FFELP
Student Loans) pursuant to the related Loan Sale Agreement will be selected from
Student Loans originated under FFELP or a Private Loan program by several
criteria, including that each Student Loan (i) is guaranteed as to principal and
interest by a Guarantor (and, in the case of FFELP Student Loans, that Guarantor
is a Federal Guarantor and is in turn reinsured by the Department in accordance
with the terms of FFELP), (ii) was originated in the United States of America,
its territories or its possessions under and in accordance with FFELP or a
Private Loan program, (iii) contains terms in accordance with those required by
FFELP or a Private Loan program, the applicable Guarantee Agreements and other
applicable requirements, (iv) provides for regular payments that fully amortize
the amount financed over its original term to maturity (exclusive of any
deferral or forbearance periods) and (v) satisfies the other criteria, if any,
set forth in the related Prospectus Supplement. No selection procedures believed
by the Depositor to be adverse to the Securityholders of any series will be used
in selecting the related Student Loans.
The Student Loans that comprise assets of each Trust will be owned by the
related Trustee, as trustee on behalf of such Trust (although legal title to
FFELP Student Loans will be held by the Eligible Lender Trustee). The Eligible
Lender Trustee will also enter into Guarantee Agreements with the Federal
Guarantors pursuant to which each of such FFELP Student Loans will be guaranteed
by one of such Guarantors. See "THE TRUSTS--Eligible Lender Trustee."
32
<PAGE>
Information with respect to each pool of Student Loans for a given Trust
will be set forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition, the distribution by loan type, loan payment
status, and states of borrowers' residence and the portion of such Student Loans
guaranteed by the specified Guarantors. If material changes in the identified
characteristics of a pool of Student Loans for a given Trust affecting five
percent or more (by principal balance) of such Student Loans occur between the
related Cutoff Date for such Trust and the Closing Date for the Securities
issued by such Trust, additional disclosure describing such changes will be
circulated to prospective investors and filed with the Commission.
In the case of each series for which the related Trust may acquire or
originate Student Loans after the related Cutoff Date, information with respect
to the Student Loans eligible to be acquired or originated by the related Trust
will be set forth in the related Prospectus Supplement as will information
regarding the duration and conditions of any related Funding Period or Revolving
Period, the circumstances under which Additional Fundings will be made during
such period, and, if Additional Fundings may continue to be made after such
period, the circumstances under which such Additional Fundings will be made.
As of the related Cutoff Date for a Trust, Student Loans which are more
than 30 days delinquent will not equal or exceed 20% (by principal balance) of
the Student Loans included in such Trust and none of the Student Loans included
in such Trust will be non-performing Student Loans. Non-performing Student Loans
are Student Loans which are in default and which the Seller expects to write off
as a loss.
ORIGINATION AND MARKETING PROCESS
The Act and the Private Loan programs specify rules regarding loan
origination practices which lenders must comply with in order for the Student
Loans to be guaranteed and to be eligible to receive federal assistance in the
case of FFELP Student Loans and the benefits of a private guarantee program, in
the case of Private Student Loans. Lenders of FFELP Student Loans are prohibited
from offering points, premiums, payments or other inducements, directly or
indirectly, to any educational institution, guarantor or individual in order to
secure FFELP Loan applications, and no lender may conduct unsolicited mailings
of FFELP Loan applications to students who have not previously received student
loans from that lender.
Generally in the case of FFELP Loans the student and school complete the
combined application with promissory note and mail or electronically transmit it
either to a lender or directly to the applicable Federal Guarantor. Both the
lender and such Guarantor must approve such application, including confirming
that such application is complete and that it (and the prospective borrower and
institution) complies with all applicable requirements of the Act and the
requirements of such Guarantor. The Act requires that each Federal Guarantor
have procedures designed to assure that it guarantees FFELP Loans only to
students attending institutions which meet the requirements of the Act. Certain
lenders establish maximum default rates for institutions whose students they
will serve. Each lender will only make loans that are approved by the applicable
Guarantor (consistent with the approval requirements of the Act and the
Guarantor). For each such application that is approved, the applicable Guarantor
will issue a guarantee certificate to the lender, which will then cause the loan
to be disbursed (typically in multiple installments) and a disclosure statement
confirming the terms of the FFELP Loan to be sent to the student borrower.
These procedures differ slightly for Federal Consolidation Loans. Private
Loan programs have established origination processes which will be described in
the related Prospectus Supplements.
SERVICING AND COLLECTIONS PROCESS
The applicable Federal Guarantee Agreements and the Act require the holder
of FFELP Loans to cause specified procedures, including due diligence procedures
and the taking of specific steps at specific intervals, to be performed with
respect to the servicing of the FFELP Loans. These procedures are designed to
ensure that such FFELP Loans are repaid on a timely basis by or on behalf of
borrowers. The Servicer agrees to perform such servicing and collection
procedures wth respect to the FFELP Student Loans on behalf of each Trust
pursuant to the related FFELP Loan Servicing Agreement. Such procedures
generally include periodic attempts to contact any delinquent borrower by
telephone and by mail, commencing with one written notice within the first ten
days of delinquency and including multiple written notices and telephone calls
to the borrower thereafter at specified times during any such delinquency. All
telephone calls and letters are automatically registered, and a
33
<PAGE>
synopsis of each call or the mailing of each letter is noted in the Servicer's
loan file for the borrower. The Servicer is also required to perform skip
tracing procedures on delinquent borrowers whose current location is unknown,
including contacting such borrowers' schools and references. Failure to comply
with the established procedures could adversely affect the ability of the
Eligible Lender Trustee, as holder of legal title to the FFELP Student Loans on
behalf of the related Trust, to realize the benefits of any Federal Guarantee
Agreement or, to receive the benefits of federal assistance from the Department
with respect thereto. Failure to comply with certain of the established
procedures with respect to a FFELP Student Loan may also result in the denial of
coverage under a Federal Guarantee Agreement for certain accrued interest
amounts, in circumstances where such failure has not caused the loss of the
guarantee of the principal of such FFELP Student Loan. Private Loan programs and
Private Guarantees require that prescribed servicing and collection processes be
followed in order for the owner of the related Private Loans to obtain the
benefits of the Private Guarantees. As described herein in the case of FFELP,
non-compliance with these processes may result in denial of claims with respect
to Private Loans and a loss of revenue to the related Trust. See "RISK
FACTORS--Risk That Failure to Comply with Student Loan Origination and Servicing
Procedures for Student Loans May Adversely Affect the Trust's Ability to Pay
Principal and Interest on the Related Notes and Certificates."
At prescribed times prior to submitting a claim for payment under a
Guarantee Agreement for a delinquent Student Loan, the Servicer generally is
required to notify the applicable Guarantor of the existence of such
delinquency. These notices advise the Guarantor of seriously delinquent accounts
and allow the Guarantor to make additional attempts to collect on such loans
prior to the filing of claims. Any Student Loan which is delinquent beyond a
certain number of days is considered to be in default, after which the Servicer
will submit a claim for reimbursement therefor to the applicable Guarantor.
Failure to file a claim within specified time frames of delinquency may result
in denial of the guarantee claim with respect to such Student Loan and failure
to file such a claim within certain shorter specified time frames may result in
a denial of certain interest amounts included in such claims. With respect to
FFELP Student Loans, the Servicer's failure to file a guarantee claim in a
timely fashion would constitute a breach of its covenants under the related
FFELP Loan Servicing Agreement and, unless otherwise specified in the Prospectus
Supplement for a given series of Securities, would, if as a result of such
failure the related guaranty payment is no longer available to the related
Trust, create an obligation of the Servicer to purchase or arrange for the
purchase of the applicable FFELP Student Loan from the applicable Trustee (and
also the Eligible Lender Trustee) on behalf of the related Trust. With respect
to FFELP Student Loans, the obligation of the Servicer to purchase or arrange
for such a purchase will constitute the sole remedy available to Securityholders
or the Trustee for such a failure by the Servicer. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Servicer Covenants."
CLAIMS AND RECOVERY RATES
Certain historical information concerning guarantee claims and recovery
rates of the Guarantors for the Student Loans held by the related Trust as of
the applicable Closing Date with respect to each series of Securities will be
set forth in each Prospectus Supplement. There can be no assurance that the
claim and recovery experience on any pool of Student Loans with respect to a
given Trust will be comparable to prior experience or to any such information.
FEDERAL FAMILY EDUCATION LOAN PROGRAM
GENERAL
The Federal Family Education Loan Program ("FFELP") under Title IV of the
Higher Education Act of 1965, as amended (such Act, together with all rules and
regulations promulgated thereunder by the Department and/or the Guarantors, the
"Act"), provides for loans to be made to students or parents of students
enrolled in eligible institutions to finance a portion of the costs of attending
school. As described herein, payment of principal and interest with respect to
the FFELP Loans is guaranteed by the applicable Guarantor against default,
death, bankruptcy or disability of the applicable borrower and a closing of or a
false certification by such borrower's school. The Guarantors are entitled,
subject to certain conditions, to be reimbursed by the Department for from 100%
to 75% of the amount of each Guarantee Payment made pursuant to a program of
federal reinsurance under the Act. In addition, the related Eligible Lender
Trustee, as a holder of legal title to the FFELP
34
<PAGE>
Student Loans on behalf of a Trust, is entitled to receive from the Department
certain interest subsidy payments and special allowance payments with respect to
certain of such FFELP Student Loans as described herein.
FFELP provides for loans to students and parents of students which are
(i) guaranteed by a Guarantor and reinsured by the federal government or (ii)
directly insured by the federal government. Several types of FFELP Loans are
currently authorized under the Act: (i) loans to students who demonstrate need
("Federal Stafford Loans"); (ii) loans to students who do not demonstrate need
or who need additional loans to supplement their Federal Stafford Loans
("Federal Unsubsidized Stafford Loans"); (iii) loans to parents of students
("Federal PLUS Loans") who are dependents and whose estimated costs of
attendance exceed the available Federal Unsubsidized Stafford Loans, Federal
Stafford Loans and other financial aid; and (iv) loans to consolidate the
borrower's obligations under various federally authorized student loan programs
into a single loan (each, a "Federal Consolidation Loan"). Prior to July 1,
1994, the Act also authorized loans to graduate and professional students,
independent undergraduate students and, under certain circumstances, dependent
undergraduate students, to supplement their Federal Stafford Loans ("Federal
Supplemental Loans to Students" or "Federal SLS Loans"). The description and
summaries of the Act, FFELP, the Guarantee Agreements and the other statutes,
regulations and amendments referred to in this Prospectus describe or summarize
the material provisions of such statutes, regulations and agreements but do not
purport to be comprehensive and are qualified in their entirety by reference to
each such statute, regulation or document. There can be no assurance that future
amendments or modifications will not materially change any of the terms or
provisions of the programs described in this Prospectus or of the statutes and
regulations implementing these programs. See "RISK FACTORS--Risk that Change in
Law Will Adversely Affect Student Loans, Guarantors, the Depositor or the
Servicer."
LEGISLATIVE AND ADMINISTRATIVE MATTERS
Both the Act and the regulations promulgated thereunder have been the
subject of extensive amendments in recent years and there can be no assurance
that further amendment will not materially change the provisions described
herein or the effect thereof. The 1992 Amendments to the Act (the "1992
Amendments") extended the principal provisions of FFELP to September 30, 1998
(or, in the case of borrowers who have received loans prior to that date,
September 30, 2002, except that authority to make Federal Consolidation Loans
expired on September 30, 1998). The Higher Education Amendments of 1998 (the
"1998 Reauthorization Bill") further extended the principal provisions of FFELP
through June 30, 2003.
The 1993 Act made a number of changes to the Federal Student Loan programs,
including imposing on lenders or holders of FFELP Loans certain fees and
affecting the Department's financial assistance to Federal Guarantors by
reducing the percentage of claim payments the Department will reimburse to
Federal Guarantors, reducing more substantially the insurance premiums and
default collections that Federal Guarantors are entitled to receive and/or
retain and allowing the Department to reduce the administrative fees it pays to
Federal Guarantors. In addition, such legislation contemplated replacement of a
minimum of approximately 60% of the Federal Student Loan programs with direct
lending by the Department by 1998. The expansion of the new program may involve
increasing reductions in the volume of loans made under the existing programs,
which could result in increased costs for EFG and the Servicer due to reduced
economies of scale. It is expected that the volume of new loans held and
serviced by EFG and the Servicer will decrease due to the new program, although
such entities have not experienced a significant reduction to date and any such
reduction will not necessarily be equal to the percentage by which existing
Federal Student Loan programs are replaced by the new program. As these
reductions occur, EFG and the Servicer could experience increased costs due to
reduced economies of scale to the extent the volume of loans held by EFG and the
Servicer is reduced. Such cost increases could affect the ability of the
Servicer to satisfy its obligations to service the Student Loans or the
obligations of the Seller and the Servicer to repurchase Student Loans in the
event of certain breaches of their respective representations and warranties or
covenants. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Sale of
Student Loans; Representations and Warranties" and "--Servicer Covenants." Such
volume reductions could also reduce revenues received by Federal Guarantors that
are available to pay claims on defaulted Student Loans. Finally, the level of
competition in existence in the secondary market for loans made under the
existing programs could be reduced, resulting in fewer potential buyers of the
FFELP Loans and lower prices available in the secondary market for those loans.
Further, the Department is implementing a direct Federal Consolidation
35
<PAGE>
Loan program, which may further reduce the volume of FFELP Loans and increase
the prepayment of existing FFELP Loans. The volume of existing loans that may be
prepaid in this fashion is not determinable at this time.
RECENT DEVELOPMENTS--EMERGENCY STUDENT LOAN CONSOLIDATION ACT OF 1997. On
November 13, 1997, President Clinton signed into law the Emergency Student Loan
Consolidation Act of 1997, which made significant changes to the Federal
Consolidation Loan Program. These changes include: (1) providing that federal
direct student loans are eligible to be included in a Federal Consolidation
Loan; (2) changing the borrower interest rate on new Federal Consolidation Loans
(previously a fixed rate based on the weighted average of the loans
consolidated, rounded up to the nearest whole percent) to the annually variable
rate applicable to Stafford Loans (i.e., the bond equivalent rate at the last
auction in May of 91-day Treasury Bills plus 3.10%, not to exceed 8.25% per
annum); (3) providing that the portion of a Federal Consolidated Loan that is
comprised of Subsidized Stafford Loans retains its subsidy benefits during
periods of deferment; and (4) establishing prohibitions against various forms of
discrimination in the making of Federal Consolidation Loans. Except for the last
of the above changes, all such provisions expired on September 30, 1998. The
combination of the change to a variable rate and the 8.25% interest cap reduced
the lender's yield in most cases below the rate that would have been applicable
under the previous weighted average formula.
RECENT DEVELOPMENTS--FY 1998 BUDGET. In the 1997 Budget Reconciliation Act
(P.L. 105-33), several changes were made to the Higher Education Act that impact
the FFELP. These provisions include, among other things, requiring federal
guarantors to return $1 billion of their reserves to the U.S. Treasury by
September 1, 2002 (to be paid in annual installments), greater restrictions on
use of reserves by federal guarantors and a continuation of the Administrative
Cost Allowance payable to federal guarantors (which is a fee paid to federal
guarantors equal to 0.85% of new loans guaranteed).
RECENT DEVELOPMENTS--1998 AMENDMENTS. On May 22, 1998, Congress passed,
and on June 9, 1998, the President signed into law, a temporary measure relating
to the Higher Education Act and FFELP loans as part of the Intermodal Surface
Transportation Efficiency Act of 1998 (the "1998 Amendments") that revised
interest rate changes under the FFELP that were scheduled to become effective on
July 1, 1998. For loans made during the period July 1, 1998 through
September 30, 1998, the borrower interest rate for Stafford Loans and
Unsubsidized Stafford Loans is reduced to a rate of 91-day Treasury Bill Rate
plus 2.30% (1.70% during school, grace and deferment), subject to a maximum rate
of 8.25%. As described below, the formula for Special Allowance Payments on
Stafford Loans and Unsubsidized Stafford Loans is calculated to produce a yield
to the loan holder of 91-day Treasury Bill Rate plus 2.80% (2.20% during school,
grace and deferment).
RECENT DEVELOPMENTS--1998 REAUTHORIZATION BILL. On October 7, 1998,
President Clinton signed into law the Higher Eduction Amendments of 1998 (the
"1998 Reauthorization Bill"), which enacted significant reforms in FFELP. The
major provisions of the 1998 Reauthorization Bill include the following:
o All references to a "transition" to full implementation of the Federal
Direct Student Loan Program were deleted from the FFELP statute.
o Guarantor reserve funds were restructured so that federal guarantors are
provided with additional flexibility in choosing how to spend certain
funds they receive.
o Additional recall of reserve funds by the Secretary of Education (the
"Secretary") was mandated, amounting to $85 million in fiscal year 2002,
$82.5 million in fiscal year 2006, and $82.5 million in fiscal year 2007.
However, certain minimum reserve levels are protected from recall.
o The administrative cost allowance was replaced by two (2) new payments, a
Student Loan processing and issuance fee equal to 65 basis points (40
basis points for loans made on or after October 1, 1993) paid at the time
a loan is guaranteed, and an account maintenance fee of 12 basis points
(10 basis points for fiscal years 2001-2003) paid annually on outstanding
guaranteed Student Loans.
o The percentage of collections on defaulted Student Loans a federal
guarantor is permitted to retain is reduced from 27% to 24% (23%
beginning on October 1, 2003) plus the complement of the reinsurance
percentage applicable at the time a claim was paid to the lender on the
Student Loan.
o Maximum Federal reinsurance provided to federal guarantors is reduced
from 98% to 95% for Student Loans first disbursed on or after October 1,
1998.
36
<PAGE>
o The delinquency period required for a loan to be declared in default is
increased from 180 days to 270 days for loans on which the first day of
delinquency occurs on or after the date of enactment of the 1998
Reauthorization Bill.
o Interest rates charged to borrowers on Stafford Loans, and the yield for
Stafford Loan holders established by the 1998 Amendments, were made
permanent.
o Federal Consolidation Loan interest rates were revised to equal the
weighted average of the loans consolidated rounded up to the nearest
one-eighth of 1%, capped at 8.25%. When the 91-day Treasury Bill Rate
plus 3.1% exceeds the borrower's interest rate, Special Allowance
Payments are made to make up the difference.
o The lender-paid offset fee on Federal Consolidation Loans of 1.05% is
reduced to 0.62% for Loans made pursuant to applications received on or
after October 1, 1998 and on or before January 31, 1999.
o The Federal Consolidation Loan interest rate calculation was revised to
reflect the rate for Federal Consolidation Loans, and will be effective
for loans on which applications are received on or after February 1,
1999.
o Lenders are required to offer extended repayment schedules to new
borrowers after the enactment of the 1998 Reauthorization Bill who
accumulate after such date outstanding loans under FFELP totaling more
than $30,000, under these extended schedules the repayment period may
extend up to 25 years subject to certain minimum repayment amounts.
o The Secretary is authorized to enter into six (6) voluntary flexible
agreements with federal guarantors under which various statutory and
regulatory provisions can be waived.
o Federal Consolidation Loan lending restrictions are revised to allow
lenders who do not hold one of the borrower's Underlying Federal Loans to
issue a Federal Consolidation Loan to a borrower whose Underlying Federal
Loans are held by multiple holders.
o Inducement restrictions were revised to permit federal guarantors and
lenders to provide assistance to schools comparable to that provided to
schools by the Secretary under the Federal Direct Student Loan Program.
o The Secretary is now required to pay off Student Loan amounts owed by
borrowers due to failure of the borrower's school to make a tuition
refund allocable to the Student Loan.
o Discharge of FFELP and certain other Student Loans in bankruptcy is now
limited to cases of undue hardship regardless of whether the Student Loan
has been due for more than seven (7) years prior to the bankruptcy
filing.
The new recall of reserves and reduced reinsurance for federal guarantors
increases the risk that resources available to the Federal Guarantors to meet
their guarantee obligations will be signficantly reduced.
ELIGIBLE LENDERS, STUDENTS AND EDUCATIONAL INSTITUTIONS
Lenders eligible to make loans under FFELP generally include banks, savings
and loan associations, credit unions, pension funds, insurance companies, and
under certain conditions, schools and guarantors. FFELP Loans may only be made
to a "qualified student", generally defined as a United States citizen or
national or otherwise eligible individual under federal regulations who (a) has
been accepted for enrollment or is enrolled and is maintaining satisfactory
progress at a participating educational institution, (b) is carrying at least
one-half of the normal full-time academic workload for the course of study the
student is pursuing, as determined by such institution, (c) has agreed to notify
promptly the holder of the loan of any address change, and (d) for Federal
Stafford Loans, meets the application "need" requirements for the particular
loan program. Each loan is to be evidenced by an unsecured promissory note.
Eligible schools include institutions of higher education and proprietary
institutions. Institutions of higher education must meet certain standards,
which generally provide that the institution (i) only admits persons who have a
high school diploma or its equivalent, (ii) is legally authorized to operate
within a state, (iii) provides not
37
<PAGE>
less than a two-year program with credit acceptable toward a bachelor's degree,
(iv) is a public or non-profit institution and (v) is accredited by a nationally
recognized accrediting agency or is determined by the Department to meet the
standards of an accredited institution. Eligible proprietary institutions of
higher education include business, trade and vocational schools meeting
standards which provide that the institution (i) only admits persons who have a
high school diploma or its equivalent, or persons who are beyond the age of
compulsory school attendance and have the ability to benefit from the training
offered (as defined in the Act), (ii) is authorized by a state to provide a
program of vocational education designed to fit individuals for useful
employment in recognized occupations, (iii) has been in existence for at least
two years, (iv) provides at least a six-month training program to prepare
students for gainful employment in a recognized occupation and (v) is accredited
by a nationally recognized accrediting agency or is specially accredited by the
Department.
With specified exceptions, institutions are excluded from consideration as
educational institutions if the institution (i) offers more than 50 percent of
its courses by correspondence, (ii) enrolls 50 percent or more of its students
in correspondence courses, (iii) has a student enrollment in which more than 25
percent of the students are incarcerated or (iv) has a student enrollment in
which more than 50 percent of the students are admitted without a high school
diploma or its equivalent on the basis of their ability to benefit from the
education provided (as defined by statute and regulation). Further, schools are
specifically excluded from participation if (i) the educational institution has
filed for bankruptcy, (ii) the owner, or its chief executive officer, has been
convicted or pleaded "nolo contendere" or "guilty" to a crime involving the
acquisition, use or expenditure of federal student aid funds, or has been
judicially determined to have committed fraud involving funds under the student
aid program or (iii) the educational institution has a cohort default rate in
excess of the rate prescribed by the Act. In order to participate in the
program, the eligibility of a school must be approved by the Department under
standards established by regulation.
FINANCIAL NEED ANALYSIS
Student Loans may generally be made in amounts, subject to certain limits
and conditions, to cover the student's estimated costs of attendance, including
tuition and fees, books, supplies, room and board, transportation and
miscellaneous personal expenses (as determined by the institution). Each Federal
Stafford Loan and Federal Unsubsidized Stafford Loan borrower must undergo a
financial need analysis, which requires the borrower to submit a financial need
analysis form to a multiple data entry processor that forwards the information
to the federal central processor. The central processor evaluates the parents'
and student's financial condition under federal guidelines and calculates the
amount that the student and/or the family must contribute towards the student's
cost of education (the "family contribution"). After receiving information on
the family contribution, the institution then subtracts the family contribution
from the cost for the student to attend such institution to determine the
student's eligibility for grants, loans, and work assistance. The difference
between the amount of grants and Federal Stafford Loans for which the borrower
is eligible and the student's estimated cost of attendance (the "Unmet Need")
may be borrowed through Federal Unsubsidized Stafford Loans subject to annual
and aggregate loan limits prescribed in the Act. Parents may finance the family
contribution amount through their own resources or through Federal PLUS Loans.
SPECIAL ALLOWANCE PAYMENTS
The Act provides for quarterly special allowance payments ("Special
Allowance Payments") to be made by the Department to holders of FFELP Loans to
the extent necessary to ensure that such holder receives at least a specified
market interest rate of return on such loans. The rates for Special Allowance
Payments are based on formulas that differ according to the type of loan, the
date the loan was originally made or insured and the type of funds used to
finance such loan (tax-exempt or taxable). A Special Allowance Payment is made
for each of the 3-month periods ending March 31, June 30, September 30 and
December 31. The Special Allowance Payment equals the average unpaid principal
balance (including interest permitted to be capitalized) of all eligible loans
held by such holder during such period multiplied by the special allowance
percentage. The special allowance percentage is computed by (i) determining the
average of the bond equivalent rates of 91-Day Treasury bills auctioned for such
3-month period ("91-Day T-Bill"), (ii) subtracting the applicable borrower
interest rate on such loan from such average, (iii) adding the applicable
Special Allowance Margin (as set forth below) to the
38
<PAGE>
resultant percentage and (iv) dividing the resultant percentage by 4; provided,
however, that, if the amount determined by the application of clauses (i),
(ii) and (iii) is in the negative, the Special Allowance Margin is zero.
<TABLE>
<CAPTION>
DATE OF DISBURSEMENT SPECIAL ALLOWANCE MARGIN
- ----------------------- ---------------------------------------------------------------------
<S> <C>
Prior to 10/17/86 3.50%
10/17/86 - 09/30/92 3.25%
10/01/92 - 06/30/95 3.10%
07/01/95 - 06/30/98 2.50% (Federal Stafford Loans and Federal Unsubsidized Stafford Loans
that are In-School, Grace or Deferment); 3.10% (Federal Loans and
Federal Unsubsidized Stafford Loans that are in repayment and all
other loans)
07/01/98 - 06/30/03 2.2% (During In-School, Grace or Deferment Status); 2.8% (During
repayment periods)
</TABLE>
Special Allowance Payments are available on variable rate Federal PLUS and
Federal SLS Loans only if the variable rate, which is reset annually based on
the 52-week Treasury Bill, exceeds the applicable maximum rate. Such maximum is
generally between 9% and 12%.
FEDERAL STAFFORD LOANS
The Act provides for (i) federal insurance or reinsurance of Federal
Stafford Loans made by eligible lenders to qualified students, (ii) federal
interest subsidy payments on certain eligible Federal Stafford Loans to be paid
by the Department to holders of the loans in lieu of the borrower making
interest payments ("Interest Subsidy Payments") and (iii) Special Allowance
Payments representing an additional subsidy paid by the Department to the
holders of eligible Federal Stafford Loans (such federal reinsurance
obligations, together with those obligations referred to in clauses (ii) and
(iii) above, being collectively referred to herein as "Federal Assistance").
Interest. The borrower's interest rate on a Federal Stafford Loan may be
fixed or variable. Federal Stafford Loan interest rates are summarized in the
chart below.
<TABLE>
<CAPTION>
TRIGGER DATE(1) BORROWER RATE(2) MAXIMUM RATE INTEREST RATE MARGIN
- ------------------------ ----------------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Prior to 01/01/81....... 7% 7% N/A
01/01/81 - 09/12/83..... 9% 9% N/A
09/13/83 - 06/30/88..... 8% 8% N/A
07/01/88 - 09/30/92..... 8% for 48 months; thereafter, 8% for 48 months, 3.25%
91-Day T-Bill + Interest Rate then 10%
Margin
10/01/92 - 06/30/94..... 91-Day T-Bill + Interest Rate 9% 3.10%
Margin
07/01/94 - 06/30/95..... 91-Day T-Bill + Interest Rate 8.25% 3.10%
Margin
07/01/95 - 06/30/98..... 91-Day T-Bill + Interest Rate 8.25% 2.50% (During In-
Margin School, Grace or
Deferment status);
3.10% (in repayment)
07/01/98 - 06/30/03..... 91-Day T-Bill + Interest Rate 8.25% 1.7% (During In-School
Margin(3) Grace or Deferment
status); 2.3% (in
repayment)
</TABLE>
- ------------------
(1) The Trigger Date for Federal Stafford Loans made before October 1, 1992 is
the first day of enrollment period for which a borrower's first Federal
Stafford Loan is made and for Federal Stafford Loans made on October 1, 1992
and after the Trigger Date is the date of the disbursement of a borrower's
first Federal Stafford Loan.
(Footnotes continued on next page)
39
<PAGE>
(Footnotes continued from previous page)
(2) The rate for variable rate Federal Stafford Loans applicable for any
12-month period beginning on July 1 and ending on June 30, is determined on
the preceding June 1 and is equal to the lesser of (a) the applicable
Maximum Rate or (b) the sum of (i) the bond equivalent rate of 91-day
T-Bills auctioned at the final auction held prior to such June 1 and
(ii) the applicable Interest Rate Margin.
(3) Lenders will receive Special Allowance on these Federal Stafford Loans to
ensure a yield equal to 91-Day T-Bill plus 2.2% (In-School; Grace or
Deferment) or 2.8% (in repayment).
The 1992 Amendments provide that, for fixed rate loans made on or after
July 23, 1992 and for certain loans made to new borrowers on or after July 1,
1988, the lender must have converted by January 1, 1995 the interest rate on
such loans to an annual interest rate adjusted each July 1 equal to (a) for
certain loans made between July 1, 1988 and July 23, 1992, the 91-day T-Bill
rate at the final auction prior to the preceding June 1 plus 3.25% and (b) for
loans made on or after July 23, 1992, the 91-day T-Bill rate at the final
auction prior to the preceding June 1 plus 3.10%, in each case capped at the
applicable interest rate for such loan existing prior to the conversion. The
variable interest rate does not apply to loans made prior to July 23, 1992
during the first 48 months of repayment.
Interest Subsidy Payments. The Department is responsible for paying
interest on Federal Stafford Loans while the borrower is a qualified student,
during a Grace Period or during certain Deferral Periods. The Department makes
quarterly Interest Subsidy Payments to the owner of Federal Stafford Loans in
the amount of interest accruing on the unpaid balance thereof prior to the
commencement of repayment or during any Deferral Periods. The Act provides that
the owner of an eligible Federal Stafford Loan shall be deemed to have a
contractual right against the United States of America to receive Interest
Subsidy Payments (and Special Allowance Payments) in accordance with its
provisions. Receipt of Interest Subsidy Payments and Special Allowance Payments
is conditioned on compliance with the requirements of the Act, including
satisfaction of certain need-based criteria (and the delivery of sufficient
information by the borrower and the lender to the Department to confirm the
foregoing) and continued eligibility of such loan for federal reinsurance. Such
eligibility may be lost, however, if the loans are not held by an eligible
lender, in accordance with the requirement of the Act and the applicable Federal
Guarantee Agreements. See "--Eligible Lenders, Students and Educational
Institutions" above, "RISK FACTORS--Risk that Failure to Comply with Student
Loan Origination and Servicing Procedures for Student Loans May Adversely Affect
the Trust's Ability to Pay Principal and Interest on the Related Notes and
Certificates," "FORMATION OF THE TRUSTS--Eligible Lender Trustee" and
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Servicing Procedures."
The Depositor expects that substantially all of the Federal Stafford Loans that
are to be conveyed to a Trust will be eligible to receive Interest Subsidy
Payments and Special Allowance Payments.
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 days to 60 days after submission to the Department of the
applicable claim forms for any given calendar quarter, although there can be no
assurance that such payments will in fact be received from the Department within
that period. See "RISK FACTORS--Variability of Actual Cash Flows; Risk of
Shortfalls to Holders of Notes and Certificates Resulting from Inability of
Related Indenture Trustee to Liquidate Student Loans." The Servicer has agreed
to prepare and file with the Department all such claims forms and any other
required documents or filings on behalf of each Eligible Lender Trustee as owner
of the related FFELP Student Loans on behalf of each Trust. The Servicer has
also agreed to assist the Eligible Lender Trustee in monitoring, pursuing and
obtaining such Interest Subsidy Payments and Special Allowance Payments, if any,
with respect to such FFELP Student Loans. The Eligible Lender Trustee will be
required to remit Interest Subsidy Payments and Special Allowance Payments it
receives with respect to such FFELP Student Loans within two business days of
receipt thereof to the related Collection Account.
40
<PAGE>
Loan Limits. The Act requires that loans be disbursed by eligible lenders
in at least two separate and equal disbursements. The Act limited the amount a
student can borrow in any academic year and the amount he or she can have
outstanding in the aggregate. The following chart sets forth the current and
historic loan limits.
<TABLE>
<CAPTION>
ALL STUDENTS(1) INDEPENDENT STUDENTS(1)
--------------- ------------------------
BASE AMOUNT ADDITIONAL MAXIMUM
SUBSIDIZED AND UNSUBSIDIZED AGGREGATE
SUBSIDIZED UNSUBSIDIZED ON ONLY ON OR TOTAL
SUBSIDIZED ON OR AFTER OR AFTER AFTER AMOUNT
BORROWER'S ACADEMIC LEVEL PRE-1/1/87 1/1/87 10/1/93(2) 7/1/94(3) IN
- --------------------------------------------- ---------- ----------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Undergraduate (per year)
1st year................................... $ 2,500 $ 2,625 $ 2,625 $ 4,000 $ 6,625
2nd year................................... $ 2,500 $ 2,625 $ 3,500 $ 4,000 $ 7,500
3rd year and above......................... $ 2,500 $ 4,000 $ 5,500 $ 5,000 $ 10,500
Graduate (per year).......................... $ 5,000 $ 7,500 $ 8,500 $ 10,000 $ 18,500
Aggregate Limited
Undergraduate.............................. $ 12,500 $17,250 $23,000 $ 23,000 $ 46,000
Graduate (including undergraduate)......... $ 25,000 $54,000 $65,000 $ 73,000 $138,500
</TABLE>
- ------------------
(1) The loan limits are inclusive of both Federal Stafford Loans and Federal
Direct Student Loans.
(2) These amounts represent the combined maximum loan amount per year for
Federal Stafford and Federal Unsubsidized Stafford Loans. Accordingly, the
maximum amount that a student may borrow under a Federal Unsubsidized
Stafford Loan is the difference between the combined maximum loan amount and
the amount the student received in the form of a Federal Stafford Loan.
(3) Independent undergraduate students, graduate students or professional
students may borrow these additional amounts. In addition, dependent
undergraduate students may also receive these additional loan amounts if the
parents of such students are unable to provide the family contribution
amount and it is unlikely that the student's parents will qualify for a
Federal PLUS Loan.
The annual loan limits are reduced in some instances where the student has
less than a full academic year remaining in his or her program. The Department
has discretion to raise these limits to accommodate highly specialized or
exceptionally expensive courses of study.
Repayment. Repayment of principal on a Federal Stafford Loan generally
does not commence while a student remains a qualified student, but generally
begins upon expiration of the applicable Grace Period, as described below. Any
borrower may voluntarily prepay without premium or penalty any loan and in
connection therewith may waive any Grace Period or Deferral Period. In general,
each loan must be scheduled for repayment over a period of not more than ten
years after the commencement of repayment. New borrowers on or after October 7,
1998 who accumulate outstanding loans under FFELP totaling more than $30,000,
are entitled to extended repayment schedules of up to 25 years subject to
certain minimum repayment amounts. The Act currently requires minimum annual
payments of $600 or, if greater, the amount of accrued interest for that year,
unless the borrower and the lender agree to lesser payments. Effective July 1,
1993, the Act and regulations promulgated thereunder require lenders to offer
the choice of a standard, graduated or income-sensitive repayment schedule to
all borrowers who receive a loan on or after that date. For Stafford Loans
entering repayment on or after October 1, 1995, borrowers may choose among
several repayment options, including the option to make interest only payments
for limited periods.
Grace Periods, Deferral Periods and Forbearance Periods. Repayment of
principal on a Federal Stafford Loan must generally commence following a period
of (a) not less than 9 months or more than 12 months (with respect to loans for
which the applicable interest rate is 7% per annum) and (b) not more than 6
months (with respect to loans for which the applicable interest rate is 9% per
annum or 8% per annum and for loans to first-time borrowers on or after July 1,
1988) after the borrower ceases to pursue at least a half-time course of study
(a "Grace Period"). However, during certain other periods (each, a "Deferral
Period") and subject to certain conditions, no principal repayments need be
made, including periods when the student has returned to an eligible educational
institution on a full-time basis or is pursuing studies pursuant to an approved
graduate fellowship program, or when the student is a member of the United
States Armed Forces or a volunteer under the Peace
41
<PAGE>
Corps Act or the Domestic Volunteer Service Act of 1973, or when the borrower is
temporarily totally disabled, or periods during which the borrower may defer
principal payments because of temporary financial hardship. For new borrowers to
whom loans are first disbursed on or after July 1, 1993, payment of principal
may be deferred only while the borrower is at least a half-time student or is in
an approved graduate fellowship program or is enrolled in a rehabilitation
program, or when the borrower is seeking but unable to find full-time
employment, subject to a maximum deferment of three years, or when for any
reason the lender determines that payment of principal will cause the borrower
economic hardship, also subject to a maximum deferment of three years. The 1992
Amendments also permit and in some cases require forbearance of loan collection
in certain circumstances (each such period, a "Forbearance Period").
FEDERAL UNSUBSIDIZED STAFFORD LOANS
The Federal Unsubsidized Stafford Loan program created under the 1992
Amendments is designed for students who do not qualify for the maximum Federal
Stafford Loan due to parental and/or student income and assets in excess of
permitted amounts. The basic requirements for Federal Unsubsidized Stafford
Loans are essentially the same as those for the Federal Stafford Loans,
including with respect to provisions governing the interest rate, the annual
loan limits and the Special Allowance Payments. The terms of the Federal
Unsubsidized Stafford Loans, however, differ in some respects. The federal
government does not make Interest Subsidy Payments on Federal Unsubsidized
Stafford Loans. The borrower must either begin making interest payments within
60 days after the time the loan is disbursed or permit capitalization of the
interest by the lender until repayment begins. Federal Unsubsidized Stafford
Loan borrowers are required to pay, upon disbursement, a 6.5% insurance fee to
the Department, though no guarantee fee may be charged by the applicable Federal
Guarantor. Effective July 1, 1994, the maximum insurance premium charged by the
Federal Guarantor is reduced to 1% and the origination fee is 3%. Subject to the
same loan limits established for Federal Stafford Loans, the student may borrow
up to the amount of such student's Unmet Need. Lenders are authorized to make
Federal Unsubsidized Stafford Loans applicable for periods of enrollment
beginning on or after October 1, 1992.
FEDERAL PLUS AND FEDERAL SLS LOAN PROGRAMS
The Act authorizes Federal PLUS Loans to be made to parents of eligible
dependent students and previously authorized Federal SLS Loans to be made to
certain categories of students. After July 1, 1993, only parents who do not have
an adverse credit history or who can secure an endorser without an adverse
credit history are eligible for Federal PLUS Loans. The basic provisions
applicable to Federal PLUS and Federal SLS Loans are similar to those of Federal
Stafford Loans with respect to the federal insurance and reinsurance on the
loans. However, Federal PLUS and Federal SLS Loans differ from Federal Stafford
Loans, particularly because Interest Subsidy Payments are not available under
the Federal PLUS and Federal SLS Programs and in some instances Special
Allowance Payments are more restricted.
Loan Limits. Federal PLUS and Federal SLS Loans disbursed prior to July 1,
1993 are limited to $4,000 per academic year with a maximum aggregate amount of
$20,000. Federal SLS Loan limits for loans disbursed on or after July 1, 1993
depended upon the class year of the student and the length of the academic year.
The annual loan limit for Federal SLS Loans first disbursed on or after July 1,
1993 ranged from $4,000 for first and second year undergraduate borrowers to
$10,000 for graduate borrowers, with a maximum aggregate amount of $23,000 for
undergraduate borrowers and $73,000 for graduate and professional borrowers.
After July 1, 1994, for purposes of new loans being originated, the Federal SLS
programs were merged with the Federal Unsubsidized Stafford Loan program with
the borrowing limits reflecting the combined eligibility under both programs.
The only limit on the annual and aggregate amounts of Federal PLUS Loans first
disbursed on or after July 1, 1993 is the cost of the student's education less
other financial aid received, including scholarship, grants and other student
loans.
42
<PAGE>
Interest. The interest rate determination for a PLUS or SLS loan is
dependent on when the loan was originally made and disbursed and the period of
enrollment. The interest rates for PLUS and SLS loans are summarized in the
following chart.
<TABLE>
<CAPTION>
INTEREST
TRIGGER DATE BORROWER RATE(1) MAXIMUM RATE(2) RATE MARGIN
- ---------------------------- ---------------------------------------- ----------------- -----------
<S> <C> <C> <C>
Prior to 10/01/81........... 9% 9% N/A
10/01/81-10/30/82........... 14% 14% N/A
11/01/82-06/30/87........... 12% 12% N/A
07/01/87-09/30/92........... 52-Week Treasury + Interest Rate Margin 12% 3.25%
10/01/92-6/30/94............ 52-Week Treasury + Interest Rate Margin PLUS 10%, SLS 11% 3.10%
07/01/94-06/30/98........... 52-Week Treasury + Interest Rate Margin 9% 3.10%
(SLS repealed 07/01/94)
07/01/98-06/30/03........... 91-Day T-Bill + Interest Rate Margin 9% 3.10%
</TABLE>
- ------------------
(1) The Trigger Date for PLUS and SLS loans made before October 1, 1992 is the
first day of enrollment period for which the loan is made, and for PLUS and
SLS loans made on October 1, 1992 and after the Trigger Date is the date of
the disbursement of the loan, respectively.
(2) For PLUS or SLS loans that carry a variable rate, the rate is set annually
for 12-month periods beginning on July 1 and ending on June 30 on the
preceding June 1 and is equal to the lesser of (a) the applicable maximum
rate and (b) the sum of (i) the bond equivalent rate of 52-week Treasury
bills auctioned at the final auction held prior to such June 1, and (ii) the
applicable Interest Rate Margin.
A holder of a PLUS or SLS Loan is eligible to receive Special Allowance
Payments during any quarter if (a) the sum of (i) the average of the bond
equivalent rates of 91-day Treasury bills auctioned during such quarter and (ii)
the Interest Rate Margin exceeds (b) the Maximum Rate.
Repayment, Deferments. The 1992 Amendments provide Federal SLS borrowers
with the option to defer commencement of repayment of principal until the
commencement of repayment of Federal Stafford Loans. Otherwise, repayment of
principal of Federal PLUS and Federal SLS Loans is required to commence no later
than 60 days after the date of disbursement of such loan, subject to certain
deferral and forbearance provisions. The deferral provisions which apply are
more limited than those which apply to Federal Stafford Loans. Repayment of
interest, however, may be deferred and capitalized during certain periods of
educational enrollments and periods of unemployment or hardship as specified
under the Act. Further, whereas Interest Subsidy Payments are not available for
such deferments, interest may be capitalized during such periods upon agreement
of the lender and borrower. Maximum loan repayment periods and minimum payment
amounts are the same as for Federal Stafford Loans.
A borrower may refinance all outstanding Federal PLUS Loans under a single
repayment schedule for principal and interest, with the new repayment period
calculated from the date of repayment of the most recent included loan. The
interest rate of such refinanced loan shall be the weighted average of the rates
of all Federal PLUS Loans being refinanced. A second type of refinancing enables
an eligible lender to reissue a Federal PLUS Loan which was initially originated
at a fixed rate prior to July 1, 1987 in order to permit the borrower to obtain
the variable interest rate available on Federal PLUS Loans on and after July 1,
1987. If a lender is unwilling to refinance the original Federal PLUS Loan, the
borrower may obtain a loan from another lender for the purpose of discharging
the loan and obtaining a variable interest rate.
FEDERAL CONSOLIDATION LOAN PROGRAM
The Act authorizes a program under which certain borrowers may consolidate
one or more of their Student Loans into a single loan (each, a "Federal
Consolidation Loan") insured and reinsured on a basis similar to Federal
Stafford Loans. Federal Consolidation Loans may be made in an amount sufficient
to pay outstanding principal, unpaid interest, late charges and collection costs
on all federally insured or reinsured student loans incurred under FFELP
selected by the borrower, as well as loans made pursuant to various other
federal student loan programs and which may have been made by different lenders.
Under this program, a lender may make a Federal Consolidation Loan to an
eligible borrower at the request of the borrower if the lender holds an
43
<PAGE>
outstanding loan of the borrower or the borrower certifies that he has been
unable to obtain a Federal Consolidation Loan from the holders of the
outstanding loans made to him. A borrower who is unable to obtain a Federal
Consolidation Loan from an eligible lender or a Federal Consolidation Loan with
an income-sensitive repayment plan acceptable to the borrower may obtain a
Federal Consolidation Loan under the direct loan program. Federal Consolidation
Loans that were made on or after July 1, 1994 have no minimum loan amount,
although Federal Consolidation Loans for less than $7,500 must be repaid in ten
years. Applications for Federal Consolidation Loans received on or after January
1, 1993 but prior to July 1, 1994, were available only to borrowers who had
aggregate outstanding student loan balances of at least $7,500; for applications
received before January 1, 1993, Federal Consolidation Loans are available only
to borrowers who have aggregate outstanding student loan balances of at least
$5,000. The borrowers must be either in repayment status or in a grace period
preceding repayment and, for applications received prior to January 1, 1993, the
borrower must not have been delinquent by more than 90 days on any student loan
payment; for applications received on or after January 1, 1993, delinquent or
defaulted borrowers are eligible to obtain Federal Consolidation Loans if they
will reenter repayment through loan consolidation. For applications received on
or after January 1, 1993, borrowers may, within 180 days of the origination of a
Federal Consolidation Loan, add additional loans made prior to consolidation
("Add-on Federal Consolidation Loans") for consolidation therewith. If the
borrower obtains loans subsequent to the Federal Consolidation Loan, the
borrower may consolidate the new loans and the Federal Consolidation Loan. The
interest rate and term of such Federal Consolidation Loan, following the
consolidation with the related Add-on Federal Consolidation Loans, may be
recomputed within the parameters permitted by the Act. For applications received
on or after January 1, 1993, married couples who agree to be jointly and
severally liable will be treated as one borrower for purposes of loan
consolidation eligibility. For applications received on or after November 13,
1997 through September 30, 1998, student loan borrowers may include federal
direct loans in Federal Consolidation Loans.
Federal Consolidation Loans bear interest at a rate which equals the
weighted average of interest rates on the unpaid principal balances of
outstanding loans, rounded to the nearest whole percent, with a minimum rate of
9% for loans originated prior to July 1, 1994. For Federal Consolidation Loans
made on or after July 1, 1994, such weighted average interest rate must be
rounded up to the nearest whole percent. However, Federal Consolidation Loans
made on or after November 13, 1997 through September 30, 1998 will bear interest
at the annual variable rate applicable to Stafford Loans. Federal Consolidation
Loans for which the application is received on or after October 1, 1998, bear
interest at a rate equal to the weighted average interest rate of the loans
consolidated, rounded up to the nearest one-eighth percent and capped at 8.25%.
Interest on Federal Consolidation Loans accrues and, for applications received
prior to January 1, 1993, is to be paid without Interest Subsidy by the
Department. For Federal Consolidation Loans received on or after January 1,
1993, all interest of the borrower is paid during all periods of Deferment.
However, Federal Consolidation Loan applications received on or after
August 10, 1993 will only be subsidized if all of the underlying loans being
consolidated were subsidized Federal Stafford Loans; provided, however, that in
the case of Federal Consolidation Loans made on or after November 13, 1997, that
portion of the Federal Consolidation Loan that is comprised of Subsidized
Stafford Loans will retain its subsidy benefits during periods of deferment.
Borrowers may elect to accelerate principal payments without penalty. Further,
no insurance premium may be charged to a borrower and no insurance premium may
be charged to a lender in connection with a Federal Consolidation Loan. However,
a fee may be charged to the lender by a Federal Guarantor to cover the costs of
increased or extended liability with respect to a Federal Consolidation Loan,
and lenders must pay a monthly rebate fee at an annualized rate of 1.05% for
Federal Consolidation Loans disbursed on or after October 1, 1993 (or 0.62% per
annum for loans on which applications are received between October 1, 1998 and
January 31, 1999.) Special Allowance Payments are made on Consolidation Loans
whenever the rate charged by the borrower is limited by the 9%/8.25% cap.
However, for applications received on or after October 1, 1998, Special
Allowance Payments are paid in order to afford the lender a yield equal to the
91-day T-Bill plus 3.1% whenever that formula exceeds the borrower's interest
rate.
Repayment of Federal Consolidation Loans begins within 60 days after
discharge of all prior loans which are consolidated. Repayment schedule options
must include, for applications received on or after January 1, 1993, the
establishment of graduated or income sensitive repayment plans, subject to
certain limits applicable to the sum of the Federal Consolidation Loan and the
amount of the borrower's other eligible student loans outstanding. The lender
may, at its option, include such graduated and income sensitive repayment plans
for applications received prior to that date. Generally, depending on the total
of loans outstanding, repayment may be scheduled
44
<PAGE>
over periods no shorter than ten but not more than 25 years in length. For
applications received on or after January 1, 1993, the maximum maturity schedule
is 30 years for Federal Consolidation Loans of $60,000 or more.
All eligible loans of a borrower paid in full through consolidation are
discharged in the consolidation process when the new Federal Consolidation Loan
is issued.
FEDERAL GUARANTORS
The Act authorizes Federal Guarantors to support education financing and
credit needs of students at post-secondary schools. The Act encourages every
state either to establish its own agency or to designate another Federal
Guarantor in cooperation with the Secretary. Under various programs throughout
the United States of America, Federal Guarantors insure and sometimes service
guaranteed student loans. The Federal Guarantors are reinsured by the federal
government for from 80% to 100% of each default claim paid, depending on their
claims experience, for loans disbursed prior to October 1, 1993, from 78% to 98%
of each default claim paid for loans disbursed on or after October 1, 1993, and
from 75% to 95% of each default claim paid for loans disbursed on or after
October 1, 1998. Federal Guarantors are reinsured by the federal government for
100% of death, disability, bankruptcy, closed school and false certification
claims paid. Loans guaranteed under the lender of last resort provisions of the
Act are also 100% guaranteed and reinsured. See "--Federal Insurance and
Reinsurance of Federal Guarantors" below.
Federal Guarantors collect a one-time insurance premium ranging from 0% to
3% of the principal amount of each guaranteed loan, depending on the Federal
Guarantor. Federal Guarantors are prohibited from charging insurance premiums on
loans made under the Federal Unsubsidized Stafford Loan program prior to July 1,
1994. On such loans made prior to July 1, 1994, the Act requires that a 6.5%
combined loan origination fee and insurance premium be paid by the borrower on
Federal Unsubsidized Stafford Loans. This fee is passed through to the
Department by the originating lender. Effective July 1, 1994, the maximum
insurance premium and origination fee for Federal Stafford Loans and Federal
Unsubsidized Stafford Loans are 1% and 3%, respectively.
Each Federal Student Loan to be sold to an Eligible Lender Trustee on
behalf of a Trust will be guaranteed as to principal and interest by a Federal
Guarantor pursuant to a guarantee agreement (each, a "Guarantee Agreement")
between such Federal Guarantor and the applicable Eligible Lender Trustee. The
applicable Prospectus Supplement for each Trust will identify each related
Federal Guarantor for the FFELP Student Loans held by such Trust as of the
applicable Closing Date and the amount of such FFELP Student Loans it is
guaranteeing for such Trust.
The 1993 Act granted the Department broad powers over Federal Guarantors
and their reserves. These powers include the authority to require a Federal
Guarantor to return all reserve funds to the Department if the Department
determines such action is necessary to ensure an orderly termination of the
Federal Guarantor, to serve the best interests of the student loan programs or
to ensure the proper maintenance of such Federal Guarantor's funds or assets.
The Department is also now authorized to direct a Federal Guarantor to return a
portion of its reserve funds which the Department determines is unnecessary to
pay the program expenses and contingent liabilities of the Federal Guarantor
and/or to cease any activities involving the use of the Federal Guarantor's
reserve funds or assets which the Department determines is a misapplication or
otherwise improper. The Department may also terminate a Federal Guarantor's
reinsurance agreement if the Department determines that such action is necessary
to protect the federal fiscal interest. These various changes create a
significant risk that the resources available to the Federal Guarantors to meet
their guarantee obligations will be significantly reduced.
The 1998 Reauthorization Bill created additional risks that the resources
available to Federal Guarantors to meet their guarantee obligations will be
further reduced in the future by mandating additional recall of guarantor
reserves and reducing reinsurance to guarantors from 98% to 95%.
45
<PAGE>
FEDERAL INSURANCE AND REINSURANCE OF FEDERAL GUARANTORS
A Federal Student Loan is considered to be in default for purposes of the
Act when the borrower fails to make an installment payment when due or to comply
with other terms of the loan, and if the failure persists for a certain period
of time as specified by the Act. Under certain circumstances a loan deemed
ineligible for Federal Reinsurance may be restored to eligibility. Procedures
for such restoration of eligibility are discussed below. If the loan in default
is covered by federal loan insurance in accordance with the provisions of the
Act, the Department is to pay the applicable Federal Guarantor, as insurance
beneficiary, the amount of the loss sustained thereby, upon notice and
determination of such amount, within 90 days of such notification, subject to
reduction as described below.
If the loan is guaranteed by a Federal Guarantor, the eligible lender is
reimbursed by the Federal Guarantor for 100% (or not less than 98% for loans
disbursed on or after October 1, 1993, or 95% for loans disbursed on or after
October 1, 1998) of the unpaid principal balance of the defaulted loan plus
accrued and unpaid interest thereon so long as the eligible lender has properly
originated and serviced such loan. Under the Act, the Department enters into a
guarantee agreement with each Federal Guarantor, which provides for federal
reinsurance for amounts paid to eligible lenders by the Federal Guarantor with
respect to defaulted loans.
Pursuant to such agreements, the Department also agrees to reimburse a
Federal Guarantor for 100% of the amounts expended in connection with a claim
resulting from the death, bankruptcy, total and permanent disability of a
borrower, the death of a student whose parent is the borrower of a Federal PLUS
Loan or claims by borrowers who received loans on or after January 1, 1986 and
who are unable to complete the programs in which they are enrolled due to school
closure or borrowers whose borrowing eligibility was falsely certified by the
eligible institution; such claims are not included in calculating a Federal
Guarantor's claims rate experience for federal reinsurance purposes. The
Department also agrees to reimburse a Federal Guarantor for 100% of the amounts
expended in connection with claims on loans made under the lender of last resort
provisions. The Department is also required to repay the unpaid balance of any
loan if the borrower files for relief under Chapter 12 or 13 of the Bankruptcy
Code or files for relief under Chapter 7 or 11 of the Bankruptcy Code and
commences an action for a determination of dischargeability under
Section 523(a)(8)(b) of the Bankruptcy Code, and is authorized to acquire the
loans of borrowers who are at high risk of default and who request an
alternative repayment option from the Department.
The amount of such reinsurance payment to the Federal Guarantor for default
claims is subject to reduction based upon the annual default claims rate of the
Federal Guarantor, calculated to equal the amount of federal reinsurance claims
paid by the Department to the Federal Guarantor during any fiscal year as a
percentage of the original principal amount of guaranteed loans in repayment at
the end of the prior federal fiscal year. The formula is summarized as follows:
<TABLE>
<CAPTION>
CLAIMS RATE OF FEDERAL GUARANTOR REIMBURSEMENT TO FEDERAL GUARANTOR BY THE DEPARTMENT OF EDUCATION(1)
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
0% to and including 5%............... 100%
Greater than 5% to and including 9%.. 100% of claims to and including 5%; 90% of claims greater than 5%
Greater than 9%...................... 100% of claims to and including 5%; 90% of claims greater than 5%
to and including 9%; and 80% of claims greater than 9%
</TABLE>
- ------------------
(1) The federal reimbursement has been reduced to 98%, 88% and 78% for loans
disbursed on or after October 1, 1993, and to 95%, 85% and 75% for loans
disbursed on or after October 1, 1998.
The claims experience is not accumulated from year to year, but is
determined solely on the basis of claims in any one federal fiscal year compared
with the original principal balance of loans in repayment at the beginning of
that year.
Pursuant to the 1992 Amendments and additional changes made in 1997 and
1998, Federal Guarantors are required to maintain a current minimum reserve
level of at least 0.25% of the total attributable amount of all outstanding
loans guaranteed by the Federal Guarantor. If the Federal Guarantor fails to
achieve the minimum reserve level in any two consecutive years, if the Federal
Guarantor's federal annual claims rate equals or exceeds 5% or if the Department
determines the Federal Guarantor's administrative or financial condition
jeopardizes its continued ability to perform its responsibilities, the
Department may require the Federal Guarantor to submit and
46
<PAGE>
implement a management plan to address the deficiencies. The Department may
terminate the Federal Guarantor's agreements with the Department if the
Guarantor fails to submit the required plan, or fails to improve its
administrative or financial condition substantially, or if the Department
determines the Federal Guarantor is in danger of financial collapse. In such
event, the Department is required to assume responsibility for the functions of
such Federal Guarantor and in connection therewith is authorized to undertake
specified actions to assure the continued payment of claims, including maturity
advances to Federal Guarantors to cover immediate cash needs, transferring of
guarantees to another Federal Guarantor, or transfer of guarantees to the
Department itself. No assurance can be made that the Department will under any
given circumstance exercise its right to terminate a reimbursement agreement
with a Federal Guarantor or make a determination that such Federal Guarantor is
unable to meet its guarantee obligations.
The Act requires that, subject to compliance with the Act, the Secretary
must pay all amounts which may be required to be paid under the Act as a result
of certain events of death, disability, bankruptcy, school closure or false
certification by the educational institution described therein. It further
provides that Federal Guarantors shall be deemed to have a contractual right
against the United States of America to receive reinsurance in accordance with
its provisions. In addition, the 1992 Amendments provide that if the Department
determines that a Federal Guarantor is unable to meet its insurance obligations,
holders of loans may submit insurance claims directly to the Department until
such time as the obligations are transferred to a new Federal Guarantor capable
of meeting such obligations or until a successor Federal Guarantor assumes such
obligations. No assurance can be made that the Department would under any given
circumstances assume such obligation to assure satisfaction of a guarantee
obligation by exercising its right to terminate a reimbursement agreement with a
Federal Guarantor or by making a determination that such Federal Guarantor is
unable to meet its guarantee obligations.
PRIVATE LOAN PROGRAMS
Descriptions of each Private Guarantor and the Private Loan programs
relating to the Private Student Loans in a Trust will be set forth in the
related Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes and the Certificates of any series
will generally be influenced by the rate at which the principal balances of the
related Student Loans are paid, which payment may be in the form of scheduled
amortization or prepayments. (For this purpose, the term "prepayments" includes
prepayments in full or in part (including pursuant to Federal Consolidation
Loans), as a result of (i) borrower default, death, disability or bankruptcy,
(ii) a closing of or a false certification by the borrower's school and
(iii) subsequent liquidation or collection of Guarantee Payments with respect
thereto and as a result of Student Loans being repurchased by the Seller or the
Servicer (with respect to FFELP Student Loans) for administrative reasons.) All
of the Student Loans are prepayable at any time without penalty to the borrower.
The rate of prepayment of Student Loans is influenced by a variety of economic,
social and other factors, including as described below and in the applicable
Prospectus Supplement. In general, the rate of prepayments may tend to increase
to the extent that alternative financing becomes available at prevailing
interest rates which fall significantly below the interest rates applicable to
the Student Loans. However, because many of the Student Loans bear interest that
either actually or effectively is floating, it is impossible to predict whether
changes in prevailing interest rates will be similar to or will vary from
changes in the interest rates on the Student Loans. In addition, under certain
circumstances, the Seller or the Servicer (with respect to FFELP Student Loans)
will be obligated to repurchase or arrange for the repurchase of Student Loans
from a given Trust pursuant to the related Loan Sale Agreement or FFELP Loan
Servicing Agreement, as applicable, as a result of breaches of applicable
representations and warranties or covenants. See "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS--Sale of Student Loans; Representations and Warranties"
and "--Servicer Covenants." See also "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Termination" regarding the Servicer's option to purchase the Student
Loans from a given Trust. Also, in the case of a Trust having a Funding Period
or Revolving Period, the addition of Student Loans to the Trust during such
period could affect the weighted average life of the Securities of the related
series. See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Additional
Fundings" herein.
47
<PAGE>
On the other hand, scheduled payments with respect to, and maturities of,
the Student Loans may be extended, including pursuant to applicable grace,
deferral and forbearance periods. The rate of payment of principal of the Notes
and the Certificates and the yield on the Notes and the Certificates may also be
affected by the rate of defaults resulting in losses on Student Loans, by the
severity of those losses and by the timing of those losses, which may affect the
ability of the Guarantors to make Guarantee Payments with respect thereto.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes or the Certificates of a
given series on each Distribution Date, since such amount will depend, in part,
on the amount of principal collected on the related pool of Student Loans during
the applicable Collection Period. Any reinvestment risks resulting from a faster
or slower incidence of prepayment of Student Loans will be borne entirely by the
Noteholders and the Certificateholders of a given series. The related Prospectus
Supplement may set forth certain additional information with respect to the
maturity and prepayment considerations applicable to the particular pool of
Student Loans and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
Each of the "Note Pool Factor" for each class of Notes and the "Certificate
Pool Factor" for each class of Certificates (each, a "Pool Factor") will be a
seven-digit decimal which the Servicer will compute prior to each Distribution
Date indicating the remaining outstanding principal balance of such class of
Notes or the remaining Certificate Balance for such class of Certificates,
respectively, as of that Distribution Date (after giving effect to distributions
to be made on such Distribution Date), as a fraction of the initial outstanding
principal balance of such class of the Notes or the initial Certificate Balance,
for such class of Certificates, respectively. Each Pool Factor will be 1.0000000
as of the Closing Date, and thereafter will decline to reflect reductions in the
outstanding principal balance of the applicable class of Notes or reductions of
the Certificate Balance of the applicable class of Certificates, as applicable.
A Securityholder's portion of the aggregate outstanding principal balance of the
related class of Notes or of the aggregate outstanding Certificate Balance for
the related class of Certificates, as applicable, is the product of (i) the
original denomination of that Securityholder's Note or Certificate and (ii) the
applicable Pool Factor.
If so provided in the related Prospectus Supplement with respect to each
Trust, the Securityholders will receive reports on or about each Distribution
Date concerning the payments received on the Student Loans, the Pool Balance (as
such term is defined in the related Prospectus Supplement, the "Pool Balance"),
the applicable Pool Factor and various other items of information.
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law. See
"CERTAIN INFORMATION REGARDING THE SECURITIES--Reports to Securityholders."
48
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust, one or more classes of Notes of a given series
will be issued pursuant to the terms of an Indenture, a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is qualified in its
entirety by reference to all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by one or more Notes, in each case
registered in the name of the nominee of DTC (together with any successor
depository selected by the Administrator, the "Depository") except as set forth
below. Unless otherwise specified in the related Prospectus Supplement, the
Notes will be available for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. The Depositor has been informed by
DTC that DTC's nominee will be Cede, unless another nominee is specified in the
related Prospectus Supplement. Accordingly, such nominee is expected to be the
holder of record of the Notes of each class. Unless and until Definitive Notes
are issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Noteholder will be entitled to receive a physical
certificate representing a Note. All references herein and in the related
Prospectus Supplement to actions by Noteholders of Notes held in book-entry form
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 its nominee, as the registered holder of the
Notes, as the case may be, for distribution to Noteholders in accordance with
DTC's procedures with respect thereto. See "CERTAIN INFORMATION REGARDING THE
SECURITIES--Book-Entry Registration" and "--Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such series, as
described in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, payments of interest on the Notes of such series
will be made prior to payments of principal thereon. Each class of Notes may
have a different Interest Rate, which may be a fixed, variable or adjustable
Interest Rate or any combination of the foregoing. The related Prospectus
Supplement will specify the Interest Rate for each class of Notes of a given
series or the method for determining such Interest Rate. See also "CERTAIN
INFORMATION REGARDING THE SECURITIES--Fixed Rate Securities" and "--Floating
Rate Securities." One or more classes of Notes of a series may be redeemable in
whole or in part under the circumstances specified in the related Prospectus
Supplement, including as a result of the Depositor's, or such other party's as
may be named in the related Prospectus Supplement, exercising its option to
purchase the related Student Loans.
Unless otherwise specified in the related Prospectus Supplement, payments
to Noteholders of all classes within a series in respect of interest will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Distribution Date"), in which case each class of Noteholders will receive its
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes of such series. See "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Distributions" and "--Credit and Cash Flow Enhancement."
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
49
<PAGE>
In the case of a series of Notes relating to a Trust having a Pre-Funding
Account or Collateral Reinvestment Account, the Notes of such series will be
redeemed in part on the Distribution Date on or immediately following the last
day of the related Funding Period or Revolving Period, respectively, in the
event that any amount remains on deposit in the applicable account after giving
effect to all Additional Fundings on or prior to such date, in an aggregate
principal amount described in the related Prospectus Supplement.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit and Cash
Flow Enhancement--Reserve Account" for a description of the Reserve Account and
the distribution of amounts in excess of the Specified Reserve Account Balance
(as defined in the related Prospectus Supplement).
THE INDENTURE
Modification of Indenture. With respect to each Trust, with the consent of
the holders of a majority of the outstanding Notes of the related series, the
Indenture Trustee and the Trust may execute a supplemental indenture to add
provisions to, or change in any manner or eliminate any provisions of, the
Indenture with respect to the Notes, or to modify (except as provided below) in
any manner the rights of the related Noteholders.
Without the consent of the holder of each such outstanding Note affected
thereby, however, no supplemental indenture will (i) change the due date of any
installment of principal of or interest on any such Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto or change any place of payment where or the coin or currency in
which any such Note or any interest thereon is payable, (ii) impair the right to
institute suit for the enforcement of certain provisions of the related
Indenture regarding payment, (iii) reduce the percentage of the aggregate amount
of the outstanding Notes of such series, the consent of the holders of which is
required for any such supplemental indenture or the consent of the holders of
which is required for any waiver of compliance with certain provisions of the
related Indenture or of certain defaults thereunder and their consequences as
provided for in such Indenture, (iv) modify or alter the provisions of the
related Indenture regarding the voting of Notes held by the applicable Trust,
the Depositor, an affiliate of either of them or any obligor on such Notes,
(v) reduce the percentage of the aggregate outstanding amount of such Notes, the
consent of the holders of which is required to direct the related Trustee on
behalf of the applicable Trust to sell or liquidate the Student Loans if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such series,
(vi) decrease the percentage of the aggregate principal amount of such Notes
required to amend the sections of the related Indenture which specify the
applicable percentage of aggregate principal amount of such Notes necessary to
amend the related Indenture or certain other related agreements or (vii) permit
the creation of any lien ranking prior to or on a parity with the lien of the
related Indenture with respect to any of the collateral for the Notes of such
series or, except as otherwise permitted or contemplated in such Indenture,
terminate the lien of such Indenture on any such collateral or deprive the
holder of any Note of the security afforded by the lien of such Indenture.
The applicable Trust and the related Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of Noteholders of such
series, for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the related Indenture or of modifying in
any manner the rights of Noteholders of such series so long as such action will
not, in the opinion of counsel satisfactory to the applicable Indenture Trustee,
materially and adversely affect the interest of any Noteholder of such series.
Events of Default; Rights upon Event of Default. With respect to the Notes
of a given series, unless otherwise specified in the related Prospectus
Supplement, an "Event of Default" under the related indenture will consist of
the following: (i) a default for five days or more in the payment of any
interest on any such Note after the same becomes due and payable; (ii) a default
in the payment of the principal of or any installment of the principal of any
such Note when the same becomes due and payable; (iii) a default in the
observance or performance of any covenant or agreement of the applicable Trust
made in the related Indenture and the continuation of any such default for a
period of 30 days after notice thereof is given to the applicable Trust by the
applicable Indenture Trustee or to the applicable Trust and the applicable
Indenture Trustee by the holders of at least 25% in principal amount of such
Notes then outstanding; provided, however, that if the Trust demonstrates that
it is making a good-faith attempt to cure such default, such 30-day period may
be extended by the Indenture Trustee to 90 days; (iv) any representation or
warranty made by the applicable Trust in the related Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to such Trust by the
applicable Indenture Trustee or to such Trust and the applicable Indenture
Trustee by the holders of
50
<PAGE>
at least 25% in principal amount of the Notes of such series then outstanding;
provided, however, that if the Trust demonstrates that it is making a good-faith
attempt to cure such breach, such 30-day period may be extended by the Indenture
Trustee to 90 days, or (v) certain events of bankruptcy, insolvency,
receivership or liquidation of such Trust. However, the amount of principal
required to be distributed to Noteholders of such series under the related
Indenture on any Distribution Date will generally be limited to amounts
available after payment of all prior obligations of such Trust. Therefore,
unless otherwise specified in the related Prospectus Supplement, the failure to
pay principal on a class of Notes generally will not result in the occurrence of
an Event of Default until the final scheduled Distribution Date for such class
of Notes. If, with respect to any series of Notes, interest is paid at a
variable rate based on an index, the related Prospectus Supplement may provide
that, in the event that, for any Distribution Date, the Interest Rate as
calculated based on the index is greater than an alternate rate calculated for
such Distribution Date based on interest collections on the Student Loans (the
amount of such difference, the "Index Shortfall Carryover"), the Interest Rate
for such Distribution Date shall be such alternate rate and the Interest
Shortfall Carryover shall be payable as described in such Prospectus Supplement.
Unless otherwise provided in such Prospectus Supplement, payment of the Index
Shortfall Carryover shall be lower in priority than payment of interest on the
Notes at the Interest Rate (whether the Interest Rate is based on the index or
such alternate rate) and, accordingly, the nonpayment of the Interest Shortfall
Carryover on any Distribution Date shall not generally constitute a default in
the payment of interest on such Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Such declaration may be rescinded
by the holders of a majority in principal amount of such Notes then outstanding
if (i) the Trustee on behalf of the related Trust has paid or deposited with the
Indenture Trustee a sum sufficient to pay (A) all payments of principal of and
interest on all Notes and all other amounts that would then be due under the
related Indenture or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred and (B) all sums paid or advanced by the Indenture
Trustee under the related Indenture and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its agents and counsel
and (ii) all Events of Default, other than the nonpayment of the principal of
the Notes that has become due solely by such acceleration, have been cured or,
under the circumstances described below, waived.
If the Notes of any series have been declared to be due and payable
following an Event of Default with respect thereto, the related Indenture
Trustee may, in its discretion, exercise remedies as a secured party, require
the related Trustee (and Eligible Lender Trustee) to sell the Student Loans or
elect to have the related Trustee (and Eligible Lender Trustee) maintain
possession of the Student Loans and continue to apply collections with respect
to such Student Loans as if there had been no declaration of acceleration. The
related Indenture Trustee is prohibited from directing the related Trustee (and
Eligible Lender Trustee) to sell the Student Loans following an Event of
Default, other than a default in the payment of any principal or a default for
five days or more in the payment of any interest on any Note with respect to any
series, unless (i) the holders of all such outstanding Notes consent to such
sale, (ii) the proceeds of such sale are sufficient to pay in full the principal
of and the accrued interest on such outstanding Notes at the date of such sale
or (iii) the related Indenture Trustee determines that the collections on the
Student Loans would not be sufficient on an ongoing basis to make all payments
on such Notes as such payments would have become due if such obligations had not
been declared due and payable, and the related Indenture Trustee obtains the
consent of the holders of 66 2/3% of the aggregate principal amount of such
Notes then outstanding.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default should occur and
be continuing with respect to a series of Notes, the related Indenture Trustee
will be under no obligation to exercise any of the rights or powers under the
applicable Indenture at the request or direction of any of the holders of such
Notes, if such Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be incurred
by it in complying with such request. Subject to such provisions for
indemnification and certain limitations contained in the related Indenture, the
holders of a majority in principal amount of the outstanding Notes of a given
series will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to such Indenture Trustee and the holders
of a majority in principal amount of such Notes then outstanding may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a
51
<PAGE>
default in respect of a covenant or provision of the applicable Indenture that
cannot be modified without the waiver or consent of all the holders of such
outstanding Notes.
No holder of Notes of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in principal
amount of such outstanding Notes have requested in writing that such Indenture
Trustee institute such proceeding in its own name as Indenture Trustee,
(iii) such holder or holders have offered such Indenture Trustee reasonable
indemnity, (iv) such Indenture Trustee has for 60 days failed to institute such
proceeding and (v) no direction inconsistent with such written request has been
given to such Indenture Trustee during such 60-day period by the holders of a
majority in principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders will
covenant that they will not at any time institute against the applicable Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to any Trust, none of the related Indenture Trustee, the
Depositor, EFG, the Administrator, the Servicer, the Trustee or the Eligible
Lender Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in the applicable Trust, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the Notes or for the agreements of the Trust contained in the Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States of America, any state or the District of Columbia, (ii)
such entity expressly assumes such Trust's obligation to make due and punctual
payments upon the Notes of the related series and the performance or observance
of every agreement and covenant of such Trust under the related Indenture, (iii)
no Event of Default shall have occurred and be continuing immediately after such
merger or consolidation, (iv) such Trust has been advised that the rating of the
Notes and the Certificates of the related series would not be reduced or
withdrawn by the Rating Agencies as a result of such merger or consolidation and
(v) such Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse federal or applicable
state tax consequence to such Trust or to any Certificateholder or Noteholder of
the related series.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of such Trust,
(ii) claim any credit on or make any deduction from the principal and interest
payable in respect of the Notes of the related series (other than amounts
withheld under the Code or applicable state law) or assert any claim against any
present or former holder of such Notes because of the payment of taxes levied or
assessed upon such Trust, (iii) except as contemplated by the Related Documents,
dissolve or liquidate in whole or in part, (iv) permit the validity or
effectiveness of the applicable Indenture to be impaired or permit any person to
be released from any covenants or obligations with respect to such Notes under
the applicable Indenture except as may be expressly permitted thereby or
(v) permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden the
assets of the Trust or any part thereof, or any interest therein or the proceeds
thereof, except as expressly permitted by the Related Documents.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "Formation of the Trust."
No Trust will incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes of a related series and the
applicable Indenture or otherwise in accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the applicable Indenture Trustee a written statement as to the fulfillment
of its obligations under the related Indenture.
Indenture Trustee's Annual Report. Each Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to, among
other things, its eligibility and qualification to continue as such Indenture
Trustee under the applicable Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness
owing by such Trust to the applicable Indenture Trustee in
52
<PAGE>
its individual capacity, the property and funds physically held by the
applicable Indenture Trustee as such and any action taken by it that materially
affects the related Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
The Indenture Trustee. The Indenture Trustee for a series of Notes will be
specified in the related Prospectus Supplement. The Indenture Trustee for any
series may resign at any time, in which event the Issuer will be obligated to
appoint a successor trustee for such series. The Issuer may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the Issuer will be obligated to appoint a successor
trustee for the applicable series of Notes. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee for any series of Notes
does not become effective until acceptance of the appointment by the successor
trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series will, unless otherwise specified in the related Prospectus Supplement, be
issued pursuant to the terms of a Trust Agreement, a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The following summary describes certain terms of the Certificates and the
Trust Agreement. The summary does not purport to be complete and is qualified in
its entirety by reference to all the provisions of the Certificates and the
Trust Agreement.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by a single Certificate registered
in the name of the Depository, except as set forth below. Unless otherwise
specified in the related Prospectus Supplement and except for the Certificates
of a given series purchased by the applicable Company, the Certificates will be
available for purchase in minimum denominations of $1,000 and integral multiples
of $1,000 in excess thereof in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any series that are
not purchased by the applicable Company. Unless and until Definitive
Certificates are issued under the limited circumstances described herein or in
the related Prospectus Supplement, no Certificateholder (other than the
applicable Company) will be entitled to receive a physical certificate
representing a Certificate. All references herein and in the related Prospectus
Supplement to actions by Certificateholders (other than the applicable Company)
refer to actions taken by DTC upon instructions from the Participants and all
references herein and in the related Prospectus Supplement to distributions,
notices, reports and statements to Certificateholders (other than the applicable
Company) refer to distributions, notices, reports and statements to DTC or its
nominee, as the registered holder of the Certificates, as the case may be, for
distribution to Certificateholders in accordance with DTC's procedures with
respect thereto. See "CERTAIN INFORMATION REGARDING THE SECURITIES--Book-Entry
Registration" and "--Definitive Securities." Unless otherwise specified in the
related Prospectus Supplement, Certificates of a given series owned by EFG or
its affiliates will be entitled to equal and proportionate benefits under the
applicable Trust Agreement, except that, assuming that all Certificates of a
given series are not all owned by EFG and its affiliates, such Certificates will
be deemed not to be outstanding for the purpose of determining whether the
requisite percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents (other than the commencement by the related Trust of a voluntary
proceeding in bankruptcy as described under "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--Insolvency Event").
PRINCIPAL AND INTEREST IN RESPECT OF THE CERTIFICATES
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest of each class of Certificates of a given
series will be described in the related Prospectus Supplement. Distributions of
interest on such Certificates will be made on each Distribution Date and will be
made prior to distributions with respect to principal of such
53
<PAGE>
Certificates. Each class of Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through Rate or any
combination of the foregoing. The related Prospectus Supplement will specify the
Pass-Through Rate for each class of Certificates of a given series or the method
for determining such Pass-Through Rate. See also "CERTAIN INFORMATION REGARDING
THE SECURITIES--Fixed Rate Securities" and "--Floating Rate Securities." Unless
otherwise provided in the related Prospectus Supplement, distributions in
respect of the Certificates of a given series may be subordinate to payments in
respect of the Notes of such series as more fully described in the related
Prospectus Supplement. Distributions in respect of interest on and principal of
any class of Certificates will be made on a pro rata basis among all the
Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Credit and Cash
Flow Enhancement--Reserve Account" for a description of the Reserve Account and
the distribution of amounts in excess of the Specified Reserve Account Balance
(as defined in the related Prospectus Supplement).
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities may bear interest at a fixed rate per annum
("Fixed Rate Securities") or at a variable or adjustable rate per annum
("Floating Rate Securities"), as more fully described below and in the
applicable Prospectus Supplement. Each class of Fixed Rate Securities will bear
interest at the applicable per annum Interest Rate or Pass-Through Rate, as the
case may be, specified in the applicable Prospectus Supplement. Unless otherwise
set forth in the applicable Prospectus Supplement, interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of twelve
30-day months. See "DESCRIPTION OF THE NOTES--Principal and Interest on the
Notes" and "DESCRIPTION OF THE CERTIFICATES--Principal and Interest in Respect
of the Certificates."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate a Base Rate for a given
Floating Rate Security based on LIBOR, commercial paper rates, Federal funds
rates, U.S. Government treasury securities rates, negotiable certificates of
deposit rates or another rate or rates as set forth in such Prospectus
Supplement.
If so specified in the related Prospectus Supplement, the interest due on
any Floating Rate Securities on any Distribution Date will not exceed a ratio
that is based upon (a) interest accrued on the Student Loans (net of amounts
that must be paid to the Department of Education), accrued Interest Subsidy
Payments and Special Allowance Payments and investment earnings on investments
in the accounts held by the applicable Indenture Trustee during the requisite
collection period, divided by (b) the outstanding principal amount of the
Floating Rate Securities. That amount expressed as a rate, subject to a more
precise formulation in the related Prospectus Supplement, is referred to as the
"Student Loan Rate." Where Floating Rate Securities are issued subject to the
Student Loan Rate, in the event that the interest rate on such Securities
calculated by reference to the applicable Base Rate and Spread is greater than
the Student Loan Rate, such securities would bear interest for the applicable
Interest Reset Period at the Student Loan Rate. All Floating Rate Securities
that are subject to the Student Loan Rate are expected to be rated on the basis
of the ability of the Trust to make payments on the Securities at the Student
Loan Rate rather than at the rate based on the Base Rate and Spread.
54
<PAGE>
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be the
Administrator, the Eligible Lender Trustee or the Indenture Trustee with respect
to such series. All determinations of interest by the Calculation Agent shall,
in the absence of manifest error, be conclusive for all purposes and binding on
the holders of Floating Rate Securities of a given class. Unless otherwise
specified in the applicable Prospectus Supplement, all percentages resulting
from any calculation of the rate of interest on a Floating Rate Security will be
rounded, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-
millionths of a percentage point rounded upward.
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book entries,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Securities held through DTC may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the Indenture Trustee for the Indenture under which
the Securities were issued (the "Applicable Trustee"), through Participants and
Indirect Participants. Under a book-entry format, Securityholders may experience
some delay in their receipt of payments, since such payments will be forwarded
by the Applicable Trustee to DTC's nominee. DTC will forward such payments to
its Participants, which thereafter will forward them to Indirect Participants or
Securityholders. Except for the applicable Company with respect to any series of
Securities, it is anticipated that the only "Securityholder,"
"Certificateholder" and "Noteholder" will be DTC's nominee. Securityholders will
not be recognized by the Applicable Trustee as Noteholders or
Certificateholders, as such terms are used in each Indenture and each Trust
Agreement, respectively, and Securityholders will be permitted to exercise the
rights of Securityholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the Rules provide a mechanism by
which Participants will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Securityholder under the related Indenture or the related Trust
Agreement, as the case may be, only at the direction of one or more Participants
to whose accounts with DTC the Securities are credited. DTC may take conflicting
actions with
55
<PAGE>
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
Except as required by law, neither the Administrator nor the Applicable
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Securities
held by DTC's nominee or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
Unless otherwise specified in the related Prospectus Supplement and except
with respect to the Certificates of a given series that may be purchased by the
Depositor or an affiliate, the Notes and the Certificates of a given series will
be issued in fully registered, certificated form ("Definitive Notes" and
"Definitive Certificates," respectively, and collectively referred to herein as
"Definitive Securities") to Noteholders or Certificateholders or their
respective nominees, rather than to DTC or its nominee, only if (i) the related
Administrator advises the Applicable Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Securities and the Administrator is unable to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default or a Servicer Default, Securityholders representing at least a majority
of the outstanding principal amount of the Notes or the Certificates, as the
case may be, of such series advise the Applicable Trustee through DTC in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) with respect to such Notes or Certificates is no longer in the best
interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the Definitive Securities
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement, as
the case may be, directly to holders of Definitive Securities in whose names the
Definitive Securities were registered at the close of business on the applicable
Record Date specified for such Securities in the related Prospectus Supplement.
Such distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the Applicable Trustee. The final
payment on any such Definitive Security, however, will be made only upon
presentation and surrender of such Definitive Security at the office or agency
specified in the notice of final distribution to applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement, holders of
Notes evidencing not less than 25% of the aggregate outstanding principal
balance of such Notes may, by written request to the related Indenture Trustee,
obtain access to the list of all Noteholders maintained by such Indenture
Trustee for the purpose of communicating with other Noteholders with respect to
their rights under the related Indenture or such Notes. Such Indenture Trustee
may elect not to afford the requesting Noteholders access to the list of
Noteholders if it agrees to mail the desired communication or proxy, on behalf
and at the expense of the requesting Noteholders, to all Noteholders of such
series.
Unless otherwise specified in the related Prospectus Supplement, three or
more Certificateholders of such series or one or more holders of such
Certificates evidencing not less than 25% of the Certificate Balance of such
Certificates may, by written request to the related Trustee, obtain access to
the list of all Certificateholders for the purpose of communicating with other
Certificateholders with respect to their rights under the related Trust
Agreement or under such Certificates.
56
<PAGE>
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on each Distribution Date, the
Applicable Trustee will provide to Securityholders of record as of the related
Record Date a statement setting forth substantially the same information as is
required to be provided on the periodic report provided to the related Indenture
Trustee and the related Trust described under "Description of Transfer and
Servicing Agreements--Statements to Indenture Trustee and Trust." Such
statements will be filed with the Commission during the period required by Rule
15d-1 under the Securities Exchange Act of 1934, as amended, and will not be
filed with the Commission thereafter. The statements provided to Securityholders
will not constitute financial statements prepared in accordance with generally
accepted accounting principles.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable Trustee
will mail to each person who at any time during such calendar year was a
Securityholder with respect to such Trust and received any payment thereon, a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of the material terms of each Loan Sale
Agreement, each FFELP Loan Servicing Agreement and each Private Loan Servicing
Agreement, pursuant to which the Depositor will purchase Student Loans from the
Seller (or the Eligible Lender Trustee on behalf of the Seller) and the Servicer
will service the same; each Administration Agreement, pursuant to which the
Administrator will undertake certain administrative duties with respect to a
Trust and the Student Loans; each Trust Agreement, pursuant to which a Trust
will be created and the related Certificates will be issued; and each Transfer
Agreement, pursuant to which the Depositor will transfer Student Loans to the
related Trust (collectively, the "Transfer and Servicing Agreements"). Forms of
each of the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. However, the summary
does not purport to be complete and is qualified in its entirety by reference to
all of the provisions of the Transfer and Servicing Agreements.
SALE OF STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
On the Closing Date specified with respect to any given Trust in the
related Prospectus Supplement (the "Closing Date"), pursuant to a Loan Sale
Agreement the Depositor will acquire the Student Loans from EFG (or the Eligible
Lender Trustee on behalf of the Seller) as seller, and pursuant to a Transfer
Agreement the Depositor will transfer to the related Trustee on behalf of such
Trust, without recourse, its entire interest in the Student Loans and all
collections received and to be received with respect thereto for the period on
and after the Cutoff Date pursuant to the Loan Sale Agreement as well as its
interest in The Loan Sale Agreement with respect to The Student Loans. Each
Student Loan will be identified in schedules appearing as an exhibit to such
Loan Sale Agreement. Each Trustee will, concurrently with such sale and
assignment, execute, authenticate and deliver the related Certificates and
Notes. The net proceeds received from the sale of the related Notes and
Certificates will be applied to the purchase of the Student Loans.
In each Loan Sale Agreement, EFG will make representations and warranties
with respect to the Student Loans which representations and warranties will be
assigned to a Trust for the benefit of the Certificateholders and the
Noteholders of a given series, including, among other things, that (i) each
Student Loan, on the date on which it is transferred to the Depositor, is free
and clear of all security interests, liens, charges and encumbrances and no
offsets, defenses or counterclaims have been asserted or threatened; (ii) the
information provided with respect to the Student Loans is true and correct as of
the Cutoff Date; (iii) each Student Loan, at the time it was originated,
complied and, at the Closing Date, complies in all material respects with
applicable federal and state laws (including, without limitation, the Act in the
case of FFELP Student Loans) and applicable restrictions imposed by FFELP, a
Private Guarantor or any Guarantee Agreement; (iv) each Student Loan is the
legal, valid and binding obligation of the related borrower; and (v) no Student
Loan, at the time of transfer, has a payment that is more than 120 days
delinquent in the case of a FFELP Student Loan or 90 days in the case of a
Private Student Loan.
57
<PAGE>
Following the discovery by or notice to the Seller of a breach of any
representation or warranty with respect to any Student Loan that materially and
adversely affects the interests of the related Certificateholders or the
Noteholders in such Student Loan (it being understood that any such breach that
does not affect any Guarantor's obligation to guarantee payment of such Student
Loan will not be considered to have such a material adverse effect), the Seller
will, unless such breach is cured within 60 days, repurchase such Student Loan
from the related Eligible Lender Trustee, as of the first day following the end
of such 60-day period that is the last day of a Collection Period, at a price
equal to the unpaid principal balance owed by the applicable borrower thereon
plus accrued interest thereon to the day of repurchase (the "Purchase Amount").
Alternatively, the Seller may, at its option, remit all or a portion of the
Purchase Amount by substituting into the related Trust a Student Loan that meets
certain criteria set forth in the related Loan Sale Agreement for the Student
Loan as to which the breach has occurred. In addition, the Seller will reimburse
the related Trust for any accrued interest amounts that a Guarantor refuses to
pay pursuant to its Guarantee Agreement, or for any Interest Subsidy Payments
and Special Allowance Payments that are lost or that must be repaid to the
Department with respect to a FFELP Student Loan as a result of a breach of any
such representation or warranty by the Seller. The repurchase, substitution and
reimbursement obligations of the Seller will constitute the sole remedy
available to or on behalf of a Trust, the related Certificateholders and the
related Noteholders for any such uncured breach. The Seller's repurchase and
reimbursement obligations are contractual obligations pursuant to a Loan Sale
Agreement that may be enforced against the Seller, but the breach of which will
not constitute an Event of Default.
To assure uniform quality in servicing and to reduce administrative costs,
the Servicer (or an independent fiduciary in the case of Private Loans) will be
appointed custodian of the promissory notes representing the Student Loans and
any other related documents by the related Trustee on behalf of each Trust. The
Depositor's and the Servicer's records and computer systems will reflect the
sale and assignment by the Depositor of the Student Loans to the related Trustee
on behalf of the related Trust, and UCC financing statements reflecting such
sale and assignment will be filed by the Administrator.
ADDITIONAL FUNDINGS
In the case of a Trust having a Pre-Funding Account or a Collateral
Reinvestment Account, such Trust will use funds on deposit in such account from
time to time during the related Funding Period or Revolving Period,
respectively, (i) to make interest payments to Noteholders and
Certificateholders in lieu of collections of interest on certain of the Student
Loans to the extent such interest is not paid currently but is capitalized and
added to the principal balance of such Student Loans and (ii) to fund the
addition of Student Loans to the Trust under the circumstances and having the
characteristics described in the related Prospectus Supplement ("Additional
Fundings"). Such additional Student Loans may be purchased by the Trust from the
Depositor or may be originated by the Trust, if and to the extent specified in
the related Prospectus Supplement.
There can be no assurance that substantially all of the amounts on deposit
in any Pre-Funding Account or Collateral Reinvestment Account will be expended
during the related Funding Period or Revolving Period, respectively. If the
amount initially deposited into a Pre-Funding Account or a Collateral
Reinvestment Account for a series has not been reduced to zero by the end of the
related Funding Period or Revolving Period, respectively, the amounts remaining
on deposit therein will be distributed to the related Securityholders in the
amounts described in the related Prospectus Supplement.
If and to the extent specified in the related Prospectus Supplement, the
related Trust may use distributions on the Student Loans, or may exchange
Student Loans with the Depositor, in order to pay for Additional Fundings after
any Funding Period or Revolving Period.
ACCOUNTS
With respect to each Trust, the Administrator will establish and maintain
with the applicable Indenture Trustee one or more accounts, in the name of the
Indenture Trustee on behalf of the related Noteholders and Certificateholders,
into which all payments made on or with respect to the related Student Loans
will be deposited (the "Collection Account"). Any other accounts to be
established with respect to a Trust, including any Reserve Account, any
Pre-Funding Account and any Collateral Reinvestment Account, will be described
in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, any Reserve
Account, any Pre-Funding Account, any Collateral Reinvestment Account and any
other accounts identified as such in the related
58
<PAGE>
Prospectus Supplement (collectively, the "Trust Accounts") will be invested as
provided in the applicable Trust Indenture in Eligible Investments. "Eligible
Investments" are generally limited to investments acceptable to the Rating
Agencies as being consistent with the rating of such Securities. Except as
described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the next applicable Distribution Date. However, to the
extent permitted by the Rating Agencies, funds in any Reserve Account may be
invested in securities that will not mature prior to the date of the next
distribution with respect to such Securities and will not be sold to meet any
shortfalls. Thus, the amount of cash in any Reserve Account at any time may be
less than the balance of the Reserve Account. If the amount required to be
withdrawn from any Reserve Account to cover shortfalls in collections on the
related Student Loans (as provided in the related Prospectus Supplement) exceeds
the amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the Notes or the Certificates of
such series. Except as otherwise specified in the related Prospectus Supplement,
investment earnings on funds deposited in the Trust Accounts, net of losses and
investment expenses (collectively, "Investment Earnings"), will be deposited in
the Collection Account on each Distribution Date and will be treated as
collections of interest on the related Student Loans.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means a depository institution organized under the laws
of the United States of America or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), (i) which has either (A)
a long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation.
SERVICING PROCEDURES
Pursuant to each Loan Servicing Agreement, the Servicer has agreed to
service, and perform all other related tasks with respect to, all the Student
Loans acquired from time to time on behalf of each Trust. The Servicer is
required pursuant to the related Loan Servicing Agreement to perform all
services and duties customary to the servicing of Student Loans (including all
collection practices), and to do so in the same manner as the Servicer has
serviced student loans for parties other than the Seller and to do so in
compliance with, and to otherwise comply with, the Guarantee Agreements; all
other applicable federal and state laws and with respect to the FFELP Student
Loans, all standards and procedures provided for in the Act.
Without limiting the foregoing, the duties of the Servicer with respect to
each Trust under the related Loan Servicing Agreement include, but are not
limited to, the following: collecting and depositing into the Collection Account
all payments with respect to the Student Loans, including claiming and obtaining
any Guarantee Payments, any Interest Subsidy Payments and Special Allowance
Payments with respect to Student Loans entitled thereto, responding to inquiries
from borrowers on the Student Loans, investigating delinquencies and sending out
statements and payment coupons. In addition, the Servicer will keep ongoing
records with respect to such Student Loans and collections thereon and will
furnish monthly and annual statements with respect to such information to the
Administrator, in accordance with the Servicer's customary practices with
respect to the Seller and as otherwise required in the related Loan Servicing
Agreement.
If so provided in the related Prospectus Supplement, the Servicer may act
as a master servicer and may from time to time perform its servicing obligations
under the applicable Loan Servicing Agreement through subservicing agreements
with affiliated or unrelated third-party loan servicers.
59
<PAGE>
PAYMENTS ON STUDENT LOANS
With respect to each Trust, the Servicer will deposit all payments on
Student Loans and all proceeds of Student Loans received by it during each
collection period specified in the related Prospectus Supplement (each, a
"Collection Period") into the related Collection Account within two business
days of receipt of freely available funds therefor. The Eligible Lender Trustee
will deposit all Interest Subsidy Payments and all Special Allowance Payments
with respect to the Student Loans received by it during each Collection Period
into the Collection Account within two business days of receipt thereof.
SERVICER COVENANTS
With respect to each Trust, in the related Loan Servicing Agreement, the
Servicer will covenant that: (a) it will duly satisfy all obligations on its
part to be fulfilled under or in connection with the Student Loans, maintain in
effect all qualifications required in order to service the Student Loans and
comply in all material respects with all requirements of law in connection with
servicing the Student Loans, the failure to comply with which would have a
materially adverse effect on the related Certificateholders or Noteholders; (b)
it will not permit any rescission or cancellation of a Student Loan except as
ordered by a court of competent jurisdiction or other government authority or as
otherwise consented to by the related Eligible Lender Trustee and the related
Indenture Trustee, provided that the Servicer may write off any delinquent Trust
Student Loan if the remaining balance of the borrower's account is less than
$50; (c) it will do nothing to impair the rights of the related
Certificateholders and the related Noteholders in the Student Loans; and (d) it
will not reschedule, revise, defer or otherwise compromise with respect to
payments due on any Student Loan except pursuant to any applicable deferral or
forbearance periods or otherwise in accordance with its guidelines for servicing
student loans in general and those of the Seller in particular and any
applicable FFELP or Guarantor requirements.
Under the terms of each FFELP Loan Servicing Agreement, if the
Administrator or the Servicer discovers, or receives written notice, that any
covenant of the Servicer set forth above has not been complied with in all
material respects and such noncompliance has not been cured within 60 days
thereafter and has a materially adverse effect on the interest of the related
Certificateholders or Noteholders in any FFELP Student Loan, unless such breach
is cured or unless the Seller is otherwise required to purchase the related
FFELP Student Loan as a result of a breach of the Seller's warranties in the
related Loan Sale Agreement, the Servicer will be obligated to purchase or
arrange for the purchase of such FFELP Student Loan as of the first day
following the end of such 60-day period that is the last day of a Collection
Period. In that event, the Servicer will be obligated to arrange to be deposited
into the Collection Account an amount equal to the Purchase Amount of such FFELP
Student Loan and the related Trust's interest in any such purchased FFELP
Student Loan will be automatically assigned to the Servicer or its designee.
Upon such assignment, the Servicer or its designee will be entitled to all
payments made on the Student Loan. In addition, if so specified in the related
Prospectus Supplement, the Servicer will reimburse the related Trust for any
accrued interest amounts that a Federal Guarantor refuses to pay pursuant to its
Guarantee Agreement, or for any prior Interest Subsidy Payments and Special
Allowance Payments that are lost or that must be repaid to the Department with
respect to a FFELP Student Loan as a result of a breach of any such covenant of
the Servicer.
SERVICER COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period (as set forth in the related Prospectus Supplement) at a
specified percentage per annum (as set forth in the related Prospectus
Supplement) of the average Pool Balance for the related Collection Period or a
specified fee per Student Loan, together with any other administrative fees and
similar charges specified in the related Prospectus Supplement, as compensation
for performing the functions as servicer for the related Trust described above
(the "Servicing Fee"). The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates) will be paid
prior to any payment in respect of the related Securities, as specified in the
applicable Prospectus Supplement. The Servicing Fee will compensate the Servicer
for performing the functions of a third-party servicer of student loans as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of borrowers on the Student Loans, investigating
delinquencies, pursuing, filing and directing the payment of any Guarantee
Payments, and, with respect to FFELP Student Loans, Interest
60
<PAGE>
Subsidy Payments or Special Allowance Payments, accounting for collections and
furnishing periodic accounting reports to the Administrator.
EVIDENCE AS TO COMPLIANCE
Each FFELP Loan Servicing Agreement will provide that a firm of independent
public accountants will furnish to the related Trust and Indenture Trustee
annually a statement (based on the examination of certain documents and records
and on such accounting and auditing procedures considered appropriate under the
circumstances) as to compliance by the Servicer during the preceding twelve
months (or, in the case of the first such certificate, the period from the
applicable Closing Date) with all applicable standards under the FFELP Loan
Servicing Agreement relating to the servicing of student loans, the Servicer's
accounting records and computer files with respect thereto and certain other
matters.
Each FFELP Loan Servicing Agreement will also provide for delivery to the
related Trust and Indenture Trustee, concurrently with the delivery of each
statement of compliance referred to above, of a certificate signed by an officer
of the Servicer stating that, to his knowledge, the Servicer has fulfilled its
obligations under such FFELP Loan Servicing Agreement throughout the preceding
twelve months (or, in the case of the first such certificate, the period from
the applicable Closing Date) or, if there has been a default in the fulfillment
of any such obligation, describing each such default. The Servicer has agreed to
give the Administrator, the related Indenture Trustee and Eligible Lender
Trustee notice of certain Servicer Defaults under such FFELP Loan Servicing
Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Trustee.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will not be required to deliver such statements and certificates under
the related Private Loan Servicing Agreement.
CERTAIN MATTERS REGARDING THE SERVICER
Each Loan Servicing Agreement will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. Unless specified otherwise in the related
Prospectus Supplement each Private Loan Servicing Agreement also permits the
Servicer to resign if the Servicing Fee under such Private Loan Servicing
Agreement remains unpaid for 90 days. No such resignation will become effective
until the related Indenture Trustee or a successor servicer has assumed the
Servicer's servicing obligations and duties under the Loan Servicing Agreement.
Each Loan Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees or agents will be under
any liability to the related Trust or the related Noteholders or
Certificateholders for taking any action or for refraining from taking any
action pursuant to the related Loan Servicing Agreement, or for errors in
judgment; provided, however, that, with respect to the FFELP Loan Servicing
Agreement unless otherwise limited in the related Prospectus Supplement, neither
the Servicer nor any such person will be protected against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of the Servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder. In addition,
each Loan Servicing Agreement will provide that the Servicer is under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under such Loan Servicing Agreement
and that, in its opinion, may cause it to incur any expense or liability. Each
Loan Servicing Agreement will, however, provide that the Servicer may undertake
any reasonable action that it deems necessary or desirable in respect of the
Loan Servicing Agreement and the interests of the Securityholders.
Under the circumstances specified in each Loan Servicing Agreement, any
entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor of the Servicer under such Loan Servicing
Agreement.
61
<PAGE>
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under each Loan Servicing Agreement will occur in the event
of (a) any failure by the Servicer to deliver to the Indenture Trustee for
deposit in any of the Trust Accounts any required payment, which failure
continues unremedied for three business days after written notice from such
Indenture Trustee or the related Trustee is received by the Servicer or after
discovery by the Servicer, (b) any failure by the Servicer to observe or perform
in any material respect any other covenant or agreement of the Servicer under
the related Loan Servicing Agreement, (c) with respect to the FFELP Student
Loans, any limitation, suspension or termination by the Secretary of the
Servicer's eligibility to service FFELP Student Loans which materially and
adversely affects its ability to service the FFELP Student Loans in the related
Trust, or (d) an Insolvency Event with respect to the Servicer occurs.
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under a Loan Servicing Agreement remains
unremedied, (i) under the related FFELP Loan Servicing Agreement, the related
Indenture Trustee or holders of Notes of the related series evidencing not less
than 75% in principal amount of such then outstanding Notes, and (ii) under the
related Private Loan Servicing Agreement, the Trust, may terminate all the
rights and obligations of the Servicer under such Loan Servicing Agreement,
whereupon a successor servicer appointed by the related Indenture Trustee or
such Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Loan Servicing Agreement, and will be
entitled to similar compensation arrangements. If, however, a bankruptcy trustee
or similar official has been appointed for the Servicer, and Servicer Default
other than such appointment has occurred, such trustee or official may have the
power to prevent such Indenture Trustee or such Noteholders from effecting such
a transfer. In the event that such Indenture Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor whose regular business includes the servicing of
student loans. Such Indenture Trustee may make such arrangements for
compensation to be paid, which in no event may be greater than the servicing
compensation to the Servicer under such Loan Servicing Agreement, unless such
compensation arrangements will not result in a downgrading of such Notes and
Certificates by any Rating Agency. In the event a Servicer Default occurs and is
continuing, such Indenture Trustee or such Noteholders, as described above, may
remove the Servicer, without the consent of the related Trustee or any of the
Certificateholders of the related series. Moreover, for so long as the Notes are
outstanding, only the Indenture Trustee or the Noteholders, and not the Trustee
or the Certificateholders, have the ability to remove the Servicer if a Servicer
Default occurs and is continuing.
WAIVER OF PAST DEFAULTS
With respect to each Trust, the holders of Notes evidencing at least a
majority in principal amount of the then outstanding Notes (or the holders of
Certificates evidencing not less than a majority of the outstanding Certificate
Balance, in the case of any Servicer Default under a FFELP Loan Servicing
Agreement which does not adversely affect the Indenture Trustee or the
Noteholders) of the related series may, on behalf of all such Noteholders and
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related FFELP Loan Servicing Agreement and its
consequences, except a default in making any required deposits to or payments
from any of the Trust Accounts in accordance with such Loan Servicing Agreement.
Therefore, such Noteholders have the ability, except as noted above, to waive
defaults by the Servicer which could materially adversely affect such
Certificateholders. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults. The Trust may
waive any Servicing Default under a Private Loan Servicing Agreement and any
consequences thereof.
62
<PAGE>
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest on each class of such Securities entitled thereto will be made by
the applicable Trustee to the Noteholders and the Certificateholders of such
series. The timing, calculation, allocation, order, source, priorities of and
requirements for all payments to each class of Noteholders and all distributions
to each class of Certificateholders of such series will be set forth in the
related Prospectus Supplement.
With respect to each Trust, on each Distribution Date, collections on the
related Student Loans will be distributed from the Collection Account to
Noteholders and Certificateholders to the extent provided in the related
Prospectus Supplement. Credit and cash flow enhancement, such as a Reserve
Account, will be available to cover any shortfalls in the amount available for
distribution on such date to the extent specified in the related Prospectus
Supplement. As more fully described in the related Prospectus Supplement, and
unless otherwise specified therein, distributions in respect of principal and/or
interest of a class of Securities of a given series will be subordinate to
distributions in respect of interest on such class, and distributions in respect
of the Certificates of such series may be subordinate to payments in respect of
the Notes of such series.
CREDIT AND CASH FLOW ENHANCEMENT
General. The amounts and types of credit enhancement arrangements and the
provider thereof, if applicable, with respect to each class of Securities of a
given series, if any, will be set forth in the related Prospectus Supplement. If
and to the extent provided in the related Prospectus Supplement, credit
enhancement may be in the form of subordination of one or more classes of
Securities, Reserve Accounts, over-collateralization, letters of credit, credit
or liquidity facilities, surety bonds, guaranteed investment contracts,
repurchase obligations, other agreements with respect to third-party payments or
other support, cash deposits or such other arrangements as may be described in
the related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a class of Securities may cover one or more other classes of
Securities of the same series, and credit enhancement for a series of Securities
may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. Unless otherwise specified in the
related Prospectus Supplement, the credit enhancement for a class or series of
Securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance and interest thereon. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders of any class or
series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement, the
Depositor will establish for a series or class of Securities an account, as
specified in the related Prospectus Supplement (the "Reserve Account"), which
will be maintained in the name of the applicable Indenture Trustee. Unless
otherwise provided in the related Prospectus Supplement, the Reserve Account
will be funded by an initial deposit by the Depositor on the Closing Date in the
amount set forth in the related Prospectus Supplement. As further described in
the related Prospectus Supplement, the amount on deposit in the Reserve Account
will be increased on each Distribution Date thereafter up to the Specified
Reserve Account Balance (as defined in the related Prospectus Supplement) by the
deposit therein of the amount of collections on the related Student Loans
remaining on each such Distribution Date after the payment of all other required
payments and distributions on such date. Amounts in the Reserve Account will be
available to cover shortfalls in amounts due to the holders of those classes of
Securities specified in the related Prospectus Supplement in the manner and
under the circumstances specified therein. The related Prospectus Supplement
will also specify to whom and the manner and circumstances under which amounts
on deposit in the Reserve Account (after giving effect to all other required
distributions to be
63
<PAGE>
made by the applicable Trust) in excess of the Specified Reserve Account Balance
(as defined in the related Prospectus Supplement) will be distributed.
STATEMENTS TO INDENTURE TRUSTEE AND TRUST
Prior to each Distribution Date with respect to each series of Securities,
the Administrator will prepare and provide to the related Indenture Trustee and
the related Eligible Lender Trustee as of the close of business on the last day
of the preceding Collection Period a statement which will include the following
information (and any other information so specified in the related Prospectus
Supplement) with respect to such Distribution Date or the preceding Collection
Period as to the Notes and the Certificates of such series, to the extent
applicable:
(i) the amount of the distribution allocable to principal of each
class of the Notes and the Certificates;
(ii) the amount of the distribution allocable to interest on each
class of the Notes and the Certificates, together with the interest rates
applicable with respect thereto;
(iii) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor of each class of the Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of the Certificates as of such
Distribution Date, each after giving effect to payments allocated to
principal reported under clause (i) above;
(v) the amount of the Servicing Fee and the Administration Fee paid to
the Servicer and the Administrator, respectively, with respect to such
Collection Period;
(vi) the Interest Rate or Pass-Through Rate for the next period, if
available, for any class of Notes or Certificates of such series with
variable or adjustable rates;
(vii) the amount of the aggregate realized losses, if any, for such
Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the related Prospectus Supplement), if any, in each case as
applicable to each class of Securities, and the change in such amounts from
the preceding statement;
(ix) the aggregate Purchase Amounts for Student Loans, if any, that
were repurchased in such Collection Period;
(x) the balance of the Reserve Account (if any) on such Distribution
Date, after giving effect to changes therein on such Distribution Date;
(xi) for each date during the Funding Period (if any), the remaining
Pre-Funded Amount or, for each date during the Revolving Period (if any),
the amount on deposit in the Collateral Reinvestment Account; and
(xii) the principal balance and number of Student Loans conveyed to or
originated by the Trust during such Collection Period.
Each amount set forth pursuant to subclauses (i), (ii) and (viii) with
respect to the Notes or the Certificates of any series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Indenture Trustee and Trustee, materially and adversely affect the
interest of any such Noteholder or Certificateholder. Each of the Transfer and
Servicing Agreements may also be amended by the Depositor, the Administrator,
the Servicer, the related Trustee and the related Indenture Trustee, as
64
<PAGE>
applicable, with the consent of the holders of Notes of the related series
evidencing at least a majority in principal amount of such then outstanding
Notes and the holders of Certificates of the related series evidencing at least
a majority of the Certificate Balance for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of such
Transfer and Servicing Agreements or of modifying in any manner the rights of
such Noteholders or Certificateholders; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments (including any Guarantee
Payments) with respect to the Student Loans or distributions that are required
to be made for the benefit of such Noteholders or Certificateholders, or
(ii) reduce the aforesaid percentage of such Notes or Certificates which are
required to consent to any such amendment, without the consent of the holders of
all such outstanding Notes and Certificates.
INSOLVENCY EVENT
Each Trust Agreement will provide that the related Trustee does not have
the power to commence a voluntary proceeding in bankruptcy relating to such
Trust without the unanimous prior approval of all Certificateholders (including
the applicable Company) of the related series and the delivery to such Trustee
by each such Certificateholder (including such Company) of a certificate
certifying that such Certificateholder reasonably believes that the related
Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the Trustee will succeed to
all the rights of the Indenture Trustee, and the Certificateholders of such
series will succeed to all the rights of the Noteholders of such series, under
the related Loan Servicing Agreement, except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Depositor, the Servicer,
the Administrator, the related Trustee and the related Indenture Trustee
pursuant to the related Transfer and Servicing Agreements will terminate upon
(i) the maturity or other liquidation of the last related Student Loan and the
disposition of any amount received upon liquidation of any such remaining
Student Loans and (ii) the payment to the Noteholders and the Certificateholders
of the related series of all amounts required to be paid to them pursuant to
such Transfer and Servicing Agreements.
Optional Redemption. If so specified in the related Prospectus Supplement,
in order to avoid excessive administrative expense, the Depositor or another
party will be permitted at its option to purchase from the related Trustee, as
of the end of any Collection Period immediately preceding a Distribution Date,
if the then outstanding Pool Balance is a percentage specified in the related
Prospectus Supplement (not to exceed 30%) of the Initial Pool Balance (as
defined in the related Prospectus Supplement, the "Initial Pool Balance"), all
remaining related Student Loans at a price equal to the aggregate Purchase
Amounts thereof as of the end of such Collection Period, which amounts will be
used to retire the related Notes and Certificates concurrently therewith. Upon
termination of a Trust, as more fully described in the related Prospectus
Supplement, all right, title and interest in the Student Loans and other funds
of such Trust, after giving effect to any final distributions to Noteholders and
Certificateholders of the related series therefrom, will be conveyed and
transferred to the Depositor or such other party.
Auction of Student Loans. If so provided in the related Prospectus
Supplement, all remaining Student Loans held by a Trust will be offered for sale
by the Indenture Trustee on any Distribution Date occurring on or after a date
specified in such Prospectus Supplement. The Depositor and unrelated third
parties may offer bids for such Student Loans. The Indenture Trustee will accept
the highest bid equal to or in excess of the aggregate Purchase Amounts of such
Student Loans as of the end of the Collection Period immediately preceding the
related Distribution Date. The proceeds of such sale will be used to redeem all
related Notes and to retire the related Certificates. The Trustee will not
accept any bid for the Student Loans that is not sufficient to redeem all
related Notes and to retire the related Certificates.
65
<PAGE>
ADMINISTRATION AGREEMENT
The Administrator will enter into an agreement (as amended and supplemented
from time to time, an "Administration Agreement") with each Trust and the
related Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided therein, to provide the notices and to perform other
administrative obligations required by the related Indenture, the related Trust
Agreement, the related Loan Sale Agreement, the related Transfer Agreement and
the related Loan Servicing Agreements. As compensation for the performance of
the Administrator's obligations under the applicable Administration Agreement
and as reimbursement for its expenses related to a Trust, the Administrator will
be entitled to an administration fee as specified in the related Prospectus
Supplement (the "Administration Fee"). The Administrator under each
Administration Agreement will be EFG. EFG Technologies is a division of EFG and
EFG Funding Corporation is a wholly owned subsidiary of EFG.
An "Administrator Default" will occur under an Administration Agreement in
the event of (a) a failure by the Administrator to direct the Indenture Trustee
to make any required distributions from any of the Trust Accounts, which failure
continues unremedied for three business days after written notice from the
Indenture Trustee or the Trustee of such failure, (b) any failure by the
Administrator to observe or perform in any material respect any other covenant
or agreement of the Administrator in the Administration Agreement or (c) an
Insolvency Event with respect to the Administrator occurs.
The procedures for terminating the rights and obligations of the
Administrator and appointing a successor Administrator following the occurrence
of an Administrator Default under the Administration Agreement and for waiving
defaults by the Administrator under the Administration Agreement will be
substantially similar to those for replacing the Servicer and appointing a
successor Servicer following the occurrence of a Servicer Default under the
FFELP Loan Servicing Agreement and for waiving defaults by the Servicer under
the FFELP Loan Servicing Agreement, except that such procedures will apply to
the Administrator and the Administration Agreement rather than the Servicer and
the FFELP Loan Servicing Agreement.
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
TRANSFER OF STUDENT LOANS
EFG intends that the transfer of the Student Loans by it to the Depositor,
and the Depositor intends that the transfer of the Student Loans by it to the
related Eligible Lender Trustee on behalf of each Trust, will constitute a valid
sale and assignment of such Student Loans. Notwithstanding the foregoing, if the
transfer of the Student Loans by EFG (or by the Eligible Lender Trustee on its
behalf) to the Depositor and/or the transfer of the Student Loans by the
Depositor to the Trustee on behalf of each Trust is deemed to be an assignment
of collateral as security, then a security interest in the FFELP Student Loans
may, pursuant to the provisions of 20 U.S.C. sec. 1087-2(d)(3), be perfected by,
among other things, the filing of notice of such security interest in the manner
provided by the applicable Uniform Commercial Code ("UCC") for perfection of
security interests in accounts and a security interest in Private Student Loans
may be perfected under applicable state law by the secured party or its agent
taking possession of the loan notes. A financing statement or statements naming
EFG as debtor will be filed under the UCC to protect the interest of the
Depositor in the event that the transfer by EFG (or by the Eligible Lender
Trustee on its behalf) is deemed to be an assignment of collateral as security,
and a financing statement or statements naming the Depositor as debtor will be
filed under the UCC to protect the interest of the Trustee in the event that the
transfer by the Depositor is deemed to be an assignment of collateral as
security. Similarly, loan notes evidencing Private Loans will be held by a
custodian on behalf of the secured parties.
If the transfer of the Student Loans is deemed to be an assignment as
security for the benefit of the Depositor or a Trust, there are certain limited
circumstances in which prior or subsequent transferees of Student Loans could
have an interest in such Student Loans with priority over the related Trustee's
interest. A tax or other government lien on property of EFG or the Depositor
arising prior to the time a Student Loan comes into existence may also have
priority over the interest of the Depositor or the related Trustee in such
Student Loan. Under the related Loan Sale Agreement, however, the Seller will
warrant that it has transferred the Student Loans to the Depositor clear of the
lien of any third party. In addition, each of the Seller and the Depositor will
covenant
66
<PAGE>
that it will not sell, pledge, assign, transfer or grant any lien on any Student
Loan (or any interest therein) other than to the Depositor or the related
Trustee on behalf of a Trust, respectively, except as provided below.
Pursuant to each Loan Servicing Agreement, the Servicer (or an independent
party in the case of Private Student Loans unless there is a Sub-Servicer that
is not affiliated with the Depositor and the Seller) as custodian on behalf of
the related Trust will have custody of the promissory notes evidencing the
Student Loans following the transfer of the Student Loans to Depositor and the
related Trustee. Although the records of EFG, the Depositor and Servicer will be
marked to indicate the sale and although EFG and the Depositor will cause UCC
financing statements to be filed with the appropriate authorities, the Student
Loans will not be physically segregated, stamped or otherwise marked to indicate
that such Student Loans have been sold to the Depositor and to such Eligible
Lender Trustee. If, through inadvertence or otherwise, any of such Student Loans
were sold to another party that (i) purchased such Student Loans in the ordinary
course of its business, (ii) took possession of such Student Loans, and
(iii) acquired the Student Loans for new value and without actual knowledge of
the related Eligible Lender Trustee's interest, then such purchaser would
acquire an interest in the Student Loans superior to the interest of the Seller,
the Depositor and the Trustee. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Sale of Student Loans; Representations and Warranties."
With respect to each Trust, in the event of a Servicer Default resulting
solely from certain events of insolvency or bankruptcy that may occur with
respect to the Servicer, a court, conservator, receiver or liquidator may have
the power to prevent either the related Indenture Trustee or Noteholders of the
related series from appointing a successor Servicer. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--Rights upon Servicer Default."
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, unless preempted by federal law, some state laws impose finance
charge ceilings and other restrictions on certain consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon lenders who fail
to comply with their provisions. In certain circumstances, the Depositor or a
Trust may be liable for certain violations of consumer protection laws that
apply to the Student Loans, either as assignee from EFG or the Depositor or as
the party directly responsible for obligations arising after the transfer. For a
discussion of a Trust's rights if the Student Loans were not originated or
serviced in compliance in all material respects with applicable laws, see
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--Sale of Student Loans;
Representations and Warranties" and "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Servicer Covenants."
LOAN ORIGINATION AND SERVICING PROCEDURES APPLICABLE TO STUDENT LOANS
The Act, including the implementing regulations thereunder, imposes
specified requirements with respect to originating and servicing student loans
such as the FFELP Student Loans. Generally, those procedures require that a
determination of whether an applicant is an eligible borrower under applicable
standards (including financial need analysis) 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 then
be disbursed in a specified manner by the lender. After the loan is made, the
lender must establish repayment terms with the borrower, properly administer
deferrals and forbearance and credit the borrower for payments made thereon. If
a borrower becomes delinquent in repaying a loan, a lender or a servicing agent
must perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent. The
Servicer has agreed pursuant to the related FFELP Loan Servicing Agreement to
Guarantee perform collection and servicing procedures on behalf of the related
Trust. However, failure to follow these procedures or failure of the Depositor
to follow procedures relating to the origination of the FFELP Student Loans
could result in adverse consequences. Any such failure could result in the
Department's refusal to make reinsurance payments to the Federal Guarantors or
the Department's or the Federal Guarantors' refusal to make Guarantee Payments
to the Eligible Lender Trustee with respect to such FFELP Student Loans. Failure
of the Federal Guarantors to receive reinsurance payments from the Department
could adversely affect the Federal Guarantors' ability or legal obligation to
make Guarantee Payments to the related Eligible Lender Trustee with
67
<PAGE>
respect to such FFELP Student Loans. Private Guarantors impose similar
requirements on Private Student Loans, noncompliance with which could adversely
affect the income of a Trust containing such Private Student Loans.
Loss of any such payments could adversely affect the amount of Available
Funds on any Distribution Date and the related Trust's ability to pay principal
and interest on the Notes of the related series and to make distributions in
respect of the Certificates of the related series. Under certain circumstances,
the related Trust has the right, pursuant to the related Loan Sale Agreement and
the related Loan Servicing Agreement, to cause EFG or the Servicer to purchase
or substitute any Student Loan, if a breach of the representations, warranties
or covenants of the Seller or the Servicer, as the case may be, with respect to
such Student Loan has a material adverse effect on the interest of the Trust
therein where such breach would result in nonpayment of Program Payments and
such breach is not cured within any applicable cure period. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--Sale of Student Loans; Representations
and Warranties" and "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--Servicer Covenants." The failure of the Seller or the Servicer to so
purchase or substitute a Student Loan would constitute a breach of the related
Sale Agreement or related Servicing Agreement, enforceable by the related
Trustee on behalf of the related Trust or by the related Indenture Trustee on
behalf of the Noteholders of the related series, but would not constitute an
Event of Default under the Indenture.
FFELP STUDENT LOANS GENERALLY NOT SUBJECT TO DISCHARGE IN BANKRUPTCY
FFELP Student Loans are generally not dischargeable by a borrower in
bankruptcy pursuant to the U.S. Bankruptcy Code, unless excepting such debt from
discharge will impose an undue hardship on the debtor and the debtor's
dependents.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The statements of federal income tax law and the legal conclusions as to
federal income tax consequences of the purchase, ownership and disposition of
the Notes and the Certificates that are set forth below express the opinion of
Willkie Farr & Gallagher ("Federal Tax Counsel"), subject to any limitations or
qualifications also expressed below. Thus, all statements below in this section
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" that refer to the opinion of Federal
Tax Counsel given or to be given and all statements below that describe a
provision of law or the effect of a provision of law that is identified in the
statement express the opinion of Willkie Farr & Gallagher, Federal Tax Counsel.
The following statements do not express opinions of Federal Tax Counsel:
(i) statements of intent by the Depositor, (ii) qualifications, assumptions or
caveats pertaining to descriptions of a provision of law on the effect of a
provision of law, (iii) descriptions of the mechanical operation of relevant
documents such as the applicable indentures; and (iv) cautionary statements,
including warnings or admonitions to investors. The summary does not purport to
deal with federal income tax consequences applicable to all categories of
holders, some of which may be subject to special rules. For example, it does not
discuss the tax treatment of Noteholders or Certificateholders that are
insurance companies, regulated investment companies or dealers in securities.
Moreover, there are no cases or Internal Revenue Service ("IRS") rulings on
similar transactions involving debt and/or equity interests issued by a trust
with terms similar to those of the Notes and/or the Certificates. As a result,
the IRS may disagree with all or a part of the discussion below. It is
recommended that prospective investors consult with their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences to
them of the purchase, ownership and disposition of the Notes and the
Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Federal Tax Counsel regarding certain federal income tax
matters discussed below, which opinion will be filed with the Commission prior
to sale of securities issued by such Trust. An opinion of Federal Tax Counsel,
however, is not binding on the IRS or the courts. No ruling on any of the issues
discussed below will be sought from the IRS. For purposes of the following
summary, references to the Trust, the Notes, the Certificates and related terms,
parties and documents shall be deemed to refer, unless otherwise specified
herein, to each Trust and the Notes, Certificates and related terms, parties and
documents applicable to such Trust. Taxpayers and preparers of tax
68
<PAGE>
returns (including those filed by any partnership or other issuer) should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice is (i) given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, it is recommended that taxpayers consult
with their respective tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment of such item has been discussed herein.
IT IS RECOMMENDED THAT EACH PROSPECTIVE INVESTOR CONSULT WITH ITS TAX
ADVISOR AS TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE CERTIFICATES
SPECIFIC TO SUCH PROSPECTIVE INVESTOR.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
Tax Characterization of the Trust. Federal Tax Counsel will deliver its
opinion that the Trust will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on counsel's conclusions that
(i) the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations, or (ii) the
Trust, if characterized as a tax partnership, will qualify under safe harbor
provisions applicable to publicly traded partnerships exempting it from
treatment as a publicly traded partnership taxable as a corporation.
Tax Consequences to Holders of the Notes; Treatment of the Notes as
Indebtedness. The Depositor will agree, and the Noteholders will agree by their
purchase of Notes, to treat the Notes as debt for federal income tax purposes.
Federal Tax Counsel will, except as otherwise provided in the related Prospectus
Supplement, deliver an opinion to the Trust that the Notes will be classified as
debt for federal income tax purposes. The discussion below assumes such
characterization of the Notes is correct.
Original Issue Discount. The discussion below assumes that all payments on
the Notes are denominated in U.S. dollars, that the interest formula for the
Notes meets the requirements for "qualified stated interest" ("Qualified Stated
Interest") under Treasury regulations (the "OID Regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e., any excess
of the stated redemption price at maturity of the Notes, generally the principal
amount of the Notes, over their issue price) does not exceed a de minimis amount
(i.e., 1/4% of their principal amount multiplied by the number of full years
included in their term), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes,
additional tax considerations with respect to such Notes will be disclosed in
the related Prospectus Supplement. The OID Regulations do not address their
application to debt instruments such as the Notes that are subject to prepayment
based on the prepayment of other debt instruments. The legislative history of
the OID provisions of the Code provides, however, that the calculation and
accrual of OID should be based on the prepayment assumption used by the parties
in pricing the transaction. In the event that any of the Notes are issued with
OID, the prepayment assumption will be set forth in the related Prospectus
Supplement. Furthermore, although premium amortization and accrued market
discount on debt instruments such as the Notes, which are subject to prepayment
based on the payments on other debt instruments, is to be determined under
regulations yet to be issued, the legislative history of the applicable Code
provisions provides that the same prepayment assumption used to calculate OID,
whether or not the debt instrument is issued with OID, should be used.
Interest Income on the Notes. Based on the above assumptions, and except
as disclosed in the related Prospectus Supplement or as discussed in the second
succeeding paragraph, the Notes will not be considered issued with OID. The
stated interest thereon will thus be taxable to a Noteholder as ordinary
interest income when received or accrued in accordance with such Noteholder's
general method of tax accounting. Under the OID Regulations, a holder of a Note
that was issued with a de minimis amount of OID must generally include such OID
in income, on a pro rata basis, as principal payments are made on the Note.
Alternatively, a Noteholder may elect to accrue de minimis all interest and
discount (including de minimis market discount and de minimis OID) in income as
interest, based on a constant yield method. If such an election were made with
respect to a Note with market discount, the Noteholder would be deemed to have
made an election to include currently in
69
<PAGE>
income market discount with respect to all debt instruments having market
discount that such Noteholder acquires during the year of the election and
thereafter. Similarly, a Noteholder that makes this election for a Note that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Noteholder owns or acquires. The election to accrue interest, discount
and premium under a constant yield method with respect to a Note is irrevocable.
A purchaser who buys a Note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
Qualified Stated Interest, which is taxable in accordance with the holder's
general method of tax accounting, is interest that is unconditionally payable
(i.e. , late payments are penalized) at least annually at a single fixed rate or
at certain qualified variable rates. The Depositor intends to treat the interest
paid on the Notes as Qualified Stated Interest.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, banks and securities dealers,
as set forth in Section 1281 of the Code) generally will be required to report
interest income as interest accrues on a ratable basis over the term of each
interest period or, at the election of the holder, on a constant yield basis
(i.e. , treating the instrument as accruing interest at a single rate). Cash
basis holders of a Short-Term Note will, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1282 of the Code
to accrue interest income on all nongovernmental debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Optional Election. As an alternative to the above treatments, accrual
method holders may elect to include in gross income all interest with respect to
a Note, including stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount, and unstated interest, as adjusted
by any amortizable bond premium or acquisition premium, using the constant yield
method described above.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will generally equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Noteholder with respect to such Note. Any such gain or loss will be
capital gain or loss if the Note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used only to offset capital
gains.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
Foreign Person (as hereinafter defined) generally will not be subject to United
States federal income tax and withholding tax, provided, that (i) the interest
is not effectively connected with the conduct of a trade or business within the
United States by the Foreign Person, (ii) the Foreign Person is not actually or
constructively a "10 percent shareholder" of the Trust, the Depositor or the
Seller (including a holder of 10% of the outstanding Certificates) nor a
"controlled foreign corporation" with respect to which the Trust, the Depositor
or the Seller is a "related person" within the meaning of the Code, and (iii)
the Foreign Person provides the Trustee or other person who is otherwise
required to withhold U.S. tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a Foreign Person and
providing the Foreign Person's name and address. As used herein, "Foreign
Person" shall mean any individual, corporation, partnership or other entity for
United States federal income tax purposes other than (i) any individual who is a
citizen or resident of the United States, (ii) a corporation or partnership
(including any entity treated as a corporation or partnership for United States
federal income tax purposes) created or organized in or under the
70
<PAGE>
laws of the United States, any state thereof or the District of Columbia unless,
in the case of a partnership, Treasury regulations provide otherwise, (iii) an
estate the income of which is subject to United States federal income tax
regardless of its source, (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have authority to control all substantial
decisions of the trust, or (vi) certain trusts in existence on August 20, 1996,
and treated as United States persons (as defined in Code Section 7701(a)(30))
prior to such date that elect to continue to be so treated. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed statement
must be accompanied by a Form W-8 or substitute form provided by the Foreign
Person that owns the Note. If such interest is not portfolio interest, then it
will be subject to United States federal income and withholding tax at a rate of
30%, unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a Foreign Person generally will be exempt from
United States federal income and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the Foreign Person, and (ii) in the case of an individual Foreign
Person, the Foreign Person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a Note held by a Foreign Person is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the Foreign Person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
Final regulations dealing with backup withholding and information reporting
on income paid to a Foreign Person and related matters (the "New Withholding
Regulations") were published in the Federal Register on October 14, 1997. In
general, the New Withholding Regulations do not significantly alter the
substantive withholding and information reporting requirements, but do unify
current certification procedures and forms and clarify reliance standards. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1999, subject to certain transition rules. The discussion set forth
above does not take the New Withholding Regulations into account. Prospective
Purchasers of the Notes who are Foreign Persons are strongly urged to consult
their own tax advisor with respect to the New Withholding Regulations.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate setting forth the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31% of the amount otherwise payable to the holder, and
remit the withheld amount to the IRS as a credit against the holder's federal
income tax liability.
As previously mentioned, the New Withholding Regulations were published in
the Federal Register on October 14, 1997, and generally will be effective for
payments made after December 31, 1999, subject to certain transition rules. The
discussion set forth above does not take the New Withholding Regulations into
account. It is recommended that prospective Noteholders consult their own tax
advisors with respect to the New Withholding Regulations.
71
<PAGE>
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
The following discussion only applies to a Trust which issues at least a
single class of Certificates and assumes that all payments on the Certificates
are denominated in U.S. dollars and that any such Certificates are sold to
persons other than the Company. If these conditions are not satisfied with
respect to any given series of Certificates, any additional tax considerations
with respect to such Certificates will be disclosed in the applicable Prospectus
Supplement.
Classification as a Partnership; Treatment of the Trust as a
Partnership. The Depositor and the Servicer will agree, and the
Certificateholders will agree by their purchase of Certificates, to treat the
Trust as a partnership for purposes of federal and state income tax, franchise
tax and any other tax measured in whole or in part by income, with the assets of
the partnership being the assets held by the Trust, the partners of the
partnership being the Certificateholders (including the Depositor in its
capacity as recipient of distributions from the Reserve Account, if any), and
the Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust, the Certificateholders, the Noteholders,
the Depositor and the Servicer is not clear because there is no authority on
transactions comparable to that contemplated herein.
Under the provisions of Subchapter K of the Code, a partnership is not
considered a separate taxable entity. Instead, partnership income is taxed
directly to the partners and each partner generally is viewed as owning a direct
undivided interest in each partnership asset. The partnership is generally
treated as an entity, however, for computing partnership income, determining the
tax consequences of transactions between a partner and the partnership, and
characterizing the gain on the sale or exchange of a partnership interest. The
following discussion is a summary of some of the material federal income tax
consequences of classifying the Trust as a partnership. It is recommended that
prospective owners of Certificates consult with their own tax advisors regarding
the federal income tax consequences discussed below, as well as any other
material federal income tax consequences that may result from applying the
provisions of Subchapter K to the ownership and transfer of a Certificate.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Student Loans (including
appropriate adjustments for market discount, OID and bond premium), investment
income from investments of amounts on deposit in any related Trust Accounts and
any gain upon collection or disposition of Student Loans. The Trust's deductions
will consist primarily of interest accruing with respect to the Notes, servicing
and other fees, and losses or deductions upon collection or disposition of
Student Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each Interest Period (as defined in the applicable Prospectus
Supplement, an "Interest Period") equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such Interest
Period, including interest accruing at the Pass-Through Rate for such Interest
Period and interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust income attributable to discount on the Student Loans
that corresponds to any excess of the principal amount of the Certificates over
their initial issue price; and (iii) all other amounts of income payable to the
Certificateholders for such Interest Period. All remaining taxable income of the
Trust will be allocated to the Depositor. Based on the economic arrangement of
the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire amount of
interest accruing on the Certificates for an Interest Period, based on the
Pass-Through Rate plus the other items described above, even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis and Certificateholders may become
liable for taxes on Trust income even if they have not received cash from the
Trust to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at
72
<PAGE>
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
An individual Certificateholder's share of expenses of the Trust (including
fees to the Servicer but not interest expenses) are miscellaneous itemized
deductions which are deductible only to the extent they exceed two percent of
the individual's adjusted gross income. Accordingly, such deductions might be
disallowed to the individual in whole or in part and might result in such holder
being taxed on an amount of income that exceeds the amount of cash actually
distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each of the Student Loans,
the Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Computation of Income. Taxable income of the Trust will be computed at the
Trust level and then allocated pro rata to the Certificateholders. Consequently,
the method of accounting for taxable income will be chosen by, and any elections
(such as those described above with respect to the market discount rules) will
be made by, the Trust rather than the Certificateholders. The Trust intends, to
the extent possible, to (i) have the taxable income of the Trust computed under
the accrual method of accounting, and (ii) adopt a calendar-year taxable year
for computing the taxable income of the Trust. The tax year of the Trust,
however, is generally determined by reference to the tax years of the
Certificateholders. As a result, an owner of a Certificate would be required to
include its pro rata share of Trust income for a taxable year as determined by
the Trust in such Certificateholder's gross income for its taxable year in which
the taxable year of the Trust ends.
Determining the Bases of Trust Assets. The Trust will become a partnership
on the first date when Certificates are held by more than one person. On that
date, each of the Certificateholders should be treated as having purchased a pro
rata share of the assets of the Trust (subject to the liability for the Notes)
followed immediately by a deemed contribution of such assets to the newly formed
partnership. The partnership's basis in the Trust's assets would therefore equal
the sum of the Certificateholders' bases in their respective interests in the
Trust's assets immediately prior to the deemed contribution to the partnership.
To the extent that the fair market value of the assets deemed contributed to the
partnership varied from the bases of such assets to the partnership, the
allocation of taxable income to the Certificateholders would be adjusted in
accordance with Code Section 704(c) to account for such variations.
Under Code Section 708 a partnership is considered to terminate if 50% or
more of the partnership interests are sold or exchanged within a 12-month
period. If such a termination occurs, the partnership is deemed to distribute
its assets to its partners (including the Depositor) who are then deemed to
recontribute those assets to a new partnership. The new partnership would have a
basis in those assets equal to the basis of the contributing partners in their
partnership interests. If the Trust were characterized as a partnership and a
sale of Certificates terminated the partnership under Code Section 708, the
purchaser's basis in its ownership interest would automatically be reflected in
its pro rata portion of the Trust's assets.
Discount and Premium. To the extent that OID, if any, on the Student Loans
exceeds a de minimis amount, the Trust would have OID income. As indicated
above, a portion of such OID income may be allocated to the Certificateholders.
Moreover, the purchase price paid by the Trust for the Student Loans may be
greater or less than the remaining principal balance of the Student Loans at the
time of purchase. If so, the Student Loans will have been acquired at a premium
or with market discount, as the case may be. (As indicated above, the Trust will
make this calculation on an aggregate basis, but might be required to recompute
it on a loan-by-loan basis.)
If the Trust acquires the Student Loans at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Student Loans or to offset any such premium against
interest income on the Student Loans. As indicated above, a portion of such
market discount income or premium deduction may be allocated to
Certificateholders.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
To the extent the Trust is characterized as a partnership, a Certificateholder's
tax basis in a Certificate will generally equal the holder's cost increased by
the holder's allocable share of Trust income (includible in gross income) and
73
<PAGE>
decreased by any distributions received with respect to such Certificate. In
addition both the tax basis in the Certificate and the amount realized on a sale
of a Certificate would include the holder's allocable share of the Notes and
other liabilities of the Trust. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Student Loans would generally be
treated as ordinary income to the holder and could give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect the tax liability and tax basis of the
holder) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing laws
and regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. EFG and the
Company are authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future laws,
regulations or other IRS guidance.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or cause to be
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the taxable year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information returns filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee, and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A
74
<PAGE>
clearing agency registered under Section 17A of the Exchange Act that holds
Certificates as a nominee is not required to furnish any such information
statement to the Trust. The information referred to above for any calendar year
must be furnished to the Trust on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Trust with the
information described above may be subject to penalties.
The Depositor will be designated as the "tax matters partner" in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to Foreign Persons
because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to Certificateholders that are Foreign Persons pursuant to Section
1446 of the Code, as if such income were effectively connected to a U.S. trade
or business, at a rate of 34% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. These rates may be
increased by proposed tax legislation. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Trust to change its withholding procedures. In determining a holder's
withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, there can be no assurance that any such claim for
refund would be accepted by the IRS or upheld by a court. Moreover, interest
payments made (or accrued) to a Certificateholder who is a Foreign Person
generally will be considered guaranteed payments to the extent such payments are
determined without regard to the income of the Trust. If these interest payments
are properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest." As a result, Certificateholders who are Foreign
Persons will be subject to United States federal income tax and withholding tax
at a rate of 30 percent, unless reduced or eliminated pursuant to an applicable
treaty. In such case, a foreign holder would only be entitled to claim a refund
for that portion of the taxes in excess of the taxes that should be withheld
with respect to the guaranteed payments.
Tax Consequences to Certain Tax-Exempt Certificateholders. Income earned
with respect to Certificates held by certain entities which generally are not
subject to federal income taxation, such as pension plans, charities or
individual retirement accounts, will constitute "unrelated business taxable
income" within the meaning of Section 512 of the Code and will thus be subject
to tax at regular federal corporate income tax rates. Certificates may thus not
be an appropriate investment for tax-exempt entities of this type.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
75
<PAGE>
TRUSTS IN WHICH ALL RESIDUAL INTERESTS ARE RETAINED BY THE DEPOSITOR
OR AN AFFILIATE OF THE DEPOSITOR
Tax Characterization of the Trust. Federal Tax Counsel will deliver its
opinion that a Trust which issues one or more classes of Notes to investors and
all the Residual Interests of which are retained by the Depositor or an
affiliate thereof will not be an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. This opinion will be
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on Federal Tax Counsel's conclusions that
the Trust will constitute a mere security arrangement for the issuance of debt
by the single holder of a Residual Interest.
Treatment of the Notes as Indebtedness. The Depositor will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that the Notes
will be (or, in certain cases, should be) classified as debt for federal income
tax purposes. Assuming such characterization of the Notes is correct, the
federal income tax consequences to Noteholders described above under the heading
"TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE--Tax Consequences to Holders of
the Notes" would apply to the Noteholders.
If, contrary to the opinion of Federal Tax Counsel, the IRS successfully
asserted that one or more classes of Notes did not represent debt for federal
income tax purposes, such class or classes of Notes might be treated as equity
interests in the Trust. If such Notes were so treated, the Trust would most
likely, in the view of Federal Tax Counsel, nevertheless be treated as a
publicly traded partnership that was not taxable as a corporation due to
(i) the character of the income earned by the Trust, or (ii) the qualification
of the Trust under other safe harbor provisions applicable to publicly traded
partnerships exempting it from treatment as a publicly traded partnership
taxable as a corporation. Therefore, the partnership would not be subject to
federal income tax.
Nonetheless, treatment of Notes as equity interests in such a partnership
could have adverse tax consequences to certain holders of such Notes. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income," income to foreign holders might be
subject to U.S. withholding tax and U.S. tax return filing requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses. In the event one or more classes of Notes
were treated as interests in a partnership, the consequences governing the
Certificates as equity interests in a partnership described above under "TRUSTS
FOR WHICH A PARTNERSHIP ELECTION IS MADE--Tax Consequences to Holders of the
Certificates" would apply to the holders of such Notes.
Moreover, if, contrary to the opinion of Federal Tax Counsel, the Notes
were not treated as debt for federal income tax purposes and the Trust was
treated as a publicly traded partnership taxable as a corporation, the Trust
would be subject to federal income taxes at corporate tax rates on its taxable
income generated by Student Loans. Such an entity-level tax could result in
substantially reduced distribution to Noteholders and Noteholders could be
liable for a share of such tax.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. IT IS RECOMMENDED THAT PROSPECTIVE
PURCHASERS CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES
TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CERTAIN STATE TAX CONSEQUENCES
The state in which the principal loan servicing activities of the Servicer
or the Sub-Servicer, as the case may be, for the Student Loans beneficially
owned by a particular Trust take place is referred to as the "Applicable State."
Because of the variation in each state's tax laws, it is impossible to
predict state and local tax consequences to holders of Notes and Certificates in
all state taxing jurisdictions. IT IS RECOMMENDED THAT NOTEHOLDERS AND
CERTIFICATEHOLDERS CONSULT WITH THEIR OWN TAX ADVISORS WITH
76
<PAGE>
RESPECT TO STATE TAX CONSEQUENCES ARISING OUT OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES AND CERTIFICATES.
Tax Consequences with Respect to the Notes. It is expected that tax
counsel for the Applicable State in which the Student Loan servicing activities
take place ("State Tax Counsel") will deliver its opinion to the Trust that,
assuming the Notes are treated as debt for federal income tax purposes, the
Notes will be treated as debt for an Applicable State individual income and
corporate income tax purposes. Accordingly, Noteholders not otherwise subject to
taxation in the Applicable State should not become subject to taxation in the
Applicable State solely because of a holder's ownership of Notes. However, a
Noteholder already subject to the Applicable State's individual income tax or
corporate income tax could be required to pay additional tax as a result of the
holder's ownership or disposition of Notes.
Tax Consequences with Respect to the Certificates. State Tax Counsel will
render its opinion that the Trust will not be taxable as a separate entity for
Applicable State tax purposes. As a result, if the Trust should be treated as a
partnership, the Trust should not be subject to Applicable State corporate
income taxes (if such taxes were applicable, however, they could result in
reduced distributions to Certificateholders). Moreover, Certificateholders that
are not otherwise subject to tax in the Applicable State should not be subject
to any Applicable State individual income or corporate income taxes with respect
to income from the partnership, unless the Trust is considered to be carrying on
business in the Applicable State.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and, as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans") and on
persons who are fiduciaries with respect to such Plans in connection with the
investment of Plan assets. Certain employee benefit plans, such as governmental
plans (as defined in ERISA Section 3(32)), and, if no election has been made
under Section 410(d) of the Code, church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, assets of such plans
may be invested in Notes without regard to the ERISA considerations described
below, subject to the provisions of other applicable federal and state law. Any
such plan which is qualified and exempt from taxation under
Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited
transactions rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons (parties in interest under ERISA and disqualified persons under the
Code, collectively, "Parties in Interest") who have certain specified
relationships to the Plan unless a statutory, regulatory or administrative
exemption is available. Certain Parties in Interest that participate in a
prohibited transaction may be subject to an excise tax imposed pursuant to
Section 4975 of the Code or a penalty imposed pursuant to Section 502(i) of
ERISA, unless a statutory or administrative exemption is available. These
prohibited transactions generally are set forth in Section 406 of ERISA and
Section 4975 of the Code.
THE NOTES
Unless otherwise specified in the related Prospectus Supplement, the Notes
of each series may be purchased by a Plan. The Issuer, the Company, any
underwriter, the Eligible Lender Trustee, the Indenture Trustee, the Servicer,
the Administrator, any provider of credit support or any of their affiliates may
be considered to be or may become Parties in Interest with respect to certain
Plans. Prohibited transactions under Section 406 of ERISA and Section 4975 of
the Code may arise if a Note is acquired by a Plan with respect to which such
persons are Parties in Interest unless such transactions are subject to one or
more statutory or administrative exemptions, such as: Prohibited Transaction
Class Exemption ("PTCE") 96-23, which exempts certain transactions effected on
behalf of a Plan by an "in-house asset manager"; PTCE 90-1 which exempts certain
transactions between insurance company separate accounts and Parties in
Interest' PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 95-60, which exempts certain
77
<PAGE>
transactions between insurance company general accounts and Parties in Interest;
or PTCE 84-14, which exempts certain transactions effected on behalf of a Plan
by a "qualified professional asset manager". There can be no assurance that any
of these class exemptions will apply with respect to any particular Plan
investment in Notes, or, even if it were deemed to apply, that any exemption
would apply to all prohibited transactions that may occur in connection with
such investment. Accordingly, prior to making an investment in the Notes,
investing Plans should determine whether the Issuer, the Company, any
underwriter, the Eligible Lender Trustee, the Indenture Trustee, the Servicer,
the Administrator, or any provider of credit support or any of their affiliates
is a Party in Interest with respect to such Plan and, if so, whether such
transaction is subject to one or more statutory, regulatory or administrative
exemptions.
Any Plan fiduciary considering whether to invest in Notes on behalf of a
Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment. Each Plan fiduciary also should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Notes is appropriate for the Plan,
considering the overall investment policy of the Plan and the composition of the
Plan's investment portfolio, as well as whether such investment is permitted
under the governing Plan instruments.
THE CERTIFICATES
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each series may not be purchased by a Plan or by any entity whose underlying
assets include plan assets by reason of a plan's investment in the entity (each,
a "Benefit Plan"). Such purchase of an equity interest in the Trust could result
in the assets of the Trust being deemed assets of a Benefit Plan for the
purposes of ERISA and Section 4975 of the Code, and certain transactions
involving the Trust could then be deemed to constitute prohibited transactions
under Section 406 of ERISA and Section 4975 of the Code. A violation of the
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and Section 4975 of the Code imposed on fiduciaries
of Plans, as well as persons who are "parties in interest" (as defined in
Section 3(14) of ERISA) or "disqualified persons" (as defined in Section 4975 of
the Code) with respect to such Plans.
By its acceptance of a Certificate, each Certificateholder will be deemed
to have represented and warranted that it is not a Benefit Plan.
If a given series of Certificates may be acquired by a Benefit Plan because
of the application of an exception contained in regulations issued by the United
States Department of Labor (the "Plan Assets Regulation"), such exception will
be discussed in the related Prospectus Supplement.
* * *
A Plan fiduciary considering the purchase of Securities of a given series
should consult its tax and/or legal advisors regarding whether the assets of the
related Trust would be considered plan assets, the possibility of exemptive
relief from the prohibited transaction rules and other issues and their
potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes of a given series and an underwriting agreement with
respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Depositor will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any
78
<PAGE>
such Notes and Certificates, as the case may be, such public offering prices and
such concessions may be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members to bid for and purchase the Securities. As an exception to these rules,
the underwriters are permitted to engage in certain transactions that stabilize
the price of the Securities. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Securities.
If an underwriter creates a short position in the Securities in connection
with the offering, i.e., if it sells more Securities than are set forth on the
cover page of the related Prospectus Supplement, the underwriter may reduce that
short position by purchasing Securities in the open market.
An underwriter may also impose a penalty bid on certain underwriters and
selling group members. This means that if the underwriter purchases Securities
in the open market to reduce the underwriters' short position or to stabilize
the price of the Securities, it may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those Securities as
part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it
discourages resales of the security.
Neither the Depositor nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Securities. In addition, neither
the Depositor nor the underwriters make any representation that the underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
Each Underwriting Agreement will provide that the Depositor or EFG will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in eligible investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
series of Securities, the closing of the sale of any class of Securities subject
to either thereof will be conditioned on the closing of the sale of all other
such classes subject to either thereof.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any series will be
passed upon for EFG, the Depositor, the Servicer and the Administrator by Robert
Vlach, Esq., General Counsel of EFG, and by Willkie Farr & Gallagher, New York,
New York, special counsel to EFG and the Depositor, and for the underwriters for
such series by the firm identified in the related Prospectus Supplement. Certain
federal income tax and other matters will be passed upon for each Trust by
Willkie Farr & Gallagher, New York, New York. Certain Delaware and Applicable
State tax matters will be passed upon for each Trust by the firm or firms
identified in the related Prospectus Supplement.
79
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
TERMS PAGE
- ---------------------------------------------------------------------------------------------------
<S> <C>
1992 Amendments.................................................................................... 35
1998 Amendments.................................................................................... 36
1998 Reauthorization Bill.......................................................................... 35, 36
91-Day T-Bill...................................................................................... 38
Act................................................................................................ 15, 34
Add-on Federal Consolidation Loans................................................................. 44
Additional Fundings................................................................................ 10
Administration Agreement........................................................................... 66
Administration Fee................................................................................. 66
Administrator...................................................................................... 8
Administrator Default............................................................................. 66
Applicable State................................................................................... 76
Applicable Trustee................................................................................. 55
Auto Advantage Repayment Plan...................................................................... 23, 27
Base Rate.......................................................................................... 54
Benefit Plan....................................................................................... 78
Calculation Agent.................................................................................. 55
Cede............................................................................................... 24
Certificate Balance................................................................................ 9
Certificate Pool Factor............................................................................ 48
Certificateholders................................................................................. 24
Certificates....................................................................................... Cover
Closing Date....................................................................................... 9, 57
Code............................................................................................... 68
Collateral Reinvestment Account.................................................................... 10
Collection Account................................................................................. 58
Collection Period.................................................................................. 60
Commission......................................................................................... 2
Cutoff Date........................................................................................ 9
Deferral Period.................................................................................... 41
Definitive Certificates............................................................................ 56
Definitive Notes................................................................................... 56
Definitive Securities.............................................................................. 56
Department......................................................................................... 11
Depositor.......................................................................................... Cover, 7, 25
Depository......................................................................................... 49
Distribution Date.................................................................................. 49
DSLP............................................................................................... 19, 29
DTC's Nominee...................................................................................... 24
Early Amortization Event........................................................................... 10
EFG................................................................................................ 7, 8, 26
EFG Eligible Lender Trust Agreement................................................................ 8
EFG Eligible Lender Trustee........................................................................ 8
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ---------------------------------------------------------------------------------------------------
<S> <C>
ELA................................................................................................ 26
Eligible Deposit Account........................................................................... 59
Eligible Institution............................................................................... 59
Eligible Investments............................................................................... 59
Eligible Lender Trust Agrement..................................................................... 7
ERISA.............................................................................................. 14, 77
Event of Default................................................................................... 50
family contribution................................................................................ 38
Federal Assistance................................................................................. 39
Federal Consolidation Loan......................................................................... 34, 43
Federal Guarantor.................................................................................. 11
Federal Origination Fee............................................................................ 18
Federal PLUS Loans................................................................................. 35
Federal SLS Loans.................................................................................. 35
Federal Stafford Loans............................................................................. 35
Federal Supplemental Loans to Students............................................................. 35
Federal Tax Counsel................................................................................ 14, 68
Federal Unsubsidized Stafford Loans................................................................ 35
FFELP.............................................................................................. 9, 34
FFELP Loan Servicing Agreement..................................................................... 12
FFELP Loans........................................................................................ 7
FFELP Student Loans................................................................................ 9
Fixed Rate Securities.............................................................................. 54
Floating Rate Securities........................................................................... 54
Forbearance Period................................................................................. 42
Foreign Person..................................................................................... 70
Funding Period..................................................................................... 9
Grace Period....................................................................................... 41
Grad Advantage Program............................................................................. 23, 27
Guarantee Agreement................................................................................ 45
Guarantee Payments................................................................................. 11
Guarantor.......................................................................................... 11
Indenture.......................................................................................... 8
Indenture Trustee.................................................................................. Cover
Index Shortfall Carryover.......................................................................... 51
Indirect Participants.............................................................................. 55
Initial Pool Balance............................................................................... 65
Insolvency Event................................................................................... 62
Insolvency Laws.................................................................................... 24
Interest Period.................................................................................... 72
Interest Rate...................................................................................... 8
Interest Reset Period.............................................................................. 54
Interest Subsidy Payments.......................................................................... 39
Investment Earnings................................................................................ 59
IRS................................................................................................ 68
Issuer............................................................................................. 7
Loan Servicing Agreement........................................................................... 12
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ---------------------------------------------------------------------------------------------------
<S> <C>
Monthly Rebate Fee................................................................................. 18
New Withholding Regulations........................................................................ 71
Note Pool Factor................................................................................... 48
Noteholders........................................................................................ 24
Notes.............................................................................................. Cover
OID................................................................................................ 69
OID Regulations.................................................................................... 69
Participants....................................................................................... 49
Parties in Interest................................................................................ 77
Pass-Through Rate.................................................................................. 9
Plan Assets Regulation............................................................................. 78
Plans.............................................................................................. 77
Pool Balance....................................................................................... 48
Pool Factor........................................................................................ 48
Pre-Funding Account................................................................................ 10
Pre-Funding Amount................................................................................. 10
prepayments........................................................................................ 22, 47
Private Guarantor.................................................................................. 11
Private Loan Servicing Agreement................................................................... 12
Private Student Loans.............................................................................. 9
Prospectus Supplement.............................................................................. Cover
PTCE............................................................................................... 77
Purchase Amount.................................................................................... 57
Qualified Stated Interest.......................................................................... 69
Registration Statement............................................................................. 2
Related Documents.................................................................................. 51
Reserve Account.................................................................................... 11, 62
Reserve Account Initial Deposit.................................................................... 11
Revolving Period................................................................................... 10
Rules.............................................................................................. 55
Secretary.......................................................................................... 23
Securities......................................................................................... Cover
Securities Act..................................................................................... 2
Securityholders.................................................................................... 24
Seller............................................................................................. Cover, 8
Servicer........................................................................................... 7, 32
Servicer Default................................................................................... 23, 62
Servicing Fee...................................................................................... 13, 59
Short-Term Note.................................................................................... 70
Special Allowance Payments......................................................................... 38
Spread............................................................................................. 54
Spread Multiplier.................................................................................. 54
State Tax Counsel.................................................................................. 77
Student Loan Rate.................................................................................. 54
Student Loans...................................................................................... Cover, 9
Transfer Agreement................................................................................. 12
Transfer and Servicing Agreements.................................................................. 57
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ---------------------------------------------------------------------------------------------------
<S> <C>
Trust.............................................................................................. Cover, 7
Trust Accounts..................................................................................... 59
Trust Agreement.................................................................................... 7
Trustee............................................................................................ Cover
UCC................................................................................................ 66
Underwriting Agreements............................................................................ 78
Unmet Need......................................................................................... 38
</TABLE>
83
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the offering of the Notes and the Certificates
being registered herein are estimated as follows:*
SEC registration fee............................................ $ 278,000
Legal fees and expenses......................................... $1,100,000
Accounting fees and expenses.................................... $ 240,000
Blue Sky fees and expenses...................................... $ 40,000
Rating agency fees.............................................. $ 400,000
Eligible Lender Trustee fees and expenses....................... $ 50,000
Indenture Trustee fees and expenses............................. $ 50,000
Printing expenses............................................... $ 400,000
Miscellaneous................................................... $ 50,000
Total...................................................... $2,608,000
- ------------------------
ITEM 15. INDEMNIFICATION OF REGISTRANT
As authorized by Section 145 of the General Corporation Law of Delaware,
the Articles of Incorporation of the Registrant provide that the Registrant
shall indemnify to the fullest extent permitted under and in accordance with the
laws of the State of Delaware any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Registrant) by reason of the fact that he is
or was a director, officer, incorporator, employee or agent of the Registrant,
or is or was serving at the request of the Registrant as a director, officer,
trustee, employee or agent of or in any other similar capacity with another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any original action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceedings, shall not,
of itself, create a presumption that the person had reasonable cause to believe
that his conduct was unlawful.
Expenses (including attorneys' fees) incurred in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall (in
the case of any action, suit or proceeding against a director of the Registrant)
or may (in the case of any action, suit or proceeding against an officer,
trustee, employee or agent) be paid by the Registrant in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the indemnified person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Registrant.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- ----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement for Notes and Certificates.
3.1 -- Certificate of Incorporation of EFG Funding Corporation.*
3.2 -- By-Laws of EFG Funding Corporation.*
3.3 -- Form of Certificate of Trust for the EFG Student Loan Trusts (included as an exhibit
to Exhibit 4.2).
4.1 -- Form of Indenture between the Trust and the Indenture Trustee (including as an exhibit
thereto a form of Note).
4.2 -- Form of Trust Agreement between EFG Funding Corporation and the Trustee (including as
an exhibit thereto a form of Certificate and a form of Certificate of Trust).
4.3 -- Form of Eligible Lender Trust Agreement between EFG Funding Corporation and the
Eligible Lender Trustee.
4.4 -- Form of Note (included as an exhibit to Exhibit 4.1).
4.5 -- Form of Certificate (included as an exhibit to Exhibit 4.2).
5.1 -- Opinion of Willkie Farr & Gallagher with respect to legality.
5.2 -- Opinion of Potter Anderson & Corroon LLP with respect to legality.
8.1 -- Opinion of Willkie Farr & Gallagher with respect to tax matters (included as part of
Exhibit 5.1).
23.1 -- Consent of Willkie Farr & Gallagher (included as part of Exhibit 5.1)
23.2 -- Consent of Potter Anderson & Corroon LLP (included as part of Exhibit 5.2).
25.1 -- Form of T-1 Statement of Eligibility of Firstar Bank, National Association under the Trust
Indenture Act of 1939
99.1 -- Form of Transfer Agreement among EFG Funding Corporation, the Trust and the Eligible
Lender Trustee.
99.2 -- Form of Servicing Agreement among EFG Technologies, a division of Educational Finance
Group, Inc., the Trust, EFG Funding Corporation and the Eligible Lender Trustee.
99.3 -- Form of Private Loan Servicing Agreement between the Trust and EFG Technologies.
99.4 -- Form of Administration Agreement between the EFG Funding Corporation, the Indenture
Trustee and Educational Finance Group, Inc., as Administrator.
99.5 -- Form of Loan Sale Agreement between EFG Funding Corporation, Educational Finance
Group, Inc., Eligible Lender Trustee and EFG Trustee.
</TABLE>
- ------------------
+ Previously filed.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in
II-2
<PAGE>
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of the prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that the undertakings set forth in clauses (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934, as amended, that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) As to documents subsequently filed that are incorporated by reference:
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended,
each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended, that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreements, Notes and
Certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
(d) As to indemnification:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the provisions
described under Item 15, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of such
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, such 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.
(e) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(f) The Registrant hereby undertakes to file an application for the
purposes of determining the eligibility of the Indenture Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of the Securities Act of 1933, as amended.
(g) The Registrant reasonably believes that the security rating requirement
for the eligibility of this Form S-3 will be met at the time of sale for each
series of Notes and Certificates.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EFG FUNDING
CORPORATION 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
AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT (NO. 333-64009) TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN HYANNIS,
MASSACHUSETTS ON MAY 3, 1999.
EFG FUNDING CORPORATION
By: /s/ STEPHEN J. GALVIN
--------------------------------
Stephen J. Galvin
President and Assistant Secretary
(Principal Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT (NO. 333-64009) HAS BEEN SIGNED BELOW ON
MAY 3, 1999 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------ --------------------------------------------
<S> <C>
/s/ STEPHEN J. GALVIN Director, President and Assistant Secretary
- ------------------------------------------ (Principal Executive Officer)
Stephen J. Galvin
* Director, Vice President, Secretary and
- ------------------------------------------ Treasurer (Principal Accounting Officer and
Michael R. Hartwig Principal Financial Officer)
* Director, Assistant Secretary
- ------------------------------------------ and Assistant Treasurer
Vernon Woelke
* By: /s/ STEPHEN J. GALVIN
------------------------------------
Stephen J. Galvin
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- ----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement for Notes and Certificates.
3.1 -- Certificate of Incorporation of EFG Funding Corporation.*
3.2 -- By-Laws of EFG Funding Corporation.*
3.3 -- Form of Certificate of Trust for the EFG Student Loan Trusts (included as an exhibit
to Exhibit 4.2).
4.1 -- Form of Indenture between the Trust and the Indenture Trustee (including as an exhibit
thereto a form of Note).
4.2 -- Form of Trust Agreement between EFG Funding Corporation and the Trustee (including as
an exhibit thereto a form of Certificate and a form of Certificate of Trust).
4.3 -- Form of Eligible Lender Trust Agreement between EFG Funding Corporation and the
Eligible Lender Trustee.
4.4 -- Form of Note (included as an exhibit to Exhibit 4.1).
4.5 -- Form of Certificate (included as an exhibit to Exhibit 4.2).
5.1 -- Opinion of Willkie Farr & Gallagher with respect to legality.
5.2 -- Opinion of Potter Anderson & Corroon LLP with respect to legality.
8.1 -- Opinion of Willkie Farr & Gallagher with respect to tax matters (included as part of
Exhibit 5.1).
23.1 -- Consent of Willkie Farr & Gallagher (included as part of Exhibit 5.1).
23.2 -- Consent of Potter Anderson & Corroon LLP (included as part of Exhibit 5.2).
25.1 -- Form of T-1 Statement of Eligibility of Firstar Bank, National Association under the Trust
Indenture Act of 1939
99.1 -- Form of Transfer Agreement among EFG Funding Corporation, the Trust and the Eligible
Lender Trustee.
99.2 -- Form of Servicing Agreement among EFG Technologies, a division of Educational Finance
Group, Inc., the Trust, EFG Funding Corporation and the Eligible Lender Trustee.
99.3 -- Form of Private Loan Servicing Agreement between the Trust and EFG Technologies.
99.4 -- Form of Administration Agreement between the EFG Funding Corporation, the Indenture
Trustee and Educational Finance Group, Inc., as Administrator.
99.5 -- Form of Loan Sale Agreement between EFG Funding Corporation, Educational Finance
Group, Inc., Eligible Lender Trustee and EFG Trustee.
</TABLE>
- ------------------
* Previously filed.
<PAGE>
EXHIBIT 1.1
[Form of Underwriting Agreement]
EFG FUNDING CORPORATION
EFG Student Loan Trust _________-___
UNDERWRITING AGREEMENT
_______________, 1999
LEHMAN BROTHERS INC.
Three World Financial Center
New York, New York 10285
Dear Ladies and Gentlemen:
EFG Funding Corporation (the "Company") is a Delaware corporation
with its principal place of business in Hyannis, Massachusetts. The Company has
filed a Registration Statement relating to the issuance and sale of student
loan-backed notes (the "Notes") and student loan-backed certificates (the
"Certificates" and, together with the Notes, the "Securities"). The Notes will
represent obligations of, and the Certificates will evidence beneficial
interests in, separate EFG Student Loan Trusts (each, a "Trust"). The Notes and
Certificates may be issued in various series, and, within each series, in one
or more classes, and, within each class, in one or more sub classes, in one or
more offerings on terms determined at the time of sale (each such series, a
"Series" and each such class, a "Class"). The Notes with respect to a Series
will be issued under an indenture (the "Indenture") between the Trust and a
trustee to be identified in the prospectus supplement (the "Indenture
Trustee"). The Certificates with respect to a Series will be issued under a
trust agreement (the "Trust Agreement") among the Company, as depositor (the
"Depositor"), a trustee to be identified in the prospectus supplement (the
"Owner Trustee") and any other party which may be identified in the prospectus
supplement.
The property of each Trust with respect to a Series (the "Trust
Property") will include among other things, a pool of student loans (the
"[Initial] Financed Student Loans") and certain monies due thereunder on and
after the applicable Cutoff Date. The Company will acquire the [Initial]
Financed Student Loans pursuant to a loan sale agreement (the "Loan Sale
Agreement")
<PAGE>
between EFG Financial Group, Inc. ("EFG"), as seller (the "Seller"), the
Company, as purchaser, the EFG Eligible Lender Trustee (as defined below) and
the Eligible Lender Trustee (as defined below). Such [Initial] Financed Student
Loans will be sold to the Trust by the Company pursuant to a transfer agreement
(the "Transfer Agreement") among the Trust, the Company and the Eligible Lender
Trustee. With respect to Financed Student Loans that constitute FFELP Loans,
The First National Bank of Chicago will hold legal title as eligible lender
trustee on behalf of the Seller under the Loan Sale Agreement (in such
capacity, the "EFG Eligible Lender Trustee") and as eligible lender trustee on
behalf of the Company and the Trust (in such capacity, the "Eligible Lender
Trustee") under an Eligible Lender Trust Agreement. [Under certain
circumstances after the Closing Time (as defined below), the Eligible Lender
Trustee, acting on behalf of the Trust, may acquire additional student loans
("Additional Acquired Student Loans"; the [Initial] Financed Student Loans and
the Additional Acquired Student Loans being referred to herein, collectively,
as the "Financed Student Loans")]. The Financed Student Loans are to be
serviced by EFG Technologies, Inc., a Delaware corporation (the "Servicer")
pursuant to a servicing agreement (the "Servicing Agreement"), among the Trust,
the Servicer, the Seller and the Eligible Lender Trustee. Forms of the
Indenture, Trust Agreement, the Guarantee Agreement, Loan Sale Agreement,
Transfer Agreement and Servicing Agreement have been filed as exhibits to the
Registration Statement (hereinafter defined).
The Securities are more fully described in a Registration Statement
which the Company has furnished to you. Capitalized terms used but not defined
herein shall have the meanings given to them in the Registration Statement. The
term "you" as used herein, unless the context otherwise requires, shall mean
you and any such persons as are named as co managers in the Terms Agreement
(defined below).
Each offering of Securities pursuant to this Agreement will be made
through you or through an underwriting syndicate managed by you. Whenever the
Company determines to make an offering of Securities, it will enter into an
agreement (the "Terms Agreement") providing for the sale of such Securities to,
and the purchase and offering thereof by, you and such other underwriters, if
any, selected by you and have authorized you to enter into such Terms Agreement
on their behalf (the "Underwriters," which term shall include you whether
acting alone in the sale of Securities or as a member of an underwriting
syndicate). The Terms Agreement relating to each offering of Securities shall
specify, among other things, the principal amount or amounts of the Securities
to be issued, the price or prices at which the Securities are to be purchased
by the Underwriters from the Company and the initial public offering price or
prices or the method by which the price or prices at which such Securities are
to be sold will be determined. A Terms Agreement, which shall be substantially
in the form of Exhibit A hereto, may take the form of an exchange of any
standard form of written telecommunication between you and the Company. Each
offering of Securities will be governed by this Agreement, as supplemented by
the applicable Terms Agreement, and this Agreement and such Terms Agreement
shall inure to the benefit of and be binding upon the Underwriters
participating in the offering of such Securities.
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (File No. 333-64009)
(the "Registration Statement"), relating to the offering of Securities from
time to time in accordance with Rule 415 under the Securities Act of 1933, as
amended (the "1933 Act"), and has filed, and proposes to file, such
2
<PAGE>
amendments thereto as may have been required to the date hereof pursuant to the
1933 Act and the rules of the Commission thereunder (the "Regulations"). Such
Registration Statement, as amended at the time when it became effective under
the 1933 Act, and the Prospectus relating to the sale of Securities by the
Company constituting a part thereof, as from time to time each is amended or
supplemented pursuant to the 1933 Act or otherwise, are referred to herein as
the "Registration Statement" and the "Prospectus", respectively; provided,
however, that the supplement to the Prospectus contemplated by Section 3(a)
hereof (a "Prospectus Supplement") shall be deemed to have supplemented the
Prospectus only with respect to the Securities to which it relates.
Section 1. Representations and Warranties of Company. The Company and
the Depositor represent and warrant to you as of the date hereof, and to the
Underwriters named in the Terms Agreement, all as of the date of such Terms
Agreement (in each case, the "Representation Date"), as follows:
(a) The Registration Statement has become effective under the
1933 Act, as amended. No stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or, to the knowledge of the
Company, threatened by the Commission.
(b) The Registration Statement and the Prospectus, at the time
the Registration Statement became effective did, and as of the
applicable Representation Date will, comply in all material
respects with the requirements of the 1933 Act and the
Regulations. The Registration Statement, at the time it became
effective did not, and as of the applicable Representation Date
will not, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented at the time the
Registration Statement became effective did not, and as amended
or supplemented as of the applicable Representation Date will
not, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The conditions to the use by the Company
of a registration statement on Form S-3 under the 1933 Act, as
set forth in the General Instructions to Form S-3, have been
satisfied with respect to the Registration Statement, as
applicable, and the Prospectus. There are no contracts or
documents of the Company which are required to be filed as
exhibits to the Registration Statement pursuant to the 1933 Act
or the Regulations which have not been so filed.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware with corporate power and authority to own,
lease and operate its properties and conduct its business as
described in the Prospectus and to enter into and perform its
obligations under this Agreement, the Terms Agreement, the Trust
Agreement, the Loan Sale Agreement and the Transfer Agreement,
and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in
3
<PAGE>
each jurisdiction in which the ownership or lease of its properties or the
conduct of its business requires such qualification.
(d) The Company is not in violation of its certificate of
incorporation or by laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which it is a party or by
which it or its properties may be bound, which default might
result in any material adverse change in the financial
condition, earnings, affairs or business of the Company, or
which might materially and adversely affect the properties or
assets thereof.
(e) The execution and delivery by the Company of this Agreement,
the Terms Agreement, the Trust Agreement, the Loan Sale
Agreement and the Transfer Agreement are within the corporate
power of the Company and have been duly authorized by all
necessary corporate action on the part of the Company; and
neither the issuance and sale of the Securities to the
Underwriters, nor the execution and delivery by the Company of
this Agreement, the Terms Agreement, the Trust Agreement, Loan
Sale Agreement and the Transfer Agreement, nor the consummation
by the Company of the transactions therein contemplated, nor
compliance by the Company with the provisions hereof or thereof,
will materially conflict with or result in a material breach of,
or constitute a material default under, any of the provisions of
any law, governmental rule, regulation, judgment, decree or
order binding on the Company or its properties or the
certificate of incorporation or by laws of the Company, or any
of the provisions of any indenture, mortgage, contract or other
instrument to which the Company is a party or by which it is
bound or result in the creation or imposition of any lien,
charge or encumbrance upon any of its property pursuant to the
terms of any such indenture, mortgage, contract or other
instrument.
(f) This Agreement has been, and the Terms Agreement when
executed and delivered as contemplated hereby and thereby will
have been, duly authorized, executed and delivered by the
Company, and each constitutes, or will constitute when so
executed and delivered, a legal, valid and binding instrument
enforceable against the Company in accordance with its terms.
(g) The Trust Agreement, Loan Sale Agreement and the Transfer
Agreement when executed and delivered as contemplated hereby and
thereby will have been duly authorized, executed and delivered
by the Company, and will constitute when so executed and
delivered, a legal, valid and binding instrument enforceable
against the Company in accordance with its terms.
(h) As of the Closing Time, the Notes will have been duly and
validly authorized by the Trust, and, when executed and
authenticated as specified in the Indenture, will be validly
issued and outstanding and will be entitled to the benefits of
the Indenture, and will be binding obligations of the Trust to
the extent provided in the Indenture.
4
<PAGE>
(i) As of the Closing Time, the Certificates will have been duly
and validly authorized by the Trust, and, when executed and
authenticated as specified in the Trust Agreement, will be
validly issued and outstanding and will be entitled to the
benefits of the Trust Agreement, and will be binding obligations
of the Trust to the extent provided in the Trust Agreement.
(j) No filing or registration with, notice to or consent,
approval, authorization or order of any court or governmental
authority or agency is required for the consummation by the
Company of the transactions contemplated by this Agreement, the
Terms Agreement, the Trust Agreement, the Loan Sale Agreement or
the Transfer Agreement, except such as may be required under the
1933 Act or the Regulations.
(k) The Company possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct
the business now operated by it and as described in the
Prospectus, and the Company has received no notice of
proceedings relating to the revocation or modification of any
such license, certificate, authority or permit which, singly or
in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
business, operations, financial condition or earnings of the
Company.
(l) At the time of execution and delivery of the Loan Sale
Agreement (1) the EFG Eligible Lender Trustee on behalf of the
Seller will own the Initial Financed Student Loans free and
clear of any lien, mortgage, security interest, pledge, charge
or other encumbrance (collectively, "Liens"), except to the
extent permitted in the Loan Sale Agreement, and will not have
assigned to any person other than the Company any of its right,
title or interest in such Student Loans, and (2) the Seller will
have the power and authority to pledge the Initial Financed
Student Loans to the Company and will have duly authorized such
action by all necessary corporate action.
(m) At the time of execution and delivery of the Transfer
Agreement (1) the Eligible Lender Trustee on behalf of the
Company will own the Initial Financed Student Loans free and
clear of any Liens, except to the extent permitted in the
Transfer Agreement, and will not have assigned to any person
other than the Trust any of its right, title or interest in such
Student Loans, (2) the Company will have the power and authority
to pledge the Initial Financed Student Loans to the Trust and
will have duly authorized such action by all necessary corporate
action and (3) as of the Closing Time, the Initial Financed
Student Loans will have been duly and validly assigned to the
Trust in accordance with the Transfer Agreement and granted to
the Indenture Trustee under the Indenture; and when such grant
is effected, a duly and validly perfected transfer of all such
Student Loans subject to no prior lien, mortgage, security
interest, pledge, charge or other encumbrance created by the
Seller, the Company, the EFG Eligible Lender Trustee or the
5
<PAGE>
Eligible Lender Trustee will have occurred in favor of the Trust
and the Indenture Trustee will hold a first priority perfected
security interest in such Student Loans.
(n) Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of this Agreement, the
Terms Agreement, the Loan Sale Agreement and Transfer Agreement
and the Securities have been or will be paid by or on behalf of
the Company or the Trust on or prior to the Closing Time.
(o) As of the Closing Time, each of the Initial Financed Student
Loans will meet the eligibility criteria described in the
Prospectus and applicable Prospectus Supplement.
(p) There are no pending or threatened litigation or
administrative proceedings of or before any court, tribunal or
governmental agency, authority or body or any arbitrator which,
if adversely determined, would have a material adverse effect on
the issuance of the Securities or the financial condition of the
Company.
(q) Neither the Company nor the Trust will be subject to
registration as an "investment company" under the Investment
Company Act of 1940, as amended (the "1940 Act").
(r) The Securities, the Indenture, the Trust Agreement, the Loan
Sale Agreement, the Transfer Agreement, the Servicing Agreement
and the Terms Agreement conform in all material respects to the
descriptions thereof contained in the Prospectus.
(s) The representations and warranties of the Company in the
Transfer Agreement and the Trust Agreement and of the Seller in
the Loan Sale Agreement will be true and correct in all material
respects as of the Closing Time and as of any other date as of
which they are made pursuant to the terms thereof.
(t) As of the Closing Time, the Securities shall have been rated
as described under "Summary of Terms Rating of the Securities"
in the Prospectus Supplement.
Any certificate signed by an officer of the Company and delivered to
the Underwriters or counsel for the Underwriters in connection with an offering
of the Securities shall be deemed, and shall state that it is, a representation
and warranty as to the matters covered thereby to each person to whom the
representations and warranties in this Section 1 are made.
Section 2. Purchase and Sale. The commitment of the Underwriters to
purchase Securities pursuant to any Terms Agreement shall be deemed to have
been made on the basis of the representations and warranties herein contained
and shall be subject to the terms and conditions herein set forth.
Payment of the purchase price for, and delivery of, any Securities to
be purchased by the Underwriters shall be made at the office of [Willkie Farr &
Gallagher, 787 Seventh Avenue, New
6
<PAGE>
York, New York 10019], or at such other place as shall be agreed upon by you
and the Company, at such time or date as shall be agreed upon by you and the
Company in the Terms Agreement (each such time and date being referred to as a
"Closing Time"). Unless otherwise specified in the Terms Agreement, payment
shall be made to the Company, at the option of the Company, either (a) by
certified or official bank check or checks in New York Clearing House or
similar next day funds payable to the order of the Company, or (b) in
immediately available federal funds wired to such bank as may be designated by
the Company; provided, however, that if payment is made in immediately
available federal funds if so specified in the Terms Agreement, the Company
shall simultaneously reimburse the Underwriters for the cost to the
Underwriters of such funds, based on the Underwriters' cost of borrowing such
funds for one day at their most favorable commercial paper rate at the Closing
Time. Such Securities shall be in such denominations and registered in such
names as you may request in writing at least two business days prior to the
applicable Closing Time. Such Securities, which may be in temporary form, will
be made available for examination and packaging by you no later than 12:00 noon
on the first business day prior to the applicable Closing Time.
Section 3. Covenants of Company. The Company covenants with each of
you and the Underwriters participating in the applicable offering of
Securities, as follows:
(a) Immediately following the execution of the Terms Agreement,
the Company will prepare a Prospectus Supplement setting forth
the principal amount of the Securities covered thereby, the
price or prices at which the Securities are to be purchased by
the Underwriters from the Trust, either the initial public
offering price or prices or the method by which the price or
prices by which the Securities are to be sold will be
determined, the selling concession(s) and reallowance(s), if
any, any delayed delivery arrangements, and such other
information as you and the Company deem appropriate in
connection with the offering of the Securities. The Company will
promptly transmit copies of the Prospectus Supplement to the
Commission for filing pursuant to Rule 424 under the 1933 Act
and will furnish to the Underwriters as many copies of the
Prospectus and such Prospectus Supplement as you shall
reasonably request.
(b) If at any time when the Prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities
by you or the Underwriters, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of
your counsel, counsel for the Company, or otherwise, to further
amend or supplement the Prospectus in order that the Prospectus
will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements
therein, in the light of circumstances existing at the time it
is delivered to a purchaser, not misleading or if it shall be
necessary, in the opinion of any such counsel or otherwise, at
any such time to amend or supplement the Registration Statement
or the Prospectus in order to comply with the requirements of
the 1933 Act or the Regulations thereunder, the Company will
promptly prepare and file with the Commission such amendment or
supplement as may be necessary to correct such untrue statement
or omission or to make the Registration Statement comply with
such requirements, and within two business days will
7
<PAGE>
furnish to the Underwriters as many copies of the Prospectus, as
so amended or supplemented, as you shall reasonably request.
(c) The Company will give you reasonable notice of its intention
to file any amendment to the Registration Statement or any
amendment or supplement to the Prospectus, whether pursuant to
the 1933 Act or otherwise (other than reports to be filed
pursuant to the Securities Exchange Act of 1934 Act, as amended
(the "1934 Act")), will furnish you with copies of any such
amendment or supplement or other documents proposed to be filed
a reasonable time in advance of filing, and will not file any
such amendment or supplement or other documents in a form to
which you or your counsel shall object.
(d) The Company will notify you immediately, and confirm the
notice in writing, (i) of the effectiveness of any amendment to
the Registration Statement, (ii) of the mailing or the delivery
to the Commission for filing of any supplement to the Prospectus
or any document, other than reports to be filed pursuant to the
1934 Act, (iii) of the receipt of any comments from the
Commission with respect to the Registration Statement, the
Prospectus or any Prospectus Supplement, (iv) of any request by
the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for
additional information, and (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or suspension of the qualification of the
Securities or the initiation of any proceedings for that
purpose. The Company will make every reasonable effort to
prevent the issuance of any such stop order or suspension and,
if any such stop order or suspension is issued, to obtain the
lifting thereof at the earliest possible moment.
(e) The Company will deliver to you as many signed and as many
conformed copies of the Registration Statement (as ordinarily
filed) and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents
incorporated by reference in the Prospectus) as you may
reasonably request.
(f) The Company will endeavor, in cooperation with you, to
qualify the Securities for offering and sale under the
applicable securities laws of such states and other
jurisdictions of the United States as you may designate, and
will maintain or cause to be maintained such qualifications in
effect for as long as may be required for the distribution of
the Securities. The Company will file or cause the filing of
such statements and reports as may be required by the laws of
each jurisdiction in which the Securities have been qualified as
above provided.
(g) The Company will file with the Commission within fifteen
days of the issuance of the Securities a current report on Form
8-K setting forth specific information concerning the Securities
and the Student Loans to the extent that such information is not
set forth in the Prospectus. The Company will also file with the
Commission a current report on Form 8-K setting forth all
Computational
8
<PAGE>
Materials, ABS Term Sheets and Collateral Term Sheets (each as
defined in Section 5 hereof) provided to the Company by any
Underwriter within the applicable time periods allotted for such
filing pursuant to the No-Action Letters (as defined in Section
5 hereof).
(h) In connection with any Computational Materials, ABS Term
Sheets or Collateral Term Sheets provided by an Underwriter
pursuant to Section 5, the Company must receive a letter from
nationally recognized firm of certified public accountants
satisfactory in form and substance to the Company, to the effect
that such accountants have performed certain specified
procedures, all of which have been agreed to by the Company, as
a result of which they have determined that the information
included in the Computational Materials, ABS Term Sheets or
Collateral Term Sheets (if any), provided by the Underwriters to
the Company for filing on Form 8-K pursuant to Section 5 and
subsection (i), is accurate except as to such matters that are
not deemed by the Company to be material. The foregoing letter
shall be obtained at the expense of the Company.
(i) In the event that an Underwriter must prepare corrected
Computational Materials, ABS Term Sheets or Collateral Term
Sheets pursuant to Section 5(d), the Company shall file any
corrected Computational Materials, ABS Term Sheets or Collateral
Term Sheets no later than two days following receipt thereof.
(j) The Company will file the Monthly Report on Form 8-K for a
period of twelve months following the applicable Closing Time.
Section 4. Conditions of Underwriters' Obligations. The obligations
of the Underwriters to purchase Securities pursuant to any Terms Agreement are
subject to the accuracy of the representations and warranties on the part of
the Company herein contained, to the accuracy of the statements of the
Company's officers made pursuant hereto, to the performance by the Company of
all of its obligations hereunder and to the following further conditions:
(a) At the applicable Closing Time (i) no stop order suspending
the effectiveness of the Registration Statement shall have been
issued or proceedings therefor initiated or threatened by the
Commission, (ii) the Securities shall have received the rating
or ratings specified in the Terms Agreement, and (iii) there
shall not have come to your attention any facts that would cause
you to believe that the Prospectus, together with the applicable
Prospectus Supplement at the time it was required to be
delivered to a purchaser of the Securities, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of
the circumstances existing at such time, not misleading.
(b) At the applicable Closing Time you shall have received:
9
<PAGE>
(1) The favorable opinion, dated as of the applicable Closing Time,
of _____________, counsel for the Company in form and substance satisfactory to
such of you as may be named in the applicable Terms Agreement, to the effect
that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The execution and delivery by the Company of this
Agreement, the applicable Terms Agreement, the Trust Agreement, the
Loan Sale Agreement and the Transfer Agreement and the signing of the
Registration Statement by the Company are within the corporate power
of the Company and have been duly authorized by all necessary
corporate action on the part of the Company.
(iii) This Agreement and the Terms Agreement have been duly
authorized, executed and delivered by the Company, and each is a
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
(iv) The Trust Agreement, the Loan Sale Agreement and the
Transfer Agreement and the Registration Statement have been duly
authorized, executed and delivered by the Company, and each is a
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
(v) None of the transfer of the Student Loans to the Trust,
the issue and sale of the Securities, the consummation of the
transactions contemplated hereby or the fulfillment of the terms
hereof will, to the best of such counsel's knowledge, conflict with
or constitute a breach of, or default under, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which
the Company is a party or by which it may be bound or to which the
property or assets of the Company are subject (which contracts,
indentures, mortgages, loan agreements, notes, leases and other such
instruments have been identified by the Company to such counsel), nor
will such action result in any violation of the provisions of the
certificate of incorporation or by laws of the Company or, to the
best of such counsel's knowledge, any order or regulation known to us
to be applicable to the Company of any state or federal court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company.
(vi) The Notes have been duly authorized and, when executed
and authenticated as specified in the Indenture and delivered and
paid for pursuant to this Agreement and the applicable Terms
Agreement, will be duly issued , valid and binding obligations of the
Trust and will be entitled to the benefits of the Indenture.
10
<PAGE>
(vii) The Certificates have been duly authorized and, when
executed and authenticated as specified in the Trust Agreement and
delivered and paid for pursuant to this Agreement and the applicable
Terms Agreement, will be duly issued and entitled to the benefits of
the Trust Agreement.
(viii) To the best of such counsel's knowledge, no filing
or registration with or notice to or consent, approval, authorization
or order of any [Massachusetts] or federal court or governmental
authority or agency is required to be obtained by the Company for the
consummation by the Company of the transactions contemplated by the
Trust Agreement, the Loan Sale Agreement and the Transfer Agreement.
(ix) The Registration Statement is effective under the 1933
Act, and, to the best of such counsel's knowledge and information, no
stop order suspending the effectiveness of the Registration Statement
has been issued under the 1933 Act or proceedings therefor initiated
or threatened by the Commission.
(x) The Registration Statement, as amended or supplemented,
and the Prospectus, as amended or supplemented, at the time they
became effective did not, and as of the Closing Time will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(xi) The Trust Agreement and the Transfer Agreement are not
required to be qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). (xii) The Indenture has been
duly qualified under the Trust Indenture Act.
(xii) The Indenture has been duly qualified under the
Trust Indenture Act.
(xiii) The conditions to the use by the Company of a
registration statement on Form S-3 under the 1933 Act, as set forth
in the General Instructions to Form S 3, have been satisfied with
respect to the Registration Statement and the Prospectus. To the best
of such counsel's knowledge, there are no contracts or documents of
the Company which are required to be filed as exhibits to the
Registration Statement pursuant to the 1933 Act or the Regulations
thereunder which have not been so filed or incorporated by reference.
(xiv) Each of the Seller and the Trust created by the Trust
Agreement is not, and will not as a result of the offer and sale of
the Securities as contemplated in the Prospectus and in this
Agreement become, an "investment company" as such term is defined in
the 1940 Act.
(xv) The statements in the Prospectus under the captions
"Description of the Notes" and "Description of the Certificates" and
in the
11
<PAGE>
Prospectus Supplement under the captions "Description of the Notes",
"Description of the Certificates" and "Description of the Transfer
and Servicing Agreements", insofar as such statements purport to
summarize certain terms of the Securities, the Indenture, the Trust
Agreement, the Loan Sale Agreement and the Transfer Agreement,
constitute a fair and accurate summary of such documents.
(xvi) The Registration Statement and the Prospectus (other
than the financial statements and other financial, statistical and
numerical information included therein, as to which no opinion need
be rendered) as of their respective effective or issue dates,
complied as to form in all material respects with the requirements of
the 1933 Act and the Regulations thereunder.
(xvii) The execution, delivery and performance by the
Company of the Trust Agreement, the Loan Sale Agreement and the
Transfer Agreement do not require the consent or approval of, the
giving of notice to, the registration with, or the taking of any
other action in respect of any federal, state or other governmental
agency or authority which has not previously been effected.
(xviii) To such counsel's knowledge, there are no pending
or overtly threatened lawsuits or claims against the Company or
relating to the transactions contemplated by the Underwriting
Agreement, the Terms Agreement, the Trust Agreement, the Loan Sale
Agreement and the Transfer Agreement which, if adversely determined,
would have a material adverse effect on the transactions contemplated
by the Underwriting Agreement, the Terms Agreement, the Trust
Agreement, the Loan Sale Agreement and the Transfer Agreement.
(xix) Each Class ____ Note is an "Eligible Security" within
the meaning of Rule 2a-7(a)(9) promulgated under the 1940 Act.
Such counsel shall deliver to you such additional opinions addressing
the transfer by the Company to the Trust of its right, title and interest in
and to the Student Loans and other property included in the Trust on the
Closing Time as may be required by each Rating Agency rating the Securities.
Such counsel shall state that they have participated in the
conferences with officers and other representatives of the Company, your
counsel, representatives of the independent accountants for the Company and you
at which the contents of the Registration Statement and the Prospectus were
discussed and, although such counsel are not passing upon and do not assume
responsibility for, the factual accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except as
stated in paragraph (xvi) above) and have made no independent check or
verification thereof for the purpose of rendering this opinion, on the basis of
the foregoing (relying as to materiality to a large extent upon the
certificates of officers and other representatives of the Company), nothing has
come to their attention that leads such counsel to believe that the
Registration Statement, when it became effective, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Registration Statement and
12
<PAGE>
the Prospectus on the date of the Terms Agreement contained, and the Prospectus
on the date hereof contains, any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that such counsel need express no view with respect to the
financial statements, schedules and other financial, statistical and numerical
data included in or incorporated by reference into the Registration Statement
or the Prospectus.
(2) The favorable opinion, dated as of the applicable Closing Time,
of counsel to the Seller, as seller of the Student Loans, in form and substance
satisfactory to you and your counsel, to the effect that:
(i) The Seller has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The Seller is qualified to do business, and is in good
standing, as a foreign corporation in each U.S. jurisdiction in which
the character of the business owned or leased by it makes such
qualification necessary, except where the failure to be so qualified
would not have a material adverse effect on the financial condition
of the Seller.
(iii) The execution and delivery by the Seller of the Loan
Sale Agreement are within the corporate power of the Seller and have
been duly authorized by all necessary corporate action on the part of
the Seller.
(iv) The Loan Sale Agreement has been duly authorized,
executed and delivered by the Seller, and is a valid and binding
obligation of the Seller enforceable against the Seller in accordance
with its terms.
(v) None of the transfer of the Student Loans to the
Company, the issue and sale of the Securities, the consummation of
the transactions contemplated hereby or the fulfillment of the terms
hereof will, to the best of such counsel's knowledge, conflict with
or constitute a breach of, or default under, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which
the Seller is a party or by which it may be bound or to which the
property or assets of the Seller are subject (which contracts,
indentures, mortgages, loan agreements, notes, leases and other such
instruments have been identified by the Seller to such counsel), nor
will such action result in any violation of the provisions of the
certificate of incorporation or by laws of the Seller or, to the best
of such counsel's knowledge, any order or regulation known to us to
be applicable to the Seller of any state or federal court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over the Seller.
(vi) To the best of such counsel's knowledge, no filing or
registration with or notice to or consent, approval, authorization or
order of any [Massachusetts] or federal court or governmental
authority or agency is required
13
<PAGE>
to be obtained by the Seller for the consummation by the Seller of
the transactions contemplated by the Loan Sale Agreement.
(vii) The execution, delivery and performance by the Seller
of the Loan Sale Agreement do not require the consent or approval of,
the giving of notice to, the registration with, or the taking of any
other action in respect of any federal, state or other governmental
agency or authority which has not previously been effected.
(viii) To such counsel's knowledge, there are no pending or
overtly threatened lawsuits or claims against the Seller or relating
to the transactions contemplated by the Loan Sale Agreement which, if
adversely determined, would have a material adverse effect on the
transactions contemplated by the Loan Sale Agreement.
(3) The favorable opinion of counsel to the Indenture Trustee, dated
as of the applicable Closing Time, addressed to you and in form and scope
satisfactory to your counsel, to the effect that:
(i) The Indenture Trustee is a national banking association
duly organized and validly existing under the laws of the United
States.
(ii) The Indenture Trustee has the full corporate trust
power to accept the office of indenture trustee under the Indenture
and to enter into and perform its obligations under the Indenture,
the Transfer Agreement, the Servicing Agreement and the
Administration Agreement.
(iii) The execution and delivery of the Indenture, the
Transfer Agreement and the Administration Agreement and the
acceptance of the Servicing Agreement and the performance by the
Indenture Trustee of its obligations under the Indenture, the
Transfer Agreement, the Servicing Agreement and the Administration
Agreement have been duly authorized by all necessary corporate action
of the Indenture Trustee and each has been duly executed and
delivered by the Indenture Trustee.
(iv) The Indenture, the Transfer Agreement, the Servicing
Agreement and the Administration Agreement constitute valid and
binding obligations of the Indenture Trustee enforceable against the
Indenture Trustee in accordance with their terms.
(v) The execution and delivery by the Indenture Trustee of
the Indenture, the Transfer Agreement and the Administration
Agreement and the acceptance of the Servicing Agreement do not
require any consent, approval or authorization of, or any
registration or filing with, any New York or United States federal
governmental authority, other than the qualification of the Indenture
Trustee under the Trust Indenture Act.
14
<PAGE>
(vi) Each of the Notes has been duly authenticated by the
Indenture Trustee.
(vii) Neither the consummation by the Indenture Trustee of
the transactions contemplated in the Transfer Agreement, the
Servicing Agreement, the Indenture or the Administration Agreement
nor the fulfillment of the terms thereof by the Indenture Trustee
will conflict with, result in a breach or violation of, or constitute
a default under any law or the charter, bylaws or other
organizational documents of the Indenture Trustee or the terms of any
indenture or other agreement or instrument known to such counsel to
which the Indenture Trustee or any of its subsidiaries is a party or
is bound or any judgment, order or decree known to such counsel to be
applicable to the Indenture Trustee or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Indenture Trustee or any of
its subsidiaries.
(viii) To the knowledge of such counsel there is no action,
suit or proceeding pending or threatened against the Indenture
Trustee (as trustee under the Indenture or in its individual
capacity) before or by any governmental authority that, if adversely
decided, would materially and adversely affect the ability of the
Indenture Trustee to carry out the transactions contemplated in the
Indenture, the Transfer Agreement, the Servicing Agreement or the
Administration Agreement.
(ix) The execution, delivery and performance by the
Indenture Trustee of the Transfer Agreement, the Servicing Agreement,
the Indenture and the Administration Agreement will not subject any
of the property or assets of the Trust or any portion thereof to any
lien created by or arising under the Indenture Trustee that is
unrelated to the transactions contemplated in such Agreements.
(x) The Indenture Trustee is an "eligible lender" as such
term is defined in Section 435(d) of the Higher Education Act for
purposes of holding legal title to the Financed Student Loans.
(4) The favorable opinion of counsel to the Owner Trustee, dated as
of the applicable Closing Time addressed to you and in form and scope
satisfactory to your counsel, to the effect that:
(i) The Trust has been duly formed and is validly existing
as a business trust under the Delaware Business Trust Act, 12 Del. C.
ss. 3801 et seq. (the "Business Trust Statute").
(ii) The Owner Trustee is a banking or trust corporation
duly incorporated and validly existing under the laws of the State of
Delaware.
(iii) The Owner Trustee has the full corporate trust power
and authority to enter into and perform its obligations under the
Trust Agreement and,
15
<PAGE>
on behalf of the Trust, under the Indenture, the Transfer Agreement,
the Servicing Agreement and the Administration Agreement.
(iv) The execution and delivery of the Trust Agreement and,
on behalf of the Trust, of the Indenture, the Transfer Agreement, the
Servicing Agreement, the Administration Agreement, the Certificates
and the Notes and the performance by the Owner Trustee of its
obligations under the Trust Agreement, the Indenture, the Transfer
Agreement, the Servicing Agreement and the Administration Agreement
have been duly authorized by all necessary action of the Owner
Trustee and each has been duly executed and delivered by the Owner
Trustee.
(v) The Trust Agreement constitutes valid and binding
obligations of the Owner Trustee enforceable against the Owner
Trustee in accordance with its terms.
(vi) The execution and delivery by the Owner Trustee of the
Trust Agreement and, on behalf of the Trust, of the Indenture, the
Transfer Agreement, the Servicing Agreement and the Administration
Agreement do not require any consent, approval or authorization of,
or any registration or filing with, any Delaware or United States
federal governmental authority, having trust power over the Owner
Trustee, other than those consents, approvals or authorizations as
have been obtained and the filing of the Certificate of Trust with
the Secretary of State of the State of Delaware.
(vii) The Owner Trustee has duly executed and delivered the
Trust Agreement and the Certificates, the Notes, the Indenture, the
Transfer Agreement, the Servicing Agreement and the Administration
Agreement have been duly executed and delivered by the Trust. The
Certificates have been duly authenticated by the Trust.
(viii) Neither the consummation by the Owner Trustee of the
transactions contemplated in the Transfer Agreement, the Servicing
Agreement, the Indenture, the Trust Agreement or the Administration
Agreement nor the fulfillment of the terms thereof by the Owner
Trustee will conflict with, result in a breach or violation of, or
constitute a default under any law or the charter, bylaws or other
organizational documents of the Owner Trustee or the terms of any
indenture or other agreement or instrument known to such counsel to
which the Owner Trustee or any of its subsidiaries is a party or is
bound, or any judgment, order or decree known to such counsel to be
applicable to the Owner Trustee or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Owner Trustee or any of its
subsidiaries.
(ix) To the knowledge of such counsel there is no action,
suit or proceeding pending or threatened against the Owner Trustee
(as owner trustee
16
<PAGE>
under the Trust Agreement or in its individual capacity) before or by
any governmental authority that, if adversely decided, would
materially adversely affect the ability of the Owner Trustee to
perform its obligations thereunder.
(x) The execution, delivery and performance by the Owner
Trustee (as trustee under the Trust Agreement or in its individual
capacity, as the case may be) of the Transfer Agreement, the
Servicing Agreement, the Indenture, the Trust Agreement or the
Administration Agreement will not subject any of the property or
assets of the Trust or any portion thereof to any lien created by or
arising under the Owner Trustee that is unrelated to the transactions
contemplated in such agreements.
(5) To the favorable opinion of counsel to the Seller, dated as of
the applicable Closing Time, addressed to you and in form and scope
satisfactory to your counsel to the effect that the Seller has effectively
conveyed to the Company all of its right, title and interest in and to such
Student Loans as of the applicable Closing Time, and upon the occurrence of any
proceedings with respect to the Seller under the federal or state bankruptcy,
insolvency or similar law, or the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Seller or of any substantial part of its property or
the making by the Seller of an assignment for the benefit of creditors, such
Student Loans would not be deemed to be part of the assets of the Seller
pursuant to the principles of substantive consolidation or otherwise.
(6) The favorable opinion of counsel to the Company regarding the
perfected transfer of the Student Loans to the Trust and the grant of a first
perfected security interest in the Student Loans to the Indenture trustee
pursuant to the Indenture.
(7) The favorable opinion or opinions, dated as of the applicable
Closing Time, of counsel for the Underwriters with respect to the issue and
sale of the Securities, the Registration Statement, this Agreement, the
Prospectus, the applicable Prospectus Supplement and other related matters as
the Underwriters may require.
(8) The opinion, dated as of the applicable Closing Time, of
____________, tax counsel to the Company, in form and substance satisfactory to
you and your counsel to the effect that:
(i) The statements in the Prospectus under the headings
["Summary of Terms Tax Considerations" and " ERISA Considerations",
and "Certain Legal Aspects of the Student Loans", "Certain Federal
Income Tax Consequences", "Certain State Tax Consequences" and "ERISA
Considerations"], and the statements in the Prospectus Supplement
under the headings ["Summary Tax Considerations" and " ERISA
Considerations", and "Certain Federal Income Tax and State Tax
Consequences", and "ERISA Considerations"], to the extent that they
constitute matters of law or legal conclusions with respect
17
<PAGE>
thereto, have been reviewed by such counsel and are correct in all
material respects.
(ii) The Notes will be treated as debt for federal income
tax purposes and the Trust will not be classified as an association
which is taxable as a corporation.
(9) The favorable opinion of counsel to the Servicer, dated the
Closing Time, satisfactory in form and substance to you and your counsel, to
the effect that:
(i) The Servicer has been duly organized and is validly
existing as a Delaware corporation in good standing under the laws
thereof with full power and authority (corporate and other) to own
its properties and conduct its business as currently conducted by it,
and to enter into and perform its obligations under the Servicing
Agreement, and had at all relevant times, and now has, the power,
authority and legal right to service the Financed Student Loans
consistent with all applicable conditions, restrictions and
limitations of the federal Higher Education Act of 1965, as amended
(the "Higher Education Act").
(ii) The Servicing Agreement has been duly authorized,
executed and delivered by the Servicer and is the legal, valid and
binding obligation of the Servicer in accordance with its terms.
(iii) None of the execution and delivery by the Servicer of
the Servicing Agreement, the consummation by the Servicer of the
transactions contemplated therein, or the fulfillment of the terms
thereof by the Servicer will conflict with, result in a breach or
violation of, or constitute a default under any law or the charter,
bylaws or other organizational documents of the Servicer or of the
terms of any indenture or other agreement or instrument to which the
Servicer is a party or by which the Servicer is bound, or result in a
violation of or contravene the terms of any statute, order or
regulation applicable to the Servicer of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Servicer.
(iv) To the knowledge of such counsel there are no actions,
proceedings or investigations pending or, to the best of such
counsel's knowledge after due inquiry and reasonable investigation,
threatened against the Servicer before or by any governmental
authority that might materially and adversely affect the performance
by the Servicer of its obligations under, or the validity or
enforceability of, the Servicing Agreement.
(v) Nothing has come to such counsel's attention that would
lead such counsel to believe that the representations and warranties
of the Servicer contained in the Servicing Agreement are other than
as stated therein.
18
<PAGE>
(10) The favorable opinion of counsel to the Eligible Lender Trustee,
dated the Closing Time and satisfactory in form and substance to you and your
counsel, to the effect that:
(i) The Eligible Lender Trustee is a national banking
association duly organized and validly existing under the laws of the
United States.
(ii) The Eligible Lender Trustee is an "eligible lender" as
such term is defined in Section 435(d) of the Higher Education Act
for purposes of holding legal title to the Financed Student Loans.
(c) At the applicable Closing Time, you shall have received a
certificate of the President or a Vice President of the Company,
dated as of such Closing Time, to the effect that the representations
and warranties of the Company contained in Section 1 hereof are true
and correct with the same force and effect as though such Closing
Time were a Representation Date.
(d) You shall have received from a firm of independent certified
public accountants acceptable to you, a letter, dated as of the date
of the applicable Terms Agreement, or as soon thereafter as is
practicable, and as of the applicable Closing Time, delivered at such
times, in the form heretofore agreed to.
(e) At the applicable Closing Time you shall have received, addressed
to you, any additional opinions delivered by counsel pursuant to the
request of the Rating Agency or Rating Agencies rating the
Securities.
(f) At the applicable Closing Time, counsel for the Underwriters
shall have been furnished with such documents and opinions as they
reasonably may require for the purpose of enabling them to pass upon
the issuance and sale of the Securities as herein contemplated and
related proceedings or in order to evidence the accuracy and
completeness of any of the representations and warranties, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and
sale of the Securities as herein contemplated shall be satisfactory
in form and substance to you and counsel for the Underwriters.
(g) At the applicable Closing Time, each of the representations and
warranties of the Company set forth in the Trust Agreement, Loan Sale
Agreement and the Transfer Agreement and of the Seller in the Loan
Sale Agreement will be true and correct.
(h) As of the applicable Closing Time, each Guarantee Agreement will
have been duly and validly authorized, executed and delivered by, and
will constitute a legal, valid and binding obligation of, the related
Guarantor, enforceable in accordance with its terms.
19
<PAGE>
(i) As of the applicable Closing Time, each of the Trust Agreement,
Loan Sale Agreement and the Transfer Agreement will have been duly
authorized, executed and delivered by, and will constitute a legal,
valid and binding obligation of, the Company, enforceable against the
Company in accordance with its terms.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, the applicable Terms Agreement
may be terminated by you by notice to the Company at any time at or prior to
the applicable Closing Time, and such termination shall be without liability of
any party to any other party except as provided in Section 7 hereof.
Section 5. Investor Information. Each Underwriter may prepare or
provide to prospective investors certain Computational Materials, ABS Term
Sheets or Collateral Term Sheets in connection with its offering of the
Securities, subject to the following conditions:
(a) Such Underwriter shall comply with the requirements of the
No-Action Letter of May 20, 1994 issued by the Commission to Kidder,
Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated
and Kidder Structured Asset Corporation, as made applicable to other
issuers and underwriters by the Commission in response to the request
of the Public Securities Association dated May 24, 1994
(collectively, the "Kidder/PSA Letter"), and the requirements of the
No-Action Letter of February 17, 1995 issued by the Commission to the
Public Securities Association (the "PSA Letter" and, together with
the Kidder/PSA Letter, the "No-Action Letters").
(b) For purposes hereof, "Computational Materials" shall have the
meaning given such term in the No-Action Letters, but shall include
only those Computational Materials that have been prepared or
delivered to prospective investors by an Underwriter. For purposes
hereof, "ABS Term Sheets" and "Collateral Term Sheets" shall have the
meanings given such terms in the PSA Letter but shall include only
those ABS Term Sheets or Collateral Term Sheets that have been
prepared or delivered to prospective investors by an Underwriter.
(c) Each Underwriter shall provide to the Company any Computational
Materials, ABS Term Sheets or Collateral Term Sheets which are
provided to investors no later than the date preceding the date such
Computational Materials, ABS Term Sheets or Collateral Term Sheets
are required to be filed pursuant to the applicable No-Action
Letters. Each Underwriter may provide copies of the foregoing in a
consolidated or aggregated form including all information required to
be filed.
(d) In the event that the Company or any Underwriter discovers an
error in the Computational Materials, ABS Term Sheets or Collateral
Term Sheets, the Underwriter that prepared such material shall
prepare corrected Computational Materials, ABS Term Sheets or
Collateral Term Sheets and deliver it to the Company for filing
pursuant to Section 3(i) hereof.
20
<PAGE>
Section 6. Payment of Expenses. The Company and [ ] jointly and
severally agree to pay all expenses incident to the performance of its
obligations under this Agreement, including without limitation those related to
(i) the filing of the Registration Statement and all amendments thereto, (ii)
the printing and delivery to the Underwriters, in such quantities as you may
reasonably request, of copies of this Agreement, each Terms Agreement, any
agreements among Underwriters and selling agreements and the Underwriters'
questionnaires and powers of attorney, (iii) the preparation, issuance and
delivery of the Securities to the Underwriters, (iv) the fees and disbursements
of the Company's counsel and accountants, (v) the qualification of the
Securities under securities and Blue Sky laws and the determination of the
eligibility of the Securities for investment in accordance with the provisions
of Section 3(f) hereof, including filing fees, and the fees and disbursements
of counsel for the Underwriters in connection therewith and in connection with
the preparation of any Blue Sky Survey and Legal Investment Survey, (vi) the
printing and delivery to the Underwriters, in such quantities as you may
reasonably request, hereinafter stated, of copies of the Registration Statement
and Prospectus and all amendments and supplements thereto, and of any Blue Sky
Survey and Legal Investment Survey, (vii) the printing and delivery to the
Underwriters, in such quantities as you may reasonably request, of copies of
the Indenture, Trust Agreement, the Loan Sale Agreement and the Transfer
Agreement, (viii) the fees charged by investment rating agencies for rating the
Securities, (ix) the fees and expenses incurred in connection with the listing
of the Securities on any national securities exchange, (x) the fees and
expenses incurred with respect to the National Association of Securities
Dealers, Inc., including the fees and disbursements of counsel for the
Underwriters in connection therewith, (xi) the fees and expenses of the
Indenture Trustee, the Owner Trustee, the Interim Trustee and the Eligible
Lender Trustee, and their respective counsel, (xii) fees of counsel to the
Underwriters and (xiii) any fees of The Depository Trust Company.
If a Terms Agreement is terminated by you in accordance with the
provisions of Section 4 or Section 10(i) hereof, the Company and [ ] jointly
and severally agree to reimburse you for all reasonable out pocket expenses,
including the reasonable fees and disbursements of counsel for the
Underwriters.
Section 7. Indemnification. (a) The Company and [ ] jointly and
severally agree to indemnify and hold harmless the Underwriters and each
person, if any, who controls the Underwriters within the meaning of Section 15
of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of
a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
21
<PAGE>
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, (A) if such settlement is effected with the
written consent of the Company or (B) if such settlement is effected
without the written consent of the Company more than 30 days after
receipt by the Company of a notice from the Underwriters,
substantially reflecting the proposed terms of such settlement, to
which the Company has not responded prior to the date such settlement
is effected;
(iii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Computational Materials, ABS Term Sheets or Collateral Term
Sheets distributed by any Underwriter; unless such untrue statement
or alleged untrue statement of a material fact was made in reliance
upon and in conformity with Derived Information (defined below)
provided by the Underwriters expressly for use in the Computational
Materials, the ABS Term Sheets or the Collateral Term Sheets and the
untrue statement or alleged untrue statement did not derive from an
inaccuracy in the Seller-Provided Information (defined below) used in
the preparation of such Computational Materials, ABS Term Sheets or
Collateral Term Sheets;
(iv) against any and all expense whatsoever (including the
fees and disbursements of counsel chosen by you), reasonably incurred
in investigating, preparing to defend or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, to the extent that any such
expense is not paid under (i), (ii) or (iii) above, which expenses
shall be reimbursed as they are incurred; and
(v) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any action brought by
a third party against the Company and the Underwriters jointly in the
event that the Company enters into a settlement agreement with
respect to such action without the written consent of the
Underwriters.
This indemnity agreement will be in addition to any liability which
the Company and [ ] may otherwise have. Insofar as this indemnity may permit
indemnification for liabilities under the 1933 Act of any person who is a
partner of the Underwriters entitled to indemnity hereby or who controls the
Underwriters within the meaning of Section 15 of the 1933 Act and who, at the
date of this Agreement, is a director, officer or controlling person of the
Company, such indemnity agreement is subject to the undertaking of the Company
in the Registration Statement.
(b) Each Underwriter severally agrees to indemnify severally and hold
harmless the Company, each of the Company's directors, each of the
Company's officers
22
<PAGE>
who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
as follows:
(i) against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the
Underwriters expressly for use in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement
thereto); and
(ii) against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements
or alleged untrue statements made in the Computational Materials,
Collateral Term Sheets or ABS Term Sheets prepared or provided by
such Underwriter to the extent that such untrue statement or alleged
untrue statement of a material fact was made in reliance upon and in
conformity with Derived Information provided expressly for use in the
Computational Materials, the ABS Term Sheets or the Collateral Term
Sheets and the untrue statements or alleged untrue statements did not
derive from an inaccuracy in the Seller-Provided Information used in
the preparation of such Computational Materials, ABS Term Sheets or
Collateral Term Sheets.
This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
For purposes of this Agreement, as to each Underwriter, "Derived
Information" means such portion, if any, of the information delivered to the
Company by such Underwriter pursuant to Section 5 for filing with the
Commission on Form 8-K and:
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference; and
(ii) does not constitute Seller-Provided Information.
"Seller-Provided Information" means any computer tape (or other
information) furnished to any Underwriter by or on behalf of the Company
concerning the assets of the Trust.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it with respect to
which indemnity may be sought hereunder but failure to so notify an
indemnifying party shall not relieve it from any liability which it
may have on account of this indemnity agreement to the extent such
indemnifying party was not materially prejudiced by such failure or
which it may have otherwise than on account of this indemnity
agreement. An
23
<PAGE>
indemnifying party may participate at its own expense in the defense
of such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for the fees and expenses of more than
one counsel (in addition to local counsel) for all indemnified
parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same
general allegations or circumstances.
Section 8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 7 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and [ ]
jointly and severally on the one hand, and the Underwriters, on the other,
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement incurred by the
Company and one or more of the Underwriters (i) in such proportion as shall be
appropriate to reflect the relative benefit received by the Underwriters, as
represented by the percentage that the Underwriting discount or discounts on
the cover of such Prospectus Supplement bears to the initial public offering
price or prices as set forth thereon, and the Company shall be responsible for
the balance; or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the benefit referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other with
respect to statements or omissions which resulted in such loss, claim, damage
or liability, or action in respect thereof, as well as any other relevant
equitable considerations; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation and, provided further, you shall not be
required to contribute any amount in excess of the amount by which the total
price of the Securities purchased by you pursuant to the Terms Agreement
exceeds the amount of any damages which you have otherwise paid or become
liable to pay by reason of any untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section, each person, if any, who
controls the Underwriters within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as the Underwriters and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Company.
Section 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, shall remain operative and in full force and effect,
regardless of any termination of this Agreement, or any investigation made by
or on behalf of the Underwriters or controlling person thereof, or by or on
behalf of the Company and shall survive delivery of any Securities to the
Underwriters.
Section 10. Termination of Agreement. This Agreement may be
terminated for any reason at any time by either the Company or you upon the
giving of 30 days' written notice of such termination to the other party
hereto. You may also terminate such Terms Agreement, immediately upon notice to
the Company, at any time at or prior to the applicable Closing Time
24
<PAGE>
(i) if there has been, since the date of such Terms Agreement or since the
respective dates as of which information is given in the Registration Statement
or Prospectus any change, or any development involving a prospective change in,
or affecting, the condition, financial or otherwise, earnings, affairs or
business of the Company whether or not arising in the ordinary course of
business, which in your judgment would materially impair the market for, or the
investment quality of, the Securities, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, or if
there has occurred any outbreak or escalation of hostilities or other calamity
or crisis the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable to proceed with the
offering or delivery of the Securities or enforce contracts for the sale of the
Securities, or (iii) if trading generally on either the New York Stock Exchange
or the American Stock Exchange has been suspended, or minimum or maximum prices
for securities have been required, by either of said exchanges or by order of
the Commission or any other governmental authority, or if a banking moratorium
has been declared by either federal, Minnesota or New York authorities. In the
event of any such termination, (A) the covenants set forth in Section 3 hereof
with respect to any offering of Securities shall remain in effect so long as
the Underwriters own any such Securities purchased from the Company pursuant to
the applicable Terms Agreement and (B) the covenant set forth in Section 3(c),
the provisions of Section 6, the indemnity agreement set forth in Section 7,
and the contribution provisions set forth in Section 8, and the provisions of
Sections 9 and 14 shall remain in effect.
Section 11. Default by One or More Underwriter. No action taken
pursuant to this Section shall relieve any defaulting Underwriters from
liability with respect to any default of such Underwriters under this Agreement
and the applicable Terms Agreement.
In the event of a default by any Underwriter as set forth in this
Section, either you or the Company shall have the right to postpone the
applicable Closing Time for a period of time not exceeding seven days in order
that any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements may be effected.
Section 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to you at the address set forth on the first
page hereof, attention of the Syndicate Registration Department, with a copy to
the General Counsel. Notices to the Company shall be directed to EFG Funding
Corporation, One Financial Place, Suite 2-2, 297 North Street, Hyannis,
Massachusetts 02601, attention of ____________________________.
Section 13. Parties. This Agreement shall inure to the benefit of and
be binding upon you and the Company and any Terms Agreement shall inure to the
benefit of and be binding upon the Company and any Underwriter who becomes a
party to a Terms Agreement, and their respective successors. Nothing expressed
or mentioned in this Agreement or a Terms Agreement is intended or shall be
construed to give any person, firm or corporation, other than the parties
hereto or thereto and their respective successors and the controlling persons
and officers and directors referred to in Sections 7 and 8 and their heirs and
legal representatives any legal or equitable right, remedy or claim under or
with respect to this Agreement or a Terms Agreement or any provision
25
<PAGE>
herein or therein contained. This Agreement and any Terms Agreement and all
conditions and provisions hereof or thereof are intended to be for the sole and
exclusive benefit of the parties and their respective successors and said
controlling persons and officers and directors and their heirs and legal
representatives (to the extent of their rights as specified herein and therein)
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
Section 14. Governing Law and Time. This Agreement and each Terms
Agreement shall be governed by the laws of the State of New York. Specified
times of day refer to New York City time.
Section 15. Counterparts. This Agreement and any Terms Agreement may
be executed in counterparts, each of which shall constitute an original of any
party whose signature appears on it, and all of which shall together constitute
a single instrument.
26
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and the Company in accordance with its terms.
Very truly yours,
EFG FUNDING CORPORATION
By______________________________
Name:
Title:
[-------------------------]
By______________________________
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
LEHMAN BROTHERS INC.
By______________________________
Name:
Title:
27
<PAGE>
EXHIBIT A
EFG FUNDING CORPORATION
(Seller and Servicer)
EFG Student Loan Trust _____-___
[FORM OF TERMS AGREEMENT]
Dated: _____________
To: EFG Funding Corporation (the "Company")
Re: Underwriting Agreement dated _______, 1999
Series Designation: EFG Student Loan Trust _____-___
- -------------------
Underwriters:
- -------------
Lehman Brothers Inc.
- -------------------
Terms of the Notes:
Original
Principal
Class Amount* Interest Rate
- -------------------------------------------------------------------------------
__
Class ___ $
Class ___ $
* Approximate. Subject to permitted variance of plus or minus 5%.
A-1
<PAGE>
Terms of the Certificates:
Original
Principal
Class Amount* Pass-Through Rate
- -------------------------------------------------------------------------------
__
Class ___ $
Class ___ $
* Approximate. Subject to permitted variance of plus or minus 5%.
Ratings of the Securities:
Class ___: "___" by ___ and "___" by ________.
Class ___: "___" by ___ and "___" by ________.
Class ___: "___" by ___ and "___" by ________.
Class ___: "___" by ___ and "___" by ________.
Seller:
EFG Funding Corporation
Servicer:
EFG Technologies, Inc.
Trust:
The Trust will include, among other things, a pool of student loans
(the "Initial Financed Student Loans") and certain monies due thereunder on and
after the applicable Cutoff Date. The Company will acquire the Initial Financed
Student Loans pursuant to a loan sale agreement (the "Loan Sale Agreement")
between EFG Financial Group, Inc. ("EFG"), as seller and the Company, as
purchaser. Such Initial Financed Student Loans will be sold to the Eligible
Lender Trustee (as defined below) on behalf of the Trust by the Seller (and,
with respect to legal title to the Financed Student Loans, by The First
National Bank of Chicago, as interim trustee for the Seller (the "Interim
Trustee")) pursuant to a transfer agreement (the "Transfer Agreement") among
the Trust, the Seller, the Interim Trustee and The First National Bank of
Chicago, as eligible lender trustee (the "Eligible Lender Trustee"). Under
certain circumstances after the Closing Time (as defined below), the Eligible
Lender Trustee, acting on behalf of the Trust, may acquire additional student
A-2
<PAGE>
loans ("Additional Acquired Student Loans") or may originate certain student
loans (such originated Student Loans, together with the Initial Financed
Student Loans and the Additional Acquired Student Loans being referred to
herein, collectively, as the "Financed Student Loans"). The Financed Student
Loans are to be serviced by EFG Technologies, Inc., a Delaware corporation (the
"Servicer") pursuant to a servicing agreement (the "Servicing Agreement"),
among the Trust, the Servicer, the Seller and the Eligible Lender Trustee.
Credit Enhancement:
Distribution Dates:
Each January __, April __, July __ and October __ (or if any such day
is not a Business Day, the next succeeding Business Day).
Purchase Price:
Subject to the terms of the following paragraph, the purchase price
payable by the Underwriter for the Securities is as follows: _________% of the
principal amount of the Class __ Notes; __________% of the principal amount of
the Class ___ Notes; _________% of the principal amount of the Class ___
Certificates; and __________% of the principal amount of the Class ___
Certificates.
Payment of the purchase price shall be in immediately available
federal funds wired to such bank as may be designated by the Company.
Underwriting Commission:
Notwithstanding anything to the contrary in the Underwriting
Agreement, no additional underwriting commission shall be payable by the
Company to the Underwriter in connection with the purchase of the Securities.
Public Offering Price and/or method of determining price at which the
Underwriter will sell the Securities is as follows:
Class ___ Notes: _________%
Class ___ Notes: _________%
Class ___ Certificates: _________%
Class ___ Certificates: _________%
Closing Time and Location:
On or about ________________ at the offices of Willkie Farr &
Gallagher, New York, New York.
A-3
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and the Company in accordance with its terms.
LEHMAN BROTHERS INC.
By
------------------------------
Name:
Title:
--------------------------------
By
------------------------------
Name:
Title:
ACCEPTED:
EFG FUNDING CORPORATION
By
--------------------------------
Name:
Title:
A-4
<PAGE>
CERTIFICATE OF INCORPORATION
OF
EFG FUNDING CORPORATION
FIRST: The name of this corporation is EFG Funding Corporation (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Company, 1209 Orange Street, in the
City of Wilmington, County of New Castle, 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation are limited solely to the following:
(a) from time to time, to purchase or otherwise acquire from
Educational Finance Group, LLP, a Texas limited liability partnership
(together with any successors and assigns thereto, "EFG"), affiliates of EFG
and other third parties, existing loans to students and/or parents of students
attending post-secondary educational programs, including loans made and/or
accepted under the Higher Education Act of 1965, as amended and/or loans made
outside such act that may or may not be privately guaranteed or insured
("Student Loans"), and to carry out any lawful activities which relate to the
purchase or acquisition of Student Loans.
(b) from time to time, to originate, own, hold, sell, transfer,
assign, pledge or otherwise deal with Student Loans.
(c) from time to time, to issue indebtedness and to pledge and assign
as security for its obligations under any such indebtedness, all of its right,
title and interest to and in its property.
(d) from time to time, enter into, make and perform all contracts and
other undertakings, and engage in all activities and transaction as the Board
of Directors may deem necessary or advisable to the carrying out of the
foregoing objects and purposes, including, but not limited to, any activities
or transactions necessary to effectuate any securitization transactions of
Student Loans.
(e) engage in any lawful act or activity and exercise any powers
permitted to corporations organized under the laws of the State of Delaware,
so long as the same are incidental to or necessary or convenient to accomplish
the purposes specified in this Article THIRD.
<PAGE>
FOURTH: The total number of shares of all classes of stock that the
Corporation is authorized to issue is one hundred (100) shares, all of which
shares shall be common stock, $0.01 par value per share ("Common Stock"). All
shares of Common Stock will be identical and will entitle the holders thereof
to the same rights and privileges.
(a) Voting Rights. Except as set forth herein or as otherwise
required by law, each outstanding share of Common Stock shall be entitled to
vote on each matter on which the stockholders of the Corporation shall be
entitled to vote, and each holder of Common Stock shall be entitled to one
vote for each share of such stock held by such holder.
(b) Dividends and Other Distributions. The Board of Directors of the
Corporation may cause dividends to be paid to holders of shares of Common
Stock out of funds legally available for the payment of dividends. Any
dividend or distribution on the Common Stock shall be payable on shares of all
Common Stock share and share alike.
(c) Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation,
the holders of shares of Common Stock shall be entitled to share ratably,
share and share alike, in the remaining net assets of the Corporation.
FIFTH: In furtherance and not in limitation of the powers conferred
by statute, the Corporation's Board of Directors is expressly authorized to
alter, amend, repeal or adopt the By-Laws of the Corporation; provided,
however, that any such alteration, amendment, repeal or adoption that relates
to or affects in any way the criteria for or the qualifications of the
"Independent Directors" (as such term is defined in the Seventh Article
hereof), or the requirement that the Corporation maintain at least two
Independent Directors, must receive the prior affirmative vote or written
consent of each such Independent Director; provided, further, that in no event
shall the number of Independent Directors be reduced to fewer than one.
SIXTH: Elections of directors need not be by written ballot unless,
and to the extent, so provided in the Corporation's By-Laws.
SEVENTH: Notwithstanding any provision hereof to the contrary, the
following shall govern: in order to preserve and ensure its separate and
distinct corporate identity, in addition to the other provisions set forth in
this certificate of incorporation, the Corporation shall conduct its affairs
in accordance with the following provisions:
(a) It shall establish and maintain an office through which its
business shall be conducted separate and apart from
-2-
<PAGE>
those of its parent and any affiliate (although it may lease space from its
parent or any affiliate on terms that may be characterized as arms length and
commercially reasonable) and shall allocate fairly and reasonably any overhead
expenses that are shared with an affiliate, including for shared office space
and services performed by any employee of an affiliate.
(b) It shall maintain separate corporate records and books of account
from those of its parent and any affiliate.
(c) Its Board of Directors shall hold appropriate meetings (or act by
unanimous consent) to authorize all appropriate corporate actions, and in
authorizing such actions, shall observe all corporate formalities. The
Corporation shall at all times, except as provided in Article FIFTH herein,
have at least two directors (each an "Independent Director") each of whom is
not and for the prior five years has not been (i) a stockholder (whether
direct, indirect or beneficial), customer or supplier of EFG or any of the
foregoing's affiliates (the "Related Corporate Group"); (ii) a director,
officer, employee, affiliate or associate of any member of the Related
Corporate Group (other than the Corporation); (iii) a person related to any
person referred to in clauses (i) or (ii); or (iv) a trustee, conservator or
receiver for any member of the Related Corporate Group; and has (A) prior
experience as an independent director for a corporation whose charter
documents required the unanimous consent of all independent directors thereof
before such corporation could consent to the institution of bankruptcy or
insolvency proceedings against it or could file a petition seeking relief
under any applicable federal or state law relating to bankruptcy and (B) at
least one year of employment experience with one or more entities that
provide, in the ordinary course of their respective businesses, advisory,
management or placement services to issuers of securitization or structured
finance instruments, agreements or securities. In the event of the death,
incapacity, resignation or removal of any Independent Director, the Board of
Directors shall promptly appoint a replacement Independent Director; provided,
however, that the Board of Directors shall not vote on any matter requiring
the consent of any Independent Director unless and until at least two
Independent Directors (unless amended pursuant to Article FIFTH) have been
duly appointed to serve on the Board.
(d) It shall not commingle assets with those of its parent and any
affiliate.
(e) It shall conduct its own business in its own name.
(f) It shall maintain financial statements separate from its parent
and any affiliate.
(g) It shall pay any liabilities out of its own funds, including
salaries of any employees, not funds of its parent or any affiliate.
-3-
<PAGE>
(h) It shall maintain an arm's length relationship with its parent
and any affiliate.
(i) It shall not guarantee or become obligated for the debts of any
other entity, including its parent or any affiliate or hold out its credit as
being available to satisfy the obligations of others.
(j) It shall use stationery, invoices and checks separate from its
parent and any affiliate.
(k) It shall not pledge its assets for the benefit of any other
entity, including its parent and any affiliate.
(l) It shall hold itself out as an entity separate from its parent
and any affiliate.
(m) It shall correct any known misunderstanding regarding its
separate identity.
(n) It shall maintain adequate capital in light of its contemplated
activities.
(o) It shall not make loans to any other person or entity or to buy
or hold evidence of indebtedness issued by any other person or entity (other
than cash and investment-grade securities).
(p) It shall maintain its bank accounts separate from any other
person or entity.
For purpose of this Article SEVENTH, the following terms shall have
the following meanings:
"affiliate" means any person controlling or controlled by or under
common control with the parent, including, without limitation (i) any
person who has a familial relationship, by blood, marriage or
otherwise with any director, officer or employee of the corporation,
its parent, or any affiliate thereof and (ii) any person which
receives compensation for administrative, legal or accounting
services from this corporation, its parent or any affiliate. For
purposes of this definition, "control" when used with respect to any
specified person, means the power to direct the management and
policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"parent" means, with respect to a corporation, any other corporation
owning or controlling, directly or
-4-
<PAGE>
indirectly, fifty percent (50%) or more of the voting stock of such
corporation.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company,
trust (including any beneficiary thereof), unincorporated
organization, or government or any agency or political subdivision
thereof.
EIGHTH: 1. Indemnification. The Corporation shall indemnify to the
fullest extent permitted under and in accordance with the laws of the State of
Delaware any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
trustee, employee or agent of or in any other similar capacity with another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, shall
not, of itself, create a presumption that the person had reasonable cause to
believe that his conduct was unlawful.
2. Payment of Expenses. Expenses (including attorneys' fees) incurred
in defending any civil, criminal, administrative or investigative action, suit
or proceeding shall (in the case of any action, suit or proceeding against a
director of the Corporation) or may (in the case of any action, suit or
proceeding against an officer, trustee, employee or agent) be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
person to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in this
Article EIGHTH.
3. Nonexclusivity of Provision. The indemnification and other rights
set forth in this Article EIGHTH shall not be
-5-
<PAGE>
exclusive of any provisions with respect thereto in the By-laws or any other
contract or agreement between the Corporation and any officer, director,
employee or agent of the Corporation.
4. Effect of Repeal. Neither the amendment nor repeal of this Article
EIGHTH, subparagraph 1, 2, or 3, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with Article EIGHTH, subparagraph 1,
2, or 3, shall eliminate or reduce the effect of this Article EIGHTH,
subparagraphs 1, 2, and 3, in respect of any matter occurring before such
amendment, repeal or adoption of an inconsistent provision or in respect of
any cause of action, suit or claim relating to any such matter which would
have given rise to a right of indemnification or right to receive expenses
pursuant to this Article EIGHTH, subparagraph 1, 2, or 3, if such provision
had not been so amended or repealed or if a provision inconsistent therewith
had not been so adopted.
5. Limitation on Liability. No director or officer shall be
personally liable to the Corporation or any stockholder for monetary damages
for breach of fiduciary duty as a director or officer, except for any matter
in respect of which such director or officer (A) shall be liable under Section
174 of the General Corporation Law of the State of Delaware or any amendment
thereto or successor provision thereto, or (B) shall be liable by reason that,
in addition to any and all other requirements for liability, he:
(i) shall have breached his duty of loyalty to the Corporation or
its stockholders;
(ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith;
(iii) shall have acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, shall
have acted in a manner involving intentional misconduct or a
knowing violation of law; or
(iv) shall have derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended
after the date hereof to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
6. Subordination. Anything in this Article EIGHTH to the contrary
notwithstanding, the obligations of the Corporation
-6-
<PAGE>
set forth in this Article shall be subject and subordinate to any of its
obligations or indebtedness to third parties and shall be payable only out of,
and to the extent of, funds of the Corporation.
NINTH: Subject to the limitations of Independent Directors in the
Seventh Article, to the extent permitted under the Delaware General
Corporation Law, any person (including, but not limited to, stockholders,
directors, officers and employees of the Corporation or any affiliate of the
Corporation) may engage in or possess an interest in other business ventures
of every nature and description, independently or with others, whether such
ventures are competitive with the Corporation or otherwise, and neither the
Corporation nor its stockholders shall have any right in or to such
independent ventures or to the income or profits derived therefrom.
TENTH: Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law, (a) the Corporation shall not, without
the affirmative vote of all of the members of the Board of Directors of the
Corporation (which must include the affirmative vote of all duly appointed
Independent Directors), (i) consent to the filing of bankruptcy or insolvency
proceedings against it, (ii) file a voluntary petition seeking or consent to
reorganization or relief under any applicable federal or state law relating to
bankruptcy, (iii) consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Corporation
or a substantial part of its property, (iv) make a general assignment for the
benefit of creditors, (v) admit in writing its inability to pay its debts
generally as they become due or (vi) take any corporate action in furtherance
of the actions set forth in clauses (i) through (v) of this paragraph; and
(b) the Corporation shall not take any of the following actions (i)
if there is outstanding any securities of the Corporation which has been
assigned a rating by a securities rating agency at the request of the
Corporation, without a written confirmation from such rating agency that such
rating will not be withdrawn or downgraded as a result of the proposed action
and (ii) without the affirmative vote of all the members of the Board of
Directors of the Corporation (which must include the affirmative vote of all
duly appointed Independent Directors):
(1) engage in any business or activity other than as set
forth in Article THIRD hereof; or
(2) dissolve or liquidate, in whole or in part, or
consolidate or merge with or into any other entity or convey or
transfer its properties and assets substantially as an entirety to
any entity.
-7-
<PAGE>
ELEVENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation in any
manner now or hereafter provided herein or by statute and, except as provided
in Article FIFTH, all rights, preferences and privileges conferred by this
Certificate of Incorporation upon stockholders, directors or any other person
are granted subject to such right; provided, however, that the Corporation
shall not take any of the following actions (i) if there is outstanding any
securities of the Corporation which has been assigned a rating by a securities
rating agency at the request of the Corporation, without a written
confirmation from such rating agency that such rating will not be withdrawn or
downgraded as a result of the proposed action and (ii) without the affirmative
vote of all the members of the Board of Directors of the Corporation (which
must include the affirmative vote of all duly appointed Independent
Directors): amend, alter, change or repeal any provision of Article THIRD,
FIFTH, SEVENTH, subsection 6 of EIGHTH, TENTH, ELEVENTH OR TWELFTH of this
Certificate of Incorporation (the "Restricted Articles"); and provided,
further, that the Corporation shall not amend or change any provision of any
Article other than the Restricted Articles so as to be inconsistent with the
Restricted Articles.
TWELFTH: When exercising any vote provided for in Article SEVENTH or
in clauses (a) or (b) of Article TENTH hereof, each director shall cast its
vote recognizing that it owes its fiduciary duty or other obligation with
respect to such vote to the Corporation (including, without limitation, the
Corporation's creditors) as well as to the stockholders of the Corporation.
When exercising any vote on whether the Corporation will take any action
described in paragraph (b) of Article TENTH hereof, each Director shall cast
its vote recognizing that it owes its primary fiduciary duty or other
obligation with respect to such vote to the Corporation (including, without
limitation, the Corporation's creditors) and not to the stockholders of the
Corporation (except as may specifically be required by the law of any
applicable jurisdiction). Every stockholder of the Corporation shall be deemed
to have consented to the foregoing by virtue of such stockholder's acquisition
of stock of the Corporation.
-8-
<PAGE>
THE UNDERSIGNED, being the sole incorporator of the Corporation named
in this Certificate, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, makes this Certificate,
declaring and certifying that this is his act and deed and that the facts
stated in this Certificate are true, and accordingly has set his hand this
22nd day of July 1998.
/s/Gilbert K.S. Liu
-------------------------
Gilbert K.S. Liu
Sole Incorporator
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
-9-
<PAGE>
EFG FUNDING CORPORATION
Incorporated Under the Laws of
the State of Delaware
BY-LAWS
-------
ARTICLE I
OFFICES
- -------
Section 1. The registered office of EFG FUNDING CORPORATION
(the "Corporation") in Delaware shall be at 1209 Orange Street in the City of
Wilmington, County of New Castle.
Section 2. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
Section 3. The Corporation shall maintain a business office
through which its business will be conducted separate from those of the
Corporation and its affiliates.
ARTICLE II
MEETINGS OF STOCKHOLDERS
- ------------------------
Section 1. Meetings of stockholders shall be held at any
place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the Corporation.
Section 2. The annual meeting of stockholders shall be held
each year on a date and at a time designated by the Board of Directors. At
each annual meeting, directors shall be elected and any other proper business
may be transacted.
Section 3. A majority of the stock issued and outstanding
and entitled to vote at any meeting of stockholders, the holders of which are
present in person or represented by proxy, shall constitute a quorum for the
transaction of business except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws. A quorum, once established,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not
<PAGE>
be present or represented at any meeting of the stockholders, a majority of
the voting stock represented in person or by proxy may adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat.
Section 4. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes, or the Certificate of Incorporation, or these By-Laws, a different
vote is required in which case such express provision shall govern and control
the decision of such question.
Section 5. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize
another person or persons to act for him by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than
three years prior to said meeting, unless said instrument provides for a
longer period. All proxies must be filed with the Secretary of the Corporation
at the beginning of each meeting in order to be counted in any vote at the
meeting. Each stockholder shall have one vote for each share of stock having
voting power, registered in his name on the books of the Corporation on the
record date set by the Board of Directors as provided in Article V, Section 6
hereof. All elections shall be had and all questions decided by a plurality
vote.
Section 6. Special meetings of the stockholders, for any
purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be
called by the President or the Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 7. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be
given which notice shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called.
-2-
<PAGE>
The written notice of any meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.
Section 8. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, 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 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken
at any annual or special meeting of such 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 III
DIRECTORS
- ---------
Section 1. The number of directors which shall constitute
the whole Board of Directors shall be not less than four nor more than seven.
The directors need not be stockholders or citizens of the United States or
residents of the State of Delaware. The Corporation shall at all times, except
as noted hereafter, have at least two Independent Directors (as such term is
defined in the Corporation's Certificate of Incorporation). In the event of
the death, incapacity, resignation or removal of
-3-
<PAGE>
any Independent Director, or in the event that any director acting as an
Independent Director shall cease to satisfy the eligibility conditions for an
Independent Director as set forth in the Corporation's Certificate of
Incorporation, the Board of Directors shall promptly appoint a replacement
Independent Director; provided, however, that the Board of Directors shall not
vote on any matter unless and until at least two Independent Directors have
been duly appointed to serve on the Board of Directors. The directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified; provided, however, that unless
otherwise restricted by the Certificate of Incorporation or by law, any
director or the entire Board of Directors may be removed, either with or
without cause, from the Board of Directors at any meeting of stockholders by a
majority of the stock represented and entitled to vote thereat.
Section 2. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, or increase in the
authorized number of directors may, subject to Section 1 above, be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. The directors so chosen shall hold office until the
next annual election of directors and until their successors are duly elected
and shall qualify, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy, the directors then in office
shall constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery
may, upon application of stockholders holding at least ten percent of the
total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in office.
Section 3. The property and business of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred
upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
- ----------------------------------
Section 4. The directors may hold their meetings and have
one or more offices, and keep the books of the Corporation outside of the
State of Delaware.
-4-
<PAGE>
Section 5. Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 6. Special meetings of the Board of Directors may be
called by the President on forty-eight hours' notice to each director, either
personally, by telegram or by telecopy; special meetings shall be called by
the President or the Secretary in like manner and on like notice on the
written request of two directors unless the Board of Directors consists of
only one director, in which case special meetings shall be called by the
President or Secretary in like manner or on like notice on the written request
of the sole director. No notice of the annual meeting of the Board of
Directors will be required if it is held immediately after the annual meeting
of the stockholders and if a quorum is present.
Section 7. At all meetings of the Board of Directors,
one-half of the entire Board of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these By-Laws and except that at least two Independent Directors must be
present to form a quorum for any matter which, pursuant to the Corporation's
Certificate of Incorporation or these By-Laws, requires the vote of each
Independent Director. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. Subject to the foregoing restrictions relating to the
Independent Director, if only one director is authorized, such sole director
shall constitute a quorum.
Section 8. Unless otherwise restricted by the Corporation's
Certificate of Incorporation or these By-Laws, 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 all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
Section 9. Unless otherwise restricted by the Corporation's
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any 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
-5-
<PAGE>
participation in a meeting shall constitute presence in person at such
meeting.
COMMITTEES OF DIRECTORS
- -----------------------
Section 10. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, designate one or more
committees, each such committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board of
Directors, and subject to the requirements of Article III, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal for the Corporation to be affixed to all papers which may require it,
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, amending the By-Laws of the Corporation, or
taking any other action which, pursuant to the Certificate of Incorporation,
requires the vote of the Independent Directors, and, unless the resolution or
the Certificate of Incorporation expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
Section 11. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
- -------------------------
Section 12. Unless otherwise restricted by the Certificate
of Incorporation or these By-Laws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director; provided, however, that
services provided by any director which are determined by the Board of
Directors to be ministerial and of negligible value will not be compensated.
No such payment shall preclude any director
-6-
<PAGE>
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
INDEMNIFICATION
- ---------------
Section 13. The Corporation shall indemnify every person who
was or is a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director, officer or employee of the
Corporation or, while a director, officer or employee of the Corporation, is
or was serving at the request of the Corporation as a director, officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
counsel fee), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
to the full extent permitted by applicable law.
ARTICLE IV
OFFICERS
- --------
Section 1. The officers of this Corporation shall be chosen
by the Board of Directors and shall include a President, a Vice President, a
Secretary and a Treasurer. The Corporation may also have at the discretion of
the Board of Directors such other officers as are desired, including a
Chairman of the Board, additional Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 2 hereof. In the event
there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or
dissimilar title. At the time of the election of officers, the directors may
by resolution determine the order of their rank. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these
By-Laws otherwise provide.
Section 2. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
Section 3. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4. The officers of the Corporation shall hold office
until their successors are chosen and qualify in their
-7-
<PAGE>
stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
- ---------------------
Section 5. The Chairman of the Board, if such an officer be
elected, shall, if present, preside at all meetings of the Board of Directors
and exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors or prescribed by these By-Laws.
If there is no President, the Chairman of the Board shall in addition be the
Chief Executive Officer of the Corporation and shall have the powers and
duties prescribed in Section 6 of this Article IV.
PRESIDENT
- ---------
Section 6. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there
be such an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall
have such other powers and duties as may be prescribed by the Board of
Directors or these By-Laws.
VICE PRESIDENTS
- ---------------
Section 7. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors,
shall perform all the duties of the President, and when so acting shall have
all the powers of and be subject to all the restrictions upon the President.
The Vice Presidents shall have such other duties as from time to time may be
prescribed for them, respectively, by the Board of Directors.
SECRETARY AND ASSISTANT SECRETARY
- ---------------------------------
Section 8. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose, and
shall perform like duties for the standing committees when required by the
Board of Directors. He
-8-
<PAGE>
shall give, or cause to be given, notice of all meetings of the stockholders
and of the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or these By-Laws. He shall keep in safe
custody the seal of the Corporation, and when authorized by the Board of
Directors, affix the same to any instrument requiring it, and when so affixed
it shall be attested by his signature or by the signature of an Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
Section 9. The Assistant Secretary, if there shall be one,
or the Assistant Secretaries, if there be more than one, in the order
determined by the Board of Directors, or if there be no such determination,
the Assistant Secretary designated by the Board of Directors, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURER
- ---------------------------------
Section 10. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects, in the name and to the credit
of the Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, he shall give the Corporation a bond, in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors, for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the Corporation.
Section 11. The Assistant Treasurer, if there shall be one,
or the Assistant Treasurers, if there shall be more than one, in the order
determined by the Board of Directors, or if there be no such determination,
the Assistant Treasurer designated by the Board of Directors, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
-9-
<PAGE>
ARTICLE V
CERTIFICATES OF STOCK
- ---------------------
Section 1. Every holder of stock of the Corporation shall be
entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman or Vice Chairman of the Board, or the President or a Vice
President, and by the Secretary or an Assistant Secretary, or the Treasurer or
an Assistant Treasurer of the Corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the Corporation.
Certificates of stock of the Corporation shall be in the form approved by the
Board of Directors.
Section 2. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent, or registrar at the date of
issue.
Section 3. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation
Law of Delaware, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate, which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
LOST, STOLEN OR DESTROYED CERTIFICATES
- --------------------------------------
Section 4. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the
-10-
<PAGE>
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
TRANSFERS OF STOCK
- ------------------
Section 5. Upon surrender to the Corporation, or the
transfer agent of the Corporation, of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
- ------------------
Section 6. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, 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
a record date which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
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;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
REGISTERED STOCKHOLDERS
- -----------------------
Section 7. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact thereof
and accordingly shall not be bound to recognize any equitable or other claim
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as expressly provided by
the laws of the State of Delaware.
-11-
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
------------------
DIVIDENDS
- ---------
Section 1. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Before payment of any dividend there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the Corporation, or for such
other purpose as the directors shall think conducive to the interests of the
Corporation, and the directors may abolish any such reserve. The Corporation
will not pay dividends out of funds other than retained earnings unless the
Board of Directors determines that the funds to be paid as dividends are no
longer needed by the Corporation in the operations of its business and that
the Corporation will not require any additional capital contributions after
the payment of such dividend.
CHECKS
- ------
Section 3. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officers, employees or agents of
the Corporation as shall from time to time be designated by the Chairman of
the Board, the President, the Vice President-Finance, the Treasurer or an
Assistant Treasurer. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as shall from time to time be designated
by the Chairman of the Board, the President, the Vice President-Finance, the
Treasurer or an Assistant Treasurer, and such officers may designate any type
of depository arrangement (including but not limited to depository
arrangements resulting in net debits against the Corporation) as from time to
time offered or available.
FISCAL YEAR
- -----------
Section 4. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
-12-
<PAGE>
SEAL
- ----
Section 5. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
NOTICES
- -------
Section 6. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or of these By-Laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or stockholder, at his address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 7. Whenever any notice is required to be given under
the provisions of applicable statutes or of the Certificate of Incorporation
or of these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed to be equivalent. The presence of any stockholder or
director at any meeting will shall constitute a waiver of notice thereof.
ANNUAL STATEMENT
- ----------------
Section 8. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
ARTICLE VII
AMENDMENTS
- ----------
Section 1. These By-Laws may be altered, amended or repealed
or new By-Laws may be adopted by the stockholders or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such special meeting; provided,
however, that any such alteration, amendment, repeal or adoption that relates
to or effects in any way the criteria for or, qualifications of an Independent
Director, or requirement that the Corporation maintain at least
-13-
<PAGE>
two Independent Directors must, in each case, receive the prior affirmative
vote or written consent of each Independent Director. If the power to adopt,
amend or repeal By-Laws is conferred upon the Board of Directors by the
Certificate of Incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal By-Laws.
Dated: July [__], 1998
-14-
<PAGE>
================================================================================
Exhibit 4.1
[FORM OF]
INDENTURE
between
EFG STUDENT LOAN TRUST 1999-[ ],
as Issuer
and
[INDENTURE TRUSTEE],
not in its individual capacity but
solely as Indenture Trustee
Dated as of [ , 1999]
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS AND USAGE
SECTION 1.1. Definitions and Usage..........................................2
SECTION 1.2. Incorporation by Reference of Trust Indenture Act..............2
ARTICLE II. THE NOTES
SECTION 2.1. Form ..........................................................3
SECTION 2.2. Execution, Authentication and Delivery.........................3
SECTION 2.3. Temporary Notes................................................4
SECTION 2.4. Registration; Registration of Transfer and Exchange............4
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes.....................6
SECTION 2.6. Persons Deemed Owner...........................................7
SECTION 2.7. Payment of Principal and Interest; Defaulted Interest;
Noteholders' Interest T-Bill Carryover........................7
SECTION 2.8. Cancellation ..................................................9
SECTION 2.9. Release of Collateral..........................................9
SECTION 2.10. Book-Entry Notes..............................................9
SECTION 2.11. Notices to Clearing Agency...................................10
SECTION 2.12. Definitive Notes.............................................10
SECTION 2.13. Disposition of Depositor Note................................11
ARTICLE III. COVENANTS
SECTION 3.1. Payment to Noteholders........................................11
SECTION 3.2. Maintenance of Office or Agency...............................11
SECTION 3.3. Money for Payments To Be Held in Trust........................12
SECTION 3.4. Existence ....................................................13
SECTION 3.5. Protection of Indenture Trust Estate..........................13
SECTION 3.6. Opinions as to Indenture Trust Estate.........................14
SECTION 3.7. Performance of Obligations; Servicing of Student Loans........14
SECTION 3.8. Negative Covenants............................................17
SECTION 3.9. Annual Statement as to Compliance.............................17
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms..........17
SECTION 3.11. Successor or Transferee......................................19
SECTION 3.12. No Other Business............................................19
SECTION 3.13. No Borrowing.................................................19
SECTION 3.14. Obligations of Servicer and Administrator....................20
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities............20
SECTION 3.16. Capital Expenditures.........................................20
SECTION 3.17. Restricted Payments..........................................20
SECTION 3.18. Notice of Events of Default..................................20
(i)
<PAGE>
SECTION 3.19. Further Instruments and Acts.................................21
SECTION 3.20. Removal of Administrator.....................................21
ARTICLE IV. SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.......................21
SECTION 4.2. Application of Trust Money....................................22
SECTION 4.3. Repayment of Moneys Held by Paying Agent......................22
SECTION 4.4. Auction of Financed Student Loans.............................22
ARTICLE V. REMEDIES
SECTION 5.1. Events of Default.............................................23
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment............24
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee.........................................25
SECTION 5.4. Remedies; Priorities..........................................27
SECTION 5.5. Optional Preservation of the Indenture Trust Estate...........29
SECTION 5.6. Limitation of Suits...........................................29
SECTION 5.7. Unconditional Rights of Noteholders To Receive
Principal and Interest.......................................30
SECTION 5.8. Restoration of Rights and Remedies............................30
SECTION 5.9. Rights and Remedies Cumulative................................30
SECTION 5.10. Delay or Omission Not a Waiver...............................30
SECTION 5.11. Control by Noteholders.......................................30
SECTION 5.12. Waiver of Past Defaults......................................31
SECTION 5.13. Undertaking for Costs........................................31
SECTION 5.14. Waiver of Stay or Extension Laws.............................32
SECTION 5.15. Action on Notes..............................................32
SECTION 5.16. Performance and Enforcement of Certain Obligations...........32
ARTICLE VI. THE INDENTURE TRUSTEE
SECTION 6.1. Duties of Indenture Trustee...................................33
SECTION 6.2. Rights of Indenture Trustee...................................34
SECTION 6.3. Individual Rights of Indenture Trustee........................35
SECTION 6.4. Indenture Trustee's Disclaimer................................35
SECTION 6.5. Notice of Defaults............................................35
SECTION 6.6. Reports by Indenture Trustee to Noteholders...................35
SECTION 6.7. Compensation and Indemnity....................................36
SECTION 6.8. Replacement of Indenture Trustee..............................36
SECTION 6.9. Successor Indenture Trustee by Merger.........................37
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee................38
SECTION 6.11. Eligibility; Disqualification................................39
SECTION 6.12. Preferential Collection of Claims Against Issuer.............39
(ii)
<PAGE>
ARTICLE VII. NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1. Issuer To Furnish Indenture Trustee Names and
Addresses of Noteholders.....................................39
SECTION 7.2. Preservation of Information; Communications to
Noteholders..................................................40
SECTION 7.3. Reports by Issuer.............................................40
ARTICLE VIII. ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1. Collection of Money...........................................41
SECTION 8.2. Trust Accounts................................................41
SECTION 8.3. General Provisions Regarding Accounts.........................43
SECTION 8.4. Release of Indenture Trust Estate.............................44
SECTION 8.5. Opinion of Counsel............................................44
ARTICLE IX. SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders........45
SECTION 9.2. Supplemental Indentures with Consent of Noteholders...........46
SECTION 9.3. Execution of Supplemental Indentures..........................47
SECTION 9.4. Effect of Supplemental Indenture..............................48
SECTION 9.5. Conformity with Trust Indenture Act...........................48
SECTION 9.6. Reference in Notes to Supplemental Indentures.................48
ARTICLE X. REDEMPTION OF NOTES
SECTION 10.1. Redemption...................................................48
SECTION 10.2. Form of Redemption Notice....................................49
SECTION 10.3. Notes Payable on Redemption Date.............................49
ARTICLE XI. MISCELLANEOUS
SECTION 11.1. Compliance Certificates and Opinions.........................50
SECTION 11.2. Form of Documents Delivered to Indenture Trustee.............52
SECTION 11.3. Acts of Noteholders..........................................52
SECTION 11.4. Notices to Indenture Trustee, Issuer and Rating Agencies.....53
SECTION 11.5. Notices to Noteholders; Waiver...............................54
SECTION 11.6. Alternate Payment and Notice Provisions......................54
SECTION 11.7. Conflict with Trust Indenture Act............................54
SECTION 11.8. Effect of Headings and Table of Contents.....................55
SECTION 11.9. Successors and Assigns.......................................55
SECTION 11.10. Separability................................................55
SECTION 11.11. Benefits of Indenture.......................................55
SECTION 11.12. [RESERVED] .................................................55
SECTION 11.13. Governing Law...............................................55
SECTION 11.14. Counterparts................................................55
(iii)
<PAGE>
SECTION 11.15. Recording of Indenture......................................55
SECTION 11.16. Trust Obligations...........................................55
SECTION 11.17. No Petition.................................................56
SECTION 11.18. Inspection .................................................56
EXHIBIT A-1 - Form of Senior Note
EXHIBIT A-2 - Form of Subordinate Note
EXHIBIT B - Senior Note Depository Agreement
EXHIBIT C - Form of Transferor Certificate
EXHIBIT D - Form of Investment Letter
(iv)
<PAGE>
INDENTURE dated as of [ , 1999], between EFG STUDENT LOAN
TRUST 1999-[ ], a Delaware trust (the "Issuer"), and [INDENTURE TRUSTEE], a
[ ], as trustee and not in its individual capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of the Issuer's Floating Rate
Asset Backed Senior Notes (the "Senior Notes") and Floating Rate Asset Backed
Subordinate Notes (the "Subordinate Notes" and, together with the Senior
Notes, the "Notes"):
GRANTING CLAUSE
The Issuer (and, with respect to legal title to the FFELP Student
Loans, the Trustee) hereby Grants to the Indenture Trustee at the Closing
Date, as trustee for the benefit of the Noteholders, all the Issuer's right,
title and interest in and to the following:
(a) the Student Loans, and all obligations of the Obligors
thereunder including all moneys paid thereunder on or after the
Cutoff Date {(or, in the case of New Loans or Serial Loans, on and
after the related Subsequent Cutoff Date, in the case of
Consolidation Loans, on and after the related date of origination, in
the case of Consolidation Loans the principal balances of which have
been increased by the principal balances of any related Add-on
Consolidation Loans, on and after the related Add-on Consolidation
Loan Funding Date,} and in the case of Qualified Substitute Student
Loans, on and after the date of assignment thereof to the Issuer);
(b) rights and remedies under the Loan Sale Agreement,
including the right of the Issuer to cause the Seller to repurchase
or substitute for Student Loans from the Issuer under circumstances
described therein;
(c) the Servicing Agreement, including the right of the
Issuer to cause the Servicer to purchase Student Loans from the
Issuer under the circumstances described therein;
(d) each Guarantee Agreement, including the right of the
Issuer to cause the related Guarantor to make Guarantee Payments in
respect of the Student Loans;
(e) all funds on deposit from time to time in the Trust
Accounts, including the Reserve Account Initial Deposit, and in all
investments and proceeds thereof (including all income thereon); and
(f) all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks,
deposit accounts, insurance proceeds, condemnation awards, rights to
payment of any and every kind and other forms of obligations and
receivables,
<PAGE>
instruments and other property which at any time constitute all or
part of or are included in the proceeds of any of the foregoing
(collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in
this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts under this Indenture
in accordance with the provisions of this Indenture and agrees to perform its
duties required in this Indenture to the best of its ability to the end that
the interests of the Noteholders may be adequately and effectively protected.
ARTICLE I.
Definitions and Usage
SECTION 1.1. Definitions and Usage. Except as otherwise specified
herein or as the context may otherwise require, capitalized terms used but not
defined herein are defined in Appendix A to the Administration Agreement,
dated as of [ 1999], among the Issuer, Educational Finance Group, Inc.
as Administrator, and the Indenture Trustee, which also contains rules as to
usage that shall be applicable herein.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
-2-
<PAGE>
ARTICLE II.
The Notes
SECTION 2.1. Form. The Senior Notes and the Subordinate Notes,
together with the Indenture Trustee's certificate of authentication, shall be
in substantially the form set forth in Exhibits A-1 and A-2, respectively,
with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by
the officers executing such Notes, as evidenced by their execution of the
Notes. Any portion of the text of any Note may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without
steel engraved borders), all as determined by the officers executing such
Notes, as evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibits A-1 and A-2 are part of the terms of this
Indenture.
SECTION 2.2. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Order authenticate and
deliver Senior Notes for original issue in an aggregate principal amount of
$[ ] and Subordinate Notes for original issue in an aggregate principal
amount of $[ ]. The aggregate principal amount of Senior Notes and
Subordinate Notes outstanding at any time may not exceed such respective
amounts except as provided in Section 2.5.
Each Note shall be dated the date of its authentication. The Senior
Notes shall be issuable as registered Book-Entry Notes in the minimum
denomination of $1,000 and in integral multiples of $1,000 in excess thereof.
The Subordinate Notes shall be issuable as registered Definitive Notes in the
minimum denomination of $250,000 and in integral multiples of $1,000 in excess
thereof except for the Depositor Note.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be
-3-
<PAGE>
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION 2.3. Temporary Notes. Pending the preparation of Definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the
Indenture Trustee shall authenticate and deliver, temporary Notes which are
printed, lithographed, typewritten, mimeographed or otherwise produced, of the
tenor of the Definitive Notes in lieu of which they are issued and with such
variations not inconsistent with the terms of this Indenture as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Noteholder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer
shall execute and the Indenture Trustee shall authenticate and deliver in
exchange therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as Definitive Notes.
SECTION 2.4. Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe and the
restrictions on transfers of the Subordinate Notes set forth herein, the
Issuer shall provide for the registration of Notes and the registration of
transfers of Notes. The Indenture Trustee shall be "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon
any resignation of any Note Registrar, the Issuer shall promptly appoint a
successor or, if it elects not to make such an appointment, assume the duties
of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture
Trustee shall have the right to inspect the Note Register at all reasonable
times and to obtain copies thereof, and the Indenture Trustee shall have the
right to rely upon a certificate executed on behalf of the Note Registrar by
an Executive Officer thereof as to the names and addresses of the Noteholders
and the principal amounts and number of such Notes.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the office or agency of
the Issuer to be maintained as provided in Section 3.2, if the requirements of
Section 8-401(1) of the UCC are met, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, in the name of the designated transferee or transferees,
one or more new Notes in any authorized denominations, of a like aggregate
principal amount.
-4-
<PAGE>
The Subordinate Notes have not been and will not be registered under
the Securities Act and will not be listed on any exchange or treated as traded
on an "established securities market" as defined in Treas. Reg. Section
1.7704-1(e) (including an interdealer quotation system that regularly
disseminates firm buy or sell quotations by identified brokers or dealers by
electronic means or otherwise). No transfer of a Subordinate Note shall be
made unless such transfer is made pursuant to an effective registration
statement under the Securities Act and any applicable state securities laws or
is exempt from the registration requirements under said Act and such state
securities laws. In the event that a transfer of a Subordinate Note is to be
made in reliance upon an exemption from the Securities Act and state
securities laws, in order to assure compliance with the Securities Act and
such laws, the Noteholder desiring to effect such transfer and such
Noteholder's prospective transferee shall each certify to the Indenture
Trustee and the Issuer in writing the facts surrounding the transfer in
substantially the forms set forth in Exhibit C (the "Transferor Certificate")
and Exhibit D (the "Investment Letter"). No transfer of a Subordinate Note
shall be made unless the proposed transferee has confirmed that it is a
"qualified institutional buyer" defined in Rule 144A under the Securities Act.
In the event of a transfer of a Subordinate Note to a "qualified institutional
buyer" that is not made in reliance on Rule 144A, there shall also be
delivered to the Indenture Trustee an Opinion of Counsel that such transfer
may be made pursuant to an exemption from the Securities Act and state
securities laws, which Opinion of Counsel shall not be an expense of the
Issuer, the Trustee or the Indenture Trustee (unless it is the transferee from
whom such opinion is to be obtained) or of the Depositor; provided that such
opinion of counsel in respect of the applicable state securities laws may be a
memorandum of law rather than an opinion if such counsel is not licensed in
the applicable jurisdiction. The Depositor shall cause the Administrator to
provide to any Noteholder and any prospective transferee of a Subordinate Note
designated by any such Noteholder information necessary to satisfy the
condition to eligibility set forth in Rule 144A(d)(4) for transfer of any such
Subordinate Note without registration thereof under the Securities Act
pursuant to the registration exemption provided by Rule 144A. Each Noteholder
desiring to effect such a transfer of a Subordinate Note shall, and does
hereby agree to, indemnify the Issuer, the Trustee, the Indenture Trustee and
the Depositor against any liability that may result if the transfer is not so
exempt or is not made in accordance with federal and state securities laws.
In addition, no transfer of a Subordinate Note shall be made to any
proposed transferee that is not a United States Person.
Notwithstanding anything to the contrary contained herein, no resale
or other transfer of a Subordinate Note or any interest therein shall be made
unless (i) immediately after giving effect to such resale or other transfer,
there would be less than 100 Subordinate Noteholders and (ii) if the
transferee (or any person or entity for whom such transferee is acting as
agent or custodian in connection with the acquisition of such Subordinate
Note) is a partnership, grantor trust or S corporation for federal income tax
purposes (a "Flow-Through Entity"), any Subordinate Notes owned by or on
behalf of such Flow-Through Entity will represent less than 50% of the value
of all assets owned by or on behalf of such Flow-Through Entity and no special
allocation of income, gain, loss, deduction or credit from such Subordinate
Notes will be made among the beneficial owners of such Flow-Through Entity.
-5-
<PAGE>
The Issuer shall cause each Subordinate Note to contain a legend
stating that transfer of the Subordinate Notes is subject to certain
restrictions and referring prospective purchasers of the Notes to this Section
2.4 with respect to such restrictions.
At the option of the Noteholder, Notes may be exchanged for other
Notes in any authorized denominations, of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange, if the requirements of Section
8-401(1) of the UCC are met, the Issuer shall execute, and the Indenture
Trustee shall authenticate and, the Noteholder shall obtain from the Indenture
Trustee, the Notes which the Noteholder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in form satisfactory to the Note Registrar duly executed by the
Noteholder thereof or such Noteholder's attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Note Registrar, which requirements include membership
or participation in Securities Transfer Agent's Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Exchange Act.
No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Notes, other than exchanges pursuant to Section 2.3 or 9.6 not involving any
transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Indenture Trustee such
security or indemnity as may be required by it to hold the Issuer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of
the UCC are met, the Issuer shall execute and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note of the same
category; provided, however, that if any such destroyed, lost or stolen Note,
-6-
<PAGE>
but not a mutilated Note, shall have become or within 15 days shall be due and
payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when
so due or payable or upon the Redemption Date without surrender thereof. If,
after the delivery of such replacement Note or payment of a destroyed, lost or
stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was
issued presents for payment such original Note, the Issuer and the Indenture
Trustee shall be entitled to recover such replacement Note (or such payment)
from the Person to whom it was delivered or any Person taking such replacement
Note from such Person to whom such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the extent of
any loss, damage, cost or expense incurred by the Issuer or the Indenture
Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Noteholder thereof of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee may treat the Person in whose
name any Note is registered (as of the day of determination) as the owner of
such Note for the purpose of receiving payments of principal of, interest (and
any Noteholders' Interest T-Bill Carryover), if any, on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and neither
the Issuer, the Indenture Trustee nor any agent of the Issuer or the Indenture
Trustee shall be affected by notice to the contrary.
SECTION 2.7. Payment of Principal and Interest; Defaulted Interest;
Noteholders' Interest T-Bill Carryover. (a) The Notes shall accrue interest
as provided in the forms of Senior Note and Subordinate Note set forth in
Exhibits A-1 and A-2, respectively, and such interest shall be payable on each
Quarterly Payment Date as specified therein, subject, in each case, to Section
3.1. Any installment of interest (and any Noteholders' Interest T-Bill
Carryover) or principal, if any, payable on any Note which is punctually paid
or duly provided for by the Issuer on the applicable Quarterly Payment Date
shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the
-7-
<PAGE>
Record Date by wire transfer if such Person holds Notes with original
principal balances in the aggregate in excess of $1,000,000 and provides
appropriate written instructions to the Indenture Trustee no later than such
Record Date, and otherwise by check mailed first-class, postage prepaid to
such Person's address as it appears on the Note Register on such Record Date,
except that, unless Definitive Notes have been issued pursuant to Section
2.12, with respect to Senior Notes registered on the Record Date in the name
of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payment will be made by wire transfer in immediately available funds to
the account designated by such nominee and except for the final installment of
principal payable with respect to such Note on a Quarterly Payment Date or on
the Senior Note Final Maturity Date or the Subordinate Note Final Maturity
Date, as the case may be, which shall be payable as provided below. The funds
represented by any such checks returned undelivered shall be held in
accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on
each Quarterly Payment Date as provided in the forms of the Senior Notes and
Subordinate Notes set forth in Exhibits A-1 and A-2, respectively.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the date on which an
Event of Default shall have occurred and be continuing, if the Indenture
Trustee or the Noteholders of the Notes representing not less than a majority
of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2. All
principal payments on each class of Notes shall be made pro rata to the
Noteholders of such class. The Indenture Trustee shall notify the Person in
whose name a Note is registered at the close of business on the Record Date
preceding the Quarterly Payment Date on which the Issuer expects that the
final installment of principal of and interest (and any Noteholders' Interest
T-Bill Carryover) on such Note will be paid. Such notice shall be mailed or
transmitted by facsimile prior to such final Quarterly Payment Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in
connection with redemptions of Notes shall be mailed to Noteholders as
provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest
to the extent lawful) at the applicable Note Rate in any lawful manner. The
Issuer may pay such defaulted interest to the persons who are Noteholders on a
subsequent special record date, which date shall be at least five Business
Days prior to the payment date. The Issuer shall fix or cause to be fixed any
such special record date and payment date, and, at least 15 days before any
such special record date, the Issuer shall mail to the Indenture Trustee a
notice which the Indenture Trustee will, as soon as practicable, distribute to
each Noteholder that states the special record date, the payment date and the
amount of defaulted interest to be paid.
(d) The Senior Noteholders' Interest T-Bill Carryover and the
Subordinate Noteholders' Interest T-Bill Carryover on each Quarterly Payment
Date including, in the case of the Senior Noteholders' Interest T-Bill
Carryover, all such unpaid carryover for prior Quarterly Payment Dates and
interest accrued thereon at the Senior Note T-Bill Rate for each
-8-
<PAGE>
applicable Quarterly Interest Period and including, in the case of the
Subordinate Noteholders' Interest T-Bill Carryover, all such unpaid carryover
from prior Quarterly Payment Dates and interest accrued thereon at the
Subordinate Note T-Bill Rate for the applicable Quarterly Interest Period,
shall be payable on each Quarterly Payment Date solely to the extent of funds
required and available to be distributed to Noteholders by the Indenture
Trustee pursuant to Section 2(e)(ii)(b)(iii) of the Administration Agreement
(and shall be allocated among the classes of Notes as provided in Section
8.2(d)). Any Noteholders' Interest T-Bill Carryover for a class of Notes, if
any, payable with respect to such class of Notes on the applicable Quarterly
Payment Date shall be paid to the Person in whose name such Note (or one or
more Predecessor Notes) is registered on the applicable Record Date by wire
transfer if such Person holds Notes with original principal balances in the
aggregate in excess of $1,000,000 and provides appropriate written
instructions to the Indenture Trustee no later than such Record Date, and
otherwise by check mailed first-class postage prepaid to such Person's address
as it appears on the Note Register on such Record Date, except that, unless
Definitive Notes have been issued pursuant to Section 2.12, with respect to
the Senior Notes registered on the Record Date in the name of the nominee of
the Clearing Agency (initially, such nominee to be Cede & Co.), payment will
be made by wire transfer in immediately available funds to the account
designated by such nominee. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.3.
SECTION 2.8. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in
any manner whatsoever, and all Notes so delivered shall be promptly canceled
by the Indenture Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Notes may be held or
disposed of by the Indenture Trustee in accordance with its standard retention
or disposal policy as in effect at the time, unless the Issuer shall direct by
an Issuer Order that they be returned to it and so long as such Issuer Order
is timely and the Notes have not been previously disposed of by the Indenture
Trustee.
SECTION 2.9. Release of Collateral. Subject to Section 11.1 and the
terms of the Basic Documents, the Indenture Trustee shall release property
from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officers' Certificate of the Issuer, an Opinion of Counsel
and Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(1) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
SECTION 2.10. Book-Entry Notes. The Senior Notes, upon original
issuance, will be issued in the form of typewritten Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Issuer. Such Notes shall initially
be registered on the Note Register in the name of Cede & Co., the nominee of
the initial Clearing Agency, and no Note Owner will receive a Definitive
-9-
<PAGE>
Note (as defined below) representing such Note Owner's interest in such
Book-Entry Note, except as provided in Section 2.12. Unless and until
definitive, fully registered Notes (the "Definitive Notes") have been issued
to Note Owners pursuant to Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee may deal with
the Clearing Agency for all purposes (including the payment of
principal of and interest and other amounts on the Book-Entry Notes)
as the authorized representative of the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions
of this Section shall control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency
and/or the Clearing Agency Participants pursuant to the Note
Depository Agreement. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and
receive and transmit payments of principal of and interest and other
amounts on the Book-Entry Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Noteholders of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to
such effect from Note Owners and/or Clearing Agency Participants
owning or representing, respectively, such required percentage of
the beneficial interest in the Notes and has delivered such
instructions to the Indenture Trustee.
SECTION 2.11. Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Noteholders of the Senior Notes
to the Clearing Agency.
SECTION 2.12. Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the Book-Entry
Notes, and the Administrator is unable to locate a qualified successor, (ii)
the Administrator at its option advises the Indenture Trustee in writing that
it elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default, a Servicer Default or an
Administrator Default, Note Owners representing beneficial interests
aggregating at least a majority of the Outstanding Amount of the Book-Entry
Notes advise the Clearing Agency (which shall then notify the Indenture
Trustee) in writing that the continuation of a book-entry
-10-
<PAGE>
system through the Clearing Agency is no longer in the best interests of the
Note Owners, then the Indenture Trustee will cause the Clearing Agency to
notify all Note Owners, through the Clearing Agency, of the occurrence of any
such event and of the availability of Definitive Notes to Note Owners
requesting the same. Upon surrender to the Indenture Trustee of the
typewritten Notes representing the Book-Entry Notes by the Clearing Agency,
accompanied by registration instructions, the Issuer shall execute and the
Indenture Trustee shall authenticate the Definitive Notes in accordance with
the instructions of the Clearing Agency. None of the Issuer, the Note
Registrar or the Indenture Trustee shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Notes, the
Indenture Trustee shall recognize the holders of the Definitive Notes as
Noteholders.
SECTION 2.13. Disposition of Depositor Note. On and after the Closing
Date, the Depositor shall retain the Depositor Note. Any attempt by the
Depositor to transfer the Depositor Note shall be void. The Depositor Note
(and any Note issued in exchange therefore) shall contain a legend stating
"THIS NOTE IS NONTRANSFERABLE."
ARTICLE III.
Covenants
SECTION 3.1. Payment to Noteholders. The Issuer will duly and
punctually pay the principal of (subject to the parenthetical in the following
sentence), interest, if any, on and any Noteholders' Interest T-Bill Carryover
(but only to the extent provided in Sections 2.7(d) and 8.2(d)) with respect
to the Notes in accordance with the terms of the Notes and this Indenture.
Without limiting the foregoing, subject to Section 8.2(d), the Issuer will
cause to be distributed that portion of the amounts on deposit in the Trust
Accounts on a Quarterly Payment Date (other than any Eligible Investments
deposited therein that will mature on the Business Day preceding a subsequent
Quarterly Payment Date) which the Noteholders are entitled to receive pursuant
to the Administration Agreement to Senior Noteholders and Subordinate
Noteholders in accordance with the Administration Agreement and Section 8.2
hereof. Amounts properly withheld under the Code by any Person from a payment
to any Noteholder of interest (including any Noteholders' Interest T-Bill
Carryover) and/or principal shall be considered as having been paid by the
Issuer to such Noteholder for all purposes of this Indenture.
SECTION 3.2. Maintenance of Office or Agency. The Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or
agency where Notes may be surrendered for registration of transfer or
exchange, and where notices and demands to or upon the Issuer in respect of
the Notes and this Indenture may be served. The Issuer hereby initially
appoints the Indenture Trustee to serve as its agent for the foregoing
purposes. The Issuer will give prompt written notice to the Indenture Trustee
of the location, and of any change in the location, of any such office or
agency. If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Indenture Trustee with the
-11-
<PAGE>
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture
Trustee as its agent to receive all such surrenders, notices and demands.
SECTION 3.3. Money for Payments To Be Held in Trust. As provided in
Section 8.2, all payments of amounts due and payable with respect to any Notes
that are to be made from amounts distributed from the Collection Account or
any other Trust Account shall be made on behalf of the Issuer by the Indenture
Trustee or by another Paying Agent, and no amounts so distributed for payments
of Notes shall be paid over to the Issuer except as provided in this Section.
On or before the Business Day next preceding each Quarterly Payment
Date and Redemption Date, the Issuer shall distribute or cause to be
distributed to the Indenture Trustee (or any other Paying Agent) an aggregate
sum sufficient to pay the amounts then becoming due under the Notes, such sum
to be held in trust for the benefit of the Persons entitled thereto and
(unless the Paying Agent is the Indenture Trustee) shall promptly notify the
Indenture Trustee of its action or failure so to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions
of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge (or any other obligor upon
the Notes) in the making of any payment required to be made with
respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to
the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment
of Notes if at any time it ceases to meet the standards required to
be met by a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
-12-
<PAGE>
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Indenture
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Subject to applicable laws with respect to escheat of funds, any
money held by the Indenture Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged
from such trust and be paid to the Issuer on Issuer Request; and the
Noteholder thereof shall thereafter, as an unsecured general creditor, look
only to the Issuer for payment thereof (but only to the extent of the amounts
so paid to the Issuer), and all liability of the Indenture Trustee or such
Paying Agent with respect to such trust money shall thereupon cease; provided,
however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in The City of New York, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Issuer. The Indenture Trustee shall also adopt
and employ, at the expense of the Issuer, any other reasonable means of
notification of such repayment (including mailing notice of such repayment to
Noteholders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Indenture Trustee or of any
Paying Agent, at the last address of record for each such Noteholder).
SECTION 3.4. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a trust under the laws of the State of
Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other State or of the United States of
America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Indenture Trust Estate.
SECTION 3.5. Protection of Indenture Trust Estate. The Issuer will
from time to time execute and deliver all such supplements and amendments
hereto and all such financing statements, continuation statements, instruments
of further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
-13-
<PAGE>
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Indenture Trust Estate
and the rights of the Indenture Trustee and the Noteholders in such
Indenture Trust Estate against the claims of all persons and
parties. It shall be the responsibility of the Issuer to prepare
such instruments.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section.
SECTION 3.6. Opinions as to Indenture Trust Estate. (a) On the
Closing Date, the Issuer shall furnish to the Indenture Trustee an Opinion of
Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and
continuation statements, as are necessary to perfect and make effective the
lien and security interest of this Indenture and reciting the details of such
action, or stating that, in the opinion of such counsel, no such action is
necessary to make such lien and security interest effective.
(b) On or before [ ] in each calendar year, beginning in [ ], the
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien
and security interest of this Indenture until [ ] in the following calendar
year.
SECTION 3.7. Performance of Obligations; Servicing of Student Loans.
(a) The Issuer will not take any action and will use its best efforts not to
permit any action to be taken by others that would release any Person from any
of such Person's material covenants or obligations under any instrument or
agreement included in the Indenture Trust Estate or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any such instrument or agreement,
except as expressly provided in this Indenture, the Loan Sale Agreement, the
Servicing Agreement or such other instrument or agreement.
-14-
<PAGE>
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officers' Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Servicer and the Administrator to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all its
obligations and agreements contained in this Indenture, the other Basic
Documents and in the instruments and agreements included in the Indenture
Trust Estate, including filing or causing to be filed all UCC financing
statements and continuation statements required to be filed by the terms of
this Indenture, the Loan Sale Agreement and the Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Indenture Trustee or the Noteholders of at
least a majority of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a
Servicer Default under the Servicing Agreement, or an Administrator Default
under the Administration Agreement, the Issuer shall promptly notify the
Indenture Trustee and the Rating Agencies thereof, and shall specify in such
notice the action, if any, the Issuer is taking with respect to such default.
If a Servicer Default shall arise from the failure of the Servicer to perform
any of its duties or obligations under the Servicing Agreement with respect to
the Student Loans, the Issuer shall take all reasonable steps available to it
to enforce its rights under the Basic Documents in respect of such failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 6.1 of
the Servicing Agreement, the Issuer shall appoint a successor servicer (the
"Successor Servicer"), and such Successor Servicer shall accept its
appointment by a written assumption in a form acceptable to the Indenture
Trustee. In the event that a Successor Servicer has not been appointed and
accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer. The Indenture Trustee may resign as the
Servicer by giving written notice of such resignation to the Issuer and in
such event will be released from such duties and obligations, such release not
to be effective until the date a new servicer enters into an agreement with
the Issuer as provided below; provided, however, that nothing herein shall
require or permit the Indenture Trustee to act as Servicer, or otherwise
service the Student Loans, in violation of the Higher Education Act. Upon
delivery of any such notice to the Issuer, the Issuer shall obtain a new
servicer as the Successor Servicer under the Servicing Agreement. Any
Successor Servicer other than the Indenture Trustee shall (i) be an
established institution (A) that satisfies any requirements of the Higher
Education Act applicable to servicers, (B) the appointment of which satisfies
the Rating Agency Condition and (C) whose regular business includes the
servicing or administration of student loans and (ii) enter into a servicing
agreement with the Issuer having substantially the same provisions as the
provisions of the Servicing Agreement applicable to the Servicer. If within 30
days after the delivery of the notice referred to above, the Issuer
-15-
<PAGE>
shall not have obtained such a new servicer, the Indenture Trustee may appoint
or may petition a court of competent jurisdiction to appoint, a Successor
Servicer; provided, however, that such right to appoint or to petition for the
appointment of any such successor shall in no event relieve the Indenture
Trustee from any obligations otherwise imposed on it under the Basic Documents
until such successor has in fact assumed such appointment. In connection with
any such appointment, the Indenture Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, subject
to the limitations set forth below and in the Servicing Agreement, and in
accordance with Section 6.2 of the Servicing Agreement, the Issuer shall enter
into an agreement with such successor for the servicing of the Student Loans
(such agreement to be in form and substance satisfactory to the Indenture
Trustee). If the Indenture Trustee shall succeed as provided herein to the
Servicer's duties as servicer with respect to the Student Loans, it shall do
so in its individual capacity and not in its capacity as Indenture Trustee
and, accordingly, the provisions of Article VI hereof shall be inapplicable to
the Indenture Trustee in its duties as the successor to the Servicer and the
servicing of the Student Loans. In case the Indenture Trustee shall become
successor to the Servicer under the Servicing Agreement, the Indenture Trustee
shall be entitled to appoint as Servicer any one of its affiliates, provided
that such appointment shall not affect or alter in any way the liability of
the Indenture Trustee as a successor for the performance of the duties and
obligations of the Servicer in accordance with the terms hereof.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Servicing Agreement, the Issuer shall promptly notify the Indenture
Trustee. As soon as a Successor Servicer is appointed, the Issuer shall notify
the Indenture Trustee of such appointment, specifying in such notice the name
and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees that it will not, without the
prior written consent of the Indenture Trustee or the Noteholders of at least
a majority in Outstanding Amount of the Notes, amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the terms of any Collateral
or the Basic Documents, except to the extent otherwise provided in the
Servicing Agreement, or waive timely performance or observance by the
Servicer, the Depositor, the Issuer, the Administrator or the Trustee under
the Loan Sale Agreement, the Servicing Agreement or the Administration
Agreement; provided, however, that no such amendment shall (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
distributions that are required to be made for the benefit of the Noteholders,
or (ii) reduce the aforesaid percentage of the Notes which are required to
consent to any such amendment, without the consent of the Noteholders of all
the Outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Indenture Trustee or such Noteholders,
the Issuer agrees, promptly following a request by the Indenture Trustee to do
so, to execute and deliver, in its own name and at its own expense, such
agreements, instruments, consents and other documents as the Indenture Trustee
may deem necessary or appropriate in the circumstances.
-16-
<PAGE>
SECTION 3.8. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or any
other Basic Document, sell, transfer, exchange or otherwise dispose
of any of the properties or assets of the Issuer, including those
included in the Indenture Trust Estate, unless directed to do so by
the Indenture Trustee (which direction the Indenture Trustee shall
not give without the consent of each of the Rating Agencies);
(ii) claim any credit on, or make any deduction from the
principal or interest (including any Noteholders' Interest T-Bill
Carryover) payable in respect of, the Notes (other than amounts
properly withheld from such payments under the Code or applicable
state law) or assert any claim against any present or former
Noteholder by reason of the payment of the taxes levied or assessed
upon any part of the Indenture Trust Estate; or
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations
with respect to the Notes under this Indenture except as may be
expressly permitted hereby, (B) permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance (other than
the lien of this Indenture) to be created on or extend to or
otherwise arise upon or burden the Indenture Trust Estate or any
part thereof or any interest therein or the proceeds thereof (other
than tax liens and other liens that arise by operation of law, in
each case arising solely as a result of an action or omission of the
related Obligor, and other than as expressly permitted by the Basic
Documents) or (C) permit the lien of this Indenture not to
constitute a valid first priority (other than with respect to any
such tax or other lien) security interest in the Indenture Trust
Estate.
SECTION 3.9. Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year 199[8]), an Officers'
Certificate of the Issuer stating that:
(i) a review of the activities of the Issuer during such year
and of performance under this Indenture has been made under such
Authorized Officers' supervision; and
(ii) to the best of such Authorized Officers' knowledge, based
on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there
has been a default in the compliance of any such condition or
covenant, specifying each such default known to such Authorized
Officers and the nature and status thereof.
SECTION 3.10. Issuer May Consolidate, etc., Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other Person,
unless:
-17-
<PAGE>
(i) The Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized
and existing under the laws of the United States of America or any
State and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Indenture Trustee, in form
satisfactory to the Indenture Trustee, the due and punctual payment
of the principal of, interest on and any Noteholders' Interest
T-Bill Carryover, if any, with respect to all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all
as provided herein;
(ii) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer or any Noteholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officers' Certificate of the Issuer and an Opinion of Counsel
each stating that such consolidation or merger and such supplemental
indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer all or substantially all
its properties or assets, including those included in the Indenture Trust
Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any State, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture
Trustee, in form satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of, interest on and Noteholders'
Interest T-Bill Carryover, if any, with respect to all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all
as provided herein, (C) expressly agrees by means of such
supplemental indenture that all right, title and interest so
conveyed or transferred shall be subject and subordinate to the
rights of Noteholders, (D) unless otherwise provided in such
supplemental indenture, expressly agrees to indemnify, defend and
hold harmless the Issuer against and from any loss,
-18-
<PAGE>
liability or expense arising under or related to this Indenture and
the Notes and (E) expressly agrees by means of such supplemental
indenture that such Person (or if a group of Persons, then one
specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer or any Noteholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officers' Certificate of the Issuer and an Opinion of Counsel
each stating that such conveyance or transfer and such supplemental
indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act).
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.10(a), the Person formed by
or surviving such consolidation or merger (if other than the Issuer) shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under this Indenture with the same effect as if such Person had
been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10(b), EFG Student Loan Trust 1999-[ ] will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes immediately upon
the delivery by the Issuer of written notice to the Indenture Trustee stating
that EFG Student Loan Trust 1999-[ ] is to be so released.
SECTION 3.12. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Student Loans, {and originating Consolidation Loans during the Revolving
Period,} in the manner contemplated by this Indenture and the other Basic
Documents and activities incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
-19-
<PAGE>
SECTION 3.14 Oblications of Servicer and Administrator. The Issuer
shall cause the Servicer to comply with Sections 3.7, 3.8, 3.9 and 3.10 of the
Servicing Agreement and shall cause the Administrator to comply with Section
2(g) of the Administration Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities.
Except as contemplated by the Basic Documents or this Indenture, the Issuer
shall not make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing or otherwise),
endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other Person.
SECTION 3.16. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Trustee or any owner of a beneficial interest in the Issuer or
otherwise with respect to any ownership or equity interest or security in or
of the Issuer or to the Servicer or the Administrator, (ii) redeem, purchase,
retire or otherwise acquire for value any such ownership or equity interest or
security or (iii) set aside or otherwise segregate any amounts for any such
purpose; provided, however, that the Issuer may make, or cause to be made,
distributions to the Servicer, the Trustee, the Indenture Trustee, the
Noteholders, the Administrator, the Depositor and the Owner as contemplated
by, and to the extent funds are available for such purpose under, the Loan
Sale Agreement, the Servicing Agreement or the Administration Agreement. The
Issuer will not, directly or indirectly, make payments to or distributions
from the Collection Account or the Collateral Reinvestment Account except in
accordance with this Indenture and the other Basic Documents.
SECTION 3.18. Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Rating Agencies prompt written notice of each Event
of Default hereunder and each default on the part of the Seller, the
Depositor, the Servicer or the Administrator of its obligations under the Loan
Sale Agreement, the Transfer Agreement, the Servicing Agreement or the
Administration Agreement. In addition, the Issuer shall deliver to the
Indenture Trustee, within five days after the occurrence thereof, written
notice in the form of an Officers' Certificate of the Issuer of any event
which with the giving of notice and the lapse of time would become an Event of
Default under Section 5.1(iii), its status and what action the Issuer is
taking or proposes to take with respect thereto. The Indenture Trustee shall
provide notice to the Noteholders of each default or other event of which it
receives notice pursuant to this Section 3.18, promptly after receipt of such
Notice.
-20-
<PAGE>
SECTION 3.19. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper
to carry out more effectively the purpose of this Indenture.
SECTION 3.20. Removal of Administrator. So long as any Notes are
Outstanding, the Issuer shall not remove the Administrator without cause
unless the Rating Agency Condition shall have been satisfied in connection
with such removal.
ARTICLE IV.
Satisfaction and Discharge
--------------------------
SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest (including any Noteholders'
Interest T-Bill Carryover) thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8, 3.10,
3.12 and 3.13, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.7 and the obligations of the Indenture Trustee under Section 4.2) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture with respect to the Notes, when:
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 2.5 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to
the Issuer or discharged from such trust, as provided in Section 3.3)
have been delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable at the Senior Note
Final Maturity Date or the Subordinate Note Final Maturity
Date, as the case may be, within one year, or
-21-
<PAGE>
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Indenture
Trustee for the giving of notice of redemption by the
Indenture Trustee in the name, and at the expense, of the
Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited with the
Indenture Trustee cash or direct obligations of or obligations
guaranteed by the United States of America (which will mature prior
to the date such amounts are payable), in trust for such purpose, in
an amount sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Indenture Trustee for
cancellation as of such day of discharge or when due on the Senior
Note Final Maturity Date or the Subordinate Note Final Maturity Date,
as the case may be;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an
Officers' Certificate of the Issuer, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent
Certificate from a firm of certified public accountants, each meeting
the applicable requirements of Section 11.1(a) and, subject to
Section 11.2, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
SECTION 4.2. Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Noteholders of the particular Notes
for the payment or redemption of which such moneys have been deposited with
the Indenture Trustee, of all sums due and to become due thereon for principal
and interest (including any Noteholders' Interest T-Bill Carryover); but such
moneys need not be segregated from other funds except to the extent required
herein, in the Servicing Agreement or the Administration Agreement or required
by law.
SECTION 4.3. Repayment of Money Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the
Notes, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes
shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held
and applied according to Section 3.3 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
SECTION 4.4 Auction of Student Loans. The Indenture Trustee shall
offer the Student Loans for sale as of the last day of the Collection Period
that ends in [ ] and shall accept bids on behalf of the Issuer for such
purpose. If with respect to the last date of such Collection Period, the
Indenture Trustee receives no bid to purchase the Student Loans, or no bid
that it may, as specified below, accept, the Indenture Trustee may at its
discretion,
-22-
<PAGE>
but shall not be obligated to, offer the Student Loans for sale as of the last
day of each, or any, of the succeeding Collection Periods until a bid is
received that may, as specified below, be accepted by the Indenture Trustee.
With respect to any attempt to arrange for the purchase of the Student Loans,
the Indenture Trustee shall accept the highest bid submitted so long as (i) at
least two bids to purchase the Student Loans as of the last day of the
applicable Collection Period are received and (ii) the highest such bid is at
least equal to the Minimum Purchase Price as of the last day of the applicable
Collection Period. Any attempt to arrange for the purchase of the Student
Loans and the consummation of any such sale shall be conducted by the
Indenture Trustee in a commercially reasonable manner. The Indenture Trustee
shall provide notice of any such attempt at least 60 days prior to the last
day of the related Collection Period to the Depositor, the Owner, the
Servicer, the Trustee, the Rating Agencies, and each Noteholder, and any such
Person or their respective Affiliates or any other Person may submit a timely
bid for the purchase of the Student Loans.
ARTICLE V.
Remedies
--------
SECTION 5.1. Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(i) default in the payment of any interest (including,
subject to the limitations of Sections 2.7(d) and 8.2, any
Noteholders' Interest T-Bill Carryover) on any Note when the same
becomes due and payable, and such default shall continue for a period
of five days; or
(ii) default in the payment of the principal of any Note
when the same becomes due and payable; or
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture (other
than a covenant or agreement, a default in the observance or
performance of which is elsewhere in this Section specifically dealt
with), or any representation or warranty of the Issuer made in this
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in
any material respect as of the time when the same shall have been
made, and such default shall continue or not be cured, or the
circumstance or condition in respect of which such misrepresentation
or warranty was incorrect shall not have been eliminated or otherwise
cured, for a period of 30 (or, in the circumstances provided below,
90) days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee or to the
Issuer and the Indenture Trustee by the Noteholders of at least 25%
of the Outstanding Amount of the Notes, a written notice specifying
such default or incorrect
-23-
<PAGE>
representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder; provided,
that, if at the end of such thirty day period, the Indenture Trustee
determines that a good faith effort to cure or eliminate the Default
has commenced, the Indenture Trustee may extend such 30-day period to
90 days; or
(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Indenture Trust Estate in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Indenture
Trust Estate, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; or
(v) the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Issuer
to the entry of an order for relief in an involuntary case under any
such law, or the consent by the Issuer to the appointment or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial
part of the Indenture Trust Estate, or the making by the Issuer of
any general assignment for the benefit of creditors, or the failure
by the Issuer generally to pay its debts as such debts become due, or
the taking of action by the Issuer in furtherance of any of the
foregoing.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default should occur and be continuing, then and in every such
case the Indenture Trustee or the Noteholders of Notes representing not less
than a majority of the Outstanding Amount of the Notes may declare all the
Notes to be immediately due and payable, by a notice in writing to the Issuer
(and to the Indenture Trustee if given by Noteholders), and upon any such
declaration the unpaid principal amount of such Notes, together with accrued
and unpaid interest thereon through the date of acceleration, shall become
immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has
been obtained by the Indenture Trustee as hereinafter in this Article V
provided, the Noteholders of Notes representing a majority of the Outstanding
Amount of the Notes, by written notice to the Issuer and the Indenture
Trustee, may rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on all Notes
and all other amounts that would then be due hereunder or upon such
Notes if the Event of Default giving rise to such acceleration had
not occurred; and
-24-
<PAGE>
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements
and advances of the Indenture Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest (including, subject to the limitations of Sections
2.7(d) and 8.2, any Noteholders' Interest T-Bill Carryover) on any Note when
the same becomes due and payable, and such default continues for a period of
five days, or (ii) default is made in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable, the Issuer will, upon demand of the Indenture Trustee, pay to it, for
the benefit of the Noteholders, the whole amount then due and payable on such
Notes for principal and interest (and any Noteholders' Interest T-Bill
Carryover), with interest upon the overdue principal, and, to the extent
payment at such rate of interest shall be legally enforceable, upon overdue
installments of interest (and any Noteholders' Interest T-Bill Carryover), at
the rate specified in Section 2.7 and in addition thereto such further amount
as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, may institute a Proceeding for the collection of the sums so
due and unpaid, and may prosecute such Proceeding to judgment or final decree,
and may enforce the same against the Issuer or other obligor upon such Notes
and collect in the manner provided by law out of the property of the Issuer or
other obligor upon such Notes, wherever situated, the moneys adjudged or
decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may, as more particularly provided in Section 5.4, in its discretion,
proceed to protect and enforce its rights and the rights of the Noteholders,
by such appropriate Proceedings as the Indenture Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Indenture Trustee by this Indenture or
by law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Indenture Trust Estate, Proceedings under Title 11 of the
United States Code or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or in case a receiver, assignee or trustee
-25-
<PAGE>
in bankruptcy or reorganization, liquidator, sequestrator or similar official
shall have been appointed for or taken possession of the Issuer or its
property or such other obligor or Person, or in case of any other comparable
judicial Proceedings relative to the Issuer or other obligor upon the Notes,
or to the creditors or property of the Issuer or such other obligor, the
Indenture Trustee, irrespective of whether the principal of any Notes shall
then be due and payable as therein expressed or by declaration or otherwise
and irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered,
by intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest (including any Noteholders' Interest T-Bill
Carryover) owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order
to have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and
counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or
bad faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Noteholders in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all
amounts received with respect to the claims of the Noteholders and of
the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the
claims of the Indenture Trustee or the Noteholders allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such Noteholders,
to pay to the Indenture Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Indenture Trustee, each predecessor Indenture
Trustee and their respective agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee except as a result of
negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment
or composition affecting the Notes or the rights of any Noteholder thereof or
to authorize the Indenture Trustee to vote in respect of the
-26-
<PAGE>
claim of any Noteholder in any such proceeding except, as aforesaid, to vote
for the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or
Proceedings instituted by the Indenture Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment, subject to
the payment of the expenses, disbursements and compensation of the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Noteholders.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make
any Noteholder a party to any such Proceedings.
SECTION 5.4. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee may do one or more of
the following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee of
an express trust for the collection of all amounts then payable on
the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes moneys adjudged
due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Indenture Trust Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee and the Noteholders; and
(iv) sell the Indenture Trust Estate or any portion thereof
or rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Indenture Trust Estate following an Event of Default, other than
an Event of Default described in Section 5.1(i) or (ii), unless (A) the
Noteholders of 100% of the Outstanding Amount of the Notes consent thereto,
(B) the proceeds of such sale or liquidation distributable to the Noteholders
are sufficient to discharge in full all amounts then due and unpaid upon such
Notes for principal and interest or (C) the Indenture Trustee determines that
the Indenture Trust Estate will not continue to provide sufficient funds for
the payment of principal of and interest on the
-27-
<PAGE>
Notes as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of Noteholders of
66-2/3% of the Outstanding Amount of the Notes. In determining such
sufficiency or insufficiency with respect to clauses (B) and (C), the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the
Indenture Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for amounts due under
Section 6.7;
SECOND: to the Servicer for due and unpaid Servicing Fees;
THIRD: to Senior Noteholders for amounts due and unpaid on
the Senior Notes for interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Senior Notes for interest;
FOURTH: to Subordinate Noteholders for amounts due and
unpaid on the Subordinate Notes for interest, ratably, without
preference or priority of any kind, according to the amounts due
and payable on the Subordinate Notes for interest;
FIFTH: to Senior Noteholders for amounts due and unpaid on
the Senior Notes for principal, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Senior Notes for principal;
SIXTH: to Subordinate Noteholders for amounts due and unpaid
on the Subordinate Notes for principal, ratably, without preference
or priority of any kind, according to the amounts due and payable on
the Subordinate Notes for principal;
SEVENTH: to Senior Noteholders for any unpaid Senior
Noteholders' Interest T-Bill Carryover, ratably, without preference
or priority of any kind, according to the amounts due and payable on
the Senior Notes for such Senior Noteholders' Interest T-Bill
Carryover;
EIGHTH: to Subordinate Noteholders for any unpaid
Subordinate Noteholders' Interest T-Bill Carryover, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Subordinate Notes for such Subordinate Noteholders'
Interest T-Bill Carryover; and
NINTH: to the Issuer, for distribution in accordance with
the terms of the Administration Agreement.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
record date, the Issuer
-28-
<PAGE>
shall mail to each Noteholder and the Indenture Trustee a notice that states
the record date, the payment date and the amount to be paid.
SECTION 5.5. Optional Preservation of the Indenture Trust Estate. If
the Notes have been declared to be due and payable under Section 5.2 following
an Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Indenture Trust Estate. It is the desire of the
parties hereto and the Noteholders that there be at all times sufficient funds
for the payment of principal of and interest (including any Noteholders'
Interest T-Bill Carryover) on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether to maintain possession of
the Indenture Trust Estate. In determining whether to maintain possession of
the Indenture Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion (which shall be obtained at the expense of the
Issuer) of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Indenture Trust Estate for such purpose.
SECTION 5.6. Limitation of Suits. No Noteholder shall have any right
to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Noteholder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Noteholders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Noteholder or Noteholders have offered to the
Indenture Trustee reasonable indemnity against the costs, expenses
and liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceeding; and
(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Noteholders of a majority of the Outstanding Amount of the Notes;
it being understood and intended that no one or more Noteholders shall have
any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Noteholders or to obtain or to seek to obtain priority or preference
over any other Noteholders or to enforce any right under this Indenture,
except in the manner herein provided.
-29-
<PAGE>
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if
any, shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, any
Noteholder shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right
shall not be impaired without the consent of such Noteholder.
SECTION 5.8. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right
or remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had
been instituted.
SECTION 5.9. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the
Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 5.10. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Noteholder to exercise any right or remedy
accruing upon any Default shall impair any such right or remedy or constitute
a waiver of any such Default or an acquiescence therein. Every right and
remedy given by this Article V or by law to the Indenture Trustee or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Indenture Trustee or by the Noteholders, as the case may be.
SECTION 5.11. Control by Noteholders. The Noteholders of a majority
of the Outstanding Amount of the Notes shall have the right to direct the
time, method and place of conducting any Proceeding for any remedy available
to the Indenture Trustee with respect to the Notes or exercising any trust or
power conferred on the Indenture Trustee; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
-30-
<PAGE>
(ii) subject to the express terms of Section 5.4, any
direction to the Indenture Trustee to sell or liquidate the Indenture
Trust Estate shall be by the Noteholders of 100% of the Outstanding
Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Indenture Trustee elects to retain the Indenture
Trust Estate pursuant to such Section, then any direction to the
Indenture Trustee by Noteholders of less than 100% of the Outstanding
Amount of the Notes to sell or liquidate the Indenture Trust Estate
shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
provided, however, that, subject to Section 6.1, the Indenture Trustee need
not take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to
such action.
SECTION 5.12. Waiver of Past Defaults. Prior to the time a judgment
or decree for payment of money due has been obtained as described in Section
5.2, the Noteholders of not less than a majority of the Outstanding Amount of
the Notes may waive any past Default and its consequences except a Default (a)
in payment when due of principal of or interest (including, subject to the
limitations of Sections 2.7(d) and 8.2, any Noteholders' Interest T-Bill
Carryover) on any of the Notes or (b) in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of each
Noteholder. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Noteholders shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
SECTION 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Noteholder by such Noteholder's acceptance of any Note shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Indenture Trustee for any action taken, suffered or
omitted by it as Indenture Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest (including any
Noteholders' Interest T-Bill Carryover) on any Note on
-31-
<PAGE>
or after the respective due dates expressed in such Note and in this Indenture
(or, in the case of redemption, on or after the Redemption Date).
SECTION 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Indenture Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 5.15. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the lien of this Indenture nor any
rights or remedies of the Indenture Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Indenture Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Indenture Trust Estate or upon any of the assets of the Issuer. Any money
or property collected by the Indenture Trustee shall be applied in accordance
with Section 5.4(b).
SECTION 5.16. Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and
observance by the Seller, the Depositor the Servicer and the Administrator, as
applicable, of each of their obligations to the Issuer under or in connection
with the Loan Sale Agreement, the Transfer Agreement, the Servicing Agreement
and the Administration Agreement and to exercise any and all rights, remedies,
powers and privileges lawfully available to the Issuer under or in connection
with the Loan Sale Agreement, the Servicing Agreement and the Administration
Agreement to the extent and in the manner directed by the Indenture Trustee,
including the transmission of notices of default on the part of the Seller,
the Depositor, the Servicer or the Administrator thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Seller, the Depositor, the Servicer or the
Administrator of each of their obligations under the Loan Sale Agreement, the
Servicing Agreement or the Administration Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Noteholders of 66-2/3% of the Outstanding Amount of the Notes shall, exercise
all rights, remedies, powers, privileges and claims of the Issuer against the
Seller, the Depositor, the Servicer or the Administrator under or in
connection with the Loan Sale Agreement, the Transfer Agreement, the Servicing
Agreement or the Administration Agreement, including the right or power to
take any action to compel or secure performance or observance by the Seller,
the Depositor, the Servicer or the
-32-
<PAGE>
Administrator of each of their obligations to the Issuer thereunder and to
give any consent, request, notice, direction, approval, extension or waiver
under the Loan Sale Agreement, the Transfer Agreement, the Servicing Agreement
or the Administration Agreement and any right of the Issuer to take such
action shall be suspended.
ARTICLE VI.
The Indenture Trustee
---------------------
SECTION 6.1. Duties of Indenture Trustee. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of
Default:
(i) the Indenture Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; provided, however, that the Indenture
Trustee shall examine such certificates and opinions to determine whether
they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 5.2, 5.11, 5.12 and 5.16.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
Section.
-33-
<PAGE>
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms
of this Indenture or the Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or adequate indemnity satisfactory to it against any
loss, liability or expense is not reasonably assured to it.
(h) Except as expressly provided in the Basic Documents, the
Indenture Trustee shall have no obligation to administer, service or collect
the Student Loans or to maintain, monitor or otherwise supervise the
administration, servicing or collection of the Student Loans.
(i) In the event that the Indenture Trustee is the Paying Agent or
the Note Registrar, the rights and protections afforded to the Indenture
Trustee pursuant to this Indenture shall also be afforded to the Indenture
Trustee in its capacity as Paying Agent or Note Registrar.
(j) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of
the TIA.
SECTION 6.2. Rights of Indenture Trustee. (a) The
Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper
Person. The Indenture Trustee need not investigate any fact or
matter stated in such document.
(b) Before the Indenture Trustee acts or refrains from acting in
connection with any matter contemplated by this Indenture or other Basic
Documents, it may require an Officers' Certificate of the Issuer or an Opinion
of Counsel. The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel.
(c) The Indenture Trustee may exercise any of the trusts and powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers;
-34-
<PAGE>
provided, however, that the Indenture Trustee's conduct does not constitute
willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the other Basic Documents and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(f) Subject to clauses (a), (b), (c) and (g) of Section 6.1 hereof,
the Indenture Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any Noteholder pursuant to this Indenture, unless such Noteholder shall have
offered to the Indenture Trustee security or indemnity reasonably satisfactory
to the Indenture Trustee against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction.
SECTION 6.3. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with
the same rights it would have if it were not Indenture Trustee. Any Paying
Agent, Note Registrar, co-registrar or co-paying agent may do the same with
like rights. However, the Indenture Trustee must comply with Sections 6.11 and
6.12.
SECTION 6.4. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible
for any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
SECTION 6.5. Notice of Defaults. If a Default occurs and is
continuing and if it is either actually known or written notice of the
existence thereof has been delivered to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail notice of the Default to each
Noteholder and to the Rating Agencies promptly after the Indenture Trustee
obtains such knowledge or receives such notice of the Default within 90 days
after it occurs. Except in the case of a Default in payment of principal of or
interest (including any Noteholders' Interest T-Bill Carryover) on any Note
(including payments pursuant to the mandatory redemption provisions of such
Note), the Indenture Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
SECTION 6.6. Reports by Indenture Trustee to Noteholders. The Paying
Agent shall deliver to each Noteholder (and to each Person who was a
Noteholder at any time during the applicable calendar year) such information
as may be required to enable such holder to prepare its Federal and state
income tax returns. Within 60 days after each December 31 beginning with the
December 31 following the date of this Indenture, the Indenture Trustee
-35-
<PAGE>
shall mail to each Noteholder a brief report as of such December 31 that
complies with TIA 313(a) if required by said section. The Indenture Trustee
shall also comply with TIA 313(b). A copy of each such report required
pursuant to TIA 313(a) or (b) shall, at the time of such transmission to
Noteholders, be filed by the Indenture Trustee with the Commission and with
each securities exchange, if any, upon which the Notes are listed, provided
that the Issuer has previously notified the Indenture Trustee of such listing.
SECTION 6.7. Compensation and Indemnity. The Issuer shall cause the
Administrator to pay to the Indenture Trustee from time to time reasonable
compensation for its services and shall cause the Administrator to reimburse
the Indenture Trustee for all reasonable out-of-pocket expenses incurred or
made by it, including costs of collection, in addition to the compensation for
its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Indenture Trustee's agents,
counsel, accountants and experts. The Indenture Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust.
The Issuer shall cause the Administrator to indemnify the Indenture Trustee,
its officers, directors, employees and agents against any and all loss,
liability or expense (including attorneys' fees and expenses) incurred by it
in connection with the administration of this trust and the performance of its
duties hereunder and under the other Basic Documents. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which
it may seek indemnity. Failure by the Indenture Trustee to so notify the
Issuer and the Administrator shall not relieve the Issuer or the Administrator
of its obligations hereunder and under the other Basic Documents. The Issuer
shall cause the Administrator to defend the claim and the Administrator shall
not be liable for any additional legal fees and expenses of the Indenture
Trustee after it has assumed such defense; provided, however, that, in the
event that there may be a conflict between the positions of the Indenture
Trustee and the Administrator in conducting the defense of such claim, the
Indenture Trustee shall be entitled to separate counsel the fees and expenses
of which shall be paid by the Administrator on behalf of the Issuer. Neither
the Issuer nor the Administrator need reimburse any expense or indemnify
against any loss, liability or expense incurred by the Indenture Trustee
through the Indenture Trustee's own willful misconduct, negligence or bad
faith.
The Issuer's and Administrator's payment obligations to the
Indenture Trustee pursuant to this Section shall survive the discharge of this
Indenture. When the Indenture Trustee incurs expenses after the occurrence of
a Default specified in Section 5.1(iv) or (v) with respect to the Issuer, the
expenses are intended to constitute expenses of administration under Title 11
of the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law.
SECTION 6.8. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.8. The Indenture
Trustee may resign at any time by so notifying the Issuer. The Noteholders of
a majority in Outstanding Amount of the Notes may remove the Indenture
-36-
<PAGE>
Trustee by so notifying the Indenture Trustee and may appoint a successor
Indenture Trustee. The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with
Section 6.11;
(ii) an Insolvency Event occurs with respect to the Indenture
Trustee;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture
Trustee in such event being referred to herein as the retiring Indenture
Trustee), the Issuer shall promptly appoint a successor Indenture Trustee. A
former Indenture Trustee shall not be liable for any acts or omissions of any
successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer and shall
notify the Rating Agencies in writing of such acceptance. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Noteholders of a majority in Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.7 shall continue for the benefit of the retiring Indenture Trustee.
SECTION 6.9. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided that such corporation or banking association shall be otherwise
qualified and
-37-
<PAGE>
eligible under Section 6.11. The Indenture Trustee shall provide Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the
trusts created by this Indenture any of the Notes shall have been
authenticated but not delivered, any such successor to the Indenture Trustee
may adopt the certificate of authentication of any predecessor trustee, and
deliver such Notes so authenticated; and in case at that time any of the Notes
shall not have been authenticated, any successor to the Indenture Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor to the Indenture Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Indenture Trustee shall
have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Indenture Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Indenture Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Indenture Trust Estate, or any
part hereof, and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Indenture Trustee may
consider necessary or desirable. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee
under Section 6.11 and no notice to Noteholders of the appointment of any
co-trustee or separate trustee shall be required under Section 6.8 hereof. The
Indenture Trustee shall notify the Rating Agencies of any appointment of a
co-trustee or separate trustee hereunder.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee
or co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Indenture Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
-38-
<PAGE>
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
Indenture and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Indenture on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Indenture Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $[50,000,000] as
set forth in its most recent published annual report of condition and it shall
have a long term debt rating of Baa3 or better by Moody's. The Indenture
Trustee shall comply with TIA 310(b), including the optional provision
permitted by the second sentence of TIA 310(b)(9); provided, however, that
there shall be excluded from the operation of TIA 310(b)(1) any indenture or
indentures under which other securities of the Issuer are outstanding if the
requirements for such exclusion set forth in TIA 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA 311(a), excluding any creditor
relationship listed in TIA 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA 311(a) to the extent indicated.
ARTICLE VII.
Noteholders' Lists and Reports
------------------------------
SECTION 7.1. Issuer To Furnish Indenture Trustee Names and Addresses
of Noteholders. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the
-39-
<PAGE>
names and addresses of the Noteholders as of such Record Date, (b) at such
other times as the Indenture Trustee may request in writing, within 30 days
after receipt by the Issuer of any such request, a list of similar form and
content as of a date not more than 10 days prior to the time such list is
furnished; provided, however, that so long as the Indenture Trustee is the
Note Registrar, no such list shall be required to be furnished.
SECTION 7.2. Preservation of Information; Communications to
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Noteholders
contained in the most recent list furnished to the Indenture Trustee as
provided in Section 7.1 and the names and addresses of Noteholders received by
the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee
may destroy any list furnished to it as provided in such Section 7.1 upon
receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA 312(c).
(d) The Indenture Trustee shall furnish to the Noteholders promptly
upon receipt of a written request therefor, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
any other instruments furnished to the Indenture Trustee under the Basic
Documents.
(e) The Indenture Trustee shall provide notice to the Noteholders as
provided in Section 9.2 of the Trust Agreement, and shall provide notice to
Noteholders of any amendment or supplement to the Trust Agreement as provided
in Section 11.1 of the Trust Agreement.
SECTION 7.3. Reports by Issuer. (a) The Issuer shall:
(b) file with the Indenture Trustee, within 15 days after the Issuer
is required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Issuer may be required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(i) file with the Indenture Trustee and the Commission in
accordance with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of
this Indenture as may be required from time to time by such rules and
regulations; and
-40-
<PAGE>
(ii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA 313(c)) such
summaries of any information, documents and reports required to be filed
by the Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) as
may be required by rules and regulations prescribed from time to time by
the Commission.
(c) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
(d) Copies of all reports to be sent to the Indenture Trustee under
this Section 7.3 shall be mailed to the Rating Agencies by the Issuer at the
same time.
ARTICLE VIII.
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.1. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable
to or receivable by the Indenture Trustee pursuant to this Indenture. The
Indenture Trustee shall apply all such money received by it on behalf of
itself and the Noteholders pursuant to the Loan Sale Agreement, the Servicing
Agreement or the Administration Agreement as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default
occurs in the making of any payment or performance under any agreement or
instrument that is part of the Indenture Trust Estate, the Indenture Trustee
may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim
a Default under this Indenture and any right to proceed thereafter as provided
in Article V.
SECTION 8.2. Trust Accounts. (a) On or prior to the
Closing Date, the Issuer shall cause the Administrator to
establish and maintain, in the name of the Indenture Trustee, for
the benefit of the Noteholders, the Trust Accounts as provided in
Section 2(c) of the Administration Agreement.
(b) On or before the Business Day preceding each Monthly Payment
Date and Quarterly Payment Date, all Monthly Available Funds with respect to
the preceding Monthly Collection Period (or in the case of a Quarterly Payment
Date, Available Funds with respect to the preceding Collection Period) will be
deposited in the Collection Account as provided in Section 4.1 of the
Servicing Agreement. On each Quarterly Payment Date, the Noteholders'
Distribution Amount with respect to such Quarterly Payment Date will be
distributed from the Collection Account and from the Reserve Account to the
Indenture Trustee (or other Paying Agent) on behalf of the Noteholders as
provided in Sections 2(d)(v)(C) and 2(e)(iv)(E) of the Administration
Agreement. On each Quarterly Payment Date, the Reserve Account Excess for such
Quarterly Payment Date will be distributed to the
-41-
<PAGE>
Indenture Trustee (or other Paying Agent) on behalf of the Noteholders as
provided in clauses (b)(ii) and (b)(iii) of Section 2(e)(ii) of the
Administration Agreement (and in the case of clause (b)(iii) whether allocated
thereto pursuant to the proviso to Section 2(e)(ii)(a) or pursuant to Section
2(e)(ii)(b)). On the Quarterly Payment Date referred to in Section 10.1(a)
with respect to a redemption pursuant to Section 10.1(a), the amount on
deposit in the Collateral Reinvestment Account on such Quarterly Payment Date
will be distributed therefrom to the Indenture Trustee (or other Paying Agent)
on behalf of the Noteholders as provided in Section 2(f)(ii) of the
Administration Agreement.
(c) On each Quarterly Payment Date, the Indenture Trustee (or any
other Paying Agent) shall distribute all amounts received by it on behalf of
Noteholders from the Collection Account and the Reserve Account pursuant to
the second sentence of paragraph (b) above to Noteholders in respect of the
Notes to the extent of amounts due and unpaid on the Notes for principal and
interest (but not for any Noteholders' Interest T-Bill Carryover) in the
following amounts and in the following order of priority:
(i) the Senior Noteholders' Interest Distribution Amount, to
the Senior Noteholders, in an amount equal to the accrued and unpaid
interest on the Senior Notes; provided that if there are not sufficient
funds received to pay the entire amount then due on the Senior Notes, the
amounts so received shall be applied to the payment of such interest on
the Senior Notes on a pro rata basis;
(ii) the Subordinate Noteholders' Interest Distribution Amount,
to the Subordinate Noteholders; provided that if there are not sufficient
funds received to pay the entire amount of accrued and unpaid interest
then due on the Subordinate Notes, the amounts received shall be applied
to the payment of such interest on the Subordinate Notes on a pro rata
basis;
(iii) {if the Revolving Period has terminated}, the Senior
Noteholders' Principal Distribution Amount, to the Senior Noteholders
until the Outstanding Amount of the Senior Notes is reduced to zero; and
(iv) after the Outstanding Principal Amount of the Senior Notes
is reduced to zero, the Subordinate Noteholders' Principal Distribution
Amount to the Subordinate Noteholders until the Outstanding Amount of the
Subordinate Notes is reduced to zero.
(d) On each Quarterly Payment Date, the Indenture Trustee (or any
Paying Agent) shall distribute all amounts received by it on behalf of
Noteholders in respect of Reserve Account Excess pursuant to the second to
last sentence of paragraph (b) above to the Noteholders in the following
amounts and order of priority:
(i) {if the Revolving Period has terminated,} all of such
amounts to Senior Noteholders until the Outstanding Amount of the Notes
is equal to the Pool Balance as of the close of business on the last day
of the related Collection Period;
-42-
<PAGE>
(ii) {if the Revolving Period has terminated,} any remaining
such amounts, after the Outstanding Amount of the Senior Notes is reduced
to zero, to the Subordinate Noteholders until the Outstanding Amount of
the Subordinate Notes is equal to the Pool Balance as of the close of
business on the last day of the related Collection Period;
(iii) the Senior Noteholders' Interest T-Bill Carryover, if any,
to the Senior Noteholders; provided that if insufficient funds are
received to pay the entire Senior Noteholders' Interest T-Bill Carryover,
the amounts so received shall be applied to the payment of such Senior
Noteholders' Interest T-Bill Carryover on a pro rata basis; and
(iv) the Subordinate Noteholders' Interest T-Bill Carryover, if
any, to the Subordinate Noteholders; provided that if insufficient funds
are received to pay the entire Subordinate Noteholders' Interest T-Bill
Carryover, the amounts so received shall be applied to the payment of
such Subordinate Noteholders' Interest T-Bill Carryover on a pro rata
basis.
(e) On the Quarterly Payment Date referred to in Section 10.1(a)
with respect to redemption pursuant to Section 10.1(a), the Indenture Trustee
(or any other Paying Agent) shall distribute all amounts received by it on or
behalf of Noteholders from the Collateral Reinvestment Account pursuant to the
last sentence of Section (b) above to Noteholders in the following amounts and
order of priority:
(i) all of such amount to the Senior Noteholders until the
Outstanding Amount of the Senior Notes is reduced to zero; and
(ii) after the Outstanding Amount of the Senior Notes is reduced
to zero, to the Subordinate Noteholders until the Outstanding Amount of
the Subordinate Notes is reduced to zero.
SECTION 8.3. General Provisions Regarding Accounts. (a) So long as
no Default shall have occurred and be continuing, all or a portion of the
funds in the Trust Accounts shall be invested in Eligible Investments and
reinvested by the Indenture Trustee upon Issuer Order, subject to the
provisions of Section 2(c) of the Administration Agreement. All income or
other gain from investments of moneys deposited in the Trust Accounts shall be
deposited by the Indenture Trustee in the Collection Account, and any loss
resulting from such investments shall be charged to such Trust Account. The
Issuer will not direct the Indenture Trustee to make any investment of any
funds or to sell any investment held in any of the Trust Accounts unless the
security interest granted and perfected in such account will continue to be
perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any
direction to the Indenture Trustee to make any such investment or sale, if
requested by the Indenture Trustee, the Issuer shall deliver to the Indenture
Trustee an Opinion of Counsel, acceptable to the Indenture Trustee, to such
effect.
-43-
<PAGE>
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture Trustee, in its
commercial capacity as principal obligor and not as trustee, in accordance
with their terms.
(c) If (i) the Issuer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Indenture
Trustee by 10:00 a.m. [New York] time (or such other time as may be agreed by
the Issuer and Indenture Trustee) on any Business Day; or (ii) a Default shall
have occurred and be continuing with respect to the Notes but the Notes shall
not have been declared due and payable pursuant to Section 5.2, or, if such
Notes shall have been declared due and payable following an Event of Default,
amounts collected or receivable from the Indenture Trust Estate are being
applied in accordance with Section 5.5 as if there had not been such a
declaration; then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments.
SECTION 8.4. Release of Indenture Trust Estate. (a) Subject to the
payment of its fees and expenses pursuant to Section 6.7, the Indenture
Trustee may, and when required by the provisions of this Indenture shall,
execute instruments to release property from the lien of this Indenture, or
convey the Indenture Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Indenture Trustee as
provided in this Article VIII shall be bound to ascertain the Indenture
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
have been paid, release any remaining portion of the Indenture Trust Estate
that secured the Notes from the lien of this Indenture and release to the
Issuer or any other Person entitled thereto any funds then on deposit in the
Trust Accounts. The Indenture Trustee shall release property from the lien of
this Indenture pursuant to this Section 8.4(b) only upon receipt of an Issuer
Request accompanied by an Officers' Certificate of the Issuer, an Opinion of
Counsel and (if required by the TIA) Independent Certificates in accordance
with TIA 314(c) and 314(d)(1) meeting the applicable requirements of Section
11.1.
SECTION 8.5. Opinion of Counsel. The Indenture Trustee shall receive
at least seven days' notice when requested by the Issuer to take any action
pursuant to Section 8.4(a), accompanied by copies of any instruments involved,
and the Indenture Trustee shall also require, as a condition to such action,
an Opinion of Counsel, in form and substance satisfactory to the Indenture
Trustee, stating the legal effect of any such action, outlining the steps
required to complete the same, and concluding that all conditions precedent to
the taking of such action have been complied with and such action will not
materially and adversely impair the security for the Notes or the rights of
the Noteholders in contravention of the
-44-
<PAGE>
provisions of this Indenture; provided, however, that such Opinion of Counsel
shall not be required to express an opinion as to the fair value of the
Indenture Trust Estate. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Indenture Trustee in connection with any
such action.
ARTICLE IX.
Supplemental Indentures
-----------------------
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of any Noteholders but with prior notice to the Rating
Agencies, the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or, better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject to
the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Noteholders, or to surrender any right or power herein conferred upon
the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental indenture;
provided that such action shall not materially adversely affect the
interests of the Noteholders;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as shall
be necessary to facilitate the administration of the trusts hereunder by
more than one trustee, pursuant to the requirements of Article VI; or
-45-
<PAGE>
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such other
provisions as may be expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an
Issuer Order, may, also without the consent of any of the Noteholders but with
prior notice to the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing
in any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Noteholders under this Indenture;
provided, however, that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of any
Noteholder.
SECTION 9.2. Supplemental Indentures with Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Noteholders of not less than a majority of the Outstanding Amount of the
Notes, by Act of such Noteholders delivered to the Issuer and the Indenture
Trustee, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Noteholders under this Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the Noteholder of
each Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal
of or interest (including any Noteholders' Interest T-Bill Carryover) on
any Note, or reduce the principal amount thereof, the interest rate
thereon or the Redemption Price with respect thereto, change the
provisions of this Indenture relating to the application of collections
on, or the proceeds of the sale of, the Indenture Trust Estate to payment
of principal of or interest (including any Noteholders' Interest T-Bill
Carryover) on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available
therefor, as provided in Article V, to the payment of any such amount due
on the Notes on or after the respective due dates thereof (or, in the
case of redemption, on or after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Noteholders of which is required for any such
supplemental indenture, or the consent of the Noteholders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
-46-
<PAGE>
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Indenture Trustee to direct the Issuer to
sell or liquidate the Indenture Trust Estate pursuant to Section 5.4;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the other Basic Documents cannot be
modified or waived without the consent of the Noteholder of each
Outstanding Note affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest (including any Noteholders' Interest T-Bill Carryover) or
principal due on any Note on any Quarterly Payment Date (including the
calculation of any of the individual components of such calculation) or
to affect the rights of the Noteholders to the benefit of any provisions
for the mandatory redemption of the Notes contained herein; or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Indenture Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any time
subject hereto or deprive any Noteholder of any Note of the security
provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Noteholders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section, the Indenture Trustee
shall mail to the Noteholders of the Notes to which such amendment or
supplemental indenture relates and to the Rating Agencies a notice setting
forth in general terms the substance of such supplemental indenture. Any
failure of the Indenture Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
SECTION 9.3. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts
created by this Indenture, the Indenture
-47-
<PAGE>
Trustee shall receive, and subject to Sections 6.1 and 6.2, shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's own rights,
duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations
of rights, obligations, duties, liabilities and immunities under this
Indenture of the Indenture Trustee, the Issuer and the Noteholders shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and are deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.5. Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as
then in effect so long as this Indenture shall then be qualified under the
Trust Indenture Act.
SECTION 9.6. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture. If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X.
Redemption of Notes
-------------------
SECTION 10.1. Redemption. (a) {In the event that on the Quarterly
Payment Date on which the Revolving Period ends (or on the Quarterly Payment
Date on or immediately following the last day of the Revolving Period, if the
Revolving Period does not end on a Quarterly Payment Date) any amount remains
on deposit in the Collateral Reinvestment Account after giving effect to the
making of all Additional Fundings, including any such Additional Fundings on
such Quarterly Payment Date, one or more classes of the Notes will be redeemed
in part, in the order of priority specified in Section 8.2(e), in an aggregate
principal amount equal to the amount then on deposit in the Collateral
Reinvestment Account.}
-48-
<PAGE>
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement or the Student Loans are sold pursuant to
Section 4.4 hereof, that portion of the amounts on deposit in the Trust
Accounts to be distributed to the Noteholders shall be paid to the Noteholders
up to the Outstanding Amount of the Notes and all accrued and unpaid interest
thereon and any accrued Noteholders' Interest T-Bill Carryover with respect
thereto (but only to the extent provided by Sections 2.7(d) and 8.2 hereof).
If amounts are to be paid to Noteholders pursuant to this Section 10.1(b), the
Administrator or the Issuer shall, to the extent practicable, furnish notice
of such Event to the Indenture Trustee not later than 25 days prior to the
Redemption Date whereupon all such amounts shall be payable on the Redemption
Date.
(c) The Notes are subject to redemption in whole, but not in part,
on any Quarterly Payment Date on which the Depositor exercises its option to
purchase the Trust Estate pursuant to Section 5.1 of the Loan Sale Agreement.
If the Notes are to be redeemed pursuant to this Section 10.1(c), the
Depositor shall furnish notice of such election to the Indenture Trustee not
later than 20 days prior to the Redemption Date and the Issuer shall deposit
by 10:00 A.M. [New York] City time on the Redemption Date with the Indenture
Trustee in the Collection Account the Redemption Price for the Notes,
whereupon the Notes shall be due and payable on the Redemption Date upon
furnishing a notice complying with Section 10.2 to each Noteholder.
SECTION 10.2. Form of Redemption Notice. Notice of redemption under
Section 10.1 shall be given by the Indenture Trustee by first-class mail,
postage prepaid, or by facsimile, mailed or transmitted on or prior to the
applicable Redemption Date to each Noteholder, as of the close of business on
the Record Date preceding the applicable Redemption Date, at such Noteholder's
address or facsimile number appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of
the Issuer to be maintained as provided in Section 3.2).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice
of redemption, or any defect therein, to any Noteholder of any Note shall not
impair or affect the validity of the redemption of any other Note.
SECTION 10.3. Notes Payable on Redemption Date. The Notes or
portions thereof to be redeemed shall on the Redemption Date become due and
payable at the Redemption Price and (unless the Issuer shall default in the
payment of the Redemption Price)
-49-
<PAGE>
no interest shall accrue on the Redemption Price for any period after the date
to which accrued interest is calculated for purposes of calculating the
Redemption Price.
ARTICLE XI.
Miscellaneous
-------------
SECTION 11.1. Compliance Certificates and Opinions. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Indenture Trustee (i) an Officers' Certificate of the Issuer stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any,
have been complied with and (iii) (if required by the TIA) an Independent
Certificate from a firm of certified public accountants meeting the applicable
requirements of this Section, except that, in the case of any such application
or request as to which the furnishing of such documents is specifically
required by any provision of this Indenture, no additional certificate or
opinion need be furnished.
(b) Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and
the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is necessary
to enable such signatory to express an informed opinion as to whether
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(c)(i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture,
the Issuer shall, in addition to any obligation imposed in Section 11.1(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officers'
Certificate of the Issuer certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such deposit)
to the Issuer of the Collateral or other property or securities to be so
deposited.
-50-
<PAGE>
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officers' Certificate of the Issuer certifying or stating the
opinion of any signer thereof as to the matters described in clause (i)
above, the Issuer shall also deliver to the Indenture Trustee an
Independent Certificate as to the same matters, if the fair value to the
Issuer of the securities to be so deposited and of all other such
securities made the basis of any such withdrawal or release since the
commencement of the then current fiscal year of the Issuer, as set forth
in the certificates delivered pursuant to clause (i) above and this
clause (ii), is 10% or more of the Outstanding Amount of the Notes, but
such a certificate need not be furnished with respect to any securities
so deposited, if the fair value thereof to the Issuer as set forth in the
related Officers' Certificate is less than [$25,000] or less than one
percent of the Outstanding Amount of the Notes.
(iii) Other than any property released as contemplated by clause
(v) below, whenever any property or securities are to be released from
the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officers' Certificate of the Issuer certifying or
stating the opinion of each person signing such certificate as to the
fair value (within 90 days of such release) of the property or securities
proposed to be released and stating that in the opinion of such person
the proposed release will not impair the security under this Indenture in
contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officers' Certificate of the Issuer certifying or stating the
opinion of any signer thereof as to the matters described in clause (iii)
above, the Issuer shall also furnish to the Indenture Trustee an
Independent Certificate as to the same matters if the fair value of the
property or Securities and of all other property, other than property as
contemplated by clause (v) below, or securities released from the lien of
this Indenture since the commencement of the then-current calendar year,
as set forth in the certificates required by clause (iii) above and this
clause (iv), equals 10% or more of the Outstanding Amount of the Notes,
but such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof as set forth in the
related Officers' Certificate is less than [$25,000] or less than one
percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other provision of this
Section, the Issuer may, without compliance with the requirements of the
other provisions of this Section, (A) collect, liquidate, sell or
otherwise dispose of Student Loans as and to the extent permitted or
required by the Basic Documents and (B) make cash payments out of the
Trust Accounts as and to the extent permitted or required by the Basic
Documents, so long as the Issuer shall deliver to the Indenture Trustee
every three months, commencing [ ], an Officers' Certificate of the
Issuer stating that all the dispositions of Collateral described in
clauses (A) and (B) above that occurred during the immediately preceding
three calendar months (or the period from the Closing Date in the case of
the [ ] Officers' Certificate) were in the ordinary
-51-
<PAGE>
course of the Issuer's business and that the proceeds thereof were
applied in accordance with the Basic Documents.
SECTION 11.2. Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion
or representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or
officers of the Servicer, the Seller, the Depositor, the Issuer or the
Administrator, stating that the information with respect to such factual
matters is in the possession of the Servicer, the Seller, the Depositor, the
Issuer or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application
or at the effective date of such certificate or report (as the case may be),
of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application
granted or to the sufficiency of such certificate or report. The foregoing
shall not, however, be construed to affect the Indenture Trustee's right to
rely upon the truth and accuracy of any statement or opinion contained in any
such document as provided in Article VI.
SECTION 11.3. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except
as herein otherwise expressly provided such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and
-52-
<PAGE>
the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Noteholder of any Notes shall bind the
Noteholder of every Note issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered
to be done by the Indenture Trustee or the Issuer in reliance thereon, whether
or not notation of such action is made upon such Note.
SECTION 11.4. Notices to Indenture Trustee, Issuer and Rating
Agencies. Any request, demand, authorization, direction, notice, consent,
waiver or act of Noteholders or other documents provided or permitted by this
Indenture shall be in writing and if such request, demand, authorization,
direction, notice, consent, waiver or act of Noteholders is to be made upon,
given or furnished to or filed with:
(a) the Indenture Trustee by any Noteholder or by the Issuer, it
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Indenture Trustee at its Corporate
Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder, it
shall be sufficient for every purpose hereunder if in writing and mailed,
first-class, postage prepaid, to the Issuer addressed to: EFG Student
Loan Trust 1999-[ ], in care of First Chicago Delaware Inc., as Trustee,
FCC National Bank, 300 King Street, Wilmington, Delaware 19801, with a
copy to the Trustee at the Corporate Trust Office of the Trustee, or at
any other address previously furnished in writing to the Indenture
Trustee by the Issuer. The Issuer shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee.
Notices required to be given to the Rating Agencies by the Issuer,
the Indenture Trustee or the Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to the following
address: (i) in the case of Moody's Investors Service, Inc., at the following
address: 99 Church Street, New York, New York 10007, Attention of ABS
Monitoring Department and (ii) in the case of Fitch Investors Service, L.P.,
at the following address: One State Street Plaza, New York, New York 10004,
Attention of Asset Backed Monitoring Unit; or as to each of the foregoing, at
such other address as shall be designated by written notice to the other
parties.
-53-
<PAGE>
SECTION 11.5. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default.
SECTION 11.6. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Noteholder
providing for a method of payment, or notice by the Indenture Trustee or any
Paying Agent to such Noteholder, that is different from the methods provided
for in this Indenture for such payments or notices, provided that such
agreement is reasonably acceptable to the Indenture Trustee. The Issuer will
furnish to the Indenture Trustee a copy of each such agreement and the
Indenture Trustee will cause payments to be made and notices to be given in
accordance with such agreements.
SECTION 11.7. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the
Trust Indenture Act, such required provision shall control.
The provisions of TIA SS. SS. 310 through 317 that impose duties on
any Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
-54-
<PAGE>
SECTION 11.8. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 11.9. Successors and Assigns. All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee
in this Indenture shall bind the successors, co-trustees and agents (excluding
any legal representatives or accountants) of the Indenture Trustee.
SECTION 11.10. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 11.11. Benefits of Indenture. Nothing in this Indenture or
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Noteholders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Indenture Trust Estate, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 11.12. [RESERVED]
SECTION 11.13. Governing Law. This Indenture shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 11.14. Counterparts. This Indenture may be
executed in any number of counterparts, each of which so executed
shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Noteholders or any
other Person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.
SECTION 11.16. Trust Obligations. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Issuer, the Seller, the
Depositor, the Owner, the Administrator, the Servicer, the Trustee or the
Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Seller, the Depositor, the Owner, the Administrator, the
-55-
<PAGE>
Servicer, the Indenture Trustee or the Trustee in its individual capacity or
(ii) any partner, owner, beneficiary, agent, officer, director or employee of
the Seller, the Depositor, the Owner, the Administrator, the Servicer, the
Indenture Trustee or the Trustee in its individual capacity, any holder or
owner of a beneficial interest in the Issuer, the Trustee or the Indenture
Trustee or of any successor or assign of the Seller, the Depositor, the Owner,
Administrator, the Servicer, the Indenture Trustee or the Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.
For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Articles VI, VII and
VIII of the Trust Agreement.
SECTION 11.17. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor, or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency, receivership or
liquidation proceedings, or other proceedings under any United States Federal
or state bankruptcy or similar law in connection with any obligations relating
to the Notes, this Indenture or any of the other Basic Documents.
SECTION 11.18. Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Indenture Trustee,
during the Issuer's normal business hours, to examine all the books of
account, records, reports, and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer' affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information obtained from such examination or
inspection except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except
to the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
-56-
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto
duly authorized and duly attested, all as of the day and year first above
written.
EFG STUDENT LOAN TRUST
1999-[ ],
by [TRUSTEE],
not in its individual capacity
but solely as Trustee,
By:
--------------------------------------
Name:
Title:
[INDENTURE TRUSTEE], not
in its individual capacity but
solely as Indenture Trustee,
By:
--------------------------------------
Name:
Title:
Acknowledged and accepted as
to the Granting Clause as of
the day and year first above
written:
[ELIGIBLE LENDER TRUSTEE], not
in its Individual capacity but
solely as Eligible Lender Trustee,
By:
-----------------------------
Name:
Title:
-57-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ______________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said EFG STUDENT LOAN TRUST 1999-[ ], a Delaware trust, and that such person
executed the same as the act of said trust for the purpose and consideration
therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the __ day of [ 1999].
-----------------------------------------
Notary Public in and for
the State of New York
[Seal]
My commission expires:
- ----------------------------
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ______________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said [INDENTURE TRUSTEE], a New York banking corporation, and that such person
executed the same as the act of said corporation for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the __ day of [ ].
-----------------------------------------
Notary Public in and for
the State of New York
[Seal]
My commission expires:
- ---------------------------
<PAGE>
EXHIBIT A-1
TO THE INDENTURE
[FORM OF SENIOR NOTE]
SENIOR NOTE
SEE REVERSE FOR CERTAIN DEFINITIONS
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer (as
defined below) or its agent for registration of transfer, exchange or payment,
and any Note issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
REGISTERED CUSIP NO.
$--------
No. R-
EFG STUDENT LOAN TRUST 1999-[ ]
FLOATING RATE ASSET BACKED SENIOR NOTES
EFG Student Loan Trust 1999-[ ], a trust organized and existing under the
laws of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to ______________________________, or
registered assigns, the principal sum of __________________________________
DOLLARS payable on each Quarterly Payment Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is
$___________ and the denominator of which is $[ ] by (ii) the aggregate
amount, if any, payable to Noteholders on such Quarterly Payment Date in
respect of principal of the Senior Notes pursuant to Section 3.1 of the
Indenture dated as of[__________ 1999], between the Issuer and [INDENTURE
TRUSTEE], a New York banking corporation, as Indenture Trustee (the "Indenture
Trustee") (capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Indenture, which also references rules as to
usage that shall be
A-1-1
<PAGE>
applicable herein); {provided, however, that no principal shall be payable on
this Note until after the end of the Revolving Period and,} provided, further,
that the entire unpaid principal amount of this Note shall be due and payable
on the [ ] Quarterly Payment Date (the "Senior Note Final Maturity Date")
and the Redemption Date, if any, pursuant to Section 10.1(b) or 10.1(c) of the
Indenture.
The Issuer will pay interest on this Note at the rate per annum equal to
the Senior Note Rate (as defined on the reverse hereof), on each Quarterly
Payment Date until the principal of this Note is paid or made available for
payment, on the principal amount of this Note outstanding on the preceding
Quarterly Payment Date, after giving effect to all payments of principal made
on the preceding Quarterly Payment Date (or, in the case of the first
Quarterly Payment Date, on the Closing Date), subject to certain limitations
contained in Section 3.1 of the Indenture. Interest on this Note will accrue
for each Quarterly Payment Date from the most recent Quarterly Payment Date on
which interest has been paid to but excluding such Quarterly Payment Date or,
if no interest has yet been paid, from [ ] (each, a "Quarterly Interest
Period"). Interest on this Note will be computed on the basis of the actual
number of days elapsed in each Quarterly Interest Period and a 365-day year
(or 366-day year in the case of a leap year). Such principal of and interest
on this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of
this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
A-1-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed, manually or in facsimile, as of the date set forth below.
EFG STUDENT LOAN TRUST 1999-[ ]
by [TRUSTEE], not in its individual capacity
but solely as Trustee under the Trust
Agreement,
by
---------------------------------------------
Authorized Signatory
Date:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
[INDENTURE TRUSTEE], not in its individual
capacity but solely as Indenture Trustee,
by
---------------------------------------------
Authorized Signatory
Date:
A-1-3
<PAGE>
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Floating Rate Asset Backed Senior Notes (herein called the
"Senior Notes") and the Floating Rate Asset Backed Subordinate Notes (the
"Subordinate Notes" and, together with the Senior Notes, the "Notes") are
issued under the Indenture, to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the
Noteholders. The Senior Notes are subject to all terms of the Indenture.
The Senior Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Allocations of principal will be made among the Senior Notes and the
Subordinate Notes as provided in the Indenture. The Senior Notes are senior in
right of payment to the Subordinate Notes, all as and to the extent provided
in the Indenture.
Principal of the Senior Notes will be payable on each Quarterly Payment
Date {after the end of the Revolving Period} in an amount described in the
Indenture. "Quarterly Payment Date" means the twenty-seventh day of each
January, April, July and October, or, if any such date is not a Business Day,
the next succeeding Business Day, commencing [ ].
As provided in Section 10.1(a) of the Indenture, the Senior Notes may be
redeemed in part on the Quarterly Payment Date {on which the Revolving Period
ends (or on the Quarterly Payment Date on or immediately following the last
day of the Revolving Period, if the Revolving Period does not end on a
Quarterly Payment Date) in the event that any amount remains on deposit in the
Collateral Reinvestment Account after giving effect to all Additional
Fundings, including any Additional Fundings, on such Quarterly Payment Date.}
As described on the face hereof, the entire unpaid principal amount of
this Note shall be due and payable on the Senior Note Final Maturity Date and
the Redemption Date, if any, pursuant to Section 10.1(b) or 10.1(c) of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount
of the Notes shall be due and payable on the date on which (i) an Event of
Default shall have occurred and be continuing and (ii) the Indenture Trustee
or the Noteholders representing not less than a majority of the Outstanding
Amount of the Notes shall have declared the Notes to be immediately due and
payable in the manner provided in Section 5.2 of the Indenture. All principal
payments of the Senior Notes shall be made pro rata to the Senior Noteholders
entitled thereto.
Interest on the Senior Notes will be payable on each Quarterly Payment
Date, commencing [ ], on the principal amount outstanding of such Notes
until the principal amount thereof is paid in full, at a rate per annum equal
to the Senior Note Rate. The "Senior Note Rate" for each Quarterly Payment
Date and the related Quarterly Interest Period shall be equal to the lesser of
(i) the weighted average of the T-Bill Rates for the related Quarterly
Interest Period plus [ ]% (the "Senior Note T-Bill Rate") and (ii) the
Student Loan Rate for such Quarterly Interest Period; provided, that,
notwithstanding the foregoing, the Senior Note
A-1-4
<PAGE>
Rate for the first Quarterly Interest Period shall be equal to the Senior Note
T-Bill Rate for such Quarterly Interest Period. The "Student Loan Rate" for
any Quarterly Interest Period will equal the product of (a) the quotient
obtained by dividing (i) 365 (366 in the case of a leap year) by (ii) the
actual number of days elapsed in such Quarterly Interest Period and (b) the
percentage equivalent of a fraction, the numerator of which is equal to
Expected Interest Collections for such Quarterly Interest Period less the
Servicing Fee and the Administration Fee with respect to such Quarterly
Interest Period and the denominator of which is the aggregate principal
balance of the Notes as of the last day of such Quarterly Interest Period.
"T-Bill Rate" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
91-day Treasury Bills sold at the most recent 91-day Treasury Bill auction
prior to such date as reported by the U.S. Treasury Department. In the event
that the results of the auctions of 91-day Treasury Bills cease to be
published or reported as provided above, or that no such auction is held in a
particular week, then the "T-Bill Rate" in effect as a result of the last such
publication or report shall remain in effect until such time, if any, as the
results of auctions of 91- day Treasury Bills shall again be so published or
reported or such an auction is held, as the case may be. The T-Bill Rate shall
be subject to a Lock-In Period of six Business Days.
Any Senior Noteholders' Interest T-Bill Carryover that may exist on any
Quarterly Payment Date shall be payable to the Senior Noteholders on such
Quarterly Payment Date and any succeeding Quarterly Payment Dates solely out
of the funds available and required to be applied thereto pursuant to the
Administration Agreement.
Payments of interest on this Note due and payable on each Quarterly
Payment Date, and payments of interest together with the installment of
principal, if any, due and payable on each Quarterly Payment Date, to the
extent not in full payment of this Note, shall be made by wire transfer or
check mailed to the Person whose name appears as the Registered Holder of this
Note (or one or more Predecessor Notes) on the Note Register on the Record
Date, except that with respect to Notes registered on the Record Date in the
name of the nominee of the Clearing Agency, unless Definitive Notes have been
issued (initially, such nominee to be Cede & Co.), payments will be made by
wire transfer in immediately available funds to the account designated by such
nominee. Such checks shall be mailed to the Person entitled thereto at the
address of such Person as it appears on the Note Register as of the applicable
Record Date without requiring that this Note be submitted for notation of
payment, and the mailing of such check shall constitute payment of the amount
thereof regardless of whether such check is returned undelivered. Any
reduction in the principal amount of this Note (or any one or more Predecessor
Notes) effected by any payments made on any Quarterly Payment Date shall be
binding upon all future Noteholders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof,
whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Quarterly Payment Date, then the Indenture
Trustee, in the name of and on behalf of the Issuer, will notify the Person
who was the Noteholder hereof as of the Record Date preceding such Quarterly
Payment Date by notice mailed no later than five days prior to such Quarterly
Payment Date and the amount then due
A-1-5
<PAGE>
and payable shall be payable only upon presentation and surrender of this Note
at the Indenture Trustee's Corporate Trust Office or at the office of the
Indenture Trustee's agent appointed for such purposes located in the Borough
of Manhattan, The City of [New York.]
The Issuer shall pay interest on overdue installments of interest at the
Senior Note Rate to the extent lawful.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Noteholder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Note Registrar in addition to, or in
substitution for, STAMP (all in accordance with the Exchange Act), and such
other documents as the Indenture Trustee may require, and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of
a Note Owner, a beneficial interest in the Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Seller, the Depositor, the Owner, the Administrator, the
Servicer, the Trustee or the Indenture Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Seller, the Depositor, the Owner, the
Administrator, the Servicer, the Indenture Trustee or the Trustee in its
individual capacity or (ii) any partner, owner, beneficiary, agent, officer,
director or employee of the Seller, Depositor, the Owner, the Administrator,
the Servicer, the Indenture Trustee or the Trustee in its individual capacity,
any holder or owner of a beneficial interest in the Issuer, the Trustee or the
Indenture Trustee or of any successor or assign of the Seller, the Depositor,
the Owner, the Administrator, the Servicer, the Indenture Trustee or the
Trustee in its individual capacity, except as any such Person may have
expressly agreed (it being understood that the Indenture Trustee and the
Trustee have no such obligations in their individual capacity) and except that
any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of
a Note Owner, a beneficial interest in a Note, covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder or Note Owner
will not at any time institute against the Depositor, the Owner
A-1-6
<PAGE>
or the Issuer, or join in any institution against the Depositor, the Owner or
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency,
receivership or liquidation proceedings or other proceedings under any United
States Federal or state bankruptcy or similar law in connection with any
obligations relating to the Notes, the Indenture or the other Basic Documents.
The Issuer has entered into this Indenture and this Note is issued with
the intention that, for federal, state, foreign, and local income and
franchise tax and usury purposes, this Note will be treated as indebtedness of
the Owner secured by the Trust Assets. Each Noteholder, by acceptance of a
Note (and each Note Owner by acceptance of a beneficial interest in a Note)
agrees to treat this Note for federal, state, foreign and local income and
franchise tax and usury purposes as indebtedness of the Owner secured by the
Trust Estate.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Noteholders under the Indenture at any time by
the Issuer with the consent of the Noteholders representing a majority of the
Outstanding Amount of all Notes at the time outstanding. The Indenture also
contains provisions permitting the Noteholders representing specified
percentages of the Outstanding Amount of the Notes, on behalf of all the
Noteholders, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the holder of this Note (or any
one or more Predecessor Notes) shall be conclusive and binding upon such
holder and upon all future holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms
and conditions set forth in the Indenture without the consent of holders of
the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Indenture Trustee and the
Noteholders under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
A-1-7
<PAGE>
This Note shall be construed in accordance with the laws of the State of
New York, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder and thereunder shall
be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note
at the times, place, and rate, and in the coin or currency, herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [INDENTURE TRUSTEE] in its individual
capacity, [TRUSTEE] in its individual capacity, any owner of a beneficial
interest in the Issuer, nor any of their respective partners, beneficiaries,
agents, officers, directors, employees or successors or assigns shall be
personally liable for, nor shall recourse be had to any of them for, the
payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture; it being expressly understood that said covenants,
obligations and indemnifications have been made by the Trustee for the sole
purposes of binding the interests of the Trustee in the assets of the Issuer.
The Noteholder of this Note by the acceptance hereof agrees that, except as
expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Noteholder shall have no claim against any of the
foregoing for any deficiency, loss or claim therefrom; provided, however, that
nothing contained herein shall be taken to prevent recourse to, and
enforcement against, the assets of the Issuer for any and all liabilities,
obligations and undertakings contained in the Indenture or in this Note.
A-1-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number
of assignee
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto
---------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints ______________________, attorney, to transfer
said Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
-------------
*/
---------------------------
Signature Guaranteed:
*/
---------------------------
*/ NOTICE: The signature to this assignment must correspond
with the name of the registered owner as it appears on the
face of the within Note in every particular, without
alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar,
which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT A-2
TO THE INDENTURE
[FORM OF SUBORDINATE NOTE]
SUBORDINATE NOTE
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY
LAWS OF ANY STATE IN THE UNITED STATES OR ANY FOREIGN SECURITIES LAWS. [BY ITS
ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE SELLER
AND THE INDENTURE TRUSTEE THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("QIB") AND IS ACQUIRING SUCH
NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY
OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QIBS).
NO SALE, PLEDGE OR OTHER TRANSFER OF ANY SUBORDINATE NOTES MAY BE MADE BY ANY
PERSON UNLESS EITHER SUCH SALE, PLEDGE OR OTHER TRANSFER IS MADE (i) TO THE
SELLER OR (ii) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES AFTER DUE
INQUIRY IS A QIB ACTING FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF
OTHERS) OR AS A FIDUCIARY OR AGENT FOR OTHERS (WHICH OTHERS ALSO ARE QIBS) IN
RELIANCE ON, AND TO WHOM NOTICE IS GIVEN THAT THE SALE, PLEDGE OR TRANSFER IS
BEING MADE IN RELIANCE ON, RULE 144A OR ON ANOTHER EXEMPTION WITH RESPECT TO
WHICH, IN THE CASE OF SUCH RELIANCE ON SUCH OTHER EXEMPTION, BOTH THE
PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE
TRUSTEE AND THE SELLER IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH
CERTIFICATION WILL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE
TRUSTEE AND THE SELLER, AND PROVIDE A WRITTEN OPINION OF COUNSEL (WHICH WILL
NOT BE AT THE EXPENSE OF THE INDENTURE TRUSTEE OR THE SELLER) SATISFACTORY TO
EACH TO THE EFFECT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT. NO
SALE, PLEDGE OR OTHER TRANSFER MAY BE MADE TO ANY ONE PERSON FOR SUBORDINATE
NOTES WITH A FACE AMOUNT OF LESS THAN $250,000 AND, IN THE CASE OF ANY PERSON
ACTING ON BEHALF OF ONE OR MORE THIRD PARTIES (OTHER THAN A BANK (AS DEFINED
IN SECTION 3(A)(2) OF THE SECURITIES ACT) ACTING IN ITS FIDUCIARY CAPACITY),
FOR SUBORDINATE NOTES WITH A FACE AMOUNT OF LESS THAN $250,000 FOR EACH SUCH
THIRD PARTY.
- ---------------
* Insert in all Subordinate Notes other than the Company Note.
A-2-1
<PAGE>
"NO RESALE OR OTHER TRANSFER OF THIS SUBORDINATE NOTE MAY BE MADE UNLESS THE
SELLER AND THE INDENTURE TRUSTEE SHALL HAVE RECEIVED A REPRESENTATION LETTER
OR OPINION OF COUNSEL FROM THE TRANSFEREE OF THIS SUBORDINATE NOTE, ACCEPTABLE
TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE SELLER AND THE INDENTURE
TRUSTEE, TO THE EFFECT THAT IF SUCH TRANSFEREE (OR ANY PERSON OR ENTITY FOR
WHOM SUCH TRANSFEREE IS ACTING AS AGENT OR CUSTODIAN IN CONNECTION WITH THE
ACQUISITION OF THIS SUBORDINATE NOTE) IS A PARTNERSHIP, GRANTOR TRUST OR S
CORPORATION FOR FEDERAL INCOME TAX PURPOSES (A "FLOW-THROUGH ENTITY"), ANY
SUBORDINATE NOTES OWNED BY OR ON BEHALF OF SUCH FLOW-THROUGH ENTITY WILL
REPRESENT LESS THAN 50% OF THE VALUE OF ALL THE ASSETS OWNED BY SUCH
FLOW-THROUGH ENTITY AND NO SPECIAL ALLOCATION OF INCOME, GAIN, LOSS, DEDUCTION
OR CREDIT FROM SUCH SUBORDINATE NOTES WILL BE MADE AMONG THE BENEFICIAL OWNERS
OF SUCH FLOW-THROUGH ENTITY."
NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE TO ANY PERSON OTHER
THAN A CITIZEN OR RESIDENT OF THE UNITED STATES, A CORPORATION, PARTNERSHIP OR
OTHER ENTITY CREATED OR ORGANIZED IN, OR UNDER THE LAWS OF, THE UNITED STATES
OR ANY POLITICAL SUBDIVISION THEREOF, OR AN ESTATE WHOSE INCOME IS SUBJECT TO
UNITED STATES FEDERAL INCOME TAX REGARDLESS OF ITS SOURCE, OR A TRUST IF A
COURT WITHIN THE UNITED STATES IS ABLE TO EXERCISE PRIMARY SUPERVISION OVER
THE ADMINISTRATION OF THE TRUST AND ONE OR MORE UNITED STATES FIDUCIARIES HAVE
THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST. BY ITS
ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE SELLER
AND THE INDENTURE TRUSTEE THAT IT IS A "UNITED STATES PERSON" AS DEFINED IN
7701(a)(30) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
SECTION 2.4 OF THE INDENTURE CONTAINS FURTHER RESTRICTIONS ON THE TRANSFER AND
RESALE OF THIS NOTE. EACH TRANSFEREE OF THIS NOTE, BY ACCEPTANCE HEREOF, IS
DEEMED TO HAVE ACCEPTED THIS NOTE SUBJECT TO THE FOREGOING RESTRICTIONS ON
TRANSFERABILITY.
EACH NOTEHOLDER OR NOTE OWNER, BY ACCEPTANCE OF A NOTE OR, IN THE CASE OF A
NOTE OWNER, A BENEFICIAL INTEREST IN A NOTE, COVENANTS AND AGREES THAT BY
ACCEPTING THE BENEFITS OF THE INDENTURE THAT SUCH NOTEHOLDER OR NOTE OWNER
WILL NOT AT ANY TIME INSTITUTE AGAINST THE SELLER, THE COMPANY OR THE ISSUER,
OR JOIN IN ANY INSTITUTION AGAINST THE SELLER, THE COMPANY OR THE ISSUER OF,
ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY, RECEIVERSHIP OR
LIQUIDATION PROCEEDING OR OTHER PROCEEDINGS UNDER ANY UNITED STATES FEDERAL OR
STATE BANKRUPTCY OR SIMILAR LAW IN
A-2-2
<PAGE>
CONNECTION WITH ANY OBLIGATIONS RELATING TO THE NOTES, THE INDENTURE OR THE
OTHER BASIC DOCUMENTS.]
****[THIS NOTE IS NOT TRANSFERABLE. To be inserted only in the
Depositor Note.
SECONDARY MARKET COMPANY, INC., BY ACCEPTANCE HEREOF, IS
DEEMED TO HAVE ACCEPTED THIS NOTE SUBJECT TO THE FOREGOING RESTRICTIONS ON
TRANSFERABILITY.]
- -----------------------
**** To be inserted only in the Company Note.
A-2-3
<PAGE>
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS NOTE IS NOT
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.
REGISTERED CUSIP NO.
$---------
No. R-
EFG STUDENT LOAN TRUST 1999-[ ]
FLOATING RATE ASSET BACKED SUBORDINATE NOTES
EFG Student Loan Trust 1999-[ ], a trust organized and existing under the
laws of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to ______________________, or registered
assigns, the principal sum of ___________________________________________
DOLLARS payable on each Quarterly Payment Date in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is
$_________ and the denominator of which is $[ ] by (ii) the aggregate amount,
if any, payable to Noteholders on such Quarterly Payment Date in respect of
principal of the Subordinate Notes pursuant to Section 3.1 of the Indenture
dated as of[__________ 1999], between the Issuer and [INDENTURE TRUSTEE], a
New York banking corporation, as Indenture Trustee (the "Indenture Trustee")
(capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Indenture, which also references rules as to usage
that shall be applicable herein); provided, however, that no principal shall
be payable on this Note until the principal balance of the Senior Notes has
been paid in full and, provided, further, that the entire unpaid principal
amount of this Note shall be due and payable on the [ ] Quarterly Payment Date
(the "Subordinate Note Final Maturity Date") and the Redemption Date, if any,
pursuant to Section 10.1(b) or 10.1(c) of the Indenture.
The Issuer will pay interest on this Note at the rate per annum equal to
the Subordinate Note Rate (as defined on the reverse hereof), on each
Quarterly Payment Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Quarterly Payment Date, after giving effect to all payments of
principal made on the preceding Quarterly Payment Date (or, in the case of the
first Quarterly Payment Date, on the Closing Date), subject to certain
limitations contained in Section 3.1 of the Indenture. Interest on this Note
will accrue for each Quarterly Payment Date from the most recent Quarterly
Payment Date on which interest has been paid to but excluding such Quarterly
Payment Date or, if no interest has yet been paid, from [ ] (each, a
"Quarterly Interest Period"). Interest on this Note will be computed on the
basis of the actual number of days elapsed in each Quarterly Interest Period
and a 365-day year (or 366-day year in the case of a leap year). Such
principal of and interest on this Note shall be paid in the manner specified
on the reverse hereof.
A-2-4
<PAGE>
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the
Issuer with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of
this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
A-2-5
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed, manually or in facsimile, as of the date set forth below.
EFG STUDENT LOAN TRUST 1999-[ ]
by [TRUSTEE], not in its individual capacity but
solely as Trustee under the Trust
Agreement,
by
----------------------------------------------
Authorized Signatory
Date:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
[INDENTURE TRUSTEE], not in
its individual capacity but
solely as Indenture Trustee,
by
------------------------------------------
Authorized Signatory
Date:
A-2-6
<PAGE>
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Floating Rate Asset Backed Subordinate Notes (herein called
the "Subordinate Notes"), which, together with the Floating Rate Asset Backed
Senior Notes (the "Senior Notes" and, together with the Subordinate Notes,
collectively, the "Notes") are issued under the Indenture, to which Indenture
and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer,
the Indenture Trustee and the Noteholders. The Subordinate Notes are subject
to all terms of the Indenture.
The Subordinate Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Allocations of principal will be made among the Senior Notes and the
Subordinate Notes as provided in the Indenture. The Senior Notes are senior in
right of payment to the Subordinate Notes, all as and to the extent provided
in the Indenture.
Principal of the Subordinate Notes will be payable on each Quarterly
Payment Date on or after the date on which the principal balance of the Senior
Notes has been paid in its entirety, in an amount described on the face
hereof. "Quarterly Payment Date" means the twenty-seventh day of each January,
April, July and October, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing [ ].
{As provided in Section 10.1(a) of the Indenture, the Subordinate Notes
may be redeemed in part on the Quarterly Payment Date on which the Revolving
Period ends (or on the Quarterly Payment Date on or immediately following the
last day of the Revolving Period, if the Revolving Period does not end on a
Quarterly Payment Date) in the event that any amount remains on deposit in the
Collateral Reinvestment Account after giving effect to all Additional
Fundings, including any Additional Fundings, on such Quarterly Payment Date.}
As described on the face hereof, the entire unpaid principal amount of
this Note shall be due and payable on the Subordinate Note Final Maturity Date
and the Redemption Date, if any, pursuant to Section 10.1(b) or 10.1(c) of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount
of the Notes shall be due and payable on the date on which (i) an Event of
Default shall have occurred and be continuing and (ii) the Indenture Trustee
or the Noteholders representing not less than a majority of the Outstanding
Amount of the Notes shall have declared the Notes to be immediately due and
payable in the manner provided in Section 5.2 of the Indenture. All principal
payments of the Subordinate Notes shall be made pro rata to the Subordinate
Noteholders entitled thereto.
Interest on the Subordinate Notes will be payable on each Quarterly
Payment Date, commencing [__________ 1999], on the principal amount
outstanding of such Notes until the principal amount thereof is paid in full,
at a rate per annum equal to the Subordinate Note Rate. The "Subordinate Note
Rate" for each Quarterly Payment Date and the related Quarterly Interest
Period shall be equal to the lesser of (i) the weighted average of the T-Bill
Rates for the related Quarterly Interest Period plus [ ]% (the "Subordinate
Note T-Bill
A-2-7
<PAGE>
Rate") and (ii) the Student Loan Rate for such Quarterly Interest Period;
provided, that, notwithstanding the foregoing, the Subordinate Note Rate for
the first Quarterly Interest Period shall be equal to the Subordinate Note
T-Bill Rate for such Quarterly Interest Period. The "Student Loan Rate" for
any Quarterly Interest Period will equal the product of (a) the quotient
obtained by dividing (i) 365 (366 in the case of a leap year) by (ii) the
actual number of days elapsed in such Quarterly Interest Period and (b) the
percentage equivalent of a fraction, the numerator of which is equal to
Expected Interest Collections for such Quarterly Interest Period less the
Servicing Fee and the Administration Fee with respect to such Quarterly
Interest Period and the denominator of which is the aggregate principal
balance of the Notes as of the last day of such Quarterly Interest Period.
"T-Bill Rate" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
91-day Treasury Bills sold at the most recent 91-day Treasury Bill auction
prior to such date as reported by the U.S. Treasury Department. In the event
that the results of the auctions of 91-day Treasury Bills cease to be
published or reported as provided above, or that no such auction is held in a
particular week, then the "T-Bill Rate" in effect as a result of the last such
publication or report shall remain in effect until such time, if any, as the
results of auctions of 91- day Treasury Bills shall again be so published or
reported or such an auction is held, as the case may be. The T-Bill Rate shall
be subject to a Lock-In Period of six Business Days.
Any Subordinate Noteholders' Interest T-Bill Carryover that may exist on
any Quarterly Payment Date shall be payable to the Subordinate Noteholders on
such Quarterly Payment Date and any succeeding Quarterly Payment Dates solely
out of the funds available and required to be applied thereto pursuant to the
Administration Agreement.
Payments of interest on this Note due and payable on each Quarterly
Payment Date, and payments of interest together with the installment of
principal, if any, due and payable on each Quarterly Payment Date, to the
extent not in full payment of this Note, shall be made by wire transfer or
check mailed to the Person whose name appears as the Registered Holder of this
Note (or one or more Predecessor Notes) on the Note Register on the Record
Date, except that with respect to Notes registered on the Record Date in the
name of the nominee of the Clearing Agency, unless Definitive Notes have been
issued (initially, such nominee to be Cede & Co.), payments will be made by
wire transfer in immediately available funds to the account designated by such
nominee. Such checks shall be mailed to the Person entitled thereto at the
address of such Person as it appears on the Note Register as of the applicable
Record Date without requiring that this Note be submitted for notation of
payment, and the mailing of such check shall constitute payment of the amount
thereof regardless of whether such check is returned undelivered. Any
reduction in the principal amount of this Note (or any one or more Predecessor
Notes) effected by any payments made on any Quarterly Payment Date shall be
binding upon all future Noteholders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof,
whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Quarterly Payment Date, then the Indenture
Trustee, in the name of and on behalf of the Issuer, will notify the Person
who was
A-2-8
<PAGE>
the Noteholder hereof as of the Record Date preceding such Quarterly
Payment Date by notice mailed no later than five days prior to such Quarterly
Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Indenture Trustee's Corporate
Trust Office or at the office of the Indenture Trustee's agent appointed for
such purposes located in [ ].
The Issuer shall pay interest on overdue installments of interest at the
Subordinate Note Rate to the extent lawful.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Noteholder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Note Registrar in addition to, or in
substitution for, STAMP (all in accordance with the Exchange Act), and such
other documents as the Indenture Trustee may require, and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of
a Note Owner, a beneficial interest in the Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Seller, the Depositor, the Owner, the Administrator, the
Servicer, the Trustee or the Indenture Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Seller, the Depositor, the Owner, the
Administrator, the Servicer, the Indenture Trustee or the Trustee in its
individual capacity or (ii) any partner, owner, beneficiary, agent, officer,
director or employee of the Seller, the Depositor, the Owner, the
Administrator, the Servicer, the Indenture Trustee or the Trustee in its
individual capacity, any holder or owner of a beneficial interest in the
Issuer, the Trustee or the Indenture Trustee or of any successor or assign of
the Seller, the Depositor, the Owner, the Administrator, the Servicer, the
Indenture Trustee or the Trustee in its individual capacity, except as any
such Person may have expressly agreed (it being understood that the Indenture
Trustee and the Trustee have no such obligations in their individual capacity)
and except that any such partner, owner or beneficiary shall be fully liable,
to the extent provided by applicable law, for any unpaid consideration for
stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of
a Note Owner, a beneficial interest in a Note, covenants and agrees that by
accepting the benefits of
A-2-9
<PAGE>
the Indenture that such Noteholder or Note Owner will not at any time
institute against the Depositor, the Owner or the Issuer, or join in any
institution against the Depositor, the Owner or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency, receivership or liquidation
proceedings or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, the Indenture or the other Basic Documents.
The Issuer has entered into this Indenture and this Note is issued with
the intention that, for federal, state, foreign, and local income and
franchise tax and usury purposes, this Note will be treated as indebtedness of
the Owner secured by the Trust Assets. Each Noteholder, by acceptance of a
Note (and each Note Owner by acceptance of a beneficial interest in a Note)
agrees to treat this Note for federal, state, foreign and local income and
franchise tax and usury purposes as indebtedness of the Owner secured by the
Trust Estate.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture)
is registered as the owner hereof for all purposes whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Noteholders under the Indenture at any time by
the Issuer with the consent of the Noteholders representing a majority of the
Outstanding Amount of all Notes at the time outstanding. The Indenture also
contains provisions permitting the Noteholders representing specified
percentages of the Outstanding Amount of the Notes, on behalf of all the
Noteholders, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the holder of this Note (or any
one or more Predecessor Notes) shall be conclusive and binding upon such
holder and upon all future holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms
and conditions set forth in the Indenture without the consent of holders of
the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Indenture Trustee and the
Noteholders under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
A-2-10
<PAGE>
This Note shall be construed in accordance with the laws of the State of
New York, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder and thereunder shall
be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note
at the times, place, and rate, and in the coin or currency, herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [INDENTURE TRUSTEE] in its individual
capacity, [TRUSTEE] in its individual capacity, any owner of a beneficial
interest in the Issuer, nor any of their respective partners, beneficiaries,
agents, officers, directors, employees or successors or assigns shall be
personally liable for, nor shall recourse be had to any of them for, the
payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture; it being expressly understood that said covenants,
obligations and indemnifications have been made by the Trustee for the sole
purposes of binding the interests of the Trustee in the assets of the Issuer.
The Noteholder of this Note by the acceptance hereof agrees that, except as
expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Noteholder shall have no claim against any of the
foregoing for any deficiency, loss or claim therefrom; provided, however, that
nothing contained herein shall be taken to prevent recourse to, and
enforcement against, the assets of the Issuer for any and all liabilities,
obligations and undertakings contained in the Indenture or in this Note.
A-2-11
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number
of assignee
____________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto
____________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably
constitutes and appoints ______________________, attorney, to transfer
said Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
*/
---------------------------
Signature Guaranteed:
*/
---------------------------
- ------------------------
*/ NOTICE: The signature to this assignment must correspond
with the name of the registered owner as it appears on the
face of the within Note in every particular, without
alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar,
which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in
substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
TO THE INDENTURE
Senior Note Depository Agreement
---------------------------------
B-1
<PAGE>
EXHIBIT C
TO THE INDENTURE
FORM OF TRANSFEROR CERTIFICATE
[DATE]
[ ]
[ ]
[INDENTURE TRUSTEE]
Re: EFG Student Loan Trust 1999-[ ]
Floating Rate Asset Backed Subordinate Notes
--------------------------------------------
Ladies and Gentlemen:
In connection with our disposition of the above-referenced Floating Rate
Asset Backed Subordinate Notes (the "Notes") we certify that (a) we understand
that the Notes have not been registered under the Securities Act of 1933, as
amended (the "Act"), and are being transferred by us in a transaction that is
exempt from the registration requirements of the Act and (b) we have not
offered or sold any Notes to, or solicited offers to buy any Notes from, any
person, or otherwise approached or negotiated with any person with respect
thereto, in a manner that would be deemed, or taken any other action which
would result in, a violation of Section 5 of the Act.
Very truly yours,
[NAME OF TRANSFEROR]
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
C-1
<PAGE>
EXHIBIT D
FORM OF INVESTMENT LETTER
[ ]
[ ]
[INDENTURE TRUSTEE]
Ladies and Gentlemen:
In connection with our proposed purchase of $_________ aggregate
principal amount of Floating Rate Asset Backed Subordinate Notes (the
"Securities") of EFG Student Loan Trust 1999-[ ] (the "Issuer"), we confirm
that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and may
not be sold except as permitted in the following sentence. We understand
and agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, (x) that such Securities are being
offered only in a transaction not involving any public offering within
the meaning of the Securities Act and (y) that such Securities may be
resold, pledged or transferred only (i) to [ ] (the "Depositor") or (ii)
to a person whom the transferor of the Securities reasonably believes
after due inquiry is a QIB acting for its own account (and not for the
account of others) or as a fiduciary or agent for others (which others
also are QIBs) and in reliance on, and to whom notice is given that the
sale, pledge or transfer is being made in reliance on, Rule 144A or on
another exemption from registration under the Securities Act; provided,
that, in the event that reliance is made on an exemption from
registration under the Securities Act other than Rule 144A, the
prospective transferee shall have provided a written opinion of counsel
(which will not be at the expense of the Indenture Trustee or the
Depositor) satisfactory to each to the effect that such transfer will not
violate the Securities Act. We will notify any purchaser of the Security
from us of the above resale restrictions, if then applicable. We further
understand that in connection with any transfer of the Security by us
that the Depositor and the Indenture Trustee may request, and if so
requested we will furnish such certificates and other information as they
may reasonably require to confirm that any such transfer complies with
the foregoing restrictions. We understand that no sale, pledge or other
transfer may be made to any one person of Securities with a face amount
of less than $250,000 and, in the case of any person acting on behalf of
one or more third parties (other than a bank (as defined in Section
3(a)((2) of the Securities Act) acting in its fiduciary capacity), of
Securities with a face amount of less than $250,000 for each such third
party.
D-1
<PAGE>
2. We are a "qualified institutional buyer" as defined under Rule
144A under the Securities Act and are acquiring the Security for our own
account (and not for the account of others) or as a fiduciary or agent
for others (which others also are "qualified institutional buyers"). We
are familiar with Rule 144A under the Securities Act and are aware that
the seller of the Security and other parties intend to rely on the
statements made herein and the exemption from the registration
requirements of the Securities Act provided by Rule 144A or (if, as set
forth above, appropriate certifications are made and an opinion of
counsel given) another exemption from registration under the Securities
Act.
3. We are a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the laws
of, the United States or any political subdivision thereof, or an estate
whose income is subject to United States federal income tax regardless of
its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one
or more Untied States fiduciaries have the authority to control all
substantial decisions of the trust.
4. With respect to any purchaser that is a partnership, grantor trust
or S corporation ("Flow-Through Entity") for federal income tax purposes,
less than 50% of the value of the Flow-Through Entity is attributable to
the Securities and such Flow-Through Entity makes no special allocation
of any item of income, gain, loss, or credit attributable to the
Securities to one or more of beneficial owners of such Flow-Through
Entity.
5. We understand that the Depositor, the Issuer, [UNDERWRITER] and
others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements, and we agree that if any
of the acknowledgments, representations and warranties deemed to have
been made by us by our purchase of the Securities, for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion, are no longer accurate, we shall promptly notify the
Depositor and [UNDERWRITER].
D-2
<PAGE>
6. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
D-3
<PAGE>
CROSS-REFERENCE TABLE*
TIA Indenture
Section Section
- ------- -------
310(a)(1) .................................. 6.11
(a)(2) .................................. 6.11
(a)(3) .................................. 6.10
(a)(4) .................................. N.A.**
(a)(4) .................................. 6.11
(b) .................................. 6.8;
.................................. 6.10; 6.11
(c) .................................. N.A.
311(a) .................................. 6.11
(b) .................................. 6.11
(c) .................................. N.A.
312(a) .................................. 7.1;
.................................. 7.2(a)
(b) .................................. 7.2(b)
(c) .................................. 7.2(c)
313(a) .................................. 6.6
(b) .................................. 6.6
(c) .................................. 11.5
(d) .................................. 6.6
314(a) .................................. 3.9; 7.3
(b) .................................. 3.6
(c) .................................. 2.9; 4.1
.................................. 11.1
(d) .................................. 2.9;
.................................. 11.1
(e) .................................. 11.1
(f) .................................. 3.9
315(a) .................................. 6.1
(b) .................................. 6.5
(c) .................................. 6.1
(d) .................................. 6.1
(e) .................................. 5.13
316(a)(1)(A) 5.11
(a)(1)(B) 5.12
(a)(2) .................................. N.A.
- -----------------------
* Note: This Cross Reference Table shall not, for any
purpose, be deemed to be part of the Indenture.
** N.A. means Not Applicable.
D-4
<PAGE>
(b) .................................. 5.7
(c) .................................. 1.1
317(a) .................................. 5.3
(b) .................................. 3.3
318(a) .................................. 11.7
D-5
<PAGE>
EXHIBIT 4.2
[FORM OF]
TRUST AGREEMENT
between
EFG Funding Corporation,
as Depositor,
and
[TRUSTEE],
not in its individual capacity but solely
as Trustee
Dated as of [________ __, 1999]
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND USAGE
ARTICLE II.
ORGANIZATION
<TABLE>
<S> <C>
SECTION 2.1. Name.....................................................................................1
SECTION 2.2. Office...................................................................................1
SECTION 2.3. Purposes and Powers......................................................................1
SECTION 2.4. Appointment of Trustee...................................................................2
SECTION 2.5. Initial Capital Contribution of Trust Estate.............................................2
SECTION 2.6. Declaration of Trust.....................................................................2
SECTION 2.7. Liability of the Depositor...............................................................3
SECTION 2.8. Title to Trust Property..................................................................3
SECTION 2.9. Representations and Warranties of the Depositor..........................................3
SECTION 2.10. Tax Treatment............................................................................4
ARTICLE III.
CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. Initial Beneficial Ownership.............................................................5
SECTION 3.2. The Certificates.........................................................................5
SECTION 3.3. Authentication of Certificates...........................................................5
SECTION 3.4. Registration of Transfer and Exchange of Certificates....................................5
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates........................................6
SECTION 3.6. Persons Deemed Owners....................................................................7
SECTION 3.7. Access to List of Certificateholders' Names and Addresses................................7
SECTION 3.8. Maintenance of Office or Agency..........................................................7
SECTION 3.9. Appointment of Certificate Paying Agent..................................................7
SECTION 3.10. Book-Entry Certificates..................................................................8
SECTION 3.11. Notices to Clearing Agency...............................................................9
SECTION 3.12. Definitive Certificates..................................................................9
ARTICLE IV.
ACTIONS BY TRUSTEE
SECTION 4.1. Prior Notice to Certificateholders with Respect to Certain Matters......................10
SECTION 4.2. Action by Certificateholders with Respect to Bankruptcy.................................10
SECTION 4.3. Restrictions on Certificateholders' Power...............................................11
ARTICLE V.
APPLICATIONS OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1. Application of Trust Funds..............................................................11
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
SECTION 5.2. Method of Payment.......................................................................12
SECTION 5.3. No Segregation of Moneys; No Interest...................................................12
SECTION 5.4. Accounting and Reports to the Noteholders, the Internal Revenue Service and
Others..................................................................................12
SECTION 5.5. Incentive Programs......................................................................13
SECTION 5.6. Check-The-Box Regulations at State Level................................................13
ARTICLE VI.
AUTHORITY AND DUTIES OF TRUSTEE
SECTION 6.1. General Authority.......................................................................13
SECTION 6.2. General Duties..........................................................................14
SECTION 6.3. Action upon Instruction.................................................................14
SECTION 6.4. No Duties Except as Specified in this Agreement, the Transfer Agreement,
the Servicing Agreement, the Administration Agreement or in Instructions................15
SECTION 6.5. No Action Except Under Specified Documents or Instructions..............................16
SECTION 6.6. Restrictions............................................................................16
SECTION 6.7. Origination of Consolidation Loans during the Revolving Period..........................16
ARTICLE VII.
CONCERNING THE TRUSTEE
SECTION 7.1. Acceptance of Trusts and Duties.........................................................18
SECTION 7.2. Furnishing of Documents.................................................................19
SECTION 7.3. Representations and Warranties..........................................................19
SECTION 7.4. Reliance; Advice of Counsel.............................................................20
SECTION 7.5. Not Acting in Individual Capacity.......................................................20
SECTION 7.6. Trustee Not Liable for Certificates, Notes or Student Loans.............................20
SECTION 7.7. Trustee May Own Certificates and Notes..................................................21
ARTICLE VIII.
COMPENSATION OF TRUSTEE
SECTION 8.1. Trustee's Fees and Expenses.............................................................21
SECTION 8.2. Payments to the Trustee.................................................................21
ARTICLE IX.
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. Termination of Trust Agreement..........................................................21
SECTION 9.2. Dissolution upon Bankruptcy of the Depositor............................................22
ARTICLE X.
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
SECTION 10.1. Eligibility Requirements for Trustee....................................................23
SECTION 10.2. Resignation or Removal of Trustee.......................................................23
SECTION 10.3. Successor Trustee.......................................................................24
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
SECTION 10.4. Merger or Consolidation of Trustee......................................................24
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee...........................................25
ARTICLE XI.
MISCELLANEOUS
SECTION 11.1. Supplements and Amendments..............................................................26
SECTION 11.2. No Legal Title to Trust Estate in Certificateholders....................................27
SECTION 11.3. Limitations on Rights of Others.........................................................27
SECTION 11.4. Notices.................................................................................28
SECTION 11.5. Severability............................................................................28
SECTION 11.6. Separate Counterparts...................................................................28
SECTION 11.7. Successors and Assigns..................................................................28
SECTION 11.8. No Petition.............................................................................28
SECTION 11.9. No Recourse.............................................................................29
SECTION 11.10. Headings................................................................................29
SECTION 11.11. Governing Law...........................................................................29
</TABLE>
(iii)
<PAGE>
TRUST AGREEMENT dated as of [________ __, 1999], between EFG Funding
Corporation, a Delaware Corporation , as Depositor, (the "Depositor") and
[TRUSTEE], a national banking association, not in its individual capacity but
solely as Trustee (the "Trustee").
The Depositor and the Trustee hereby agree as follows:
ARTICLE I.
Definitions and Usage
Capitalized terms used but not defined herein are defined in Appendix A to
the Administration Agreement, dated as of [________ __, 1999], among EFG Student
Loan Trust 1999-[_], as Issuer, Educational Finance Group, Inc., as
Administrator, and [Indenture Trustee], as Indenture Trustee, which also
contains rules as to construction and usage that shall be applicable herein.
ARTICLE II.
Organization
SECTION 2.1. Name. The Trust created hereby shall be known as "EFG Student
Loan Trust 1999-[_]", in which name the Trustee may conduct the business of the
Trust, make and execute contracts and other instruments on behalf of the Trust
and sue and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care of the
Trustee at its Corporate Trust Office or at such other address as the Trustee
may designate by written notice to the Depositor.
SECTION 2.3. Purposes and Powers. The purpose of the Trust is to engage in
the following activities:
(i) to issue the Notes pursuant to the Indenture and Certificates
pursuant to this Agreement and to sell the Notes and the Certificates in
one or more transactions;
(ii) with the proceeds of the sale of the Notes and the Certificates,
to purchase the Initial Student Loans, to deposit the Reserve Account
Initial Deposit in the Reserve Account, and to pay the organizational,
start-up and transactional expenses of the Trust and to pay the balance to
the Depositor pursuant to the Transfer Agreement;
[{(iii) to originate Consolidation Loans during the Revolving Period
pursuant to Section 6.07 hereof, to increase the principal balance of
Consolidation Loans by adding the principal balances of any related Add-on
Consolidation Loans to the principal balances of such Consolidation Loans,
to acquire and hold any New Loans to be conveyed to the Trust during the
Revolving Period pursuant to the Transfer
<PAGE>
Agreement directly or, in the case of legal title to FFELP Loans, through
the Eligible Lender Trustee, and to acquire and hold any Serial Loans or
other Student Loans to be conveyed to the Trust subsequent to the Closing
Date pursuant to the Transfer Agreement directly or, in the case of legal
title to FFELP Loans, through the Eligible Lender Trustee;}]
(iv) to assign, grant, transfer, pledge, mortgage and convey the Trust
Estate pursuant to the Indenture;
(v) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(vi) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vii) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation of
the Trust Estate and the making of distributions to the Noteholders and the
others specified in Section 2(d) of the Administration Agreement.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the other Basic Documents.
SECTION 2.4. Appointment of Trustee. The Depositor hereby appoints the
Trustee as trustee of the Trust effective as of the date hereof, to have all of
the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate. The Depositor
hereby sells, assigns, transfers, conveys and sets over to the Trustee, as of
the date hereof, the sum of $1.00. The Trustee hereby acknowledges receipt in
trust from the Depositor, as of the date hereof, of the foregoing contribution,
which shall constitute the initial Trust Estate and shall be deposited in the
Collection Account. The Depositor shall pay the organizational expenses of the
Trust as they may arise or shall, upon the request of the Trustee, promptly
reimburse the Trustee for any such expenses paid by the Trustee.
SECTION 2.6. Declaration of Trust. The Trustee hereby declares that it will
hold the Trust Estate in trust upon and subject to the conditions set forth
herein for the use and benefit of the [Certificateholders], subject to the
obligations of the Trust under the other Basic Documents. It is the intention of
the parties hereto that the Trust constitute a trust under the Business Trust
Statute and that this Agreement constitute the governing instrument of such
trust. Effective as of the date hereof, the Trustee shall have all rights,
powers and duties set forth herein and in the Business Trust Statute with
respect to accomplishing the purposes of the Trust. The Trustee and the Delaware
Trustee shall file the Certificate of Trust with the Secretary of State of the
State of Delaware pursuant to ss. 3810 of the Business Trust Statute on or
before the Closing Date.
-2-
<PAGE>
SECTION 2.7. Liability of the Depositor. The Depositor shall be liable
directly to and will indemnify the injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Trust Estate) to the extent that the Depositor would
be liable if the Trust were a partnership under the Delaware Revised Uniform
Limited Partnership Act in which the Depositor were a general partner; provided,
however, that the Depositor shall not be liable for any losses incurred by a
Noteholder or a Note Certificateholders in the capacity of an investor in the
Notes. In addition, any third party creditors of the Trust (other than in
connection with the obligations described in the preceding sentence for which
the Depositor shall not be liable) shall be deemed third party beneficiaries of
this paragraph.
SECTION 2.8. Title to Trust Property. Legal title to the Trust Estate shall
be vested at all times in the Trust as a separate legal entity except where
applicable law in any jurisdiction requires title to any part of the Trust
Estate to be vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Trustee, a co-trustee and/or a separate trustee, as
the case may be; provided that legal title to the FFELP Student Loans shall be
vested at all times in the Trustee on behalf of the Trust.
SECTION 2.9. Representations and Warranties of the Depositor. (a) The
Depositor hereby represents and warrants, as to itself, to the Trustee that:
(a)......It is duly organized and validly existing as a corporation in
good standing under the laws of the jurisdiction of its organization , with the
organizational power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is presently
conducted (subject with respect to the Depositor and its FFELP Student Loans, to
the vesting of legal title thereto in the Trustee or another eligible lender, as
trustee for the Depositor).
(b)......It is duly qualified to do business as a foreign organization
in good standing, and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the conduct of its
business shall require such qualifications except where failure to do so (both
singly and in the aggregate) will not have a material adverse effect on the
conduct of its business, operations or financial condition.
(c)......It has the organizational power and authority to execute and
deliver this Agreement and to carry out its terms; and the execution, delivery
and performance of this Agreement has been duly authorized by it by all
necessary corporate action.
(d)......This Agreement constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and similar laws relating to creditors'
rights generally and subject to general principles of equity.
(e)......The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time or both) a
-3-
<PAGE>
default under, its articles of incorporation or by-laws, or any indenture,
agreement or other instrument to which it is a party or by which it is bound;
nor result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to the
best of its knowledge, any order, rule or regulation applicable to it of any
court or of any Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over it or its properties.
(f)......There are no proceedings or investigations pending or, to its
best knowledge, threatened before any court, regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Depositor or its properties: (A) asserting the invalidity of this Agreement, (B)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement or (C) seeking any determination or ruling that might materially
and adversely affect the performance by it of its obligations under, or the
validity or enforceability of, this Agreement.
SECTION 2.10. Tax Treatment. (a) The Depositor has entered into this
Agreement, and the Notes will be issued to and acquired by the Noteholders, with
the intention that, for federal, state, foreign and local income and franchise
tax and usury law purposes, the Notes will be indebtedness of the Depositor
secured by the Trust Estate. The Depositor, by entering into this Agreement, and
each Noteholder, by the acceptance of its Note, agrees to treat the Notes for
purposes of federal, state and local income and franchise taxes and for any
other tax imposed on or measured by income and usury law purposes as
indebtedness of the Depositor secured by the Trust Estate. In accordance with
the foregoing, the Trustee hereby agrees to treat the Trust as a security device
only, and shall not file tax returns or obtain an employer identification number
on behalf of the Trust (except as may be required as a result of changes in law
or as may otherwise be required in the Opinion of Counsel for the Depositor).
(b) In the event that the foregoing characterization is not honored, or
for income tax purposes the Trust is to be treated as an association taxable as
a corporation, it is the intention of the Depositor and all holders of interests
in the Trust that the Trust shall be treated as a partnership for all federal,
state and local tax purposes.
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Beneficial Ownership. Upon the formation of the Trust
by the contribution by the Depositor pursuant to Section 2.5 and until the
issuance of the Certificates, the Depositor shall be the sole beneficial owner
of the Trust.
SECTION 3.2. The Certificates. The Certificates shall be issued in
denominations of $100,000 or in integral multiples of $1,000 in excess thereof.
The Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Trustee. Certificates bearing the
manual or facsimile signatures of individuals who were, at
-4-
<PAGE>
the time when such signatures were affixed, authorized to sign on behalf of the
Trust, shall be valid and binding obligations of the Trust, notwithstanding that
such individuals or any of them shall have ceased to be so authorized prior to
the authentication and delivery of such Certificates or did not hold such
offices at the date of authentication and delivery of such Certificates.
SECTION 3.3. Authentication of Certificates. Concurrently with the sale of
the Trust Student Loans to the Trust pursuant to the Purchase Agreement, the
Trustee shall cause the Certificates in an aggregate principal amount equal to
the Initial Certificate Balance to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Depositor,
signed by its chairman of the board, its president or any vice president,
without further action by the Depositor, in authorized denominations. No
Certificate shall entitle its holder to any benefit under this Agreement, or
shall be valid for any purpose, unless there shall appear on such Certificate a
certificate of authentication substantially in the form set forth in Exhibit B,
executed by the Trustee or [____], by manual signature; such authentication
shall constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. No further Certificates shall be issued except pursuant
to Section 3.4, 3.5 or 3.12 hereunder.
SECTION 3.4. Registration of Transfer and Exchange of Certificates. The
Certificate Registrar shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 3.8, a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. [_____] shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Certificate at the
office or agency maintained pursuant to Section 3.8, the Trustee shall execute,
authenticate and deliver (or shall cause [_____] as its authenticating agent to
authenticate and deliver), in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of a like
aggregate amount dated the date of authentication by the Trustee or any
authenticating agent. At the option of a Certificateholder, Certificates may be
exchanged for other Certificates of authorized denominations of a like aggregate
amount upon surrender of the Certificates to be exchanged at the office or
agency maintained pursuant to Section 3.8.
Every Certificate presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Certificateholder or his attorney duly authorized in writing, with such
signature guaranteed by a member firm of the New York Stock Exchange or a
commercial bank or trust company. Each Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by the
Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee or the Certificate Registrar may
require payment of a sum
-5-
<PAGE>
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
The preceding provisions of this Section notwithstanding, the Trustee shall
not be required to make and the Certificate Registrar need not register
transfers or exchanges of Certificates for a period of 15 days preceding any
Distribution Date with respect to the Certificates.
The Certificates and any beneficial interest in such Certificates may not
be acquired by (a) employee benefit plans (as defined in section 3(3) of ERISA)
that are subject to the provisions of Title I of ERISA, (b) plans described in
section 4975(e)(1) of the Code, including individual retirement accounts
described in Section 408(a) of the Code or Keogh plans, or (c) entities whose
underlying assets include plan assets by reason of a plan's investment in such
entities (each, a "Benefit Plan"). By accepting and holding a Certificate or an
interest therein, the Certificateholder thereof or Certificate Owner thereof
shall be deemed to have represented and warranted that it is not a Benefit Plan,
is not purchasing Certificates on behalf of a Benefit Plan and is not using
assets of a Plan to purchase any Certificates and to have agreed that if the
Certificate is deemed to be a plan asset, the Certificateholder will promptly
dispose of the Certificate.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
mutilated Certificate shall be surrendered to the Certificate Registrar, or if
the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (b) there shall be delivered
to the Certificate Registrar and the Trustee such security or indemnity as may
be required by them to save each of them and the Trust harmless, then in the
absence of notice that such Certificate shall have been acquired by a bona fide
purchaser, the Trustee on behalf of the Trust shall execute and the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and denomination. In connection with the issuance of any new Certificate
under this Section, the Trustee and the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute conclusive evidence of ownership in
the Trust, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
SECTION 3.6. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Trustee and the Certificate
Registrar and any agent of either of them may treat the Person in whose name any
Certificate shall be registered in the Certificate Register as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 5.1
and for all other purposes whatsoever, and neither the Trustee, the Certificate
Registrar nor any agent thereof shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and Addresses. The
Trustee shall furnish or cause to be furnished to the Depositor, within 15 days
after receipt by the Trustee of a request therefor from the Depositor in
writing, a list, in such form as the
-6-
<PAGE>
Depositor may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more
Certificateholders or one or more Certificateholders evidencing not less than
25% of the Certificate Balance apply in writing to the Trustee, and such
application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt of such application, afford such
applicants access during normal business hours to the current list of
Certificateholders. Upon receipt of any such application, the Trustee shall
promptly notify the Depositor by providing a copy of such application and a copy
of the list of Certificateholders produced in response thereto. Each
Certificateholder, by receiving and holding a Certificate, shall be deemed to
have agreed not to hold any of the Depositor, the Certificate Registrar or the
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 3.8. Maintenance of Office or Agency. The Trustee shall maintain in
the [_____], an office or offices or agency or agencies where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee in respect of the Certificates and the other
Basic Documents may be served. The Trustee initially designates[_____], as its
principal Corporate Trust Office. The Trustee's New York office and its
authenticating agent's office are located at [_____], Attention: [_____]. The
Trustee shall give prompt written notice to the Depositor and to the
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
SECTION 3.9. Appointment of Certificate Paying Agent. The Certificate
Paying Agent shall make distributions to Certificateholders from the amounts
received from the Indenture Trustee out of the Trust Accounts pursuant to
Section 5.1 and shall report the amounts of such distributions to the Trustee.
Any Certificate Paying Agent shall have the revocable power to receive such
funds from the Indenture Trustee for the purpose of making the distributions
referred to above. The Trustee may revoke such power and remove the Certificate
Paying Agent if the Trustee determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Certificate Paying Agent shall initially
be the Trustee, and any co-paying agent chosen by the Trustee and consented to
by the Administrator (which consent shall not be unreasonably withheld). The
copaying agent shall initially be the Indenture Trustee. The Trustee shall be
permitted to resign as Certificate Paying Agent upon 30 days' written notice to
the Trustee. In the event that the Trustee shall no longer be the Certificate
Paying Agent, the Trustee shall appoint a successor to act as Certificate Paying
Agent (which shall be a bank or trust company). The Trustee shall give notice to
the Rating Agencies of the appointment of a successor Paying Agent. The Trustee
shall cause such successor Certificate Paying Agent or any additional
Certificate Paying Agent appointed by the Trustee to execute and deliver to the
Trustee an instrument in which such successor Certificate Paying Agent or
additional Certificate Paying Agent shall agree with the Trustee that as
Certificate Paying Agent, such successor Certificate Paying Agent or additional
Certificate Paying Agent will hold all sums, if any, held by it for payment to
the Certificateholders in trust for the benefit of the
-7-
<PAGE>
Certificateholder entitled thereto until such sums shall be paid to such
Certificateholder. The Certificate Paying Agent shall return all unclaimed funds
to the Trustee and upon removal of a Certificate Paying Agent such Certificate
Paying Agent shall also return all funds in its possession to the Trustee. The
provisions of Sections 7.1, 7.3, 7.4, 7.5 and 8.1 shall apply to the Trustee
also in its role as Certificate Paying Agent, for so long as the Trustee shall
act as Certificate Paying Agent and, to the extent applicable, to any other
paying agent appointed hereunder. Any reference in this Agreement to the
Certificate Paying Agent shall include any copaying agent unless the context
requires otherwise.
SECTION 3.10. Book-Entry Certificates. The Certificates, upon original
issuance, will be issued in the form of a typewritten Certificate or
Certificates representing Book-Entry Certificates, to be delivered to The
Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the
Trust. Such Book-Entry Certificate or Book-Entry Certificates shall initially be
registered on the Certificate Register in the name of Cede & Co., the nominee of
the initial Clearing Agency, and no Certificate owner will receive a Definitive
Certificate representing such Certificate Owner's interest in such Certificate,
except as provided in Section 3.12. Unless and until definitive, fully
registered Certificates (the "Definitive Certificates") have been issued to
Certificate owners pursuant to Section 3.12:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Certificate Registrar and the Trustee shall be entitled to
deal with the Clearing Agency for all purposes of this Agreement (including
the payment of principal of and interest on the Certificates and the giving
of instructions or directions hereunder) as the sole Certificateholder and
shall have no obligation to the Certificate owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section
shall control;
(iv) the rights of Certificateholders shall be exercised only through
the Clearing Agency and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Certificate Depository
Agreement, unless and until Definitive Certificates are issued pursuant to
Section 3.12, the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit
distribution in respect of the Certificate Balance and return on the
Certificates to such Clearing Agency Participants; and
(v) whenever this Agreement requires or permits actions to be taken
based upon instructions or directions of Certificateholders of Certificates
evidencing a specified percentage of the Certificate Balance, the Clearing
Agency shall be deemed to represent such percentage only to the extent that
it has received instructions to such effect from Certificate Owners and/or
Clearing Agency Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Certificates and has
delivered such instructions to the Trustee.
-8-
<PAGE>
SECTION 3.11. Notices to Clearing Agency. Whenever a notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Certificates shall have been issued to Certificate Owners
pursuant to Section 3.12, the Trustee shall give all such notices and
communications specified herein to be given to Certificateholders to the
Clearing Agency, and shall have no obligations to the Certificate Owners.
SECTION 3.12. Definitive Certificates. If (i) the Administrator advises the
Trustee in writing that the Clearing Agency is no longer willing or able to
discharge properly its responsibilities with respect to the Certificates, and
the Administrator is unable to locate a qualified successor, (ii) the
Administrator at its option advises the Trustee in writing that it elects to
terminate the book-entry system through the Clearing Agency or (iii) after the
occurrence of an Event of Default, a Servicer Default or an Administrator
Default, Certificate Owners representing beneficial interests aggregating at
least a majority of the Certificate Balance advise the Clearing Agency (which
shall then notify the Trustee) in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interest of the
Certificate Owners, then the Trustee shall cause the Clearing Agency to notify
all Certificate Owners of the occurrence of any such event and of the
availability of the Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Trustee of the typewritten Certificate or
Certificates representing the Book-Entry Certificates by the Clearing Agency,
accompanied by registration instructions, the Trustee shall execute and
authenticate the Definitive Certificates in accordance with the instructions of
the Clearing Agency. Neither the Certificate Registrar nor the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Certificates, the Trustee shall recognize the registered holders
of the Definitive Certificates as Certificateholders. The Definitive
Certificates shall, at the expense of the Depositor, be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Trustee, as evidenced by its execution thereof.
ARTICLE IV.
Actions by Trustee
SECTION 4.1. Prior Notice to Certificateholders with Respect to Certain
Matters. With respect to the following matters, the Trustee shall not take
action unless at least 30 days before the taking of such action, the Trustee
shall have notified the Certificateholders and the Rating Agencies in writing of
the proposed action and the Certificateholders shall not have notified the
Trustee in writing prior to the 30th day after such notice is given that such
Certificateholders has withheld consent or provided alternative direction:
(i) the initiation of any material claim or lawsuit by the Trust
(except claims or lawsuits brought in connection with the collection of the
Financed Student Loans) and the compromise of any material action, claim or
lawsuit brought by or against the
-9-
<PAGE>
Trust (except with respect to the aforementioned claims or lawsuits for
collection of Student Loans);
(ii) the election by the Trust to file an amendment to the Certificate
of Trust;
(iii) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(iv) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interests of the
Certificateholders;
(v) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any
provision in a manner or add any provision that would not materially
adversely affect the interests of the Certificateholders; or
(vi) the appointment pursuant to the Indenture of a successor
Certificate, Registrar, successor Note Registrar or Indenture Trustee, or
the consent to the assignment by the Note Registrar or Indenture Trustee of
its obligations under the Indenture.
SECTION 4.2. Action by Certificateholders with Respect to Bankruptcy. The
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the prior approval of the
Certificateholders and the delivery to the Trustee by the Certificateholders of
a certificate certifying that it reasonably believes that the Trust is
insolvent.
SECTION 4.3. Restrictions on Certificateholders' Power. The
Certificateholders shall not direct the Trustee to take or refrain from taking
any action if such action or inaction would be contrary to any obligation of the
Trust or the Trustee under this Agreement or any of the other Basic Documents or
would be contrary to Section 2.03 nor shall the Trustee be permitted to follow
any such direction, if given.
ARTICLE V.
Applications of Trust Funds; Certain Duties
SECTION 5.1. Application of Trust Funds.
(a)......On each Distribution Date, the Trustee shall distribute to
Certificateholders (i) [the Certificateholders' Return Distribution Amount for
such Distribution Date on a pro rata basis according to amounts payable in
respect of Certificateholders' Return Distribution Amount, (ii) the Certificate
Balance Distribution Amount for such Distribution Date, if any, on a pro rata
basis according to amounts payable in respect of the Certificate
-10-
<PAGE>
Balance, and (iii) the Certificate Return Carryover for such Distribution Date,
if any, on a pro rata basis according to amounts payable in respect of
Certificate Return Carryover, as received from the Indenture Trustee pursuant to
Sections 2.7 and 2.8 of the Administration Agreement on such Distribution Date].
(b)......On each Distribution Date, the Trustee shall send to each
Certificateholder the statement provided to the Eligible Lender Trustee by the
Administrator pursuant to Section 2.9 of the Administration Agreement on such
Distribution Date.
(c)......In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to a Certificateholder, such tax
shall reduce the amount otherwise distributable to the Certificateholder in
accordance with this Section. The Eligible Lender Trustee is hereby authorized
and directed to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a Certificateholder shall
be treated as cash distributed to such Certificateholder at the time it is
withheld by the Trust to be remitted to the appropriate taxing authority. The
Trustee shall withhold or cause to be withheld at the maximum applicable rate
provided in section 1441, 1442 or 1446 of the Code with respect to all
distributions made to persons that are not known to be U.S. Persons, within the
meaning of the Code, unless it is otherwise determined in the opinion of
counsel. In the event that a Certificateholder wishes to apply for a refund of
any such withholding tax, the Trustee shall reasonably cooperate with such
Certificateholder in making such claim so long as such Certificateholder agrees
to reimburse the Trustee for any out-of-pocket expenses incurred.
SECTION 5.2. Method of Payment. Subject to Section 9.1(c), distributions
required to be made to Certificateholders on any Distribution Date shall be made
to each Certificateholder of record on the preceding Record Date either by wire
transfer, in immediately available funds, to the account of such
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder shall have provided to the Certificate
Registrar appropriate written instructions signed by two authorized officers, if
any, at least five Business Days prior to such Distribution Date and such
Certificateholder's Trust Certificates in the aggregate evidence a denomination
of not less than $1,000,000, or, if not, by check mailed to such
Certificateholder at the address of such Certificateholder appearing in the
Certificate Register; provided, however, that, unless Definitive Certificates
have been issued pursuant to Section 3.12, with respect to Trust Certificates
registered on the Record Date in the name of the nominee of the Clearing Agency
(initially, such nominee to be Cede & Co.), distributions will be made by wire
transfer in immediately available funds to the account designated by such
nominee. Notwithstanding the foregoing, the final distribution in respect of any
Trust Certificate (whether on the Certificate Final Maturity Date or otherwise)
shall be payable only upon presentation and surrender of such Trust Certificate
at the Corporate Trust Office of the Eligible Lender Trustee or such other
location specified in writing to the Certificateholder thereof.
-11-
<PAGE>
SECTION 5.3. No Segregation of Moneys; No Interest. Moneys received by the
Trustee hereunder need not be segregated in any manner except to the extent
required by law or the Basic Documents and may be deposited under such general
conditions as may be prescribed by law, and the Trustee shall not be liable for
any interest thereon.
SECTION 5.4. Accounting and Reports to the Noteholders, the Internal
Revenue Service and Others. No federal income tax return shall be filed on
behalf of the Trust unless either (i) the Trustee shall receive an Opinion of
Counsel that, based on a change in applicable law occurring after the date
hereof, or as a result of a transfer by the Certificateholders permitted by
Section 3.01, the Code requires such a filing or (ii) the Internal Revenue
Service shall determine that the Trust is required to file such a return. In the
event that the Trust is required to file tax returns, the Trustee shall prepare
or shall cause to be prepared any tax returns required to be filed by the Trust
and shall remit such returns to the Certificateholders at least five (5) days
before such returns are due to be filed. The Certificateholders shall promptly
sign such returns and deliver such returns after signature to the Trustee and
such returns shall be filed by the Trustee with the appropriate tax authorities.
In no event shall the Trustee, the Certificateholders or the Depositor be liable
for any liabilities, costs or expenses of the Trust or the Noteholders arising
out of the application of any tax law, including federal, state, foreign or
local income or excise taxes or any other tax imposed on or measured by income
(or any interest, penalty or addition with respect thereto or arising from a
failure to comply therewith) except for any such liability, cost or expense
attributable to any act or omission by the Trustee, the Certificateholders or
the Depositor, as the case may be, in breach of its obligations under this
Agreement.
SECTION 5.5. Incentive Programs. Subject to compliance by the Administrator
with Section 2(i) of the Administration Agreement, the Trust shall offer each
Incentive Program to all qualified Borrowers except any Incentive Program which
the Administrator terminates pursuant to Section 2(i) of the Administration
Agreement. Upon the effective date specified in the notice of termination
required by Section 2(i) of the Administration Agreement, the Trust shall cease
offering the terminated Incentive Program to Borrowers affected by the
termination.
SECTION 5.6. Check-The-Box Regulations at State Level. If applicable
[Delaware, Indiana and Texas] tax statutes or regulations are such that the
Trust would not be classified as an association taxable as a corporation if the
requirements of Sections 2.07 and 9.02 hereof and Section 2.13 of the Indenture
(collectively, the "Partnership Qualification Provisions") were no longer
applicable and the Trust made any necessary elections to avoid classification as
an association taxable as a corporation required by such statutes or regulations
(such an amendment, a "Tax Characterization Amendment"), the Partnership
Qualification Provisions shall no longer be applicable or part of this Agreement
or the Indenture; provided, however, that the Partnership Qualification
Provisions shall no longer be applicable or part of this Agreement or the
Indenture only if the Trustee first obtains an Opinion of Counsel stating that
(i) a Tax Characterization Amendment has been adopted (or is not necessary) and
(ii) the deletion of the Partnership Qualification Provisions will not cause the
Trust to be subject to an entity level tax for state or federal income tax
purposes. If the Depositor determines in its sole
-12-
<PAGE>
discretion that the Trust should make any filing or take any other action as a
result of a Tax Characterization Amendment, the Depositor and the Trustee, at
the expense of the Depositor, shall take all actions (including, but not limited
to, obtaining the approval of one or both classes of Noteholders) determined by
the Depositor in its sole discretion as necessary or advisable under such
statutes and regulations for the Trust to be treated as a partnership for
[Delaware, Indiana and Texas] state income tax purposes.
ARTICLE VI.
Authority and Duties of Trustee
SECTION 6.1. General Authority. The Trustee is authorized and directed to
execute and deliver the Basic Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Basic Documents to which the Trust is to be a party, in each case, in such
form as the Depositor shall approve as evidenced conclusively by the Trustee's
execution thereof, and, on behalf of the Trust, to direct the Indenture Trustee
to authenticate and deliver Senior Notes in the aggregate principal amount of $[
] and Subordinate Notes in the aggregate principal amount of $[ ]. The Trustee
is also authorized and directed on behalf of the Trust (i) to acquire and hold
legal beneficial title to the FFELP Student Loans and legal and beneficial title
to the Private Student Loans from the Depositor and (ii) to take all actions
required pursuant to Section 3.02(c) of the Servicing Agreement, and otherwise
follow the direction of and cooperate with the Servicer and the Eligible Lender
Trustee in submitting, pursuing and collecting any claims to and with the
Department with respect to any Interest Subsidy Payments and Special Allowance
Payments relating to the FFELP Student Loans.
In addition to the foregoing, the Trustee is authorized, but shall not be
obligated, to take all actions required of the Trust pursuant to the Basic
Documents. The Trustee is further authorized from time to time to take such
action as the Administrator directs or instructs with respect to the Basic
Documents and is directed to take such action to the extent that the
Administrator is expressly required pursuant to the Basic Documents to cause the
Trustee to act.
SECTION 6.2. General Duties. It shall be the duty of the Trustee to
discharge (or cause to be discharged) all its responsibilities pursuant to the
terms of this Agreement and the other Basic Documents to which the Trust is a
party and to administer the Trust, subject to and in accordance with the
provisions of this Agreement and the other Basic Documents. Notwithstanding the
foregoing, the Trustee shall be deemed to have discharged its duties and
responsibilities hereunder and under the other Basic Documents to the extent the
Administrator has agreed in the Administration Agreement to perform any act or
to discharge any duty of the Trustee hereunder or under any other Basic
Document, and the Trustee shall not be held liable for the default or failure of
the Administrator to carry out its obligations under the Administration
Agreement. Except as expressly provided in the Basic Documents, the Trustee
shall have no obligation to administer, service or collect the Student Loans or
to maintain,
-13-
<PAGE>
monitor or otherwise supervise the administration, servicing or collection of
the Student Loans.
SECTION 6.3. Action upon Instruction. (a) Subject to Article IV, Section
7.01 and in accordance with the terms of the Basic Documents, the
Certificateholders may by written instruction direct the Trustee in the
management of the Trust. Such direction may be exercised at any time by written
instruction of the Certificateholders pursuant to Article IV.
(b) The Trustee shall not be required to take any action hereunder or
under any other Basic Document if the Trustee shall have reasonably determined,
or shall have been advised by counsel, that such action is likely to result in
liability on the part of the Trustee or is contrary to the terms hereof or of
any other Basic Document or is otherwise contrary to law.
(c) Whenever the Trustee is unable to determine the appropriate course
of action between alternative courses of action permitted or required by the
terms of this Agreement or under any other Basic Document, the Trustee shall
promptly give notice (in such form as shall be appropriate under the
circumstances) to the Certificateholders requesting instruction as to the course
of action to be adopted, and to the extent the Trustee acts in good faith in
accordance with any written instruction of the Certificateholders received, the
Trustee shall not be liable on account of such action to any Person. If the
Trustee shall not have received appropriate instruction within 10 days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action, not inconsistent with
this Agreement or the other Basic Documents, as it shall deem to be in the best
interests of the Certificateholders, and shall have no liability to any Person
for such action or inaction.
(d) In the event that the Trustee is unsure as to the application of
any provision of this Agreement or any other Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Trustee or is silent or is incomplete
as to the course of action that the Trustee is required to take with respect to
a particular set of facts, the Trustee may give notice (in such form as shall be
appropriate under the circumstances) to the Certificateholders requesting
instruction and, to the extent that the Trustee acts or refrains from acting in
good faith in accordance with any such instruction received, the Trustee shall
not be liable, on account of such action or inaction, to any Person. If the
Trustee shall not have received appropriate instruction within 10 days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action, not inconsistent with
this Agreement or the other Basic Documents, as it shall deem to be in the best
interests of the Certificateholders and shall have no liability to any Person
for such action or inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement, the Transfer
Agreement, the Servicing Agreement, the Administration Agreement or in
Instructions. The
-14-
<PAGE>
Trustee shall not have any duty or obligation to manage, make any payment with
respect to, register, record, sell, service, dispose of or otherwise deal with
the Trust Estate, or to otherwise take or refrain from taking any action under,
or in connection with, any document contemplated hereby to which the Trustee is
a party, except as expressly provided by the terms of this Agreement, the
Transfer Agreement, the Servicing Agreement, the Administration Agreement or in
any document or written instruction received by the Trustee pursuant to Section
6.03; and no implied duties or obligations shall be read into this Agreement or
any other Basic Document against the Trustee. The Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any
Commission filing for the Trust or to record this Agreement or any other Basic
Document. The Trustee nevertheless agrees that it will, at its own cost and
expense, promptly take all action as may be necessary to discharge any liens on
any part of the Trust Estate that result from actions by, or claims against, the
Trustee in its individual capacity or as the Trustee that are not related to the
ownership or the administration of the Trust Estate.
SECTION 6.5. No Action Except Under Specified Documents or Instructions.
The Trustee shall not manage, control, use, sell, service, dispose of or
otherwise deal with any part of the Trust Estate except (i) in accordance with
the powers granted to and the authority conferred upon the Trustee pursuant to
this Agreement, (ii) in accordance with the other Basic Documents to which it is
a party and (iii) in accordance with any document or instruction delivered to
the Trustee pursuant to Section 6.03.
SECTION 6.6. Restrictions. The Trustee shall not take any action (a) that
is inconsistent with the purposes of the Trust set forth in Section 2.03 or (b)
that, to the actual knowledge of the Trustee, would result in the Trust's
becoming taxable as a corporation for Federal income tax purposes. The
Certificateholders shall not direct the Trustee to take action that would
violate the provisions of this Section.
{SECTION 6.7. Origination of Consolidation Loans during the Revolving
Period. (a) From time to time during the Revolving Period the Servicer will
identify those FFELP Student Loans as to which a Borrower qualifies to receive a
Consolidation Loan under the Federal Consolidation Loan Program from the Trustee
and will inform the Administrator of the identity of such loans. The
Administrator will determine, in accordance with customary industry standards,
whether a Consolidation Loan should be offered to such Borrower; provided that,
a Consolidation Loan will not be offered to a Borrower if any Student Loan of
such Borrower which is not beneficially owned by the Trust and which is proposed
to be discharged by the making of such Consolidation Loan is more than 30 days
past due; and provided further that a Consolidation Loan will not be offered to
a borrower if the aggregate principal amount of all Consolidation Loans
originated pursuant to this Section would thereby exceed the limitations set
forth in Section 6.7(d).
(b) If the Administrator determines that it is appropriate to offer a
Consolidation Loan to a Borrower in accordance with this Section, it will so
inform the Servicer who will send the necessary documentation to such Borrower
and will process such
-15-
<PAGE>
documentation on behalf of the Trustee and the Eligible Lender Trustee, all in
accordance with industry standards, the Higher Education Act and the related
Guarantee Agreement. The Servicer will inform the Trustee and the Eligible
Lender Trustee of the completion of the loan underwriting process and the
necessary documentation, whereupon the Eligible Lender Trustee, on behalf of the
Trust and upon the direction of the Administrator, will be directed by the
Trustee to execute any documents required to be executed by it to complete the
origination of such loan and to subject such loan to the related Guarantee
Agreement. The Servicer will not permit any Consolidation Loan to be originated
which would violate the representations and warranties of Section 3.01 of the
Transfer Agreement. Any Consolidation Loan which is determined to violate any of
such representations and warranties will be subject to repurchase by the Seller
as provided in Section 3.02 of the Loan Sale Agreement.
(c) Each Consolidation Loan originated pursuant to this Section 6.7
shall be owned by the Trust and be part of the Trust Estate and the Collateral
from and after the time of such origination. Upon origination of such loan and
such loan becoming part of the Trust Estate and the Collateral, the
Administrator will instruct the Indenture Trustee, pursuant to Section 2(f) of
the Administration Agreement, to authorize the transfer from the Collateral
Reinvestment Account of an amount sufficient to prepay in full any Student Loan
that is to be consolidated through such origination, including any Add-on
Consolidation Loan that is prepaid in full as a result of the principal balance
of such Add-on Consolidation Loan being added to the principal balance of a
related Consolidation Loan held as part of the Trust Estate. The Administrator
will cause to be taken all actions, and the Trustee will direct the Eligible
Lender Trustee to cooperate with the Administrator in the execution of any
instruments or documents, required to establish and maintain the ownership
interest of the Trust and the first perfected security interest of the Indenture
Trustee in each Consolidation Loan originated pursuant to this Section.
(d) In no event shall the Trust originate, or the Trustee direct the
Eligible Lender Trustee on behalf of the Issuer to originate, Consolidation
Loans in excess of $[ ] (including the addition of the principal balances of any
Add-on Consolidation Loans) in the aggregate during the Revolving Period;
additionally, no Consolidation Loan may be originated by the Issuer or the
Trustee on behalf of the Issuer having a scheduled maturity after [ ] if at the
time of such origination the aggregate principal balance of all Consolidation
Loans held as part of the Trust Estate that have a scheduled maturity date after
[ ] exceeds, or after giving effect to such origination, would exceed $[ ];
provided, however, that the Trustee will be permitted to direct the Eligible
Lender Trustee to fund the addition of the principal balance of any Add-on
Consolidation Loan in excess of such amounts, if the Eligible Lender Trustee is
required to do so by the Higher Education Act. In addition, in no event shall
the Issuer make or the Trustee direct the Eligible Lender Trustee on behalf of
the Issuer to make Consolidation Loans after the Revolving Period; provided,
however, that the Trustee may direct the Eligible Lender Trustee to increase the
principal balance of any Consolidation Loan by the principal balance of any
related Add-on Consolidation Loan during the Add-on Period if the Eligible
Lender Trustee is required to do so by the Higher Education Act. After the
Revolving Period, upon the addition of the principal balance of such Add-on
Consolidation Loan, and such amounts becoming part of the Trust Estate and the
Collateral, the
-16-
<PAGE>
Administrator will instruct the Indenture Trustee, pursuant to Section
2(d)(iii)(A) of the Administration Agreement, to authorize the transfer from the
Collection Account of an amount sufficient to prepay in full such Add-on
Consolidation Loan.
(e) All Consolidation Fees payable with respect to
Consolidation Loans originated and the principal balances of any Add-on
Consolidation Loans added to the Trust pursuant to this Section will be payable
by the Issuer as provided in Section 2(d)(ii) of the Administration Agreement.
All other costs or fees incurred in originating Consolidation Loans (or in
adding the principal balances of any Add-on Consolidation Loans) shall be
payable by the Administrator.}
ARTICLE VII.
Concerning the Trustee
----------------------
SECTION 7.1. Acceptance of Trusts and Duties. The Trustee accepts the
trusts hereby created and agrees to perform its duties hereunder with respect to
such trusts but only upon the terms of this Agreement. The Trustee also agrees
to disburse all moneys actually received by it constituting part of the Trust
Estate upon the terms of this Agreement and the other Basic Documents. The
Trustee shall not be answerable or accountable hereunder or under any other
Basic Document under any circumstances, except (i) for its own willful
misconduct or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.03 expressly made by the
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(i) the Trustee shall not be liable for any error of judgment
made by a responsible officer of the Trustee;
(ii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the
direction or instructions of the Administrator or the
Certificateholders;
(iii) no provision of this Agreement or any other Basic
Document shall require the Trustee to expend or risk funds or otherwise
incur any financial liability in the performance of any of its rights
or powers hereunder or under any other Basic Document, if the Trustee
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured or provided to it;
(iv) under no circumstances shall the Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes;
(v) the Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution
hereof by the Depositor or for
-17-
<PAGE>
the form, character, genuineness, sufficiency, value or validity of
any part of the Trust Estate or for or in respect of the validity or
sufficiency of the Basic Documents, and the Trustee shall in no event
assume or incur any liability, duty, or obligation to any Noteholder
or to the Certificateholders, other than as expressly provided for
herein and in the other Basic Documents;
(vi) the Trustee shall not be liable for the action or
inaction, default or misconduct of the Administrator, the Seller, the
Depositor, the Indenture Trustee or the Servicer under any of the other
Basic Documents or otherwise and the Trustee shall have no obligation
or liability to perform the obligations of the Trust under this
Agreement or the other Basic Documents that are required to be
performed by the Administrator under the Administration Agreement, the
Indenture Trustee under the Indenture or the Servicer under the
Servicing Agreement; and
(vii) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this Agreement or
otherwise or in relation to this Agreement or any other Basic Document,
at the request, order or direction of the Certificateholders, unless
the Certificateholders has offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may
be incurred by the Trustee therein or thereby. The right of the Trustee
to perform any discretionary act enumerated in this Agreement or in any
other Basic Document shall not be construed as a duty, and the Trustee
shall not be answerable for other than its negligence or willful
misconduct in the performance of any such act.
SECTION 7.2. Furnishing of Documents. The Trustee shall furnish to the
Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Trustee under
the Basic Documents.
SECTION 7.3. Representations and Warranties. The Trustee hereby
represents and warrants to each of the Depositor that:
(i) It is a [national banking association] duly organized and
validly existing in good standing under the laws of the United States.
It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or state law,
-18-
<PAGE>
governmental rule or regulation governing the banking or trust powers
of the Trustee or any judgment or order binding on it, or constitute
any default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(iv) It is an "eligible lender" as such term is defined in
Section 435(d) of the Higher Education Act.
SECTION 7.4. Reliance; Advice of Counsel. (a) The Trustee shall incur
no liability to anyone in acting upon any signature, instrument, direction,
notice, resolution, request, consent, order, certificate, report, opinion, bond,
or other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Trustee may accept a certified copy
of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of the determination of which is not specifically
prescribed herein, the Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.
(a) In the exercise or administration of the trusts
hereunder and in the performance of its duties and obligations under this
Agreement or the other Basic Documents, the Trustee (i) may act directly or
through its agents or attorneys pursuant to agreements entered into with any of
them, and the Trustee shall not be liable for the conduct or misconduct of such
agents or attorneys if such agents or attorneys shall have been selected by the
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and not contrary to this Agreement or
any other Basic Document.
SECTION 7.5. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created, Trustee acts solely as
Trustee hereunder and not in its individual capacity and all Persons having any
claim against the Trustee by reason of the transactions contemplated by this
Agreement or any other Basic Document shall look only to the Trust Estate for
payment or satisfaction thereof.
SECTION 7.6. Trustee Not Liable for Certificates, Notes or Student
Loans. The recitals contained herein (other than the representations and
warranties in Section 7.03) shall be taken as the statements of the Depositor,
and the Trustee assumes no responsibility for the correctness thereof. The
Trustee makes no representations as to the validity or sufficiency of this
Agreement the Certificates or any other Basic Document or the Notes, or of any
Financed Student Loan or related documents. The Trustee shall at no time have
any responsibility (or liability except for willfully or negligently terminating
or allowing to be terminated either of
-19-
<PAGE>
the Guarantee Agreements, in a case where the Trustee knows of any facts or
circumstances which will or could reasonably be expected to result in any such
termination) for or with respect to the legality, validity, enforceability and
eligibility for Guarantee Payments, Interest Subsidy Payments or Special
Allowance Payments, as applicable, of any Financed Student Loan, or for or with
respect to the sufficiency of the Trust Estate or its ability to generate the
payments to be distributed to the Noteholders under the Indenture, including:
the existence and contents of any computer or other record of any Financed
Student Loan; the validity of the assignment of any Financed Student Loan to
the Trust; the completeness of any Financed Student Loan; the performance or
enforcement (except as expressly set forth in any Basic Document) of any
Financed Student Loan; the compliance by the Depositor or the Servicer with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation or any action
or inaction of the Administrator, the Indenture Trustee or the Servicer or any
subservicer taken in the name of the Trustee.
SECTION 7.7. Trustee May Own Certificates and Notes. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
and Notes and may deal with the Depositor, the Administrator, the Indenture
Trustee and the Servicer in banking transactions with the same rights as it
would have if it were not the Trustee.
ARTICLE VIII.
Compensation of Trustee
-----------------------
SECTION 8.1. Trustee's Fees and Expenses. The Trustee shall receive as
compensation for its services hereunder such fees as have been separately agreed
upon before the date hereof between the Depositor and the Trustee, and the
Trustee shall be entitled to be reimbursed by the Depositor for its other
reasonable expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Trustee may employ in connection with the exercise and performance of its rights
and duties hereunder. The Trustee shall have no recourse to the Issuer for its
fees and expenses hereunder.
SECTION 8.2. Payments to the Trustee. Any amounts paid to the Trustee
pursuant to Section 8.01 hereof or pursuant to Section 4.03 of the Transfer
Agreement or pursuant to Section 24 of the Administration Agreement shall be
deemed not to be a part of the Trust Estate immediately after such payment.
ARTICLE IX.
Termination of Trust Agreement
------------------------------
SECTION 9.1. Termination of Trust Agreement. (a) This Agreement (other
than Article VIII) and the Trust shall terminate and be of no further force or
effect upon the earlier
-20-
<PAGE>
of (i) the final distribution by the Trustee of all moneys or other property
or proceeds of the Trust Estate in accordance with the terms of the Indenture,
the Administration Agreement, Article V and the Servicing Agreement, and (ii)
the time provided in Section 9.2. The bankruptcy, liquidation, dissolution,
death or incapacity of any Certificateholder, other than the Depositor as
described in Section 9.2, shall not (x) operate to terminate this Agreement or
the Trust, nor (y) entitle such Certificateholder's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of all or any part of the Trust or Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(a) Except as provided in Section 9.1(a), neither the
Depositor nor the Certificateholders shall be entitled to revoke or terminate
the Trust.
(b) Notice of any termination of the Trust shall be given
promptly by the Trustee by letter to the Certificateholders mailed within five
Business Days of receipt of notice of such termination from the Administrator
given pursuant to Section 2(b)(vii) of the Administration Agreement.
(c) Upon the winding up of the Trust and its termination,
the Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State of the State of Delaware
in accordance with the provisions of Section 3810 of the Business Trust Statute.
SECTION 9.2. Dissolution upon Bankruptcy of the Depositor. In the event
that an Insolvency Event shall occur with respect to the Depositor, this
Agreement shall be terminated in accordance with Section 9.01 90 days after the
date of such Insolvency Event unless, before the end of such 90-day period, the
Trustee shall have received written instructions from (a) Subordinate
Noteholders (other than the Depositor) representing more than 50% of the
aggregate outstanding principal amount (not including the principal amount of
the Certificateholders Note) of the Subordinate Notes and (b) Senior Noteholders
representing more than 50% of the aggregate outstanding principal amount of the
Senior Notes, to the effect that each such party disapproves of the liquidation
of the Financed Student Loans and termination of the Trust, in which event the
Trust shall continue in accordance with the Basic Documents. Promptly after the
occurrence of any Insolvency Event with respect to the Certificateholders, (i)
the Certificateholders shall give the Indenture Trustee, the Trustee and the
Rating Agencies written notice of such Insolvency Event, (ii) the Trustee shall,
upon the receipt of such written notice from the Certificateholders, give prompt
written notice to the Indenture Trustee of the occurrence of such event and
(iii) the Indenture Trustee shall, upon receipt of written notice of such
Insolvency Event from the Trustee or the Certificateholders, give prompt written
notice to the Noteholders of the occurrence of such event; provided, however,
that any failure to give a notice required by this sentence shall not prevent or
delay, in any manner, a termination of the Trust pursuant to the first sentence
of this Section 9.02. Upon a termination pursuant to this Section, the Trustee
shall direct the Indenture Trustee promptly to sell the assets of the Trust
(other than the Trust Accounts) in a commercially reasonable manner and on
commercially reasonable terms. The proceeds of such a sale of the
-21-
<PAGE>
assets of the Trust shall be treated as collections under the Servicing
Agreement and the Administration Agreement.
ARTICLE X.
Successor Trustees and
----------------------
Additional Trustees
-------------------
SECTION 10.1. Eligibility Requirements for Trustee. The Trustee shall
at all times be a corporation or association (i) qualifying as an "eligible
lender" as such term is defined in Section 435(d) of the Higher Education Act;
(ii) being authorized to exercise corporate trust powers and hold legal title to
the Student Loans; (iii) having in effect Guarantee Agreements with the Initial
Guarantors and any Additional Guarantors; (iv) having a combined capital and
surplus of at least $[50,000,000] and being subject to supervision or
examination by Federal or state authorities; and (v) having (or having a parent
which has) a rating of at least Baa3 by Moody's, ___________ by S&P and BBB- by
Fitch. If the Trustee shall publish reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of the Trustee shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Trustee shall resign immediately in the manner and with the
effect specified in Section 10.02. In addition, at all times the Trustee or a
co-trustee shall be a Person that satisfies the requirements of Section 3807(a)
of the Business Trust Statute (the "Delaware Trustee").
SECTION 10.2. Resignation or Removal of Trustee. The Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice thereof to the Administrator. Upon receiving such notice of resignation,
the Administrator shall promptly appoint a successor Trustee meeting the
eligibility requirements of Section 10.01 by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor Trustee. If no successor Trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee; provided, however, that
such right to appoint or to petition for the appointment of any such successor
shall in no event relieve the resigning Trustee from any obligations otherwise
imposed on it under the Basic Documents until such successor has in fact assumed
such appointment.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 10.01 and shall fail to resign after written
request therefor by the Administrator, or if at any time the Trustee shall be
legally unable to act, or an Insolvency Event with respect to the Trustee shall
have occurred and be continuing, then the Administrator may remove the Trustee.
If the Administrator shall remove the Trustee under the authority of the
immediately preceding sentence, the Administrator shall promptly appoint a
successor Trustee by written
-22-
<PAGE>
instrument, in duplicate, one copy of which instrument shall be delivered to
the outgoing Trustee so removed and one copy to the successor Trustee and
payment of all fees owed to the outgoing Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 10.03 and payment of all fees and expenses owed to the
outgoing Trustee. The Administrator shall provide notice of such resignation or
removal of the Trustee and to each of the Rating Agencies.
SECTION 10.3. Successor Trustee. Any successor Trustee appointed
pursuant to Section 10.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor Trustee an instrument accepting such
appointment under this Agreement, and thereupon the resignation or removal of
the predecessor Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor under this
Agreement, with like effect as if originally named as Trustee. The predecessor
Trustee shall upon payment of its fees and expenses deliver to the successor
Trustee all documents, statements, moneys and properties held by it under this
Agreement and shall assign, if permissible, to the successor Trustee the lender
identification number obtained from the Department on behalf of the Trust; and
the Administrator and the predecessor Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for fully and
certainly vesting and confirming in the successor Trustee all such rights,
powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section, the Administrator shall mail notice of the successor of such Trustee to
the Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of appointment by the successor Trustee, the successor Trustee
shall cause such notice to be mailed at the expense of the Administrator.
SECTION 10.4. Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the
Trustee, shall, without the execution or filing of any instrument or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding, be the successor of the Trustee hereunder; provided that such
corporation shall be eligible pursuant to Section 10.01; provided further that
the Trustee shall mail notice of such merger or consolidation to the Rating
Agencies not less than 10 Business Days prior to the closing date of such merger
or consolidation.
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal
-23-
<PAGE>
requirements of any jurisdiction in which any part of the Trust may at the time
be located, the Administrator and the Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee, which, except in the case of any Delaware
Trustee, shall meet the eligibility requirements of clauses (i) through (iii)
of Section 10.01, to act as co-trustee, jointly with the Trustee, or separate
trustee or separate trustees, of all or any part of the Trust Estate, and to
vest in such Person, in such capacity, such title to the Trust Estate, or any
part thereof, and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Administrator and the
Trustee may consider necessary or desirable. If the Administrator shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Trustee alone shall have the power to make such
appointment. [Pursuant to the Co-Trustee Agreement, dated as of [________ __,
1999] between [Trustee] and [ ], the Trustee shall appoint First Chicago
Delaware Inc. as a co-trustee hereunder for the purpose of its acting as
Delaware Trustee and such agreement is hereby incorporated herein by
reference.] If the Delaware Trustee shall become incapable of acting, resign or
be removed, unless the Trustee is qualified to act as Delaware Trustee, a
successor co-trustee shall promptly be appointed in the manner specified in
this Section 10.05 to act as Delaware Trustee. No co-trustee or separate
trustee under this Agreement shall be required to meet the terms of eligibility
as a successor trustee pursuant to clauses (iv) and (v) of Section 10.01 and no
notice of the appointment of any co-trustee or separate trustee shall be
required pursuant to Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties, and obligations conferred or
imposed upon the Trustee shall be conferred upon and exercised or
performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee
is not authorized to act separately without the Trustee joining in such
act), except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the Trustee shall
be incompetent or unqualified to perform such act or acts, in which
event such rights, powers, duties, and obligations (including the
holding of title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, solely at the direction of the Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Administrator and the Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its
-24-
<PAGE>
acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Each such instrument shall be filed with the
Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Trustee
as its agent or attorney-in-fact with full power and authority, to the extent
not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee, except as otherwise provided in this Section 10.05 in regard
to the Delaware Trustee.
ARTICLE XI.
Miscellaneous
-------------
SECTION 11.1. Supplements and Amendments. This Agreement may be amended
by the Depositor, the Certificateholders and the Trustee, with prior written
notice to the Rating Agencies, without the consent of any of the Noteholders, to
cure any ambiguity, to correct or supplement any provisions in this Agreement or
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions in this Agreement or of modifying in any
manner the rights of the Noteholders; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Noteholder.
This Agreement may also be amended from time to time by the Depositor,
the Certificateholders and the Trustee, with prior written notice to the Rating
Agencies, with the consent of the Noteholders of Notes evidencing not less than
a majority of the Outstanding Amount of the Notes, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Student Loans or distributions that shall be required to be made for
the benefit of the Noteholders or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes and required to consent to any such amendment,
without the consent of all the outstanding Noteholders.
The Trustee shall furnish 10 Business Days' prior written notification
of the substance of any such amendment or consent to the Indenture Trustee and
each of the Rating Agencies.
It shall not be necessary for the consent of the Noteholders or the
Indenture Trustee pursuant to this Section to approve the particular form of any
proposed amendment or consent,
-25-
<PAGE>
but it shall be sufficient if such consent shall approve the substance thereof.
The manner of obtaining such consents shall be subject to such reasonable
requirements as the Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Trustee shall cause the filing of such amendment with the Secretary
of State of the State of Delaware. The Trustee shall furnish the Rating Agencies
with 10 Business Days' prior written notice of any amendment to the Certificate
of Trust.
Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.2. No Legal Title to Trust Estate in Certificateholders. The
Certificateholders shall not have legal title to any part of the Trust Estate.
The Certificateholders shall be entitled to receive distributions with respect
to its ownership interest therein only in accordance with the Indenture, the
Administration Agreement and the Servicing Agreement. No transfer, by operation
of law or otherwise, of any right, title, or interest of the Certificateholders
to and in its beneficial ownership interest in the Trust Estate shall operate to
terminate this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Trust
Estate. If, contrary to this Section, the Certificateholders is deemed to have
legal title to any part of the Trust Estate, the Certificateholders shall be
deemed to have granted, and in such event does hereby grant to the Trust, a
first priority security interest in all of the Transferor's right, title and
interest in the Trust Estate, other than in the distributions referred to in the
second sentence of this Section 11.02, and this Agreement shall be deemed to
constitute a security agreement under applicable law with respect to the Trust
Estate.
SECTION 11.3. Limitations on Rights of Others. Except for Section 2.07,
the provisions of this Agreement are solely for the benefit of the Trustee, the
Depositor, the Certificateholders, the Administrator and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Agreement (other than Section 2.07), whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Trust Estate or under or in respect of this Agreement or
any covenants, conditions or provisions contained herein.
SECTION 11.4. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing (or in the form
of facsimile notice, followed by written notice) and shall be deemed given upon
receipt by the intended recipient, if to the Trustee, addressed to its Corporate
Trust Office; if to the Depositor, addressed to EFG Funding Corporation, [ ]
with a copy to Office of the General Counsel, [ ] if to the Certificateholders,
[ ]; or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.
-26-
<PAGE>
SECTION 11.5. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Certificateholders, the Trustee and their respective successors
and permitted assigns, all as herein provided.
SECTION 11.8. No Petition. (a) The Depositor will not at any time
institute against the Trust or the Certificateholders any bankruptcy proceedings
under any United States Federal or state bankruptcy or similar law in connection
with any obligations relating to the Notes, this Agreement or any of the other
Basic Documents.
(a)(b)...The Trustee, by entering into this Agreement, and the
Indenture Trustee and each Certificateholder and Noteholder by accepting the
benefits of this Agreement, hereby covenant and agree that they will not at any
time institute against the Depositor, or the Trust, or join in any institution
against the Depositor, or the Trust of, any bankruptcy, reorganization,
arrangement, insolvency, receivership or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, this Agreement or any
of the other Basic Documents.
SECTION 11.9. No Recourse. The Certificateholders acknowledges that its
ownership interest in the Trust represents a beneficial interest in the Trust
only and does not represent an interest in or obligation of the Seller, the
Servicer, the Depositor, the Administrator, the Trustee, the Indenture Trustee
or any Affiliate thereof or any officer, director or employee of any thereof and
no recourse may be had against such parties or their assets, except as may be
expressly set forth or contemplated in this Agreement or the other Basic
Documents.
SECTION 11.10. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.11. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Delaware, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
[TRUSTEE], not in its individual capacity but
solely as Trustee,
By:
--------------------------------------------
Name:
Title:
EFG Funding Corporation, Depositor,
By:
--------------------------------------------
Name:
Title: President and Chief
Executive Officer
-28-
<PAGE>
EXHIBIT A
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
EFG STUDENT LOAN TRUST 1999-[_]
-------------------------------
THIS Certificate of Trust of EFG Student Loan Trust 1999-[_] (the
"Trust"), dated as of [________ __, 1999], is being duly executed and filed by
[Trustee], a national banking association, and [Delaware Co-Trustee], a Delaware
banking corporation, as trustees, to form a business trust under the Delaware
Business Trust Act (12 Del. Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is EFG Student
Loan Trust 1999-[_].
2. Delaware Trustee. The name and business address of the trustee of
the Trust resident in the State of Delaware is [Delaware Co-Trustee].
3. This Certificate of Trust will be effective [ 1999].
A-1
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.
[TRUSTEE],
not in its individual capacity but
solely as trustee of the Trust
By:
-------------------------------------------
Name:
Title:
[DELAWARE CO-TRUSTEE],
not in its individual capacity
but solely as trustee
By:
-------------------------------------------
A-2
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
[FORM OF CERTIFICATE]
[SEE REVERSE FOR CERTAIN DEFINITIONS]
-------------------------------------
Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York Corporation ("DTC"), to the Issuer (as
defined below) or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT
PLAN (AS DEFINED BELOW). THIS CERTIFICATE IS NOT GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY.
NUMBER [___________]
____ CUSIP NO. [_____]
EFG STUDENT LOAN TRUST 1998-1
FLOATING RATE STUDENT LOAN-BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined
below, the property of which includes a pool of student loans sold to
the Trust by EFG Funding Corporation.
(This Certificate does not represent an interest in or obligation of
EFG Funding Corporation, the Servicer (as defined below), the Trustee
(as defined below) or any of their respective affiliates, except to the
extent described below.)
THIS CERTIFIES THAT Cede & Co. is the registered owner of [________]
dollars non-assessable, fully-paid, fractional undivided interest in the EFG
Student Loan Trust 1999-[_] (the "Trust"), a trust formed under the laws of the
State of Delaware by EFG Funding Corporation, a Delaware corporation (the
"Depositor"). The Trust was created pursuant to a Trust Agreement dated as of
[_____] (the "Trust Agreement"), between the Depositor and [TRUSTEE], a national
banking association, not in its individual capacity but solely as trustee on
behalf of the Trust (the "Trustee"), a summary of certain of the pertinent
provisions of which is set forth below. To the extent not otherwise defined
herein, the capitalized terms used herein have the meanings assigned to them in
Appendix A to the Trust Agreement.
B-1
<PAGE>
This Certificate is one of the duly authorized Certificates designated
as "Floating Rate Student Loan- Backed Certificates" (herein called the
"Certificates"). This Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which Trust Agreement the
holder of this Certificate by virtue of the acceptance hereof assents and by
which such holder is bound. The property of the Trust includes a pool of student
loans (the "Trust Student Loans"), all moneys paid thereunder on or after
[_____], certain bank accounts and the proceeds thereof and certain other rights
under the Trust Agreement, the Sale Agreement, the [_____], the Administration
Agreement and the Servicing Agreement and all proceeds of the foregoing. The
rights of the holders of the Certificates to the assets of the Trust are
subordinated to the rights of the holders of the Notes issued under the
Indenture dated as of [_____], between the Trust and [_____], as Indenture
Trustee, and designated as "Floating Rate Student Loan-Backed Notes" (the
"Notes"), as set forth in the Trust Agreement, the Indenture and the
Administration Agreement.
[Under the Trust Agreement, to the extent of funds available therefor,
return on the Certificate Balance of this Certificate at the Certificate Rate
(as defined below) will be distributed on the 25th day of each January, April,
July and October (or, if such 25th day is not a Business Day, the next
succeeding Business Day) (each a "Distribution Date"), commencing on [_____], to
the person in whose name this Certificate is registered as of the close of
business on the day immediately preceding the Distribution Date (such day the
"Record Date"), in each case to the extent of such certificateholder's pro rata
interest in the amount or amounts to be distributed to Certificateholders on
such Distribution Date pursuant to the Administration Agreement.]
The Certificate Rate for each Accrual Period shall be equal to the
lesser of (a) the daily weighted average of the T-Bill Rates within such Accrual
Period plus [___]% per annum and (b) the Student Loan Rate for such Accrual
Period. The "Student Loan Rate" for any Accrual Period shall equal the product
of (a) the quotient obtained by dividing (i) 365 (or 366 in the case of a leap
year) by (ii) the actual number of days elapsed in such Accrual Period and (b)
the percentage equivalent of a fraction, (i) the numerator of which is equal to
Expected Interest Collections for the related Collection Period less the Primary
Servicing Fee, the Administration Fee and any prior unpaid Administration Fees
with respect to such Collection Period and (ii) the denominator of which is the
Pool Balance as of the first day of such Collection Period.
Each holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate from Available Funds and
amounts on deposit in the Reserve Account are subordinated to the rights of the
Noteholders as described in the Trust Agreement, the Indenture and the
Administration Agreement.
It is the intent of the Depositor, the Certificateholders and the
Certificate Owners that, for purposes of Federal, state and local income and
franchise and any other income taxes, the Trust will be treated as a partnership
and the Certificateholders (including the Depositor in its capacity as
Certificateholder and as recipient of distributions from the Reserve Account)
will be treated as partners in that partnership. The Depositor and the other
Certificateholders by
B-2
<PAGE>
acceptance of a Certificate (and the Certificate Owners by acceptance
of a beneficial interest in a Certificate), agree to treat, and to take no
action inconsistent with the treatment of, the Certificates for such tax
purposes as partnership interests in the Trust.
Each Certificateholder or Certificate Owner, by its acceptance of a
Certificate or, in the case of a Certificate Owner, a beneficial interest in a
Certificate, covenants and agrees that such Certificateholder or Certificate
Owner, as the case may be, will not at any time institute against the Depositor
or the Trust, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency, receivership or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Certificates, the Notes, the Trust Agreement or any of the other Basic
Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Trustee by wire transfer or by check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Certificate or the making of any notation hereon, except
that with respect to Certificates registered on the Record Date in the name of
the nominee of the Clearing Agency, unless Definitive Certificates have been
issued (initially, such nominee to be Cede & Co.), payments will be made by wire
transfer in immediately available funds to the account designated by such
nominee. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for the purpose by the Eligible Lender Trustee in the [________].
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Trustee or its authenticating agent, by
manual signature, this Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Administration Agreement or be valid
for any purpose.
B-3
<PAGE>
IN WITNESS WHEREOF, the Eligible Lender Trustee on behalf of the Trust
and not in its individual capacity has caused this Certificate to be duly
executed as of the date set forth below.
EFG STUDENT LOAN TRUST 1999-[_]
by [_____], not in its individual capacity
but solely as Trustee.
By:
----------------------------------------
Authorized Signatory
Date: _____________
B-4
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
[______], not in its individual capacity
but solely as Trustee,
By:
----------------------------------------
Authorized Signatory
OR
[_____], solely in its capacity as
Authenticating Agent for the Trustee,
By:
----------------------------------------
Authorized Signatory
Date: _____________
B-5
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, Educational Finance Group, Inc., as servicer (the "Servicer"),
Educational Finance Group, Inc., as administrator (the "Administrator"), the
Trustee or any affiliates of any of them, and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated herein, in the Trust Agreement or in the other Basic Documents. In
addition, this Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections with
respect to the Trust Student Loans, all as more specifically set forth in the
Trust Agreement. A copy of each of the Trust Agreement, the Sale Agreement, the
Administration Agreement, Servicing Agreement and the Indenture may be examined
during normal business hours at the principal office of the Administrator, and
at such other places, if any, designated by the Administrator, by any
Certificateholder upon request.
The Trust Agreement permits, with certain options therein provided, the
amendment thereof and the certification of the rights and obligations of the
Depositor and the rights of the Certificateholders under the Trust Agreement at
any time by the Depositor and the Eligible Lender Trustee with the consent of
the holders of the Notes and the Certificates each voting as a class evidencing
not less than a majority of the outstanding principal balance of the Notes and
the Certificate Balance. Any such consent by the holder of this Certificate
shall be conclusive and binding on such holder and on all future holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Certificate. The Trust Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the holders of
any of the Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of the Certificates is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by [_____] in its capacity as
Certificate Registrar, or by any successor Certificate Registrar, [_____],
accompanied by a written instrument of transfer in form satisfactory to the
Eligible Lender Trustee and the Certificate Registrar duly executed by the
holder hereof or such holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of authorized denominations evidencing
the same aggregate interest in the Trust will be issued to the designated
transferee.
The Certificates are issuable only as registered Certificates without
coupons in denominations of $100,000 or in integral multiples of $1,000 in
excess thereof. As provided in the Trust Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Eligible Lender Trustee or the
B-6
<PAGE>
Certificate Registrar may require payment of a sum sufficient to cover any tax
or governmental charge payable in connection therewith.
The Trustee, the Certificate Registrar and any agent of the Eligible
Lender Trustee or the Certificate Registrar may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or the Certificate Registrar or any such agent shall be affected by
any notice to the contrary.
The Certificates (including any beneficial interests therein) may not
be acquired by or for the account of (i) an employee benefit plan (as defined in
Section 3(3) of ERISA) that is subject to the provisions of Title I of ERISA,
(ii) a plan described in section 4975(e)(1) of the Internal Revenue Code of
1986, as amended (the "Code"), including an individual retirement account
described in Section 408(a) of the Code or a Keogh plan or (iii) any entity
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each, a "Benefit Plan"). By accepting and holding this Certificate,
the Holder hereof shall be deemed to have represented and warranted that it is
not a Benefit Plan, it is not purchasing this Certificate on behalf of a Benefit
Plan, is not using assets of a Benefit Plan to purchase this Certificate and to
have agreed that if this Certificate is deemed to be a plan asset, the Holder
will promptly dispose of this Certificate.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement, the
Administration Agreement and the Indenture and the disposition of all property
held as part of the Trust. The Depositor may at its option purchase the corpus
of the Trust at a price specified in the Administration Agreement, and such
purchase of the Trust Student Loans and other property of the Trust will effect
early retirement of the Certificates; however, such right of purchase is
exercisable only on any Distribution Date on or after the date on which the Pool
Balance is less than or equal to 10% of the Initial Pool Balance. Any Trust
Student Loans remaining in the Trust as of the end of the Collection Period
immediately preceding the Trust Auction Date will be offered for sale by the
Indenture Trustee by auction in accordance with the procedure described in the
Indenture.
This Certificate shall be construed in accordance with the laws of the
State of Delaware, without reference to its conflict of law provisions, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
B-7
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
-----------------------------------
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
- --------------------------------------------------------------------------------
Attorney to transfer said Certificate on the books of the Certificate Registrar,
with full power of substitution in the premises.
Dated:
*
- --------------------------------------------
Signature Guaranteed:
*
- --------------------------------------------
* NOTICE: The signature to this assignment must correspond with the name as
it appears upon the face of the within Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature
must be guaranteed by a member firm of the New York Stock Exchange or a
commercial bank or trust company.
B-8
<PAGE>
EXHIBIT 4.3
===============================================================================
TRUST AGREEMENT
between
EFG FUNDING CORPORATION
as Grantor
and
--------------------
as Trustee
Dated as of___________________,
===============================================================================
<PAGE>
TRUST AGREEMENT
THIS AGREEMENT is made on _________________, 1999 between EFG Funding
Corporation (the "Grantor") and ______________________ (the "Trustee").
WITNESSETH:
WHEREAS, the Grantor is not an eligible lender under the Higher
Education Act of 1965, as amended, and implementing regulations promulgated by
the U.S. Secretary of Education (the "Act"), and, as such, cannot hold loans
reinsured under Title IV of the Act as an eligible lender;
WHEREAS, the Grantor wishes to become beneficial owner of certain
loans meeting the qualifications described in Section 2 hereof made to persons
for post secondary education at eligible institutions ("Student Loans")
(hereinafter collectively referred to as the "Portfolio") by directing,
funding, and otherwise causing the origination and/or acquisition of such loans
by the Trustee on behalf of the Trust created hereunder;
WHEREAS, the Trustee is an eligible lender under the Act;
WHEREAS, the Trustee has agreed to hold legal title to the Student
Loans in the Portfolio;
WHEREAS, the Trustee and certain Guarantors have entered or will
enter into Contracts of Guarantee with respect to loans reinsured under Title
IV of the Act; and
WHEREAS, the Grantor intends to provide the Trustee with written
instruction on all aspects of the management of the Portfolio;
NOW, THEREFORE, for and in consideration of the promises and of the
mutual covenants contained herein, and for other valuable consideration, the
receipt of which is hereby acknowledged, the Grantor covenants and agrees with
the Trustee as follows:
1. Definitions. Capitalized terms used herein and not
otherwise defined shall have the meanings specified in this Section 1:
"Contract of Guarantee" shall mean a contract between a
Guarantor and the Trustee providing for, or a certificate or other evidence of,
the Guarantee of Student Loans.
1
<PAGE>
"Guarantor" shall mean any body or organization which
has entered into a federal reinsurance agreement with the Secretary of
Education.
"Interest Subsidy Payments" shall mean the interest
subsidy payments authorized to be made by the Secretary of Education pursuant
to section 428 of the Act, or similar subsidies authorized from time to time by
federal law or regulation.
"Person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization or a government, or any
agency or political subdivision thereof.
"Secretary of Education" shall mean the Secretary of
Education, the United States Department of Education, or any other officer,
board, body, commission or agency succeeding to the functions thereof under the
Act.
"Special Allowance Payments" shall mean special
allowance payments authorized to be made by the Secretary of Education pursuant
to Section 438(b) of the Act, or similar allowances authorized from time to
time by federal law or regulation.
2. Creation of the Trust Estate.
(a) The Grantor hereby assigns, transfers and sets over
to the Trustee, in trust for the benefit of the Grantor, all of Grantor's
right, title and interest in and to the Student Loans that at any time may
comprise the Portfolio, the receipt of which right, title, and interest is
hereby acknowledged by the Trustee and which trust is hereby accepted by the
Trustee, upon the following express terms and conditions and with the powers
and limitations hereinafter conferred and set forth.
(b) The Portfolio and any other properties held in
trust hereunder are collectively referred to herein as the "Trust Estate."
(c) No loan shall be included in the Trust Estate which
is not a loan serviced by ___________________________________________________
or another servicer mutually agreed to in writing by the parties hereto.
3. [Reserved.]
4. Servicing Agreements. Subject to Section 2(c)
hereof, servicing of loans included in the Portfolio shall be
2
<PAGE>
carried out by an eligible third-party FFELP servicer pursuant to a servicing
agreement executed with such entity.
5. Trustee's Execution of Agreements Pertaining to
Loans Solely in Capacity as Trustee. The Grantor shall cause all agreements for
the origination, purchase, servicing, financing or sale of student loans in the
Trust Estate to which the Trustee is a party to indicate clearly that the
Trustee is executing each such agreement solely in its capacity as Trustee and
to contain a provision substantially as follows:
[Other contracting party] acknowledges that the Lender has entered
into this Agreement solely in its capacity as trustee for , and not
in its individual capacity.
The representations, warranties, and covenants of the Lender herein
(other than any representations, warranties and covenants relating to
the Lender's authority, good standing, or execution of this
Agreement) are made solely at the direction of the Grantor without
independent investigation of the Lender, and the Lender has
undertaken only those duties required of it under its trust agreement
with the Grantor. Accordingly, all recourse and remedies of [other
contracting party] hereunder shall be available only against the
Grantor and the assets of such Trust Estate and not against the
Lender in its individual capacity.
This provision is not intended to apply, however, to
Contracts of Guarantee executed by the Trustee pursuant to Section 8 hereof, or
to limit the Trustee's legal responsibility to the Secretary of Education under
34 CFR 682.203(b).
6. Dispositive provisions. The Trustee shall pay to the
Grantor, promptly upon receipt thereof, any and all income and payments (other
than payments made by the Grantor) received by the Trustee in connection with
the Trust Estate, including without limitation the following payments to be
received with respect to Student Loans: scheduled payments of principal,
interest, late fees and penalties by borrowers, prepayments of principal and
interest by borrowers; all grants, subsidies, donations, Interest Subsidy
Payments, and Special Allowance Payments; and all default and other claim
payments made by any Guarantor.
7. Reserved rights of invasion. The Grantor expressly
reserves and retains the right, at any time and from time to time, by a notice
in writing signed by an authorized officer of
3
<PAGE>
the Grantor and filed with the Trustee, to withdraw from the corpus of the
Trust Estate any or all of the Trust Estate.
It is an express provision and term of this Trust that
any of the powers which the Grantor reserves to itself are to be exercised only
by the Grantor in its sole discretion, and not as a power to be subject to
exercise by any other Person, or under any process of law for the Grantor's
benefit, or for the benefit of Grantor's creditors by any other Person or court
whatsoever.
8. Trustee's duties and powers. The Trustee and any
successor trustee or trustees shall have only the following powers and duties:
(a) Upon receipt of written instructions from the
Grantor, the Trustee shall execute and deliver all written instruments and take
any and all other actions that Grantor may direct in order to (i) maintain all
Contracts of Guarantee covering the Portfolio, (ii) enter into and take other
actions with respect to further agreements as required by the Grantor for the
benefit of the Trust Estate, and (iii) enforce the rights of the Trustee under
all such Contracts of Guarantee and other agreements.
(b) Upon receipt of written instructions from the
Grantor, the Trustee shall execute and deliver all written instruments and take
any and all other actions as may be, in the judgment of the Grantor, required
from time to time in connection with the application for and receipt of grants,
subsidies, donations, Interest Subsidy Payments, Special Allowance Payments,
and default and other claim payments with respect to the Trust Estate.
(c) The Trustee shall meet the qualifications set forth
in Section 14 hereof at all times during which it holds legal title to the
Student Loans comprising the Portfolio.
(d) Upon receipt of written instructions from the
Grantor, the Trustee shall sell, exchange or liquidate all or any portion of
the Trust Estate.
(e) The Trustee shall dispose of any proceeds of such
sale, exchange or liquidation as the Grantor shall, by written instructions to
the Trustee, direct.
(f) The Trustee shall report to the Grantor all claims
for taxes, insurance premiums and other legal assessments, debts, charges or
claims of any type made against any money or other assets belonging to the
Trust, or which may be due
4
<PAGE>
and owing in connection with the Trust Estate. When directed in writing by the
Grantor, the Trustee shall satisfy approved claims out of any money belonging
to the Trust Estate, but the Grantor expressly reserves the right to satisfy
Trust debts with non-Trust assets.
(g) With the Grantor's express written approval and
indemnification, the Trustee shall compromise, settle, arbitrate or defend any
claim or demand in favor of or against the Trust Estate, and shall enter upon
such contracts and agreements and make such compromises of debts, claims or
controversies respecting the Trust Estate as Grantor shall direct by written
instructions to Trustee.
(h) Subject to the other provisions of this Agreement,
without the Trustee's express written consent, the Grantor may not assign,
pledge, hypothecate, encumber or otherwise transfer, directly or indirectly,
all or any part of its interest in the Trust, voluntarily or involuntarily. The
Trustee may withhold its consent to any assignment, pledge or other transfer of
Grantor's interest in the Trust for any reason, provided, however, that nothing
in this subsection 8(h) shall be construed to limit the Grantor's rights under
Section 7, the Trustee's duty to comply with written instructions of the
Grantor under this Section 8, or otherwise limit the Grantor's authority to
take actions with respect to the Trust Estate hereunder.
9. Limitation on Trustee's Duties.
(a) The Trustee shall perform only those duties as may be required
from time to time under the terms of this Agreement in connection with the
Trustee's holding of Student Loans that comprise the Trust Estate. The Trustee
shall have no obligation to the Grantor to administer, service or collect such
Student Loans or to maintain or monitor administration, servicing or collection
procedures followed in connection with such Student Loans, except insofar as
specific functions in that regard are required of the Trustee pursuant to the
express terms of Section 8 hereof and appropriate written instructions of the
Grantor if required by such Section 8. The Trustee shall not be required to
expend any of its own funds in connection with this Agreement or its duties
hereunder or under any related documents or agreements pertaining to the Trust
Estate.
(b) NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, NOTHING IN
THIS AGREEMENT SHALL BE CONSTRUED TO LIMIT THE TRUSTEE'S LEGAL RESPONSIBILITY
TO THE SECRETARY OF EDUCATION IN ITS CAPACITY AS TRUSTEE FOR ANY VIOLATIONS OF
STATUTORY OR REGULATORY REQUIREMENTS THAT MAY OCCUR WITH RESPECT TO STUDENT
LOANS IN THE
5
<PAGE>
PORTFOLIO, PURSUANT TO 34 CFR 682.203(b) OR ANY SUCCESSOR PROVISION THERETO.
THE TRUSTEE AGREES NOT TO DELAY PAYING ANY LIABILITY THE TRUSTEE OWES TO THE
SECRETARY BY REASON OF SUCH A VIOLATION FOR THE PURPOSE OF FIRST BEING
INDEMNIFIED BY THE GRANTOR FOR SUCH PAYMENT.
10. Compensation and Indemnification of Trustee. The
Trustee shall be entitled to reasonable compensation for all services rendered
by it in the execution of the Trust created hereunder and in the exercise and
performance of any of the powers and duties of the Trustee hereunder. Such
compensation shall be comprised of _______________________________. Such
compensation shall be paid 90 days following the end of each calendar quarter
pursuant to an invoice submitted by the Trustee to the Grantor not more than 20
days following the Trustee's receipt of a report as described in Section 15
hereof for such calendar quarter. The Trustee shall also be entitled to
reimbursement from the Grantor for all reasonable costs and out-of-pocket
expenses incurred by the Trustee. Such costs and expenses shall be billed to
the Grantor at the cost of the Trustee. Such expenses shall include all
expenses, disbursements and advances incurred or made by the Trustee in
accordance with the duties required under any of the provisions of this
Agreement (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
and those duties expressly required by law which may not be transferred to the
Grantor.
The Grantor hereby agrees to promptly indemnify the Trustee for, and
to hold it harmless against, any loss, liability, expense or advance incurred
or made without gross negligence or bad faith on the part of the Trustee,
including without limitation reasonable attorneys' fees, arising out of or in
connection with the acceptance or administration of the Trust pursuant hereto,
including without limitation, the servicing of the Portfolio by third-party
servicers pursuant to Section 4 above. Such indemnification by Grantor shall
survive the termination of this Agreement and/or the resignation of the Trustee
and shall include, without limitation, any loss, liability, expense or advance
incurred or made by the Trustee as a result of the acts or omissions of any
servicer in the origination or servicing of any of the Student Loans.
11. Resignation and removal of Trustee and appointment
of successor trustee.
(a) The Trustee may at any time resign by giving
written notice to the Grantor. Upon receiving such notice of resignation, the
Grantor shall promptly appoint a successor trustee by an instrument in writing.
If no successor trustee shall have been so appointed and have accepted
appointment within 180
6
<PAGE>
days after the giving of such notice of resignation, the Grantor shall have an
additional 60 days to secure a purchaser for the Trust Estate. If the Grantor
has not appointed a successor trustee or sold the Trust Estate within 240 days
after the Trustee has given its notice of resignation, the Trustee shall have
the authority to sell the Trust Estate to an eligible FFELP holder without any
further action by the Grantor.
(b) The Grantor may at any time remove the Trustee and
appoint a successor trustee by written instrument.
(c) Subject to the provisions of paragraph (a), any
resignation or removal of the Trustee and appointment of a successor trustee,
pursuant to any of the provisions of this section, shall become effective upon
the effective date of appointment by the successor trustee or the expiration of
the 240-day period described in paragraph (a), whichever is earlier.
12. Assignment; Corporate Changes in Trustee. Any bank,
corporation or other entity into which the Trustee may be merged or converted
or with which it may be consolidated; any bank, corporation or other entity
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party; and any bank, corporation or other entity to which the
Trustee's rights and obligations hereunder are assigned, shall be the Trustee
under this Agreement without any further act, provided the resulting bank,
corporation, assignee or other entity at all times meets the qualifications set
forth in Section 14 hereof. The Trustee's rights and obligations hereunder may
not be assigned to an entity that would not meet the qualifications set forth
in Section 14 hereof upon receipt of such assignment. The Trustee shall take
responsible steps to ensure that an entity that becomes a successor trustee
under this section meets the qualifications set forth in Section 14 at all
times during which such successor trustee holds legal title to the Student
Loans comprising the Portfolio. The Trustee shall use its best efforts to give
the Grantor at least 180 days' prior written notice of any corporate change
described in this section 12.
13. Termination. The Grantor may at any time, in
accordance with the provisions of Section 7 hereof, direct the Trustee to
distribute all of the assets then held in trust to the Grantor or such other
Person as the Grantor may designate in writing, and upon such distribution this
Agreement and the Trust created hereunder shall terminate. In addition, the
Trust shall terminate and dissolve at the earliest of the bankruptcy or the
dissolution of the Grantor. Upon termination of this Agreement, the Trustee
shall promptly refund to the Grantor a fraction of the fee paid pursuant to
Section 10 hereof for the year in which such
7
<PAGE>
termination takes effect, which fraction shall be equal to the portion of the
year for which such fees were paid that remains as of the effective date of
such termination.
14. Qualifications of Trustee and Successor Trustees.
The Trustee, and any successor trustee, shall at all times during which it
holds legal title to the Student Loans comprising the Portfolio maintain (a)
eligible lender status under the Act; (b) an eligible lender identification
number issued by the Secretary of Education; (c) at the written direction of
the Grantor, all Contracts of Guarantee with all Guarantors on loans as to
which it holds legal title in its capacity as Trustee hereunder; and (d) all
corporate powers and governmental licenses, authorizations, consents, and
approvals required for it to act as Trustee and hold legal title to the Student
Loans comprising the Portfolio.
15. Quarterly Reports to Trustee. Not later than 60
days following the end of each calendar quarter during the term hereof, the
Grantor shall provide to the Trustee a report setting forth the total dollar
amount of loan disbursements made or acquired for the Trust Estate during such
calendar quarter.
16. Governing law. This Trust Agreement shall be
governed by the laws of the State of Massachusetts.
17. Miscellaneous provisions. All covenants and
agreements herein and statements delivered pursuant hereto shall bind and inure
to the benefit of the parties hereto and their respective successors and
assigns. This agreement supersedes all previous agreements and understandings
between the parties with respect to the subject matter hereof. The Agreement
may only be changed, modified, or discharged, and any rights or obligations
hereunder may only be waived, by a written instrument signed by a duly
authorized officer of the party against whom enforcement of any such waiver,
change, modification or discharge is sought.
18. Notice. All communications, notices and approvals
provided for hereunder shall be in writing and personally delivered or mailed
by registered or certified mail, return receipt requested, to [Grantor address]
or [Trustee address], or at such other address as either party may hereafter
designate by notice to the other party. Notice given in any such communication
shall be deemed to have been given upon receipt.
8
<PAGE>
19. Partial Invalidity. Any provisions of this Trust
Agreement which are prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
20. Counterparts. This Trust Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Trust
Agreement on the day and year first above written.
---------------------------------------
By:
------------------------------------
Title:
---------------------------------
---------------------------------------
By:
------------------------------------
Title:
---------------------------------
9
<PAGE>
[WILLKIE FARR & GALLAGHER LETTERHEAD]
May 3, 1999
EFG Funding Corporation
495 Station Avenue
South Yarmouth, MA 02664
Re: EFG Funding Corporation
Registration Statement on Form S-3
Securities Act File No. 333-64009
---------------------------------
Ladies and Gentlemen:
We are counsel to EFG Funding Corporation, a Delaware corporation (the
"Registrant") in connection with the preparation and filing of a registration
statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933, as amended, relating to asset backed-notes ("Notes") and asset-backed
certificates ("Certificates", and together with Notes, "Securities"). Securities
will be issued from time to time in series, with each series to be issued by a
trust (each, a "Trust") pursuant to an indenture (each, an "Indenture") between
such Trust and an indenture trustee to be identified in the related prospectus
supplement for such series, or the trust agreement (each, a "Trust Agreement")
under which the Trust is formed between the Registrant and the trustee
thereunder. The Securities will be sold from time to time pursuant to an
underwriting agreement (each, an "Underwriting Agreement") between the
Registrant and the various underwriters named therein. Each Indenture, Trust
Agreement and Underwriting Agreement will be substantially in the form filed as
an exhibit to the Registration Statement.
In connection with rendering this opinion letter, we have examined the
forms of Indenture, Trust Agreement and Underwriting Agreement (collectively,
the "Operative Documents") filed with the Commission as exhibits to the
Registration Statement. We have examined such corporate records of the
Registrant as we have deemed relevant and necessary as a basis for the opinions
hereinafter expressed. As to matters of fact, we have examined and relied upon
representations or certifications of officers of the Registrant or public
officials. We have assumed the authenticity of all documents submitted to us of
natural persons and the conformity of the originals of all documents submitted
to us as copies. We have assumed that all parties (other than the Registrant)
had the corporate power and authority to enter and perform all obligations under
the related Operative Documents.
<PAGE>
In rendering this opinion letter, we express no opinion as to the laws
of any jurisdiction other than the laws of the State of New York and the federal
laws of the United States, nor do we express any opinion, either implicitly or
otherwise, on any issue not expressly addressed below. In rendering this opinion
letter, we have not passed upon and do not pass upon the application of the
"doing business" or securities laws of any jurisdiction. This opinion letter is
further subject to the qualification that enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, receivership, moratorium, reorganization or
other laws affecting the enforcement of the rights of creditors generally, and
(ii) general principals of equity, whether enforcement is sought in a proceeding
in equity or at law.
Based on the foregoing, we are of the opinion that:
1. Assuming due authorization of the Indenture relating to a series by
the related Trust and due authorization, execution and delivery thereof by the
related indenture trustee, such Indenture, when executed and delivered by such
indenture trustee, will constitute a valid and legally binding instrument of
such Trust.
2. When appropriate corporate action has been taken to authorize the
issuance of Notes relating to a series, the Operative Documents relating to such
series have been duly completed, executed and delivered by the parties thereto,
and such Notes have been duly completed, executed authenticated, sold and
delivered in the applicable form filed as an exhibit to the Registration
Statement, any amendment thereto, the Prospectus and any Prospectus Supplement
relating thereto, such Notes when sold, will be fully paid and non-assessable
and will be the legal, valid and binding obligations of the Trust, entitled to
the benefits of the Indenture.
3. The descriptions of federal income tax consequences appearing under
the heading "Material Federal Income Tax Consequences" in the Prospectus
contained in the Registration Statement, to the extent stated therein to
represent the opinions of this firm are, by this reference, adopted and
confirmed as our opinions.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement, and to the use of our name in the Prospectus
included in the Registration Statement under the headings "LEGAL MATTERS"
without admitting that we are "experts" within the meaning of the Act and the
rules and regulations thereunder with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
Exhibit 5.2
[Letterhead of Potter Anderson & Corroon LLP]
May 3, 1999
EFG Funding Corporation
495 Station Avenue
S. Yarmouth, Massachusetts 02664
Re: EFG Funding Corporation
Registration Statement on Form S-3
(Registration No. 333-64009)
----------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to EFG Funding Corporation, a
Delaware corporation (the "Registrant"), in connection with the above-captioned
Registration Statement (such registration statement together with the exhibits
and any amendments thereto, the "Registration Statement"), filed by the
Registrant with the Securities and Exchange Commission in connection with the
registration by the Seller of asset backed notes ("Notes") and asset backed
certificates ("Certificates" and, together with Notes, the "Securities").
As described in the Registration Statement, Notes and Certificates will
be issued from time to time in series, each series to be issued by a Delaware
business trust (each, a "Trust") to be formed by the Registrant pursuant to a
Trust Agreement (each, a "Trust Agreement") between the Registrant and the
trustee thereunder. With respect to each related Trust, Certificates may be
issued pursuant to the related Trust Agreement and Notes will be issued pursuant
to an Indenture (each, an "Indenture") between the related Trust and an
indenture trustee. Notes and Certificates of a related Trust will be sold from
time to time pursuant to an underwriting agreement (each, an "Underwriting
Agreement") between the Registrant and the various underwriters named therein.
<PAGE>
EFG Funding Corporation
May 3, 1999
Page 2
For purposes of giving the opinions hereinafter set forth, we have only
examined the Registration Statement and the following documents filed with the
Commission as part of the Registration Statement[, which are the only documents
we have deemed relevant and necessary as a basis for the opinions hereinafter
expressed]:
1. The form of Certificate of Trust for a Trust (the "Certificate of
Trust");
2. The form of the Trust Agreement for a Trust;
3. The form of the Indenture;
4. The form of Underwriting Agreement; and
5. The form of Servicing Agreement by and among the Trust, the
Registrant, the Servicer thereunder and the Eligible Lender Trustee thereunder.
The documents referred to in (1) through (5), are collectively referred
to as the "Agreements" and individually as an "Agreement." The documents
referred to in (2), (3) and (4) are collectively referred to as the "Transaction
Documents."
For purposes of this opinion, we have not reviewed any documents other
than the Registration Statement and the documents listed in (1) through (5)
above and have conducted no independent factual investigation of our own. In
particular, we have not reviewed any document (other than the documents listed
in (1) and (5) above) that is referred to or incorported by reference into the
documents reviewed by us. We have assumed that there exists no provision in any
document that we have not reviewed that is inconsistent with the opinions stated
herein.
As to certain facts material to the opinions expressed herein, we have
relied upon the representations and warranties contained in the documents
examined by us.
Based upon the foregoing, and upon an examination of such questions of
law of the State of Delaware as we have considered necessary or appropriate, and
subject to the assumptions, qualifications, limitations and exceptions set forth
herein, we are of the opinion that:
A. When and if (i) the Trust Agreement for the related Trust has been
duly authorized, executed and delivered by each of the Registrant and the
Trustee, respectively, (ii) the Certificate of Trust for the related Trust has
been duly authorized, executed and filed with the Secretary of State of Delware
by the related Trustee meeting the requirements of Section 3807 of the Business
Trust Statute, and (iii) the terms of the Certificates for the related Trust
have been duly fixed in accordance with the Transaction Documents, subject to
the other qualifications set forth herein, such Certificates will have been duly
authorized, and when the Certificates with the terms so fixed shall have been
duly executed and authenicated under the Transaction Documents and the
Registration Statement and otherwise issued and sold in
<PAGE>
EFG Funding Corporation
May 3, 1999
page 3
accordance with the Transaction Documents and the Registration Statement, and in
a manner consistent therewith, such Certificates will be validly issued, fully
paid and non-assessable beneficial interests of the related Trust.
B When and if (i) each of the actions referred to in paragraph A
above has occurred, (ii) the Indenture for the related Trust has
been duly authorized, executed and delivered by the related Trust
and the Indenture Trustee thereunder, respectively, and (iii) the
terms of the Notes have been duly fixed in accordance with the
Transaction Documents, subject to the other qualifications set
forth herein, the Notes will have been duly authorized, and when
the Notes with the terms so fixed shall have been duly executed
and authenticated under the Transaction Documents and the
Registration Statement and otherwise issued and sold in
accordance with the Transaction Documents and the Registration
Statement, and in a manner consistent therewith, such Notes will
be validly issued Notes of the related Trust.
All of the foregoing opinions contained herein are subject to the
following assumptions, qualifications, limitations and expectations:
a. The foregoing opinions are limited to the laws, rules,
regulations and orders of the State of Delaware presently in effect, excluding
the securities laws thereof. We have not considered and express no opinion on
the laws of any other jurisdiction, including, without limitation, federal laws
and rules and regulations relating thereto.
b. We have assumed the due execution and delivery by each
party listed as party to each document examined by us. We have assumed further
the due authorization by each party thereto of each document examined by us, and
that each of such parties (exclusive of the related Trust) has the full
corporate, or trust or banking, power, authority, and legal right to execute,
deliver and perform each such document. We also have assumed that each of the
parties to each of the Agreements is a corporation, bank, national banking
association or trust company, validly existing and in good standing under the
laws of their respective jurisdictions of organization and that the Agreements
to which they are a party do not result in the breach of the terms of, and do
not contravene their respective constituent documents, any contractual
restriction binding on them or any law, rule or regulation applicable to them.
In addition, we have assumed the legal capacity of any natural persons who are
parties to any of the documents examined by us.
c. We have assumed that once executed, each Certificate of
Trust and each Trust Agreement will constitute the entire agreement among the
parties thereto with respect to the subject matter thereof, including with
respect to the creation, operation, dissolution and winding up of the related
Trust.
d. We have assumed that no event set forth in Article 9 of a
Trust Agreement has occured to the same extent as if such Trust Agreement were
in effect on the date hereof.
<PAGE>
EFG Funding Corporation
May 3, 1999
Page 4
e. We have assumed the delivery to, and the payment by, the
purchasers of the Securities, all in accordance with the Agreements.
f. We have assumed that once executed, each of the Transaction
Documents will constitute the legal, valid, and binding obligations of
the respective parties thereto, enforceable against such parties,
respectively, in accordance with its terms.
g. We have assumed that the aggregate principal amount of the
Notes will not exceed the amounts set forth in Section 6.1 of the Trust
Agreement and Section 2.2 of the Indenture.
h. We have assumed that the Transaction Documents, if authorized,
executed and delivered for purposes of consummating the transactions
herein-above described, will be substantially in the form delivered to
us and made a part of the Registration Statement.
i. We note that we do not assume responsibility for the contents
of the Registration Statement.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not
thereby admit that we come within the category of Persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder. Except as stated above, without our prior written consent,
this opinion may not be furnished to, or quoted or relied upon by, any
other Person or entity for any purpose.
Very truly yours,
/s/ Potter Anderson Corroon
<PAGE>
Exhibit 25.1
Securities Act of 1933 File No. 333-50269
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------------------------------------------------
[FORM OF STATEMENT OF ELIGIBILITY]
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
PURSUANT TO SECTION 305(b)(2) [X]
--------------------------------------------------
[NAME OF TRUSTEE]
(Exact name of trustee as specified in its charter)
A National Banking Association [ ]
IRS Employer Identification No.)
[TRUSTEE ADDRESS]
(Address of Principal Executive Offices) (Zip Code)
[NAME OF TRUSTEE CONTACT PERSON] ]
Vice President
[NAME OF TRUSTEE]
[ADDRESS OF TRUSTEE]
(Name, address, and telephone number of agent for services)
EFG STUDENT LOAN TRUST, [SERIES]
BY [ ],
NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS
CO-OWNER TRUSTEE UNDER THE TRUST AGREEMENT
DATED AS OF___________,
(Exact name of obligor as specified in its charter)
DELAWARE APPLIED FOR
(State of Incorporation) (IRS Employer Identification No.)
[ADDRESS}
(Address of principal executive offices) (Zip Code)
EFG STUDENT LOAN TRUST STUDENT LOAN ASSET-BACKED NOTES
(Title of the Indenture securities)
1
<PAGE>
2
1. General Information. Furnish the following information as Trustee --
(a) Name and address of each examining or supervising authority to
which it is subject.
COMPTROLLER OF THE CURRENCY, WASHINGTON, D.C.
FEDERAL RESERVE BANK OF CLEVELAND, OHIO
FEDERAL DEPOSIT INSURANCE CORPORATION, WASHINGTON, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
THE TRUSTEE IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
2. Affiliations with obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
THE OBLIGOR IS NOT AN AFFILIATE OF THE TRUSTEE (INCLUDING
ITS PARENT AND ANY AFFILIATES).
3. Voting Securities of the trustee. Furnish the following information as
to each class of voting securities of the trustee (and its parent). As
of _____________ (insert date within 31 days)
Col A. Col B
(Title of Class) (Amount Outstanding)
4. Trusteeships under other Indentures. If the trustee is a trustee under
another Indenture under which any other securities, or certificates of interest
or participation in any other securities, of the obligor are outstanding,
furnish the following information:
(a) Title of the securities outstanding under each such other
indenture.
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section 310(b)(1) of
the Act arises as a result of the trusteeship under any such other indenture,
including a statement as to how the indenture securities will rank as compared
with the securities issued under such other indenture.
5. Interlocking directorates and similar relationships with the obligor or
underwriters. If the trustee (including its parent and any other affiliates) or
any of the directors or executive officers of the trustee is a director,
officer, partner, employee, appointee, or representative of the obligor or of
any underwriter for the obligor, identify each such person having any such
connection and state the nature of each such connection.
2
<PAGE>
3
6. Voting securities of the trustee (including its parent and any affiliate)
owned by the obligor or its officials. Furnish the following information as to
the voting securities of the trustee (including its parent and any affiliates)
owned beneficially by the obligor and each
director, partner and executive officer of the obligor:
As of _______________________ (insert date within 31 days)
Col. A. Col. B. Col. C Col. D
Percentage of
Voting securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
7. Voting securities of the trustee (including its parent and any
affiliates) owned by underwriters or their officials. Furnish the
following information as to the voting securities of the trustee
(including its parent and any affiliates) owned beneficially by each
underwriter for the obligor and each director, partner, and executive
officer of each such underwriter:
As of ___________________(insert date within 31 days)
Col. A. Col B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
8. Securities of the obligor owned or held by the trustee (including its
parent and any affiliates). Furnish the following information as to
securities of the obligor owned beneficially or held as collateral
security for obligations default by the trustee (including its parent
and any affiliates):
As of ___________________(insert date within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Whether the Percent of
Securities Are Collateral
Voting or Security for Class Represented
Nonvoting obligations in by Amount Given
Title of Class Securities Default in Col. C
3
<PAGE>
4
9. Securities of underwriters owned or held by the trustee (including its
parent and any affiliates). If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for obligations
in default any securities of an underwriter for the obligor, furnish the
following information as to each class of securities of such underwriter any of
which are so owned or held by the trustee:
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
10. Ownership or holdings by the trustee (including its parent and any
affiliates) of voting securities of certain affiliates or security holders of
the obligor. If the trustee (including its parent and any affiliates) owns
beneficially or holds as collateral security for obligations in default voting
securities of a person who, to the knowledge of the trustee (1) owns 10% or
more of the voting securities of the obligor or (2) is an affiliate, other than
a subsidiary, of the obligor, furnish the following information as to the
voting securities of such person: As of _______________________(insert date
within 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
11. Ownership or holdings by the trustee (including its parent and any
affiliates) of any securities of a person owning 50 percent or more of the
voting securities of the obligor. If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for obligations
in default any securities of a person who, to the knowledge of the trustee,
owns 50 percent or more of the voting securities of the obligor, furnish the
following information as to each class of securities of such person any of
which are so owned or held by the trustee (including its parent and
affiliates):
As of ______________________(insert date within 31 days)
4
<PAGE>
5
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
12. Indebtedness of the Obligor to the Trustee. Except as noted in the
instructions, if the obligor is indebted to the trustee, furnish the following
information:
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C
Nature of Amount
Indebtedness Outstanding Due Date
13. Defaults by the Obligor.
a) State whether there is or has been a default with respect to the securities
under this indenture. Explain the nature of any such default.
b) If the Trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series or securities under the indenture, state whether there has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
As of ____________________(insert date with 31 days)
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially
or Held as
Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
5
<PAGE>
6
14. Affiliations with the Underwriters.If any underwriter is an affiliate
of the trustee (including its parent and any affiliates), described
each such affiliation.
15. Foreign Trustee. Identify the order or rule pursuant to which the
foreign trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
16. List of Exhibits. List below all exhibits filed as part of this
statement of eligibility.
1. Office of the Comptroller of the Currency Amendment Letter
2. A copy of the Articles of Association of [NAME OF TRUSTEE], as now
in effect
3. A copy of the certificate of authority of [NAME OF TRUSTEEcommence
business dated [ ].
4. A copy of the authorization of [NAME OF TRUSTEE] to exercise
corporate trust powers.
5. A copy of existing By-Laws to [NAME OF TRUSTEE]
6. The consent of the Trustee required by section 321(b) of the
Trust Indenture Act of 1939.
7. A copy of the latest report of condition of [NAME OF TRUSTEE],
published pursuant to law or the requirements of its supervising or examining
authority.
6
<PAGE>
7
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, [NAME OF TRUSTEE, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of [ ] and State of [ ] on the DAY
OF , .
[NAME OF TRUSTEE]
By:
VICE PRESIDENT & TRUST OFFICER
<PAGE>
EXHIBIT 99.1
[FORM OF]
TRANSFER AGREEMENT
among
EFG STUDENT LOAN TRUST 1999-[ ]
as Issuer,
EFG FUNDING CORPORATION
as Transferor,
and
[ELIGIBLE LENDER TRUSTEE],
as trustee for the Transferor and the Issuer
not in its individual capacity but solely
as Eligible Lender Trustee
Dated as of _________ __, 1999
<PAGE>
TRANSFER AGREEMENT dated as of ______ __, 1999, is by and
between EFG STUDENT LOAN TRUST 1999-[ ], a Delaware trust (the "Issuer") and EFG
FUNDING CORPORATION, as transferor (the "Transferor" or "EFG Funding") and is
acknowledged and accepted by [ELIGIBLE LENDER TRUSTEE], [a national banking
association,] solely as eligible lender trustee for EFG Funding and the Issuer
and not in its individual capacity (the "Eligible Lender Trustee") and
[Indenture Trustee] not in its individual capacity but solely as Indenture
Trustee.
WHEREAS the Issuer desires to purchase from the Transferor a
portfolio of guaranteed and federally reinsured student loans originated under
the Higher Education Act of 1965, as amended and privately originated and
guaranteed student loans purchased in the ordinary course of business by the
Transferor from Educational Finance Group, Inc., a Delaware corporation ("EFG")
pursuant to a Loan Sale Agreement dated as of [________] by and among
EFG, as seller (the "Seller"), [EFG TRUSTEE], as the eligible lender trustee on
behalf of EFG, EFG Funding as purchaser (the "Purchaser") and the Eligible
Lender Trustee on behalf of EFG Funding and the Issuer;
WHEREAS the Transferor is willing to sell all beneficial
interest in such FFELP Loans to the Issuer and all legal and beneficial
interest in such Private Loans to the Issuer;
WHEREAS the Eligible Lender Trustee is willing to hold legal
title to, and serve as eligible lender trustee with respect to, such FFELP
Loans on behalf of the Issuer.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions and Usage
Capitalized terms used but not defined herein are defined in
Appendix A to the Administration Agreement, dated as of [_____ _, 1999], among
the Issuer, EFG, as Administrator, and [ ], as Indenture Trustee, which also
contains rules as to usage and construction that shall be applicable herein.
ARTICLE II.
Conveyance of Student Loans
SECTION 2.1. Conveyance of Initial Student Loans. (a) In
consideration of the Issuer's delivery to or upon the order of the Transferor
on the Closing Date of the net proceeds from the sale of the Notes and the
other amounts to be distributed from time to time to the Transferor in
accordance with the terms of this Agreement, the Transferor does hereby, as
evidenced by a duly executed Bill of Sale in the form of Exhibit A hereto,
sell, assign, and otherwise convey to the Issuer (i) all right, title and
interest in and to all beneficial interest in
<PAGE>
the Initial Student Loans that are FFELP Student Loans and all right, title and
interest in and to the Initial Student Loans that are Private Student Loans,
and all obligations of the Obligors thereunder, together with all documents,
the related Student Loan Files and all rights and privileges relating thereto,
(ii) all rights and remedies of EFG Funding as purchaser under the Loan Sale
Agreement against the Seller and the EFG Trustee with respect to the Initial
Student Loans, (iii) all payments on or collections received thereunder on and
after the Cutoff Date; (iv) all of its right, title and interest in all funds
on deposit from time to time in the Trust Accounts, including the Reserve
Account Initial Deposit, and in all investments and proceeds thereof (including
all income thereon); and (v) all proceeds of any and all of the foregoing.
(b) In connection with the sale and assignment
of Student Loans to the Issuer on the Closing Date, the Transferor shall
deposit the Reserve Account Initial Deposit into the Reserve Account.
(c) On the Closing Date, the Transferor will
deposit, or cause to be deposited, into the Collection Account all amounts or
collections received under the Initial Student Loans on and after the Cutoff
Date.
{SECTION 2.2. Conveyance of New Loans and Serial Loans to the
Eligible Lender Trustee on Behalf of the Trust. (a) Subject to the conditions
set forth in paragraph (d) below, in consideration of the Issuer's delivery on
the related Transfer Date to or upon the order of the Transferor of the Loan
Purchase Amount for each such New Loan or Serial Loan to be delivered to the
Transferor, the Transferor does hereby sell, transfer, assign, set over and
otherwise convey to the Issuer (i) all right, title and interest of all of the
beneficial interest of the Transferor in and to each New Loan and Serial Loan
and all obligations of the Obligors thereunder, together with all documents,
the related Student Loan Files and all rights and privileges relating thereto,
(ii) all rights and remedies of EFG Funding as purchaser under the Loan Sale
Agreement against the Seller and the EFG Trustee with respect to each such New
Loan and Serial Loan, (iii) all payments on or collections received thereunder
on and after the related Subsequent Cutoff Date and (iv) all proceeds of any
and all of the foregoing.
(b) During the Revolving Period, upon the
tender of New Loans or Serial Loans by the Transferor on the related Transfer
Date and the satisfaction of the conditions set forth in subsection (c) of this
Section 2.2, the Transferor will so inform the Administrator and the Indenture
Trustee, and the Loan Purchase Amounts for such New Loans or Serial Loans will
be withdrawn from the Collateral Reinvestment Account, subject to the
provisions of Section 2(f) of the Administration Agreement, and will be
remitted to or upon the order of the Transferor. The Transferor covenants to
transfer, or cause to be transferred, during the Revolving Period to the
Eligible Lender Trustee on behalf of the Issuer pursuant to paragraph (a) above
New Loans or Serial Loans with an aggregate principal balance substantially
equal to the amount on deposit in the Collateral Reinvestment Account;
provided, however, that the Transferor shall have no liability for a breach of
the foregoing covenant as a result of the Transferor not having originated or
acquired, or having caused to be originated or acquired, during the Revolving
Period New Loans or Serial Loans equal to the amount specified above. Such
transfers shall be made at such times during the Revolving Period as the
2
<PAGE>
Transferor may determine in its discretion, subject to the requirement that the
Transferor shall make such transfers to the extent New Loans and Serial Loans
are available to the Transferor under the Loan Sale Agreement at least as
frequently as is necessary to avoid the occurrence of an Early Amortization
Event.
(c) After the Revolving Period, upon the tender
of Serial Loans by the Transferor on the related Transfer Date and the
satisfaction of the conditions set forth in subsection (c) of this Section 2.2,
the Trustee will so inform the Administrator and the Indenture Trustee, and
that component of the Loan Purchase Amount for such Serial Loans represented by
the Purchase Collateral Balance thereof will be withdrawn from amounts on
deposit in the Collection Account, as provided in Section 2(d) of the
Administration Agreement, and will be remitted, as provided therein to or upon
the order of the Transferor or, alternatively, at the sole discretion of the
Transferor, the Transferor may determine that the Purchase Collateral Balance
due on the related Transfer Date for any Serial Loans then to be transferred
shall be paid by the Issuer's exchanging with the Transferor one or more
Exchanged Student Loans held by the Issuer for such Serial Loans (with, in any
event, the component of the Loan Purchase Amount represented by the Purchase
Premium Amounts being payable on a deferred basis pursuant to the final
sentence of this paragraph). In the event Exchanged Student Loans are to be so
used (i) the decision by the Issuer as to which of those Student Loans then
held by the Issuer that meet the criteria for Exchanged Student Loans are to be
selected for such exchange shall be subject to the sole discretion of the
Trustee, provided that the Trustee shall not select for such purpose any
Student Loan that has the same Borrower as any other Student Loan unless all of
the Student Loans of such Borrower are to be exchanged, (ii) with respect to
any Serial Loan to be delivered on a Transfer Date, only a Student Loan that is
an Exchanged Student Loan with respect to such Serial Loan shall be counted
toward the Purchase Collateral Balance for such Serial Loan and (iii) in the
event that, with respect to any Purchase Collateral Balance due on the related
Transfer Date, the aggregate principal amount (plus accrued borrower interest
thereon if and to the extent that such interest is not then payable and will,
pursuant to the term of such loan, be capitalized and added to the principal
balance of such loan), as of the related Subsequent Cutoff Date, of the
Exchanged Student Loan or Loans being remitted on such Transfer Date in
satisfaction of such Purchase Collateral Balance is less than such amount due,
the Issuer shall remit funds to cover such difference from amounts on deposit
in the Collection Account as provided in Section 2(d) of the Administration
Agreement. Any Purchase Premium Amounts for Serial Loans conveyed to the Issuer
after the Revolving Period will be payable on Quarterly Payment Dates out of
Reserve Account Excess pursuant to Section 2(e) of the Administration Agreement
and such Purchase Premium Amounts will accrue no interest or yield but will be
paid on each Quarterly Payment Date to the extent such excess is available in
the aggregate amount of such premiums incurred but unpaid up to the end of the
related Collection Period.
(d) The Transferor shall transfer, or cause to
be transferred, to the Issuer the New Loans and Serial Loans for a given
Transfer Date and the other property and rights related thereto described in
paragraph (a) above only upon the satisfaction of each of the following
conditions on or prior to such Transfer Date:
3
<PAGE>
(i) the Transferor shall have delivered to the
Trustee and the Indenture Trustee a duly executed written assignment
(including an acceptance by the Trustee, the Eligible Lender Trustee
(in the case of FFELP Student Loans) and the Indenture Trustee) in
substantially the form of Exhibit B hereto (each, a "Subsequent
Transfer Agreement"), which shall include supplements to Schedule A
hereto, listing such New Loans and Serial Loans;
(ii) the Transferor shall have delivered, at least
two days prior to such Transfer Date, notice of such transfer to the
Trustee, the Eligible Lender Trustee, the Indenture Trustee and the
Rating Agencies, including a listing of the designation and the
aggregate principal balance of such New Loans and Serial Loans;
(iii) the Transferor shall have deposited in the
Collection Account all amounts on or collections received in respect
of the New Loans and Serial Loans on and after each applicable
Subsequent Cutoff Date;
(iv) as of the Transfer Date, the Transferor was not
insolvent nor will it have been made insolvent by such transfer nor is
it aware of any pending insolvency;
(v) such addition will not result in a material
adverse Federal or State tax consequence to the Issuer or the
Noteholders;
(vi) the Transferor shall have delivered to the
Trustee, the Indenture Trustee and the Eligible Lender Trustee an
Officers' Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (d);
(vii) the Transferor shall have delivered to the
Issuer and the Indenture Trustee the Opinion of Counsel as required by
Section 6.2(e)(1) hereof; provided that, notwithstanding the
foregoing, no opinion shall be required if the Revolving Period has
terminated,
(viii) with respect to any New Loan which is
guaranteed by an Additional Guarantor that is a Federal Guarantor,
such Additional Guarantor shall have entered into a Guarantee
Agreement with the Eligible Lender Trustee which guarantees such New
Loan in substantially the form of the Guarantee Agreements between the
Initial Guarantors that are Federal Guarantors and the Eligible Lender
Trustee;
(ix) the Transferor shall have taken any action
required to maintain the first perfected ownership interest of the
Issuer in the Trust Estate and the first perfected security interest
of the Indenture Trustee in the Collateral;
(x) no selection procedures believed by the
Transferor to be adverse to the interests of the Noteholders shall
have been utilized in selecting the New Loans or the Serial Loans;
4
<PAGE>
(xi) no Event of Default shall have occurred under
the Indenture, no Servicer Default shall have occurred under the
Servicing Agreement and no Administrator Default shall have occurred
under the Administration Agreement; and
(xii) for each Transfer Date occurring after the
Revolving Period, after giving effect to the conveyance of Serial
Loans on such Transfer Date, the amount of funds remitted for the
purchase of Serial Loans on such Transfer Date, and on each Transfer
Date since the preceding Quarterly Payment Date, shall not exceed the
Net Principal Cash Flow Amount for such Transfer Date minus the sum of
(i) all amounts paid to prepay any Add-on Consolidation Loan not held
by the Issuer since the last Quarterly Payment Date pursuant to
Section 2(d)(iii)(A) of the Administration Agreement and (ii) all
amounts which the Administrator reasonably estimates will be required
to prepay Add-on Consolidation Loans pursuant to Section 2(d)(iii)(A)
of the Administration Agreement during the remainder of the Collection
Period.
provided, however, that the Transferor shall not incur any
liability as a result of transferring Serial Loans on any Transfer Date at a
time when the condition set forth in clause (v) was not satisfied, if at the
time of such transfer the Authorized Officers of the Transferor, after
reasonable inquiry of counsel to the Transferor, were not aware of any fact
that would reasonably suggest that such condition would not be satisfied as of
such date.}
SECTION 2.3. Treatment as a Security Agreement. The parties
intend that the conveyance of the Transferor's (right, title and interest in
and to the beneficial interest in the Initial Student Loans that are FFELP
Student Loans and the legal and beneficial interest in the Initial Student
Loans that are Private Student Loans pursuant to this Agreement {and any New
Loans and Serial Loans pursuant to a related Subsequent Transfer Agreement}
shall constitute a valid purchase and sale and not a loan. If such conveyance
is deemed to be a loan and not a sale, then the parties also intend and agree
that the Transferor shall be deemed to have granted, and in such event do
hereby grant to the Issuer, a first priority security interest in all of the
Transferor's right, title and interest in, to and under the Initial Student
Loans {and any New Loans or Serial Loans} and the other items specified in
Sections 2.1 {and 2.2,} and that this Agreement (with respect to the Initial
Student Loans) {and any applicable Subsequent Transfer Agreement (with respect
to the New Loans or Serial Loans conveyed thereby)} shall each constitute a
security agreement under applicable law with respect to such loans. If such
conveyance is deemed to be a loan and not a sale, the Issuer may, to secure the
Issuer's own borrowings under the Indenture, repledge all or any portion of
such loans and the other items specified in Sections 2.1 {and 2.2 hereof}
pledged to the Issuer and not released from the security interest of this
Agreement at the time of such pledge. Such a repledge may be made by the Issuer
with or without a repledge by the Issuer of its rights under this Agreement,
and without further notice to or acknowledgment from the Transferor. The
Transferor waives, to the extent permitted by applicable law, all claims,
causes of action and remedies whether legal or equitable (including any rights
of set-off) against the Issuer or any assignee of the Issuer relating to such
action by the Issuer in connection with the transactions contemplated by this
Agreement, {each Transfer Agreement,} the Trust Agreement and the Indenture.
5
<PAGE>
SECTION 2.4. Endorsement. The Transferor hereby appoints each
of the Issuer and the Indenture Trustee as the Transferor's true and lawful
attorney-in-fact with full power of substitution to endorse the Transferor's
name on any promissory note evidencing the Initial Student Loans {and any New
Loans or Serial Loans} transferred to the Issuer pursuant to Sections 2.1 {and
2.2.} The Transferor acknowledges and agrees that this power of attorney shall
be construed as a power coupled with an interest, shall be irrevocable as long
as the Trust Agreement remains in effect and shall continue in effect until the
Trust Agreement terminates.
ARTICLE III.
The Student Loans
SECTION 3.1. Representations and Warranties of Transferor
with Respect to the Student Loans. The Transferor makes no representations and
warranties with respect to the Student Loans. The Transferor hereby transfers
and assigns each of the representations and warranties made by the Seller
pursuant to Section 3.1 of the Loan Sale Agreement with respect to the Student
Loans and each of the remedies provided to the Purchaser under section 3.2 of
the Loan Sale Agreement.
SECTION 3.2. Substitution. The Transferor shall have the
right but not the obligation to substitute a Qualified Student Loan for any
Student Loan. With respect to each Qualified Substitute Student Loan, the
Transferor shall deliver to the Eligible Lender Trustee (in the case of FFELP
Student Loans) and the Trustee (in the case of Private Student Loans) for the
benefit of the Noteholders such documents and agreements together with a duly
executed Assignment in the form of Exhibit F hereto. No substitution is
permitted to be made during the period beginning on the day after each
Determination Date and ending on the last day of the calendar month of such
Determination Date. Payments due with respect to Qualified Substitute Student
Loans shall be part of the Trust Estate on and after the date of such
Assignment. Upon such substitution, the Qualified Substitute Student Loan or
Loans shall be subject to the terms of this Agreement in all respects, and the
Transferor shall be deemed to have made with respect to such Qualified
Substitute Student Loan or Loans, as of the date of substitution, the
representations and warranties made pursuant to Section 3.1 with respect to any
such Student Loan. In addition, any such substitution shall occur only upon
satisfaction of each of the following conditions on or prior to the date of the
related Assignment:
(i) the Transferor shall have deposited in the
Collection Account all collections in respect of the Qualified
Substitute Student Loans on and after each applicable date of
Assignment;
(ii) as of the date of the related Assignment, the
Transferor shall not have been insolvent nor will it have been made
insolvent by such transfer nor is it aware of any pending insolvency;
6
<PAGE>
(iii) such addition will not result in a material
adverse Federal or State tax consequence to the Issuer or the
Noteholders;
(iv) the Transferor shall have delivered to the
Trustee, the Eligible Lender Trustee and the Indenture Trustee, the
Opinion of Counsel required by Section 6.2(e)(1) hereof; provided that
no opinion shall be required under this subsection (iv) unless the
Transferor, the Issuer or the Indenture Trustee determines that, with
regard to the most recent opinion on the matters described in either
such subclause that was delivered with respect to the Student Loans
(whether on the Closing Date or thereafter under this subsection or
under another provision of the Basic Documents), the conclusion of, or
the reasoning underlying, such opinion is no longer correct in all
material respects due to a change in law or regulations or the ruling
of a court, an administrative tribunal or a regulatory or other
governmental authority; upon making any such determination, whichever
of the Transferor, Issuer and the Indenture Trustee makes such
determination shall notify the others and the Rating Agencies; and
provided, further, that none of the Issuer or the Indenture Trustee
shall have any obligation to monitor changes in laws or regulations or
the rulings of courts or other governmental agencies for the purpose
of making any determination described in this clause (iv);
(v) the Transferor shall have taken any action
required to maintain the first perfected ownership interest of the
Issuer in the Trust Estate and the first perfected security interest
of the Indenture Trustee in the Collateral;
(vi) no selection procedures believed by the
Transferor to be adverse to the interests of the Noteholders shall
have been utilized in selecting the Qualified Substitute Student
Loans; and
(vii) no Event of Default shall have occurred under
the Indenture, no Servicer Default shall have occurred under the
Servicing Agreement and no Administrator Default shall have occurred
under the Administration Agreement.
Upon any such substitution and the deposit to the Collection
Account of the amount required to be deposited therein in connection with such
substitution as described in the following paragraph, the Issuer shall release
any documentation held with respect to the Financed Student Loan being
substituted for (the "Deleted Student Loan") to the Transferor and shall
execute and deliver at the Transferor's direction such instruments of transfer
or assignment prepared by the Transferor, in each case without recourse, as
shall be necessary to vest in the Transferor's interest in any Deleted Student
Loan substituted for pursuant to this Section 3.2.
For any month in which the Transferor substitutes one or more
Qualified Substitute Student Loans for one or more Deleted Student Loans, the
Servicer will determine the amount (if any) by which as of the date of the
relevant Assignment the aggregate principal balance of all such Qualified
Substitute Student Loans is less than the aggregate principal balance of all
such Deleted Student Loans. The amount of such shortage (the "Substitution
7
<PAGE>
Adjustment Amount") shall be deposited in the Collection Account by the
Transferor on or before the date of the relevant Assignment.
SECTION 3.3. Repurchase Deposits. The Transferor shall
deposit or cause to be deposited in the Collection Account the aggregate
Purchase Amount with respect to Purchased Student Loans and all other amounts
to be paid by the Transferor under Section 3.3 and Section 5.1 when such
amounts are due.
SECTION 3.4. Optional Purchase by Transferor. [From time to
time the Transferor, or an assignee of the Transferor, may at its option
purchase from the Trust, as of the end of any Monthly Collection Period
immediately preceding a Monthly Payment Date, one or more Student Loans that
are to be refinanced by Federal Consolidation Loans. Such Student Loans shall
be purchased at a price equal to the aggregate Purchase Amounts thereof as of
the end of such Monthly Collection Period. The purchase price of the Student
Loans may be paid in cash or by delivery of a promissory note of the Transferor
secured by and payable solely from the Student Loans, including the amounts
received upon prepayment of the Student Loans with proceeds of the Federal
Consolidation Loans. If such amounts, together with other funds of the
Transferor, are not sufficient to retire the Transferor's note within three (3)
Business Days of release of the Student Loans, the Student Loans shall be
redeposited in the Trust and the note cancelled. Any such promissory note shall
bear interest at a rate that is equal to the yield on the Student Loans
purchased by the Transferor.]
ARTICLE IV.
The Transferor
SECTION 4.1. Representations of Transferor. The Transferor
makes each of the representations and warranties as set forth in Exhibit D
hereto. Such representations speak as of the execution and delivery of this
Agreement and as of the Closing Date in the case of the Initial Student Loans,
{as of the applicable Transfer Date in the case of the New Loans and the Serial
Loans,} as of the date of the relevant Assignment in the case of any Qualified
Substitute Student Loan, and, in the case of the Transferor, {as of the date of
origination in the case of any Consolidation Loan added to the Issuer during
the Revolving Period and as of the applicable Add-on Consolidation Loan Funding
Date, in the case of a Consolidation Loan the principal balance of which is
increased by the principal balance of any related Add-on Consolidation Loan,}
but shall survive the sale, transfer and assignment of the Student Loans to the
Eligible Lender Trustee and/or the Trustee on behalf of the Issuer {(and both
the origination of such Consolidation Loans and the addition of the principal
balance of any Add-on Consolidation Loan)} and the pledge thereof to the
Indenture Trustee pursuant to the Indenture.
SECTION 4.2. Existence. During the term of this Agreement,
the Transferor will keep in full force and effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
organization and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be
8
<PAGE>
necessary to protect the validity and enforceability of this Agreement, the
other Basic Documents and each other instrument or agreement necessary or
appropriate to the proper administration of this Agreement and the transactions
contemplated hereby. In addition, all transactions between the Transferor and
its Affiliates will be conducted on an arm's-length basis. For so long, during
the term of this Agreement, as the Transferor shall not be an eligible lender
under the Higher Education Act with respect to federal Student Loans, the
Transferor agrees to keep in full force and effect an agreement with the
Eligible Lender Trustee or another eligible lender under the Higher Education
Act providing for such eligible lender meeting the requirements set forth in
the following sentence to hold title to the Transferor's Student Loans in trust
for and on behalf of the Transferor. The Transferor shall not convey any New
Loan, Serial Loan or Qualified Substitute Student Loan if the eligible lender
holding legal title to such loan is other than the Eligible Lender Trustee
unless, prior to such conveyance, such other eligible lender shall agree in
writing to be bound, in the conveyance of each such loan for which it acts as
eligible lender, by the provisions of this Agreement that are applicable to the
Eligible Lender Trustee, to the same extent as if it were named separately as
the Eligible Lender Trustee in each of such provisions.
SECTION 4.3. Liability of Transferor; Indemnities. The
Transferor shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Transferor under this Agreement.
(a) The Transferor shall indemnify, defend and hold
harmless the Issuer, the Trustee, the Eligible Lender Trustee and the
Indenture Trustee and their officers, directors, employees and agents
from and against any taxes that may at any time be asserted against
any such Person with respect to the transactions contemplated herein
and in the other Basic Documents (except any such income taxes arising
out of fees paid to the Trustee, Eligible Lender Trustee or the
Indenture Trustee), including any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes
(but, in the case of the Issuer, not including the issuance and
original sale of the Notes, or asserted with respect to ownership of
the Student Loans or Federal or other income taxes arising out of
payments on the Notes) and costs and expenses in defending against the
same.
(b) The Transferor shall indemnify, defend and hold
harmless the Issuer, the Trustee, the Eligible Lender Trustee, the
Indenture Trustee and the Noteholders and the officers, directors,
employees and agents of the Issuer, the Trustee, the Eligible Lender
Trustee and the Indenture Trustee from and against any and all costs,
expenses, losses, claims, damages and liabilities arising out of, or
imposed upon such Person through, (i) the Transferor's willful
misfeasance, bad faith or negligence in the performance of its duties
under this Agreement, or by reason of reckless disregard of its
obligations and duties under this Agreement and (ii) the Transferor's
or the Issuer's violation of Federal or state securities laws in
connection with the offering and sale of the Notes.
9
<PAGE>
(c) The Transferor shall be liable as primary
obligor for, and shall indemnify, defend and hold harmless the Trustee
and the Eligible Lender Trustee and either party's officers,
directors, employees and agents from and against, all costs, expenses,
losses, claims, damages, obligations and liabilities arising out of,
incurred in connection with or relating to the Trust Agreement, the
other Basic Documents, the Trust Estate, the acceptance or performance
of the trusts and duties set forth herein and in the Trust Agreement
or the action or the inaction of the Trustee or the Eligible Lender
Trustee hereunder and under the Trust Agreement or the Eligible Lender
Trust Agreement, as the case may be, except to the extent that such
cost, expense, loss, claim damage, obligation or liability: (i) shall
be due to the willful misfeasance, bad faith or negligence (except for
errors in judgment) of the Trustee or the Eligible Lender Trustee,
(ii) shall arise from any breach by the Trustee or the Eligible Lender
Trustee of its covenants under any of the Basic Documents; or (iii)
shall arise from the breach by the Trustee or the Eligible Lender
Trustee of any of its representations or warranties set forth in
Section 7.3 of the Trust Agreement. In the event of any claim, action
or proceeding for which indemnity will be sought pursuant to this
paragraph, the Trustee's or the Eligible Lender Trustee's choice of
legal counsel shall be subject to the approval of the Transferor,
which approval shall not be unreasonably withheld.
(d) The Transferor shall pay any and all taxes
levied or assessed upon all or any part of the Trust Estate (other
than those taxes expressly excluded from the Transferor's
responsibilities pursuant to the parentheticals in paragraph (a)
above).
Indemnification under this Section shall survive the
resignation or removal of the Trustee or the Eligible Lender Trustee or the
Indenture Trustee and the termination of this Agreement, the Eligible Lender
Trust Agreement, the Indenture or the Trust Agreement, as applicable, and shall
include reasonable fees and expenses of counsel and expenses of litigation. If
the Transferor shall have made any indemnity payments pursuant to this Section
and the Person to or on behalf of whom such payments are made thereafter shall
collect any of such amounts from others, such Person shall promptly repay such
amounts to the Transferor, without interest.
SECTION 4.4. Merger or Consolidation of, or Assumption of the
Obligations of the Transferor. Any person (a) into which the Transferor may be
merged or consolidated, (b) which may result from any merger or consolidation
to which the Transferor shall be a party or (c) which may succeed to the
properties and assets of the Transferor substantially as a whole, shall be the
successor to the Transferor without the execution or filing of any document or
any further act by any of the parties to this Agreement; provided, however,
that the Transferor hereby covenants that it will not consummate any of the
foregoing transactions except upon satisfaction of the following: (i) the
surviving Transferor, executes an agreement of assumption to perform every
obligation of the Transferor under this Agreement, (ii) immediately after
giving effect to such transaction, no representation or warranty made pursuant
to Section 3.1 or 4.1 shall have been breached and no Servicer Default, Event
of Default or Administrator Default and no event that, after notice or lapse of
time, or both, would become a Servicer Default, Event of Default or
Administrative Default
10
<PAGE>
shall have occurred and be continuing, (iii) the Transferor shall have
delivered to the Trustee, the Eligible Lender Trustee and the Indenture Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply
with this Section and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, and that
the Rating Agency Condition shall have been satisfied with respect to such
transaction, (iv) such transaction will not result in a material adverse
Federal or state tax consequence to the Issuer or the Noteholders and (v)
unless EFG Funding is the surviving entity, the Transferor shall have delivered
to the Trustee, the Eligible Lender Trustee and the Indenture Trustee an
Opinion of Counsel either (A) stating that, in the opinion of such counsel, all
financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary fully to preserve and protect the
interest of the Issuer and Indenture Trustee, respectively, in the Student
Loans and reciting the details of such filings, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interests.
SECTION 4.5. Limitation on Liabilities of Transferor,
Trustee, Eligible Lender Trustee and Others. The Transferor, the Trustee, the
Eligible Lender Trustee and any director or officer or employee or agent of the
Transferor, the Trustee or the Eligible Lender Trustee may rely in good faith
on the advice of counsel or on any document of any kind, prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
None of the Transferor, the Trustee or the Eligible Lender Trustee shall be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its respective obligations under this Agreement, and
that in its opinion may involve it in any expense or liability.
SECTION 4.6. Transferor, Trustee and Eligible Lender Trustee
may Own Notes. The Transferor, the Trustee, the Eligible Lender Trustee and any
Affiliate of any of them may in its individual or any other capacity become the
owner or pledgee of Notes with the same rights as it would have if it were not
the Transferor, the Trustee or the Eligible Lender Trustee as the case may be
or an Affiliate of any of them, except as expressly provided herein or in any
other Basic Document.
ARTICLE V.
Termination
SECTION 5.1. Termination. (a) Optional Purchase of All
Financed Student Loans. As of the last day of any Collection Period immediately
preceding a Quarterly Payment Date as of which the then outstanding Pool
Balance is [5%] or less of the initial aggregate principal balance of the
Notes, the Transferor or its designee shall have the option to purchase the
Trust Estate, other than the Trust Accounts. To exercise such option, the
Transferor or its designee shall deposit in the Collection Account an amount
equal to the aggregate Purchase Amount for the Student Loans and the related
rights with respect thereto, plus the appraised value of any such other
property held by the Issuer other than the Trust
11
<PAGE>
Accounts, such value to be determined by an appraiser mutually agreed upon by
the Servicer, the Trustee and the Indenture Trustee, and shall succeed to all
interests in and to the Trust; provided, however, that the Transferor or its
designee may not effect such purchase if the aggregate Purchase Amount to be so
deposited in the Collection Account does not equal or exceed an amount equal to
the unpaid principal balance of the Notes, plus accrued and unpaid interest
thereon at the applicable Note Rate to the date of exercise, and the amount of
unpaid Senior Noteholders' Interest T-Bill Carryover and Subordinate
Noteholders' Interest T-Bill Carryover.
ARTICLE VI.
Miscellaneous
SECTION 6.1. Amendment. This Agreement may be amended by the
Transferor, the Issuer and the Eligible Lender Trustee, with the consent of the
Indenture Trustee, but without the consent of any of the Noteholders, to cure
any ambiguity, to correct or supplement any provisions in this Agreement or for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions in this Agreement or of modifying in any
manner the rights of the Noteholders; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel delivered to the Trustee, the
Eligible Lender Trustee and the Indenture Trustee, adversely affect in any
material respect the interests of any Noteholder.
This Agreement may also be amended from time to time by the
Transferor, the Trustee and the Eligible Lender Trustee, with the consent of
the Indenture Trustee and the Noteholders of Notes evidencing not less than a
majority of the Outstanding Amount of the Notes, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments with respect to Financed Student Loans or distributions that shall be
required to be made for the benefit of the Noteholders or (b) reduce the
aforesaid percentage of the Outstanding Amount of the Notes, the Noteholders of
which are required to consent to any such amendment, without the consent of all
outstanding Noteholders.
Promptly after the execution of any such amendment or consent
(or, in the case of the Rating Agencies, five Business Days prior thereto), the
Trustee shall furnish written notification of the substance of such amendment
or consent to the Transferor, the Administrator, each Noteholder, the Indenture
Trustee, the Servicer and each of the Rating Agencies.
It shall not be necessary for the consent of Noteholders
pursuant to this Section to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof.
12
<PAGE>
Prior to the execution of any amendment to this Agreement,
the Trustee, the Eligible Lender Trustee and the Indenture Trustee shall
receive upon request and rely upon an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement and
the Opinion of Counsel referred to in Section 6.2(e). The Trustee, the Eligible
Lender Trustee and the Indenture Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's, the Eligible Lender
Trustee's or the Indenture Trustee's, as applicable, own rights, duties or
immunities under this Agreement or otherwise.
SECTION 6.2. Protection of Interests in Trust. (a) Each of
the Transferor and the Issuer shall execute and file such financing statements
and cause to be executed and filed such continuation statements, all in such
manner and in such places as may be required by law fully to preserve,
maintain, and protect the interest of the Issuer, the Indenture Trustee in the
Financed Student Loans and in the proceeds thereof. Each of the Transferor and
the Issuer shall deliver (or cause to be delivered) to the Indenture Trustee
file-stamped copies of, or filing receipts for, any document filed as provided
above, as soon as available following such filing.
(b) None of the Transferor, the Trustee or
Eligible Lender Trustee shall change its name, identity or corporate structure
in any manner that would, could, or might make any financing statement or
continuation statement filed in accordance with paragraph (a) above seriously
misleading within the meaning of ss.9-402(7) of the UCC, unless it shall have
given the Issuer and the Indenture Trustee at least five (5) days' prior
written notice thereof and shall have promptly filed appropriate amendments to
all previously filed financing statements or continuation statements.
(c) Each of the Transferor and Issuer shall
have an obligation to give the Eligible Lender Trustee, the Indenture Trustee
and the Rating Agencies at least sixty (60) days prior written notice of any
relocation of its principal executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of
any amendment of any previously filed financing or continuation statement or of
any new financing statement and shall promptly file any such amendment.
(d) If at any time the Transferor shall propose to
sell, grant a security interest in, or otherwise transfer any interest in
student loans to any prospective purchaser, lender or other transferee, the
Transferor shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Student
Loan, shall indicate clearly that such Student Loan has been sold and is owned
by the Issuer and has been pledged to the Indenture Trustee.
(e) The Transferor shall, to the extent
required by applicable law, cause the Notes to be registered with the
Commission pursuant to Section 12(b) or Section 12(g) of the Exchange Act
within the time periods specified in such sections.
13
<PAGE>
(f) The Transferor shall deliver to the Trustee and
the Indenture Trustee:
(1) promptly after the execution and delivery of
this Agreement and of each amendment thereto, on each
Transfer Date as set forth in Section 2.2 and on the date of
each Assignment as set forth in Section 3.2, an Opinion of
Counsel either (A) stating that, in the opinion of such
counsel, all financing statements and continuation statements
have been executed and filed that are necessary fully to
preserve and protect the interest of the Trustee and the
Indenture Trustee in the Student Loans, and reciting the
details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (B) stating that,
in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest; and
(2) within 120 days after the beginning of each
calendar year beginning with the first calendar year
beginning more than three months after the Cutoff Date, an
Opinion of Counsel, dated as of a date during such 120-day
period, either (A) stating that, in the opinion of such
counsel, all financing statements and continuation statements
have been executed and filed that are necessary fully to
preserve and protect the interest of the Trustee and the
Indenture Trustee in the Student Loans, and reciting the
details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (B) stating that,
in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest; provided
that a single Opinion of Counsel may be delivered in
satisfaction of the foregoing requirement and that of Section
3.6(b) of the Indenture.
Each Opinion of Counsel referred to in clause (1) or (2)
above shall specify (as of the date of such opinion and given all applicable
laws as in effect on such date) any action necessary to be taken in the
following year to preserve and protect such interest.
SECTION 6.3. Notices. Unless otherwise agreed by the
recipient, all demands, notices and communications upon or to the Transferor,
the Servicer, the Issuer, the Trustee, the Eligible Lender Trustee, the
Indenture Trustee, the Administrator or the Rating Agencies under this
Agreement shall be in writing, personally delivered or mailed by certified
mail, return receipt requested (or in the form of telex or facsimile notice,
followed by written notice delivered as aforesaid or postage prepaid, first
class mail), and shall be deemed to have been duly given upon receipt;
(a) in the case of the Transferor, to
EFG FUNDING CORPORATION
Attention: President and
Chief Executive Officer
Telephone:
Telecopy:
14
<PAGE>
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(b) in the case of the Eligible Lender
Trustee, to
[ ], Bank, as trustee for EFG Funding
Corporation
Attention:
Telephone:
Telecopy:
with a copy to
[ ]
Attention:
Telephone:
Telecopy:
(c) in the case of the Servicer, to
EFG Technologies, Inc.
Attention: President
Telephone:
Telecopy:
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(d) in the case of the Issuer, to
EFG Student Loan Trust ______-____
c/o [ ]
Attention:
Telephone:
15
<PAGE>
Telecopy:
with a copy to
the Trustee
at the Corporate Trust Office
of the Trustee
Attention:
Telephone:
Telecopy:
(e) in the case of the Trustee, at the
Corporate Trust Office of the Trustee;
(f) in the case of the Indenture Trustee,
at its Corporate Trust Office;
(g) in the case of the Administrator, to
Educational Finance Group, LLP;
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(h) in the case of S&P
Standard & Poor's Corporation
25 Broadway
New York, New York
Attention:
Telephone: (212)
Telecopy: (212)
(i) in the case of Fitch, to
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Attention: Asset Backed Monitoring Unit
Telephone: (212) 908-0500
Telecopy: (212) 480-4425; and
16
<PAGE>
(j) in the case of Moody's, to
Moody's Investors Service, L.P.
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Telephone: (212) 553-0300
or, as to each of the foregoing, at such other address as shall be designated
by written notice to the other parties.
SECTION 6.4. Assignment. This Agreement may be
assigned by the Transferor to any affiliate if the conditions in Section 4.4.
that would apply to a successor to the Transferor apply to the assignment to
the affiliate. This Agreement may be assigned by the Trustee only to its
permitted successor pursuant to the Trust Agreement.
SECTION 6.5. Limitations on Rights of Others. The provisions
of this Agreement are solely for the benefit of the Transferor, the Issuer, the
Trustee and the Eligible Lender Trustee and for the benefit of the Indenture
Trustee, the Noteholders and (with respect to Section 5.1 the designee of the
Transferor), and nothing in this Agreement, whether express or implied, shall
be construed to give to any other Person any legal or equitable right, remedy
or claim in the Trust Estate or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 6.6. Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 6.7. Separate Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 6.8. Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 6.9. Governing Law. This Agreement shall be construed
in accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
17
<PAGE>
SECTION 6.10. Assignment to Indenture Trustee. The Transferor
hereby acknowledges and consents to any mortgage, pledge, assignment and grant
by the Issuer to the Indenture Trustee pursuant to the Indenture for the
benefit of the Noteholders of a security interest in all right, title and
interest of the Issuer in, to and under the Student Loans or the assignment of
any or all of the Issuer's rights and obligations hereunder to the Indenture
Trustee.
SECTION 6.11. Non-Petition Covenants. Notwithstanding any
prior termination of this Agreement, none of the Transferor, the Trustee or the
Eligible Lender Trustee shall, prior to the date which is one year and one day
after the termination of this Agreement with respect to the Issuer, acquiesce,
petition or otherwise invoke or cause the Issuer to invoke the process of any
court or government authority for the purpose of commencing or sustaining a
case against the Issuer under any Federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of the
Issuer.
SECTION 6.12. Limitation of Liability of the Trustee, the
Eligible Lender Trustee and Indenture Trustee. (a) Notwithstanding anything
contained herein to the contrary, this Agreement has been signed by the
Eligible Lender Trustee not in its individual capacity but solely in its
capacity as trustee for the Transferor and the Issuer and in no event shall the
Eligible Lender Trustee in its individual capacity or, except as expressly
provided herein or in the trust agreement between Transferor and the Eligible
Lender Trustee dated [ ], as legal owner of the FFELP Student Loans, have any
liability for representations, warranties, covenants, agreements or other
obligations of the Transferor hereunder or in any of the certificates, notices
or agreements delivered by the Transferor pursuant hereto as to all of which
recourse shall be had solely against the Transferor.
(a)(b) Notwithstanding anything contained herein
to the contrary, this Agreement has been accepted by [ ] not in its individual
capacity but solely as Indenture Trustee and in no event shall [ ] have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer.
(c) Notwithstanding anything contained herein
to the contrary, this Agreement has been accepted by [ ] not in its individual
capacity but solely as Indenture Trustee and in no event shall [ ] have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer.
SECTION 6.13. Agreement of Transferor, the Trustee and the
Eligible Lender Trustee. Each of the Transferor and the Eligible Lender Trustee
agrees to execute and deliver such instruments and to take such actions as the
Issuer or the Indenture Trustee may
18
<PAGE>
reasonably request in order to effectuate the terms and carry out the purposes
of the Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
EFG FUNDING CORPORATION
by:
---------------------------------------
Name:
Title: President and Chief
Executive Officer
EFG STUDENT LOAN TRUST ____-_,
by: [ ], not in its
individual capacity but solely as Trustee
by:
----------------------------------------
Name:
Title:
20
<PAGE>
Acknowledged and accepted
as of the day and year first
above written:
[INDENTURE TRUSTEE] not in
its individual capacity but
solely as Indenture Trustee,
by:
-------------------------------------
Name:
Title:
[Eligible Lender Trustee] not
in its individual capacity but
solely as Eligible Lender Trustee
by:
-------------------------------------
Name:
Title:
21
<PAGE>
EXHIBIT A
TO THE TRANSFER AGREEMENT
BILL OF SALE
For value received, in accordance with the Transfer Agreement
(the "Transfer Agreement") dated as of ______ __, 1999, between EFG FUNDING
CORPORATION, Inc., as transferor (the "Transferor") and EFG Student Loan Trust
1999-[ ] (the "Issuer") the Transferor does hereby sell, assign, transfer and
otherwise convey unto [______________] as Trustee on behalf of the Issuer,
without recourse all right, title and interest in and to (i) all of its
beneficial interest in the Initial Student Loans that are FFELP Loans and all
of its legal and beneficial interest in the Initial Student Loans that are
Private Loans and all obligations of the Obligors thereunder, together with all
documents, the related Student Loan Files and all rights and privileges related
thereto, (ii) all rights and remedies of the Transferor as purchaser under the
Loan Sale Agreement against the Seller and the EFG Trustee with respect to the
Initial Student Loans, (iii) all payments and/or collections received
thereunder on and after the Cutoff Date, (iv) all funds on deposit from time to
time in the Trust Accounts, including the Reserve Account Initial Deposit, and
in all investments and proceeds thereof (including all income thereon) and (v)
all proceeds of any and all of the foregoing (including but not limited to
proceeds derived from the voluntary or involuntary conversion of any of the
Initial Student Loans into cash or other liquidated property, such as proceeds
from the applicable Guarantee Agreement). The foregoing sale does not
constitute and is not intended to result in any assumption by the Trustee or
the Issuer of any obligation of the Seller or the Transferor to the borrowers
of Initial Student Loans or any other Person in connection with the Initial
Student Loans or any agreement or instrument relating to any of them.
In addition, the undersigned, by execution of this
instrument, hereby endorses the promissory notes evidencing each Initial
Student Loan that is a Private Loan described in Schedule A to the Transfer
Agreement in favor of the Trustee on behalf of the Trust, without recourse
(subject to the obligations set forth in the Transfer Agreement) against the
undersigned. This endorsement may be effected by attaching a facsimile hereof
to each or any of such promissory notes.
This Bill of Sale is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Transfer Agreement and is to be governed by the Transfer
Agreement.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in Appendix A to the Administration Agreement, dated
as of [_____ __, 1999], among EFG Student Loan Trust 1999-[ ], as Issuer,
Educational Finance Group, Inc., as Administrator, and [INDENTURE TRUSTEE], as
Indenture Trustee, which also contains rules as to usage that shall be
applicable herein.
A-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has
caused this Bill of Sale to be duly executed as of _________ __, 1999.
EFG FUNDING CORPORATION
by:
---------------------------------
Name:
Title:
A-2
<PAGE>
EXHIBIT B
TO THE
TRANSFER AGREEMENT
{SUBSEQUENT TRANSFER AGREEMENT}
TRANSFER No. _____ Of [NEW] [SERIAL] LOANS dated as of
______________, _____, among EFG STUDENT LOAN TRUST ____-_, a Delaware trust
(the "Issuer") and EFG FUNDING CORPORATION, as transferor (the "Transferor").
W I T E S S E T H:
WHEREAS the Issuer and the Transferor are parties to the
Transfer Agreement dated as of [______ __, 1999] (as amended or supplemented,
the "Transfer Agreement");
WHEREAS the Transferor, as depositor, and [______________] as
Trustee are parties to the Trust Agreement dated as of [______ __, 1999] (as
amended or supplemented, the "Trust Agreement");
WHEREAS pursuant to the Transfer Agreement, the Transferor
wishes to convey all of its beneficial interest in the [New] [Serial] Loans
referred to in Section 2 (the "Additional Student Loans") to the Issuer;
WHEREAS in order to comply with the requirements of the
Higher Education Act, legal title to the Transferor's student loan portfolio is
vested in [____________] as Eligible Lender Trustee, as trustee on behalf of
the Transferor and the Issuer as beneficiaries; and
WHEREAS, the Issuer is willing to accept such conveyance
subject to the terms and conditions hereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions and Usage. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in
Appendix A to the Administration Agreement, dated as of _______ __, 1999, among
the Issuer, the Educational Finance Group, Inc., as Administrator, and [ ], as
Indenture Trustee, which also contains rules of construction and usage that
shall be applicable herein.
In addition, the following terms have the following meanings:
"Subsequent Cutoff Date" means, with respect to each
Additional Student Loan, the date specified as such on Schedule A hereto.
"Transfer Date" means, with respect to the Additional Student
Loans, ________________, _______.
B-1
<PAGE>
2. Schedule of Financed Student Loans. Attached hereto as
Schedule A is a supplement to Schedule A to the Transfer Agreement listing the
Additional Student Loans beneficial ownership (in the case of FFELP Loans) and
legal and beneficial ownership (in the case of Private Loans) of which is to be
conveyed on the Transfer Date to the Trustee on behalf of the Issuer pursuant
to this Agreement.
3. Conveyance of Additional Student Loans. In consideration
of Issuer's delivery to or upon the order of the Transferor of $___________
(during the Revolving Period, such amount being the Loan Purchase Amounts of
the Additional Student Loans and such amount to be paid from amounts on deposit
in the Collateral Reinvestment Account subject to the provisions of Section
2.2(b) of the Transfer Agreement and Section 2(f) of the Administration
Agreement and after the Revolving Period such amount being the sum of (i) the
Purchase Collateral Balance ($[ ]) to be paid from any combination of amounts
on deposit in the Collection Account and of Exchange Student Loans as shall be
designated by the Transferor subject to Section 2.2(c) of the Transfer
Agreement and Section 2(d) of the Administration Agreement) and (ii) the
Purchase Premium Amount ($[ ]) to be paid on the immediately subsequent
Quarterly Payment Date from amounts on deposit in the Reserve Fund in excess of
the Specified Reserve Account Balance subject to Section 2.2(c) of the Transfer
Agreement and Section 2(e) of the Administration Agreement, the Transferor does
hereby sell, assign and otherwise convey, without recourse to the Trustee on
behalf of the Issuer:
(a) All right, title and interest in and to
beneficial ownership of the Additional Student Loans that are FFELP
Loans and legal and beneficial ownership of the Additional Student
Loans that are Private and all obligations of the Obligors
thereunder, together with all documents, the related Student Loan
Files and all rights and privileges relating thereto;
(b) all rights and remedies of EFG Funding as
purchaser under the Loan Sale Agreement against the Seller and the
EFG Trustee with respect to the Additional Student Loans
(c) all payments on or collections received
thereunder, on and after the related Subsequent Cutoff Date;
(d) all proceeds of any and all of the
foregoing.
4. Conditions Precedent. The obligation of the Issuer to
acquire the Additional Student Loans hereunder is subject to the satisfaction,
on or prior to the Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Transferor in Section 4.1
of the Transfer Agreement shall be true and correct as of the
Transfer Date.
(b) Transfer Agreement Conditions. Each of the
conditions set forth in Section 2.2(c) of the Transfer Agreement
shall have been satisfied.
B-2
<PAGE>
(c) Delivery of Bill of Sale. The Transferor shall
have delivered a Bill of Sale substantially in the form of Annex A
hereto.
(d) Additional Information. The Transferor shall
have delivered to the Issuer such information as was reasonably
requested by the Issuer to satisfy itself as to (i) the accuracy of
the representations and warranties set forth in Section 4.1 of the
Transfer Agreement and (ii) the satisfaction of the conditions set
forth in this Section 4.
(e) Delivery of Assignment with respect to Exchange
Student Loans. With respect to any Exchange Student Loans that are to
be applied to the Purchase Amount of the Additional Student Loans,
the Transfer shall have delivered a bill of sale.
5. Ratification of Agreement. As supplemented by this
Agreement, the Transfer Agreement is in all respects ratified and confirmed and
the Transfer Agreement as so supplemented by this Agreement shall be read,
taken and construed as one and the same instrument.
6. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument.
7. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
8. Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed and delivered by their respective
duly authorized officers as of the day and the year first above written.
EFG FUNDING CORPORATION
by:
-------------------------------------------
Name:
Title: President and Chief
Executive Officer
EFG STUDENT LOAN TRUST ____-_,
by: [ELIGIBLE LENDER TRUSTEE], not in its
individual capacity but solely as Eligible
Lender Trustee on behalf of the Trust,
by:
-------------------------------------------
Name:
Title:
B-4
<PAGE>
Acknowledged and accepted
as of the day and year first
above written:
[INDENTURE TRUSTEE], not in
its individual capacity but
solely as Indenture Trustee,
by:
--------------------------------------
Name:
Title:
[Eligible Lender Trustee], not
in its individual capacity but
solely as Indenture Trustee
by:
--------------------------------------
Name:
Title:
B-5
<PAGE>
SCHEDULE A
TO THE
TRANSFER AGREEMENT NO. ___
[List of Additional Student Loans
and their related Subsequent Cutoff Dates]
<PAGE>
ANNEX A
TO THE SUBSEQUENT TRANSFER AGREEMENT
{BILL OF SALE}
For value received, in accordance with the Subsequent
Transfer Agreement (the "Transfer Agreement") dated as of ________ _, 1999,
between EFG FUNDING CORPORATION, as transferor (the "Transferor") and EFG
Student Loan Trust ____-_ (the "Issuer") (the "Subsequent Transfer Agreement")
among the Transferor, the Issuer and the Eligible Lender Trustee, the
Transferor does hereby sell, assign, transfer and otherwise convey unto the
Trustee on behalf of the Issuer, without recourse, all right, title and
interest in and to (i) its beneficial interest in the Additional Student Loans
that are FFELP Loans and all of its legal and beneficial interest in the
Additional Student Loans that are Private Loans and all obligations of the
Obligors thereunder, together with all documents, the related Student Loan
Files and all rights and privileges related thereto, (ii) all rights and
remedies of EFG Funding as purchaser under the Loan Sale Agreement against the
Seller and the EFG Trustee with respect to the Additional Student Loans, (iii)
all payments and collections received thereunder, on and after the Subsequent
Cutoff Date and (iv) all proceeds of any and all of the foregoing (including
but not limited to proceeds derived from the voluntary or involuntary
conversion of any of the Additional Student Loans into cash or other liquidated
property, such as proceeds from the applicable Guarantee Agreement). The
foregoing sale does not constitute and is not intended to result in any
assumption by the Trustee or the Issuer of any obligation of the Seller or the
Transferor to the borrowers of the Additional Student Loans or any other person
in connection with the Additional Student Loans or any agreement or instrument
relating to any of them.
In addition, the undersigned, by execution of this
instrument, hereby endorses the promissory notes evidencing each Additional
Student Loan that is a Private Loan described in Schedule A to the Transfer
Agreement in favor of the Trustee on behalf of the Trust, without recourse
(subject to the obligations set forth in the Transfer Agreement) against the
undersigned. This endorsement may be effected by attaching a facsimile hereof
to each or any of such promissory notes.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Transfer Agreement and the Transfer Agreement and is to be
governed by the Transfer Agreement and the Transfer Agreement.
Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Transfer Agreement.
C-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has
caused this Bill of Sale to be duly executed as of ______ __, 1999.
EFG FUNDING CORPORATION
by:
--------------------------------
Name:
Title:
C-2
<PAGE>
EXHIBIT D
TO THE TRANSFER AGREEMENT
1. Organization and Good Standing. The
Transferor has been organized and is existing under the corporate of the State
of Delaware and is authorized to do business in every state in which it is
doing business (except where any failure to be so authorized shall not have a
material adverse effect on either the Transferor or its obligations hereunder)
as well as the state in which it is organized.
2. Power and Authority of the Transferor. The
Transferor has the organizational power and authority to execute and deliver
this Agreement and to carry out its terms; the Transferor has full
organizational power and authority to sell and assign the property to be sold
and assigned to and deposited with the Issuer and the Transferor has duly
authorized such sale and assignment to the Issuer by all necessary corporate
action; and the execution, delivery and performance of this Agreement have been
duly authorized by the Transferor by all necessary corporate action.
3. Binding Obligation. This Agreement has
been executed and delivered by the Transferor and, assuming authorization,
execution, and delivery by the other parties thereto, this Agreement
constitutes a valid obligation of the Transferor enforceable against it in
accordance with the express terms of this Agreement, except as enforcement
thereof may be limited by the bankruptcy, insolvency, reorganization,
moratorium, liquidation, readjustment of debt, or other federal or state laws
or equitable principles relating to or affecting the enforcement of creditor's
rights.
4. No Violation. The consummation of the
transactions contemplated by this Agreement or the Administration Agreement and
the fulfillment of the terms hereof or thereof do not conflict with, result in
any breach of any of the terms and provisions of, nor constitute (with or
without notice or lapse of time or both) a default under, articles of
incorporation of the Transferor, or any indenture, agreement or other
instrument to which the Transferor is a party or by which it shall be bound;
nor result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to the
knowledge of the Transferor, any order, rule or regulation applicable to the
Transferor of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Transferor or its properties. The consummation of the transactions
contemplated by this Agreement or by the Administration Agreement and the
fulfillment of the terms hereof and thereof will not result in the loss of any
Guarantee Payments by the Issuer or any reinsurance payments with respect to
any Financed Student Loans by the Guarantor.
5. No Proceedings. There is no action, suit,
claim, investigation, or proceeding, in any such case whether pending or to the
knowledge of the Transferor, threatened against the Transferor before any
court, governmental agency, or arbitrator (i)
D-1
<PAGE>
asserting the invalidity of this Agreement, the Indenture or any of the other
Basic Documents or the Notes, (ii) seeking to prevent the issuance of the Notes
or the consummation of any transactions contemplated by this Agreement, the
Indenture or any of the other Basic Documents, (iii) seeking any determination
or ruling that could reasonably be expected to have a material and adverse
effect on the performance by the Transferor of its obligations under, or the
validity or enforceability of, this Agreement, the Indenture, any of the other
Basic Documents or the Notes or (iv) seeking to affect adversely the Federal or
state income tax attributes of the Issuer or the Notes.
6. All Consents. No action, including,
without limitation, the granting or issuing of any consent, permit, license,
approval, or authorization which is required to be made on or prior to the date
of this Agreement in connection with the sale of Student Loans under this
Agreement (with the possible exception of routine filings which, if not made,
will not render the Transferor liable to any material penalties or will not
result in the transactions contemplated by this Agreement being subject to
challenge) is required.
D-2
<PAGE>
EXHIBIT E
TO THE TRANSFER AGREEMENT
1. Organization and Good Standing. [ ]
is a national banking association duly organized, validly existing and in good
standing under the laws of the United States and is an "eligible lender" for
purposes of the Higher Education Act.
2. Power and Authority of the [ ].
[ ] has authorized the execution and delivery of this Agreement and has full
legal power and authority to consummate all transactions contemplated by this
Agreement and any and all other agreements relating hereto.
3. Binding Obligation. This Agreement has
been executed and delivered by [ ] and, assuming authorization, execution, and
delivery by the other parties thereto, this Agreement constitutes a valid
obligation of [ ] enforceable against it in accordance with the express terms
of this Agreement, except as enforcement thereof may be limited by the
bankruptcy, insolvency, reorganization, moratorium, liquidation, readjustment
of debt, or other federal or state laws or equitable principles relating to or
affecting the enforcement of creditor's rights.
4. No Violation. Compliance by [ ]
with this Agreement does not in any material respect violate any law or
regulation by which [ ] or its assets are bound, or any writ, order, judgment,
or decree of any court or government instrumentality or arbitrator in which [ ]
is named, or the charter or by-laws of [ ] or any indenture, contract, or
agreement to which [ ] is a party or by which it is or its properties are bound
or affected.
5. No Proceedings. There is no action, suit,
claim, investigation, or proceeding, in any case pending or, to the knowledge
of [ ], threatened against [ ] before any court, governmental agency, or
arbitrator which, if decided adversely to [ ], is likely to have a material
adverse effect upon the validity or enforceability of this Agreement.
6. All Consents. No action, including,
without limitation, the granting or issuing of any consent, permit, license,
approval, or authorization which is required to be made on or prior to the date
of this Agreement in connection with the sale of Financed Student Loans under
this Agreement (with the possible exception of routine filings which, if not
made, will not render [ ] liable to any material penalties or will not result
in the transactions contemplated by this Agreement being subject to challenge)
is required.
E-1
<PAGE>
EXHIBIT F
TO THE TRANSFER AGREEMENT
{ASSIGNMENT}
For value received, in accordance with the Transfer Agreement
(the "Transfer Agreement") dated as of _______ _, 1999, between EFG FUNDING
CORPORATION, as transferor (the "Transferor") and EFG Student Loan Trust ____-_
(the "Issuer"), the Transferor does hereby sell, assign, transfer and otherwise
convey unto the Trustee on behalf of the Issuer, without recourse all right,
title and interest in and to (i) all of its beneficial interest the Qualified
Substitute Student Loan(s) indicated in Schedule A hereto that are FFELP Loans
and all of its legal and beneficial interest in such loans that are Private
Loans (the "Additional Student Loans") and all obligations of the Obligors
thereunder, together with all documents, the related Student Loan Files and all
rights and privileges related thereto, (ii) all rights and remedies of EFG
Funding as purchaser under the Loan Sale Agreement against the Seller and the
EFG Trustee with respect to the Additional Student Loans, (iii) all payments
and/or collections received thereunder on and after the date hereof and (iv)
all proceeds of any and all of the foregoing (including but not limited to
proceeds derived from the voluntary or involuntary conversion of any of the
Additional Student Loans into cash or other liquidated property, such as
proceeds from the applicable Guarantee Agreement). The foregoing sale does not
constitute and is not intended to result in any assumption by the Trustee or
the Issuer of any obligation of the Transferor or the Seller to the borrowers
of Additional Student Loans or any other Person in connection with the
Additional Student Loans or any agreement or instrument relating to any of
them.
In addition, the undersigned, by execution of this
instrument, hereby endorses the promissory notes evidencing each Additional
Student Loan that is a Private Loan in favor of the Trustee on behalf of the
Trust, without recourse (subject to the obligations set forth in the Transfer
Agreement) against the undersigned. This endorsement may be effected by
attaching a facsimile hereof to each or any of such promissory notes.
This Assignment is made pursuant to and upon the
representations, warranties and agreements on the part of the undersigned
contained in the Transfer Agreement and is to be governed by the Transfer
Agreement.
Capitalized terms used but not defined herein shall have the
meaning assigned to them in Appendix A to the Administration Agreement, dated
as of _____ __, 1999, among the Trust, as Issuer, the Educational Finance
Group, Inc., as Administrator, and [INDENTURE TRUSTEE] as Indenture Trustee,
which also contains rules as to usage that shall be applicable herein.
F-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has
caused this Assignment to be duly executed as of ___________.
EFG FUNDING CORPORATION
by:
-------------------------------
Name:
Title:
F-2
<PAGE>
WFG DRAFT 8/3/98
EXHIBIT 99.2
[FORM OF]
SERVICING AGREEMENT
among
EFG STUDENT LOAN TRUST 1999-[ ]
as Issuer,
[EFG TECHNOLOGIES, a division
of Educational Finance Group, Inc.,
as Servicer,]
EFG FUNDING CORPORATION
as Depositor,
and
[ELIGIBLE LENDER TRUSTEE],
not in its individual capacity but solely
as Eligible Lender Trustee,
Dated as of [DATE]
<PAGE>
SERVICING AGREEMENT dated as of [DATE], among EFG STUDENT LOAN TRUST
1999-[ ], a Delaware business trust (the "Issuer"), acting by and through
_____________, its trustee, (the "Trustee"), EFG TECHNOLOGIES, a division of
Educational Finance Group, Inc. ("EFG"), as servicer (the "Servicer"), EFG
Funding Corporation, as depositor (the "Depositor") and [ELIGIBLE LENDER
TRUSTEE], [a national banking association], solely as eligible lender trustee
and not in its individual capacity (the "Eligible Lender Trustee").
WHEREAS the Issuer desires to purchase from the Depositor a
portfolio of federally reinsured FFELP Student Loans purchased from EFG in the
ordinary course of business by the Depositor;
WHEREAS the Eligible Lender Trustee is willing to hold legal
title to, and serve as eligible lender trustee with respect to, such FFELP
Student Loans on behalf of the Issuer; and
WHEREAS the Servicer is willing to service such FFELP Student
Loans and undertake certain administrative functions with respect thereto.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions and Usage
Capitalized terms used but not defined herein are defined in
Appendix A to the Administration Agreement, dated as of [DATE], among the
Issuer, the Educational Finance Group, LLP, as Administrator, and [INDENTURE
TRUSTEE], as Indenture Trustee, which also contains rules as to usage and
construction that shall be applicable herein.
ARTICLE II.
Custody of FFELP Student Loans
SECTION 2.1. Custody of Student Loan Files. To assure uniform
quality in servicing the FFELP Student Loans and to reduce administrative costs,
the Issuer hereby revocably appoints the Servicer, and the Servicer hereby
accepts such appointment, to act for the benefit of the Issuer and the Indenture
Trustee as Custodian of the following documents or instruments which are hereby
constructively delivered to the Indenture Trustee, as pledgee of the Issuer {(or
will be constructively delivered to the Indenture Trustee, as pledgee of the
Issuer, in the case of New Loans and Serial Loans, as of the applicable Transfer
Date, in the
<PAGE>
case of Qualified Substitute FFELP Student Loans, as of the date of the relevant
Assignment to the Issuer, in the case of Consolidation Loans originated during
the Revolving Period by the Eligible Lender Trustee on behalf of the Issuer, as
of the applicable date of origination or in the case of Consolidation Loans the
principal balances of which are increased by the principal balances of any
related Add-on Consolidation Loans, as of the applicable Add-on Consolidation
Loan Funding Date)} with respect to each FFELP Student Loan:
(a) the original fully executed copy of the note evidencing
the FFELP Student Loan (including the original loan application fully executed
by the Borrower); and
(b) any and all other documents and computerized records that
the Servicer shall keep on file, in accordance with its customary procedures,
relating to such FFELP Student Loan or any Obligor with respect thereto.
SECTION 2.2. Duties of Servicer as Custodian. (a) Safekeeping.
The Servicer shall maintain custody of the Student Loan Files for the benefit of
the Issuer and the Indenture Trustee and maintain such accurate and complete
accounts, records and computer systems pertaining to each Student Loan File as
shall enable the Issuer to comply with the Basic Documents. In performing its
duties as custodian the Servicer shall act with reasonable care, using that
degree of skill and attention that the Servicer exercises with respect to the
student loan files relating to all comparable FFELP Student Loans that the
Servicer services and shall ensure that it complies with all applicable Federal
and State laws, including the Higher Education Act, with respect thereto. The
Servicer shall conduct, or cause to be conducted, periodic audits of the Student
Loan Files held by it under this Agreement and of the related accounts, records
and computer systems, in such a manner as shall enable the Issuer or the
Indenture Trustee to verify the accuracy of the Servicer's record keeping. The
Servicer shall promptly report to the Issuer and the Indenture Trustee any
failure on its part to hold the Student Loan Files and maintain its accounts,
records and computer systems as herein provided and promptly take appropriate
action to remedy any such failure. Nothing herein shall be deemed to require an
initial review or any periodic review by the Issuer, the Eligible Lender Trustee
or the Indenture Trustee of the Student Loan Files.
(a)(b) Maintenance of Records. The Servicer shall maintain
each Student Loan File at one of the locations specified in Schedule A to this
Agreement or at such other office as shall be specified by written notice to the
Issuer and the Indenture Trustee not later than 90 days after any change in
location. Upon reasonable prior notice of not less than three Business Days, the
Servicer shall make available to the Issuer and the Indenture Trustee or their
respective duly authorized representatives, attorneys or auditors a list of
locations of the Student Loan Files and the related accounts, records and
computer systems maintained by the Servicer.
(c) Release of Documents. Upon instruction from the Indenture
Trustee, the Servicer shall, as soon as practicable, release any Student Loan
File to the Indenture Trustee, the Indenture Trustee's agent, or the Indenture
Trustee's designee, as the case may be, at such place or places as the Indenture
Trustee may designate.
2
<PAGE>
SECTION 2.3. Instructions; Authority To Act. The Servicer
shall be deemed to have received proper instructions with respect to the Student
Loan Files upon its receipt of written instructions signed by a Responsible
Officer of the Indenture Trustee.
SECTION 2.4. Custodian's Indemnification. The Servicer as
Custodian shall pay for any actual loss, liability or expense, including
reasonable attorneys' fees, that may be imposed on, incurred by or asserted
against the Issuer, the Eligible Lender Trustee or the Indenture Trustee or any
of their officers, directors, employees and agents as a result of any improper
act or omission in any way relating to the maintenance and custody by the
Servicer as Custodian of the Student Loan Files as required by this Agreement
where the final determination that any such improper act or omission by the
Servicer resulted in such loss, liability or expense is established by a court
of law, by an arbitrator, or by way of settlement agreed to by the Servicer;
provided, however, that the amount of any liability with respect to any FFELP
Student Loan shall not exceed the amount that would have been paid if such FFELP
Student Loan had been accepted and paid by the related Guarantor as a claim, and
provided, further, that the Servicer shall not be liable to the Eligible Lender
Trustee for any portion of any such amount resulting from the willful
misfeasance, bad faith or negligence of the Eligible Lender Trustee and the
Servicer shall not be liable to the Indenture Trustee for any portion of any
such amount resulting from the willful misfeasance, bad faith or negligence of
the Indenture Trustee. This provision shall not be construed to limit the
Servicer's or any other party's rights, obligations, liabilities, claims or
defenses which arise as a matter of law or pursuant to any other provision of
this Agreement.
SECTION 2.5. Effective Period and Termination. The appointment
of EFG Technologies as Custodian shall become effective as of the Closing Date
and shall continue in full force and effect for so long as EFG Technologies
shall remain the Servicer hereunder. If all the rights and obligations of EFG
Technologies shall have been terminated under Section 6.1, the appointment of
EFG Technologies as Custodian shall be terminated simultaneously with the
effectiveness of such termination. As soon as practicable on or after any
termination of such appointment and in any event within ninety (90)days, EFG
Technologies shall deliver possession of the Student Loan Files to the Indenture
Trustee or the Indenture Trustee's agent at such place or places as the
Indenture Trustee may reasonably designate. EFG Technologies will continue to
hold the Student Loan Files as agent of the Indenture Trustee until the Student
Loan Files are transferred.
ARTICLE III.
Administration and Servicing of FFELP Student Loans
SECTION 3.1. Duties of Servicer. The Servicer, for the benefit
of the Issuer (to the extent provided herein), shall manage, service, administer
and make collections on the FFELP Student Loans with reasonable care, using that
degree of skill and attention that the Servicer exercises with respect to all
comparable FFELP Student Loans that it services. Without limiting the generality
of the foregoing or of any other provision set forth in this Agreement and
notwithstanding any other provision to the contrary set forth herein, the
3
<PAGE>
Servicer shall manage, service, administer and make collections with respect to
the FFELP Student Loans (other than collection of any Interest Subsidy Payments
and Special Allowance Payments, which the Eligible Lender Trustee will perform
on behalf of the Trust) in accordance with, and otherwise comply with, all
applicable Federal and state laws, including any applicable standards,
guidelines and requirements of the Higher Education Act and the applicable
Guarantee Agreement, the failure to comply with which would adversely affect the
eligibility of one or more of the FFELP Student Loans for Federal reinsurance or
Interest Subsidy Payments, Special Allowance Payments or Guarantee Payments or
would have an adverse effect on the Noteholders or the Company. {The Servicer
also hereby acknowledges that its obligation to service the FFELP Student Loans
includes all Consolidation Loans originated by the Issuer during the Revolving
Period, any Consolidation Loan supplemented from time to time during and after
the Revolving Period by the addition of the principal balance of any related
Add-on Consolidation Loan, any Qualified Substitute Student Loans conveyed to
the Issuer pursuant to Section 3.2 of the Loan Sale Agreement and those New
Loans and Serial Loans conveyed to the Eligible Lender Trustee on behalf of the
Trust pursuant to Section 2.2 of the Loan Sale Agreement and the related
Transfer Agreement, a copy of which shall be delivered to the Servicer by the
Depositor promptly upon execution thereof; provided that any failure by the
Depositor to so deliver a Transfer Agreement shall not affect the Servicer's
obligations hereunder to service all the FFELP Student Loans.}
The Servicer's duties shall include collection and posting of
all payments, responding to inquiries of borrowers on such FFELP Student Loans,
monitoring borrowers' status, making required disclosures to borrowers,
investigating delinquencies, sending payment coupons to borrowers and otherwise
establishing repayment terms, reporting tax information to borrowers, if
applicable, accounting for collections and furnishing monthly and annual
statements with respect thereto to the Administrator. Subject to the provisions
of Section 3.2, the Servicer shall follow its customary standards, policies and
procedures in performing its duties as Servicer. Without limiting the generality
of the foregoing, the Servicer is authorized and empowered to execute and
deliver, on behalf of itself, the Issuer, the Eligible Lender Trustee, the
Indenture Trustee, the Company and the Noteholders or any of them, instruments
of satisfaction or cancellation, or partial or full release or discharge, and
all other comparable instruments, with respect to such FFELP Student Loans;
provided, however, that the Servicer agrees that it will not (a) permit any
rescission or cancellation of an FFELP Student Loan except as ordered by a court
of competent jurisdiction or governmental authority or as otherwise consented to
in writing by the Eligible Lender Trustee and the Indenture Trustee or (b)
reschedule, revise, defer or otherwise compromise with respect to payments due
on any FFELP Student Loan except pursuant to any applicable Deferral or
Forbearance periods or otherwise in accordance with all applicable standards,
guidelines and requirements with respect to the servicing of the FFELP Student
Loans; provided further, however, that the Servicer shall not agree to any
decrease of the interest rate on, or the principal amount payable with respect
to, any FFELP Student Loan.
The Servicer, for the benefit of the Issuer and the Indenture
Trustee (to the extent provided herein), shall promptly and routinely furnish
the Eligible Lender Trustee and the Indenture Trustee with copies of all
material reports, records, and other documents and
4
<PAGE>
data as required by this Agreement or as may otherwise be required by the Higher
Education Act. All material correspondence received by the Servicer relating to
individual FFELP Student Loans shall be maintained in microcopy form or in
summary form in an automated history file established by the Servicer. The
Servicer shall furnish in good condition all forms and supplies as specified in
this Agreement and any Schedules hereto. The Eligible Lender Trustee and the
Indenture Trustee may transmit FFELP Student Loan account data to the Servicer
on these forms or by any other mutually acceptable means. In performing its
duties hereunder, the Servicer will be guided by and comply with the Higher
Education Act and applicable requirements of the related Guarantor. The Servicer
agrees to produce a clear and precise audit trail for each FFELP Student Loan
and to comply with such other reporting, servicing, and operating standards as
are contained in this Agreement.
The Eligible Lender Trustee on behalf of the Issuer hereby
grants a power of attorney and all necessary authorization to the Servicer to
maintain any and all collection procedures with respect to the FFELP Student
Loans, including filing, pursuing and recovering claims against the Guarantors
for Guarantee Payments and taking any steps to enforce such FFELP Student Loans
such as commencing a legal proceeding to enforce an FFELP Student Loan in the
name of the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Company or the Noteholders. The Eligible Lender Trustee or the Indenture Trustee
shall upon the written request of the Servicer or the Administrator furnish the
Servicer or the Administrator with any other powers of attorney and other
documents reasonably necessary or appropriate to enable the Servicer or the
Administrator to carry out their servicing and administrative duties hereunder.
SECTION 3.2. Collection of Student Loan Payments. The Servicer
shall make reasonable efforts (including all efforts that may be specified under
the Higher Education Act or any Guarantee Agreement) to collect all payments
called for under the terms and provisions of the FFELP Student Loans as and when
the same shall become due and shall follow such collection procedures as it
follows with respect to all comparable FFELP Student Loans that it services. The
Servicer shall allocate collections with respect to the FFELP Student Loans
between principal and interest in accordance with the terms of each such loan.
The Servicer may in its discretion waive any late payment charge or any other
fees that may be collected in the ordinary course of servicing an FFELP Student
Loan.
(a) The Servicer shall make reasonable efforts to claim,
pursue and collect all Guarantee Payments from the Guarantors pursuant to the
Guarantee Agreements with respect to any of the FFELP Student Loans as and when
the same shall become due and payable, shall comply with the Higher Education
Act and all other applicable laws and agreements with respect to claiming,
pursuing and collecting such payments and shall follow such practices and
procedures as it follows with respect to all comparable guarantee agreements and
FFELP Student Loans that it services. In connection therewith, the Servicer is
hereby authorized and empowered to convey to the related Guarantor the note and
the related Student Loan File representing any FFELP Student Loan in connection
with submitting a claim to the applicable Guarantor for a Guarantee Payment in
accordance with the terms of the applicable Guarantee Agreement.
5
<PAGE>
(b) The Eligible Lender Trustee shall, with the assistance of
the Servicer as set forth below and on behalf of the Issuer, make reasonable
efforts to claim, pursue and collect all Interest Subsidy Payments and Special
Allowance Payments from the Department with respect to any of the FFELP Student
Loans as and when the same shall become due and payable, shall comply with all
applicable laws and agreements with respect to claiming, pursuing and collecting
such payments and shall follow such practices and procedures as the Servicer
follows with respect to FFELP Student Loans serviced by it. All amounts so
collected by the Eligible Lender Trustee with respect to FFELP Student Loans
shall constitute Monthly Available Funds for the applicable Monthly Collection
Period and Available Funds for the applicable Collection Period, and shall be
deposited into the Collection Account in accordance with Section 4.1. In
connection therewith, the Servicer shall prepare and file with the Department on
a timely basis all claims forms and other documents and filings necessary or
appropriate in connection with the claiming of Interest Subsidy Payments and
Special Allowance Payments on behalf of the Eligible Lender Trustee and shall
otherwise assist the Eligible Lender Trustee in pursuing and collecting such
Interest Subsidy Payments and Special Allowance Payments from the Department.
The Eligible Lender Trustee shall upon the written request of the Servicer
furnish the Servicer with any power of attorney and other documents reasonably
necessary or appropriate to enable the Servicer to prepare and file such claims
forms and other documents and filings.
The Eligible Lender Trustee may hold legal title to FFELP
Loans for the benefit of the Depositor and one or more trusts, other than the
Trust, established by the Depositor to securitize student loans and may use, as
Eligible Lender Trustee for all such beneficiaries, one Department lender
identification number. The Eligible Lender Trustee may claim and collect
Interest Subsidy Payments and Special Allowance Payments with respect to FFELP
Student Loans beneficially owned by the Depositor, the Trust and such other
trusts using such common lender identification number. Notwithstanding anything
herein or in the Basic Documents to the contrary, any amounts assessed against
payments (including, but not limited to, Interest Subsidy Payments and Special
Allowance Payments) due from the Department to one beneficiary as a result of
amounts (including, but not limited to, Consolidation Fees) owing to the
Department from a second beneficiary will be deemed for all purposes hereof and
of the Basic Documents (including for purposes of determining amounts paid by
the Department with respect to the student loans beneficially owned by such
beneficiaries) to have been assessed against the second beneficiary and shall be
deducted by the Eligible Lender Trustee or the Servicer and paid to the first
beneficiary from any collections made by them which would otherwise have been
payable to the Collection Account for the second beneficiary.
SECTION 3.3. Realization upon FFELP Student Loans. For the
benefit of the Issuer, the Servicer shall use reasonable efforts consistent with
its customary servicing practices and procedures and including all efforts that
may be specified under the Higher Education Act or the applicable Guarantee
Agreement in its servicing of any delinquent FFELP Student Loans.
6
<PAGE>
SECTION 3.4. No Impairment. The Servicer shall not impair the
rights of the Issuer, the Eligible Lender Trustee, the Indenture Trustee, the
Company or the Noteholders in the FFELP Student Loans.
SECTION 3.5. Purchase of FFELP Student Loans; Reimbursement.
(a) Upon the discovery by the Servicer, the Issuer, the Eligible Lender Trustee,
the Indenture Trustee or the Depositor of any breach pursuant to Sections 3.1,
3.2, 3.3 or 3.4 hereof the party discovering the breach shall give prompt
written notice to the others. If the breach is not cured within sixty (60) days
after the Servicer becomes aware or receives written notice (whichever is
earlier) of such breach, the Servicer shall purchase or arrange for the purchase
of any FFELP Student Loan in which the interests of the Noteholders, the Issuer,
the Indenture Trustee or the Eligible Lender Trustee are materially and
adversely affected by such breach as of the first day succeeding the end of such
60-day period that is the last day of a Monthly Collection Period (it being
understood that any such breach that does not affect the related Guarantor's
obligation to guarantee payment of such FFELP Student Loan will not be
considered to have a material adverse effect for this purpose and it being
further understood that any dispute as to whether such Guarantor's obligation
has been so affected so as to create such a material adverse effect, shall be
resolved, for so long as the Notes are Outstanding, by the Indenture Trustee,
whose determination shall be dispositive, and after the Notes are no longer
Outstanding, by the Issuer, whose determination shall then be dispositive);
provided, however, that during each 12-month period following the Cutoff Date or
an anniversary of the Cutoff Date (a "Servicer Liability Period"), the Servicer
will be obligated to purchase FFELP Student Loans only to the extent its total
liability incurred during the then current Servicer Liability Period for such
purchases and any other liabilities under this Agreement exceeds an amount (the
"Servicer Liability Limit") equal to [0.15%] of the outstanding principal
balance of the FFELP Student Loans as of the Cutoff Date or, after the first
anniversary of the Cutoff Date, as of the preceding April 1.
(a)(b) In consideration of the purchase of any such FFELP
Student Loan pursuant to this Section 3.5, the Servicer shall remit, in the
manner specified in Section 4.1, the Purchase Amount and the Issuer shall
execute such assignments and other documents reasonably requested by the
Servicer in order to effect the transfer of such FFELP Student Loan to the
Servicer or its designee; provided, however, that the Servicer's total liability
for losses for rejected claims by the Guarantors for any FFELP Student Loan
based on any breach pursuant to Sections 3.1, 3.2, 3.3, or 3.4 hereof will not
exceed that amount which the related Guarantor would have been obligated to pay
with respect to such loan had its obligation to guarantee payment thereof not
been affected by the Servicer's breach. Subject to Section 5.2, the exclusive
remedy of the Noteholders, the Issuer, the Indenture Trustee, and the Eligible
Lender Trustee and the entire liability of Servicer for such a breach shall be
limited to requiring the Servicer to purchase FFELP Student Loans pursuant to
this Section 3.5.
[[SECTION 3.6. Servicing Fee. [[Is this SMS specific??]] The
Servicing Fee for each calendar month (the "Servicing Fee") shall be equal to
the lesser of (I) one twelfth of 1.0% of the aggregate principal balance of the
FFELP Student Loans as of the last day of the preceding calendar month and (II)
the sum of (i) one-twelfth of the In-School Percentage of the
7
<PAGE>
principal balance of each FFELP Student Loan as of the last day of the preceding
calendar month which was an In-School Loan on such date or, if the average
principal balance of the In-School Loans as of such date was [ ] or less, [ ]
per Borrower Account for each such loan, (ii) one-twelfth of the GRDF Percentage
of the principal balance as of the last day of the preceding calendar month of
each FFELP Student Loan which was a Grace, Repayment, Deferral or Forbearance
Student Loan as of such date or, if the average principal balance of such loans
as of such date was $3,000 or less, $3.00 per Borrower Account for each such
loan, (iii) a fee of $1.00 for each notification sent by the Servicer during the
preceding calendar month on behalf of the Trust to a borrower providing
information to such borrower with respect to Federal Consolidation Loan
programs, (iv) a one-time fee of $75.00 for each Federal Consolidation Loan
originated by the Eligible Lender Trustee on behalf of the Trust during the
preceding calendar month, (v) a fee of $25.00 for each FFELP Student Loan for
which, during the preceding calendar month, claim documentation was completed
and provided to the Guarantor or for which the Servicer performed bankruptcy or
ineligible Borrower Account processing (that, in the case of ineligible Borrower
Account processing, resulted in a demand letter being sent to the borrower), in
each case as required by the claims processing requirements of the Guarantor,
(vi) a fee of $.05 per FFELP Student Loan for storing and warehousing the
applicable loan documentation for each such loan during the preceding calendar
month, (vii) a one-time fee of $2.00 for each Serial Loan transferred by the
Depositor to the Trust during the preceding calendar month, (viii) a fee equal
to one-twelfth of the product of (a) the aggregate outstanding principal balance
of the FFELP Student Loans as of the last day of the preceding calendar month
and (b) .05%, which fee will be payable so long as 34 C.F.R. ss. 682.413 or any
successor section remains in effect and (ix) a fee of $70.00 per hour for system
development requests made by the Eligible Lender Trustee on behalf of the Trust
and provided by the Servicer during the preceding calendar month. For purposes
of making the determinations set forth in clauses (i) and (ii) of the preceding
sentence, the "In-School Percentage" and "GRDF Percentage" shall each be
determined based on the average principal balance of the In-School Loans and the
Grace, Repayment, Deferral and Forbearance Loans, respectively, as of the last
day of the preceding calendar month, as follows:]]
Average Principal In-School Average Principal GRDF Percentage
Balance Percentage Balance
- ----------------- ---------- ----------------- ---------------
$
$
The Servicing Fee (together with any portion of the Servicing Fee that remains
unpaid from prior Monthly Payment Dates) will be payable on each Monthly Payment
Date and will be paid solely out of Monthly Available Funds in the case of each
Monthly Payment Date that is not a Quarterly Payment Date (and out of Available
Funds in the case of each Quarterly Payment Date) and amounts on deposit in the
Reserve Account on such Monthly Payment Date (including each Quarterly Payment
Date) as provided in Sections 2(d)(iv)(A), 2(d)(v)(A) and
8
<PAGE>
2(e)(iv)(A) of the Administration Agreement. To the extent that, for any
Monthly Payment Date, the Servicing Fee is the amount calculated as described in
clause (I) of the first sentence of the preceding paragraph, then an amount (the
"Servicing Fee Shortfall") equal to the excess of the amount described in clause
(II) of such sentence over the amount described in clause (I) of such sentence
shall be payable on the next succeeding Quarterly Payment Date (or if such
Monthly Payment Date is also a Quarterly Payment Date, on such Quarterly Payment
Date) from any remaining Reserve Account Excess as provided in Section 2(e)(ii)
of the Administration Agreement. [To the extent such remaining Available Funds
are insufficient to pay the Servicing Fee Shortfall on any Distribution Date,
the Depositor shall be required to pay any unpaid Servicing Fee Shortfall
directly to the Servicer out of its own funds.] The Servicer will be obligated
to perform its servicing obligations whether or not it receives any amounts in
respect of Servicing Fee Shortfalls.
SECTION 3.7. Servicer's Report. On or before the fifteenth day
of each month (or, if any such day is not a Business Day, on the next succeeding
Business Day), the Servicer shall deliver to the Administrator a servicer's
report with respect to the preceding calendar month containing all information
necessary for the Administrator to prepare the Administrator's Certificate,
referred to in Section 2(b)(ii) of the Administration Agreement, covering such
preceding calendar month.
SECTION 3.8. Annual Statement as to Compliance; Notice of
Default. The Servicer shall deliver to the Eligible Lender Trustee and the
Indenture Trustee (with a copy to the Depositor), on or before April 30 of each
year beginning April 30, 1999, an Officers' Certificate of the Servicer, dated
as of December 31 of the preceding year, stating that a review of the activities
of the Servicer during the preceding 12-month period (or, in the case of the
first such certificate, during the period from the Closing Date to December 31,
1999 and of its performance has been made under such officers' supervision and
to the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under this Agreement in all material respects
throughout such year (or in the case of the first such Officer's Certificate,
such shorter period) or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officers and the
nature and status thereof. The Indenture Trustee shall send a copy of each such
Officers' Certificate and each report referred to in this Section 3.8 to the
Rating Agencies. A copy of each such Officers' Certificate and each report
referred to in this Section 3.8 may be obtained by any Noteholder or Note Owner
by a request in writing to the Trustee addressed to its Corporate Trust Office,
together with evidence satisfactory to the Trustee that such Person is one of
the foregoing parties. Upon the telephone request of the Trustee, the Indenture
Trustee will promptly furnish the Trustee a list of Noteholders as of the date
specified by the Trustee.
(a) The Servicer shall deliver to the Eligible Lender Trustee,
the Trustee, the Indenture Trustee, the Depositor and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an Officers' Certificate of the
Servicer of any event which with the giving of notice or lapse of time, or both,
would become a Servicer Default under Section 6.1 or would cause the Servicer to
fail to meet any Rating Agency Condition.
9
<PAGE>
SECTION 3.9. Annual Independent Certified Public Accountants'
Report. The Servicer shall cause a firm of independent certified public
accountants, which may also render other services to the Servicer, the Depositor
or their Affiliates, to deliver to the Trustee and the Indenture Trustee (with a
copy to the Depositor) within 180 days of the end of the Servicer's regular
fiscal-year ended September 30 or calendar-year audit period, an audit report
that encompasses the Servicer's portion of the annual Lender Audit (as defined
in the Higher Education Act), or any successor thereto, as required of a lender
under the Higher Education Act, for the preceding year (or, in the case of the
first such report, during the period from the Closing Date to December 31, 1999.
The Indenture Trustee shall send a copy of each such report to the Rating
Agencies.
Such report will also indicate that the firm is independent of
the Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
SECTION 3.10. Access to Certain Documentation and Information
Regarding FFELP Student Loans. Upon at least three Business Days' prior notice,
the Servicer shall provide the Noteholders access to the Student Loan Files in
such cases where the Noteholders shall be required by applicable statutes or
regulations to review such documentation, as demonstrated by evidence
satisfactory to the Servicer in its reasonable judgment. Access shall be
afforded without charge, but only upon reasonable request and during the normal
business hours at the respective offices of the Servicer. Nothing in this
Section shall affect the obligation of the Servicer to observe any applicable
law prohibiting disclosure of information regarding the Obligors and the failure
of the Servicer to provide access to information as a result of such obligation
shall not constitute a breach of this Section.
SECTION 3.11. Servicer Expenses. The Servicer shall be
required to pay all expenses incurred by it in connection with its activities
hereunder, including fees and disbursements of independent accountants, taxes
imposed on the Servicer, and expenses incurred in connection with distributions
and reports to the Administrator or the Noteholders, as the case may be.
SECTION 3.12. Appointment of Subservicer. The Servicer may at
any time appoint a subservicer to perform all or any portion of its obligations
as Servicer hereunder; provided, however, that the Rating Agency Condition shall
have been satisfied in connection therewith; provided further that the Servicer
shall remain obligated and be liable to the Issuer, the Eligible Lender Trustee,
the Indenture Trustee and the Noteholders for the servicing and administering of
the FFELP Student Loans in accordance with the provisions hereof without
diminution of such obligation and liability by virtue of the appointment of such
subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the FFELP Student Loans. The
fees and expenses of the subservicer shall be as agreed between the Servicer and
its subservicer from time to time and none of the Issuer, the Eligible Lender
Trustee, the Indenture Trustee or the Noteholders shall have any responsibility
therefor.
10
<PAGE>
ARTICLE IV.
Deposits into the Collection Account
SECTION 4.1. Deposits into the Collection Account. The
Servicer shall deposit into the Collection Account (in the case of clauses (i)
and (ii) within two Business Days of receipt of freely available funds
therefor):
(i) all identifiable payments received by the Servicer by or
on behalf of Obligors on the FFELP Student Loans, including any
Guarantee Payments with respect to the FFELP Student Loans;
(ii) all Liquidation Proceeds on the FFELP Student Loans;
(iii) with respect to Purchased FFELP Student Loans, the
aggregate Purchase Amounts, when such amounts are due, as provided in
Section 3.5 hereof; and
(iv) all other amounts required to be deposited into the
Collection Account by the Servicer pursuant to the terms hereof.
(a) The Eligible Lender Trustee shall deposit into the
Collection Account within two Business Days of the receipt thereof, the
aggregate amount of Interest Subsidy Payments and Special Allowance Payments
received by it with respect to the FFELP Student Loans.
(b) The Issuer shall deposit into the Collection Account, the
aggregate Purchase Amount with respect to Purchased FFELP Student Loans and all
other amounts to be paid by the Seller under Sections 3.2 and 5.1 of the Loan
Sale Agreement when such amounts are due, as provided in Section 3.3 of the Loan
Sale Agreement.
(c) {The Indenture Trustee, at the written direction of the
Administrator, shall withdraw from the Collateral Reinvestment Account and
deposit into the Collection Account on each Determination Date during the
Revolving Period, an amount equal to the Capitalized Interest Amount for the
preceding Collection Period, as provided in Section 2(f) of the Administration
Agreement.}
(d) {The Indenture Trustee, at the written direction of the
Administrator, shall withdraw from the Collateral Reinvestment Account and
deposit into the Collection Account on any date during the Revolving Period
specified by the Administrator, such amounts as the Administrator may determine
are needed to make required distributions from Monthly Available Funds or
Available Funds, as the case may be, on Monthly Payment Dates.}
ARTICLE V.
The Servicer
11
<PAGE>
SECTION 5.1. Representations of Servicer. The Servicer makes
the following representations on which the Issuer is deemed to have relied in
acquiring (beneficially together with legal title acquired through the Eligible
Lender Trustee) the FFELP Student Loans and appointing the Servicer as servicer
hereunder. The representations speak as of the execution and delivery of this
Agreement and as of the Closing Date in the case of the {Initial} FFELP Student
Loans{, and will be deemed to speak as of the applicable Transfer Date, in the
case of New Loans and Serial Loans,} as of the date of the relevant Assignment
in the case of any Qualified Substitute Student Loan, {as of the date of
origination in the case of any Consolidation Loan added to the Trust during the
Revolving Period and as of the applicable Add-on Consolidation Loan Funding Date
in the case of any Consolidation Loan the principal balance of which has been
increased by the principal balance of a related Add-on Consolidation Loan}, but
shall survive the sale, transfer and assignment of legal title to the FFELP
Student Loans to the Eligible Lender Trustee on behalf of the Issuer and
beneficial ownership thereof to the Issuer (and the origination of such
Consolidation Loans) and the pledge thereof to the Indenture Trustee pursuant to
the Indenture and otherwise.
(a) Organization and Good Standing. [The Servicer is a
division of Educational Finance Group, Inc. with the power and authority to own
its properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and has the legal right to
service the FFELP Student Loans.]
(b) Power and Authority of the Servicer. The Servicer has the
corporate power and authority to execute and deliver this Agreement and to carry
out its terms, and the execution, delivery and performance of this Agreement has
been duly authorized by the Servicer by all necessary corporate action.
(c) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Servicer, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization and similar
laws relating to creditors' rights generally and subject to general principles
of equity.
(d) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof or
thereof do not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time or both)
a default under, [[the certificate of incorporation or by-laws of the
Servicer,]] or any indenture, agreement or other instrument to which the
Servicer is a party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument; nor violate any law or, to the
knowledge of the Servicer, any order, rule or regulation applicable to the
Servicer of any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Servicer or its properties. Performance by the Servicer of its servicing duties
with respect to the FFELP Student Loans, and compliance by the Servicer with the
terms of this Agreement, will not result in the loss of any Guarantee Payments
by the Trust or any reinsurance payments with respect to any FFELP Student Loan
by the applicable Guarantor.
12
<PAGE>
(e) No Proceedings. There are no proceedings or investigations
pending against the Servicer or, to its best knowledge, threatened against the
Servicer, before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties: (i) asserting the invalidity of this Agreement or any of the other
Basic Documents to which the Servicer is a party, (ii) seeking to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement, or any of the other Basic Documents, (iii)
seeking any determination or ruling that could reasonably be expected to have a
material and adverse effect on the performance by the Servicer of its
obligations under, or the validity or enforceability of, this Agreement, any of
the other Basic Documents or the Notes or (iv) seeking to affect adversely the
Federal or state income tax attributes of the Issuer or the Notes.
(f) All Consents. All authorizations, consents, orders or
approvals of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by the Servicer in connection with the execution and
delivery by the Servicer of this Agreement and the performance by the Servicer
of its duties contemplated by this Agreement have in each case been duly
obtained, effected or given and are in full force and effect.
SECTION 5.2. Indemnities of Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement.
The Servicer shall pay for any loss, liability or expense,
including reasonable attorney's fees, that may be imposed on, incurred by or
asserted against the Issuer, the Eligible Lender Trustee, the Indenture Trustee,
the Depositor, the Administrator, or the Noteholders or any of the officers,
directors, employees and agents of the Issuer, the Eligible Lender Trustee, the
Indenture Trustee, the Administrator or the Depositor to the extent that such
loss, liability or expense arose out of, or was imposed upon any such Person
through, the negligence, willful misfeasance or bad faith of the Servicer in the
performance of its obligations and duties under this Agreement or by reason of
the reckless disregard of its obligations and duties under this Agreement, where
the final determination that any such loss, liability or expense arose out of,
or was imposed upon any such Person through, any such negligence, willful
misfeasance, bad faith or recklessness on the part of the Servicer is
established by a court of law, by an arbitrator or by way of settlement agreed
to by the Servicer; provided, however, that the Servicer's obligation arising
under this Section 5.2 shall apply only to the extent that the sum of such
obligation and any other liabilities of the Servicer under this Agreement
exceeds the Servicer Liability Limit for any Servicer Liability Period (as such
terms are defined in Section 3.5). Notwithstanding the foregoing, if the
Servicer is rendered unable, in whole or in part, by a force outside the control
of the parties hereto (including acts of God, acts of war, fires, earthquakes
and other disasters) to satisfy its obligations under this Agreement, the
Servicer shall not be deemed to have breached any such obligation upon delivery
of written notice of such event to the other parties hereto, for so long as the
Servicer remains unable to perform such obligation as a result of such event.
13
<PAGE>
For purposes of this Section, in the event of the termination
of the rights and obligations of EFG Technologies as Servicer pursuant to
Section 6.1, or a resignation by such Servicer pursuant to this Agreement, such
Servicer shall be deemed to be the Servicer pending appointment of a successor
Servicer pursuant to Section 6.2.
Liability of the Servicer under this Section shall survive the
resignation or removal of the Eligible Lender Trustee or the Indenture Trustee
or the termination of this Agreement and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer shall have made
any indemnity payments pursuant to this Agreement and the Person to or on behalf
of whom such payments are made thereafter collects any of such amounts from
others, such person shall promptly repay such amounts to the Servicer, without
interest.
SECTION 5.3. Merger or Consolidation of, or Assumption of the
Obligations of, Servicer. The Servicer hereby agrees that, upon any merger or
consolidation of the Servicer into another Person, any merger or consolidation
to which the Servicer shall be a party resulting in the creation of another
Person or any Person succeeding to the properties and assets of the Servicer
substantially as a whole, the Servicer shall cause such Person (if other than
the Servicer) to execute an agreement of assumption to perform every obligation
of the Servicer hereunder, deliver to the Eligible Lender Trustee, the Trustee
and Indenture Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent provided
for in this Agreement relating to such transaction have been complied with,
cause the Rating Agency Condition to have been satisfied with respect to such
transaction and cure any existing Servicer Default or any continuing event
which, after notice or lapse of time or both, would become a Servicer Default.
Upon compliance with the foregoing requirements, such Person shall be the
successor to the Servicer under this Agreement without further act on the part
of any of the parties to this Agreement.
SECTION 5.4. Limitation on Liability of Servicer and Others.
Neither the Servicer nor any of the directors, officers, employees or agents of
the Servicer shall be under any liability to the Issuer or the Noteholders,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or for errors in
judgment; provided, however, that this provision shall not protect the Servicer
or any such person against any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of
duties or by reason of reckless disregard of obligations and duties under this
Agreement. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any person respecting any matters arising under this
Agreement.
Except as provided in this Agreement, the Servicer shall not
be under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its duties to service the FFELP Student Loans in
accordance with this Agreement, and that in its opinion may involve it in any
expense or liability; provided, however, that the Servicer may
14
<PAGE>
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement and the other Basic Documents and the rights and
duties of the parties to this Agreement and the other Basic Documents and the
interests of the Noteholders under the Indenture.
SECTION 5.5. EFG Technologies Not to Resign as Servicer.
Subject to the provisions of Section 5.3, EFG Technologies shall not resign from
the obligations and duties hereby imposed on it as Servicer under this Agreement
except upon determination that the performance of its duties under this
Agreement shall no longer be permissible under applicable law. Notice of any
such determination permitting the resignation of EFG Technologies shall be
communicated to the Trustee, the Eligible Lender Trustee, the Indenture Trustee
and the Rating Agencies at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion of
Counsel to such effect delivered to the Eligible Lender Trustee and the
Indenture Trustee concurrently with or promptly after such notice. No such
resignation shall become effective until the Indenture Trustee or a Successor
Servicer shall have assumed the responsibilities and obligations of EFG
Technologies in accordance with Section 6.2.
ARTICLE VI.
Default
SECTION 6.1. Servicer Default. If any one of the following
events (a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deliver to the Indenture
Trustee for deposit in any of the Trust Accounts any payment required
by the Basic Documents, which failure continues unremedied for three
Business Days after written notice of such failure is received by the
Servicer from the Indenture Trustee, the Trustee or the Administrator
or after discovery of such failure by an officer of the Servicer; or
(b) any failure by the Servicer duly to observe or to perform
in any material respect any other covenants or agreements of the
Servicer set forth in this Agreement or any other Basic Document, which
failure shall materially and adversely affect the rights of Noteholders
and continue unremedied for a period of thirty (30) days after the date
on which written notice of such failure, requiring the same to be
remedied, shall have been given (A) to the Servicer, by the Indenture
Trustee, the Trustee or (B) to the Servicer, and to the Indenture
Trustee, the Administrator and the Trustee by Noteholders representing
not less than 25% of the Outstanding Amount of the Notes; or
(c) any limitation, suspension or termination by the
Department of the Servicer's eligibility to service FFELP Student Loans
which materially and adversely affects its ability to service the FFELP
Student Loans; or
(d) an Insolvency Event occurs with respect to the
Servicer;
15
<PAGE>
then, and in each and every case, so long as the Servicer Default shall not have
been remedied, either the Indenture Trustee or the Noteholders of Notes
evidencing not less than 75% of the Outstanding Amount of the Notes by notice
then given in writing to the Servicer (and to the Indenture Trustee, the
Eligible Lender Trustee and the Trustee if given by the Noteholders) may
terminate all the rights and obligations (other than the obligations set forth
in Section 5.2) of the Servicer under this Agreement. On or after the receipt by
the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Notes, the FFELP Student Loans
or otherwise, shall, without further action, pass to and be vested in the
Indenture Trustee or such successor Servicer as may be appointed under Section
6.2; and, without limitation, the Indenture Trustee, the Trustee and the
Eligible Lender Trustee are hereby authorized and empowered to execute and
deliver, for the benefit of the predecessor Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of the
FFELP Student Loans and related documents, or otherwise. The predecessor
Servicer shall cooperate with the successor Servicer, the Indenture Trustee, the
Trustee and the Eligible Lender Trustee in effecting the termination of the
responsibilities and rights of the predecessor Servicer under this Agreement,
including the transfer to the successor Servicer for administration by it of all
cash amounts that shall at the time be held by the predecessor Servicer for
deposit, or shall thereafter be received by it with respect to a Student Loan.
All reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the Student Loan Files to the successor Servicer
and amending this Agreement and any other Basic Documents to reflect such
succession as Servicer pursuant to this Section shall be paid by the predecessor
Servicer upon presentation of reasonable documentation of such costs and
expenses. Upon receipt of notice of the occurrence of a Servicer Default, the
Trustee shall give notice thereof to the Rating Agencies.
SECTION 6.2. Appointment of Successor. Upon receipt by the
Servicer of notice of termination pursuant to Section 6.1, or the resignation by
the Servicer in accordance with the terms of this Agreement, the predecessor
Servicer shall continue to perform its functions as Servicer under this
Agreement, in the case of termination, only until the date specified in such
termination notice or, if no such date is specified in a notice of termination,
until receipt of such notice and, in the case of resignation, until the later of
(x) the date 120 days from the delivery to the Trustee, the Eligible Lender
Trustee and the Indenture Trustee of written notice of such resignation (or
written confirmation of such notice) in accordance with the terms of this
Agreement and (y) the date upon which the predecessor Servicer shall become
unable to act as Servicer as specified in the notice of resignation and
accompanying Opinion of Counsel. In the event of the termination hereunder of
the Servicer, the Issuer shall appoint a successor Servicer acceptable to the
Indenture Trustee, and the successor Servicer shall accept its appointment by a
written assumption in form acceptable to the Indenture Trustee and the
Administrator. In the event that a successor Servicer has not been appointed at
the time when the predecessor Servicer has ceased to act as Servicer in
accordance with this Section, the Indenture Trustee without further action shall
automatically be appointed the successor Servicer and the Indenture Trustee
shall be entitled to the Servicing Fee. Notwithstanding the above, the Indenture
Trustee shall, if it shall be unwilling or legally unable so to act, appoint
16
<PAGE>
or petition a court of competent jurisdiction to appoint, any established
institution whose regular business shall include the servicing of FFELP Student
Loans, as the successor to the Servicer under this Agreement; provided, however,
that such right to appoint or to petition for the appointment of any such
successor Servicer shall in no event relieve the Indenture Trustee from any
obligations otherwise imposed on it under the Basic Documents until such
successor has in fact assumed such appointment.
(a) Upon appointment, the successor Servicer (including the
Indenture Trustee acting as successor Servicer) shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities placed on the predecessor Servicer that
arise thereafter or are related thereto and shall be entitled to an amount
agreed to by such successor Servicer (which shall not exceed the Servicing Fee,
unless such compensation arrangements will not result in a downgrading of the
ratings of the Notes by any Rating Agency) and all the rights granted to the
predecessor Servicer by the terms and provisions of this Agreement.
(b) The Servicer may not resign unless it is prohibited from
serving as such by law as evidenced by an Opinion of Counsel to such effect
delivered to the Trustee, the Indenture Trustee and the Eligible Lender Trustee.
Notwithstanding the foregoing or anything to the contrary herein or in the other
Basic Documents, the Indenture Trustee, to the extent it is acting as successor
Servicer pursuant hereto, shall be entitled to resign to the extent a qualified
successor Servicer has been appointed and has assumed all the obligations of the
Servicer in accordance with the terms of this Agreement and the other Basic
Documents.
SECTION 6.3. Notification to Noteholders and the Company. Upon
any termination of, or appointment of a successor to, the Servicer pursuant to
this Article VI, the Indenture Trustee shall give prompt written notice thereof
to Noteholders, the Administrator, the Eligible Lender Trustee, the Issuer and
the Rating Agencies (which, in the case of any such appointment of a successor,
shall consist of prior written notice thereof to the Rating Agencies).
SECTION 6.4. Waiver of Past Defaults. The Noteholders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes may,
on behalf of all Noteholders, waive in writing any default by the Servicer in
the performance of its obligations hereunder, and any consequences thereof,
except a default in making any required deposits to or payments from any of the
Trust Accounts (or giving instructions regarding the same) in accordance with
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereto.
ARTICLE VII.
Miscellaneous
17
<PAGE>
SECTION 7.1. Amendment. This Agreement may be amended by the
Servicer, the Trustee and the Eligible Lender Trustee, with the consent of the
Indenture Trustee, but without the consent of any of the Noteholders, to cure
any ambiguity, to correct or supplement any provisions in this Agreement or for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions in this Agreement or of modifying in any manner the rights
of the Noteholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel delivered to the Eligible Lender Trustee, the Trustee
and the Indenture Trustee, adversely affect in any material respect the
interests of any Noteholder.
This Agreement may also be amended from time to time by the
Servicer, the Trustee and the Eligible Lender Trustee, with the consent of the
Indenture Trustee, the consent of the Noteholders of Notes evidencing not less
than a majority of the Outstanding Amount of the Notes, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments with respect to FFELP Student Loans or distributions
that shall be required to be made for the benefit of the Noteholders or (b)
reduce the aforesaid percentage of the Outstanding Amount of the Notes, the
Noteholders of which are required to consent to any such amendment, without the
consent of all outstanding Noteholders.
Promptly after the execution of any such amendment or consent
(or, in the case of the Rating Agencies, five Business Days prior thereto), the
Trustee shall furnish written notification of the substance of such amendment or
consent to the Indenture Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Noteholders
pursuant to this Section to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof.
Prior to the execution of any amendment to this Agreement, the
Eligible Lender Trustee, the Trustee and the Indenture Trustee shall be entitled
to receive and rely upon an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement and the Opinion of
Counsel referred to in Section 6.2(f) of the Loan Sale Agreement. The Eligible
Lender Trustee, the Trustee and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Eligible Lender
Trustee's, the Trustee's or the Indenture Trustee's, as applicable, own rights,
duties or immunities under this Agreement or otherwise.
SECTION 7.2. Protection of Interests in Trust. The Servicer
shall not change its name, identity or corporate structure in any manner that
would, could or might make any financing statement or continuation statement
filed in accordance with Section 6.2(a) of the Loan Sale Agreement seriously
misleading within the meaning of ss.9-402(7) of the UCC or otherwise, unless it
shall have given the Eligible Lender Trustee, the Trustee, the Indenture
18
<PAGE>
Trustee and the Rating Agencies at least five days' prior written notice thereof
and shall have promptly filed appropriate amendments to all previously filed
financing statements or continuation statements.
(a) The Servicer shall have an obligation to give the Eligible
Lender Trustee, the Trustee and the Indenture Trustee at least sixty (60) days'
prior written notice of any relocation of its principal executive office if, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall promptly file any such
amendment. The Servicer shall at all times maintain each office from which it
shall service FFELP Student Loans, and its principal executive office, within
the United States of America.
(b) The Servicer shall maintain accounts and records of each
Student Loan accurately and in sufficient detail to permit the reader thereof to
know at any time the status of such Student Loan, including payments and
recoveries made and payments owing (and the nature of each) and reconciliation
between payments or recoveries on (or with respect to) each Student Loan and the
amounts from time to time deposited in the Collection Account in respect of such
Student Loan.
(c) The Servicer shall, by use of a distinct identification
code, maintain its computer systems so that, from and after the time of sale
under the Loan Sale Agreement of the FFELP Student Loans, the Servicer's master
computer records (including any backup archives) that refer to an FFELP Student
Loan shall indicate clearly the interest of the Issuer, the Eligible Lender
Trustee and the Indenture Trustee in such FFELP Student Loan and that such FFELP
Student Loan is owned legally by the Eligible Lender Trustee on behalf of the
Issuer and beneficially by the Issuer and has been pledged to the Indenture
Trustee. Indication of the Issuer's, the Eligible Lender Trustee's and the
Indenture Trustee's interest in an FFELP Student Loan shall be deleted from or
modified on the Servicer's computer systems when, and only when, the related
FFELP Student Loan shall have been paid in full or repurchased.
(d) If at any time the Servicer shall propose to sell, grant a
security interest in, or otherwise transfer any interest in FFELP Student Loans
to any prospective purchaser, lender or other transferee, the Servicer shall
give to such prospective purchaser, lender or other transferee computer tapes,
records or printouts (including any restored from backup archives) that, if they
shall refer in any manner whatsoever to any FFELP Student Loan, shall indicate
clearly that such FFELP Student Loan has been sold and is owned legally by the
Eligible Lender Trustee on behalf of the Issuer and beneficially by the Issuer
and has been pledged to the Indenture Trustee.
(e) The Servicer shall permit the Indenture Trustee and its
agents at any time during normal business hours to inspect, audit and make
copies of and abstracts from the Servicer's records regarding any FFELP Student
Loan; provided, however, that the Servicer is given reasonable prior notice of
at least 3 Business Days.
19
<PAGE>
(f) Upon request, at any time the Eligible Lender Trustee, the
Trustee or the Indenture Trustee shall have reasonable grounds to believe that
such request would be necessary in connection with its performance of its duties
under the Basic Documents, the Servicer shall furnish to the Eligible Lender
Trustee, the Trustee or the Indenture Trustee (in each case, with a copy to the
Administrator), within five (5) Business Days, a list of all FFELP Student Loans
(by borrower social security number, type of loan and date of issuance) then
held as part of the Trust, and shall cause the Administrator to furnish to the
Eligible Lender Trustee, the Trustee or the Indenture Trustee, within 20
Business Days thereafter, a comparison of such list to the list of {Initial}
FFELP Student Loans set forth in Schedule A to the Loan Sale Agreement as of the
Closing Date, and, for each FFELP Student Loan that has been added to or removed
from the pool of loans owned legally by the Eligible Lender Trustee on behalf of
the Issuer, information as to the date as of which and circumstances under which
each such FFELP Student Loan was so added or removed.
SECTION 7.3. Notices. Unless otherwise agreed by the
recipient, all demands, notices and communications upon or to the Depositor, the
Servicer, the Trustee, the Eligible Lender Trustee, the Indenture Trustee, the
Administrator or the Rating Agencies under this Agreement shall be in writing,
personally delivered or mailed by certified mail, return receipt requested (or
in the form of telex or facsimile notice, followed by written notice delivered
as aforesaid or postage prepaid, first class mail), and shall be deemed to have
been duly given upon receipt;
(a) in the case of the Depositor, to
EFG Funding Corporation
One Financial Place
297 North Street
Hyannis, Massachusetts 02601
Attention: President and Chief Executive Officer
Telephone: [PHONE]
Telecopy: [FAX]
with a copy to:
-----------------------------
-----------------------------
Attention:
Telephone:
Telecopy:
(b) in the case of [ELIGIBLE LENDER TRUSTEE], to
[ELIGIBLE LENDER TRUSTEE]
[ADDRESS]
Attention:
Telephone:
20
<PAGE>
Telecopy:
(c) in the case of the Servicer, to
EFG Technologies
[ADDRESS]
Attention:
Telephone:
Telecopy:
with a copy to
Office of the General Counsel
[ADDRESS]
Attention:
Telephone:
Telecopy:
(d) in the case of the Issuer, to
EFG Student Loan Trust ____-_
c/o
[ADDRESS]
with a copy to the Trustee
at the Corporate Trust Office of the
Trustee
(e) in the case of the Trustee, at the Corporate Trust
Office of the Trustee;
(f) in the case of the Indenture Trustee, at its
Corporate Trust Office;
(g) in the case of the Administrator, to
Educational Finance Group, Inc.
One Financial Place
297 North Street
Hyannis, Massachusetts 02601
Attention: President and Chief Executive Officer
Telephone:
Telecopy:
with a copy to:
Office of the General Counsel
[ADDRESS]
Attention:
21
<PAGE>
Telephone:
Telecopy:
(h) [in the case of Moody's, to
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Telephone: (212) 553-0300
(i) in the case of Fitch, to
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Attention: Asset Backed Monitoring Unit
Telephone: (212) 908-0500
Facsimile: (212) 480-4435
(j) in the case of Duff & Phelps, to
Duff & Phelps Credit Rating Co.
[ADDRESS]
Attention: Asset Backed Monitoring Unit
Telephone:
Facsimile:
or, as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.]
SECTION 7.4. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in the succeeding sentence, as
provided in Section 5.3 and as provided in the provisions of this Agreement
concerning the resignation of the Servicer, this Agreement may not be assigned
by the Servicer. This Agreement may only be assigned by the Eligible Lender
Trustee or the Trustee to its permitted successor pursuant to the Eligible
Lender Trust Agreement or Trust Agreement, as the case may be. The Depositor may
assign its rights, obligations and duties hereunder to an affiliate in whole or
in part.
SECTION 7.5. Limitations on Rights of Others. The provisions
of this Agreement are solely for the benefit of the Servicer, the Issuer and the
Eligible Lender Trustee and for the benefit of the Administrator, the Indenture
Trustee and the Noteholders, as third party beneficiaries, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust
22
<PAGE>
Estate or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 7.6. Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 7.7. Separate Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 7.8. Headings. The headings of the various Articles
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 7.9. Governing Law. This Agreement shall be construed
in accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 7.10. Non-Petition Covenants. Notwithstanding any
prior termination of this Agreement, the Servicer shall not, prior to the date
which is one year and one day after the termination of this Agreement with
respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any Federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
SECTION 7.11. Limitation of Liability of Eligible Lender
Trustee, Trustee and Indenture Trustee. (a) Notwithstanding anything contained
herein to the contrary, this Agreement has been signed by [ELIGIBLE LENDER
TRUSTEE] not in its individual capacity but solely in its capacity as Eligible
Lender Trustee of the Issuer and in no event shall [ELIGIBLE LENDER TRUSTEE] in
its individual capacity or, except as expressly provided in the Trust Agreement,
as beneficial owner of the Issuer have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto
as to all of which recourse shall be had solely to the assets of the Issuer.
(b) Notwithstanding anything contained herein to the
contrary, this Agreement has been signed by [TRUSTEE] not in its individual
capacity but solely in its capacity as Eligible Lender Trustee of the Issuer and
in no event shall [TRUSTEE] in its
23
<PAGE>
individual capacity or, except as expressly provided in the Trust Agreement, as
beneficial owner of the Issuer have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto
as to all of which recourse shall be had solely to the assets of the Issuer.
(c) Notwithstanding anything contained herein to the contrary,
this Agreement has been accepted by [INDENTURE TRUSTEE] not in its individual
capacity but solely as Indenture Trustee and in no event shall [INDENTURE
TRUSTEE] have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
EFG STUDENT LOAN TRUST 1999-[ ],
By: [TRUSTEE], not in its individual
capacity but solely as
Trustee on behalf of the Trust,
By
--------------------------------
Name:
Title:
EDUCATIONAL FINANCE GROUP, INC.
By
--------------------------------
Name:
Title:
EFG FUNDING CORPORATION
By
--------------------------------
Name:
Title:
[ELIGIBLE LENDER TRUSTEE], not in its
individual capacity but solely as Eligible
Lender Trustee,
By
--------------------------------
Name:
Title:
25
<PAGE>
Acknowledged and accepted
as of the day and year first
above written:
[INDENTURE TRUSTEE], not in
its individual capacity but
solely as Indenture Trustee
By
-----------------------------
Name:
Title:
26
<PAGE>
SCHEDULE A
The Servicer shall maintain each Student Loan File at one of the locations
listed below:
<PAGE>
EXHIBIT 99.3
[Form Of]
PRIVATE LOAN SERVICING AGREEMENT dated as of ________ 1, 1999,
between EFG Student Loan Trust 1999-A (the "Owner"), and EFG Technologies
Inc., as servicer (the "Servicer");
WITNESSETH:
WHEREAS the Owner desires to purchase and/or originate student loans
that are not originated under the Higher Education Act of 1965, as amended;
WHEREAS the Servicer is willing to service such student loans and
undertake certain administrative functions with respect thereto.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions and Usage
Capitalized terms used but not defined herein are in Appendix A to
this Servicing Agreement, which also contains rules as to usage and
construction that shall be applicable herein.
ARTICLE II.
Custody of Financed Student Loans
SECTION 2.1. Custody of Student Loan Files. To assure uniform quality
in servicing the Student Loans and to reduce administrative costs, Owner
hereby revocably appoints the Servicer as its agent, and the Servicer hereby
accepts such appointment, to act for the benefit of the Owner as Custodian of
the following documents or instruments with respect to each Student Loan:
(a) the original fully executed copy of the note evidencing the
Student Loan (including the original loan application fully executed by the
Borrower); and
(b) any and all other documents and computerized records that the
Servicer shall keep on file, in accordance with its customary procedures,
relating to such Student Loan or any Obligor with respect thereto.
SECTION 2.2. Duties of Servicer as Custodian
(a) Safekeeping. The Servicer shall maintain custody of the Student
Loan Files for the benefit of the Owner and maintain such accurate and
complete accounts, records and computer systems pertaining to each Student
Loan File. In performing its duties as custodian the Servicer shall act with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to the student loan files relating to all comparable
Student Loans that the
<PAGE>
Servicer services and shall ensure that it complies with all applicable
Federal and State laws, with respect thereto. The Servicer shall conduct, or
cause to be conducted, periodic audits of the Student Loan Files held by it
under this Agreement and of the related accounts, records and computer
systems, in such a manner as shall enable Owner to verify the accuracy of the
Servicer's record keeping. The Servicer shall promptly report to the Owner any
failure on its part to hold the Student Loan files and maintain its accounts,
records and computer systems as herein provided and promptly take appropriate
action to remedy any such failure. Nothing herein shall be deemed to require
an initial review or any periodic review by the Owner of the Student Loan
Files.
(b) Maintenance of Records. The Servicer shall maintain each Student
Loan File at one of the locations specified in Schedule B to this Agreement or
at such other office as shall be specified by written notice to the Owner not
later than 90 days after any change in location. Upon reasonable prior notice
of not less than three Business Days, the Servicer shall make available to the
Owner or its duly authorized representatives, attorneys or auditors a list of
locations of the Student Loan Files and the related accounts, records and
computer systems maintained for Owner by the Servicer.
-2-
<PAGE>
SECTION 2.3. Instructions: Authority to Act. The Servicer shall be
deemed to have received proper instructions with respect to the Student Loan
Files upon its receipt of written instructions signed by an officer of the
Owner.
SECTION 2.4. Custodian's Indemnification. The Servicer as Custodian
shall pay for any actual loss, liability or expense, including reasonable
attorneys' fees, that may be imposed on, incurred by or asserted against the
Owner, or any of its officers, directors, employees and agents as a result of
any gross negligence relating to the maintenance and custody by the Servicer
as Custodian of the Student Loan Files as required by this Agreement where the
final determination that any such gross negligence by the Servicer resulted in
such loss, liability or expense is established by a court of law, by an
arbitrator, or by way of settlement agreed to by the Servicer; provided,
however, that the amount of any liability with respect to any Student Loan
shall not exceed the amount that would have been paid if such Student Loan had
been accepted and paid by the related Guarantor as a claim, and provided,
further, that the Servicer shall not be liable to Owner for any portion of any
such amount resulting from the willful misfeance, bad faith or negligence of
the Owner.
SECTION 2.5. Effective Period and Termination. The appointment of
Loan Services as Custodian shall become effective as of the date of this
Agreement and shall continue in full force and effect for so long as Loan
Services shall remain the Servicer hereunder. If all the rights and
obligations of Loan Services shall have been terminated under Section 6.01,
the appointment of Loan Services as Custodian shall be terminated
simultaneously with the effectiveness of such termination. As soon as
practicable on or after any termination of such appointment and in any event
within ninety (90) days, Loan Services shall deliver possession of the Student
Loan Files to the Owner or Owner's designee at such place or places as the
Owner may reasonably designate.
SECTION 2.6. Sub-Custody Agreement. At the direction of the Owner,
the Servicer agrees to enter into a Sub-Custody Agreement for the benefit of,
and in form and substance satisfactory to, each creditor of the Owner
ARTICLE III.
Administration and Servicing of Student Loans
-3-
<PAGE>
SECTION 3.1. Duties of Servicer. The Servicer, for the benefit of the
Owner (to the extent provided herein), shall manage, service, administer and
make collections on the Student Loans with reasonable care, using that degree
of skill and attention that the Servicer exercises with respect to all
comparable Student Loans that it services. Without limiting the generality of
the foregoing or of any other provision set forth in this Agreement and
notwithstanding any other provision to the contrary set forth herein, the
Servicer shall manage, service, administer and make collections with respect
to the Student Loans in accordance with, and otherwise comply with, all
applicable Federal and state laws, including any applicable standards,
guidelines and the applicable Guarantee Agreement, the failure to comply with
which would adversely affect the eligibility of one or more of the Student
Loans for Guarantee Payments. The Servicer agrees to service Serviced Loans in
compliance with the Program Manual.
The Servicer's duties shall include collection and posting of all
payments, responding to inquiries of borrowers on such Student Loans,
monitoring borrower's status, making required disclosures to borrowers,
investigating delinquencies, sending payment coupons to borrowers and
otherwise establishing repayment terms, reporting tax information to
borrowers, if applicable, accounting for collections and furnishing monthly
and annual statements with respect thereto to Owner. Subject to the provisions
of section 3.2, the Servicer shall follow its customary standards policies and
procedures in performing its duties as Servicer. Without limiting the
generality of the foregoing, the Servicer is authorized and empowered to
execute and deliver instruments, with respect to such Student Loans; provided;
however, that the Servicer agrees that it will not (a) permit any rescission
or cancellation of a Student Loan except as ordered by a court of competent
jurisdiction or governmental authority or as otherwise consented to in writing
by the Owner or (b) reschedule, revise, defer or otherwise compromise with
respect to payments due on any Student Loan except pursuant to any applicable
deferral or forbearance periods or otherwise in accordance with all applicable
standards, guidelines and requirements with respect to the servicing of the
Student Loans; provided further, however, that the Servicer shall not agree to
any decrease of the interest rate on, or the principal amount payable with
respect to, any Student Loan.
The Servicer shall promptly and routinely furnish the Owner with
copies of all material reports, records, and other documents and data as
required by this Agreement. All material correspondence received by the
Servicer relating to individual Student Loans shall be maintained in microcopy
form or in summary form in an automated history file established by the
Servicer. The Servicer shall furnish in good condition all forms and supplies
as specified in this Agreement and any Schedules hereto. In performing its
duties hereunder, the Servicer will be guided by and comply with the
applicable requirements of the Guarantor. The Servicer agrees to produce a
clear and precise audit trail for each Student Loan and to comply with such
other reporting, servicing, and operating standards as are contained in this
Agreement.
The Owner hereby grants a power of attorney and all necessary
authorization to the Servicer to maintain any and all collection procedures
with respect to the Student Loans, including filing, pursuing and recovering
claims against the Guarantors for Guarantee Payments and taking any steps to
enforce such Students Loans such as commencing a legal proceeding to enforce a
Student Loan in the name of the Owner. The Owner shall upon the
-4-
<PAGE>
written request of the Servicer furnish the Servicer with any other powers of
attorney and other documents reasonably necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder.
SECTION 3.2. Collection of Student Loan Payments.
(a) The Servicer shall make reasonable efforts (including all efforts
that may be specified under any applicable Guarantee Agreement) to collect all
payments called for under the terms and provision of the Student Loans as and
when the same shall become due and shall follow such collection procedures as
it follows with respect to all comparable Student Loans that it services. The
Servicer shall allocate collections with respect to the Student Loans between
principal and interest in accordance with the terms of each such Student Loan.
The Servicer may in its discretion waive any late payment charge or any other
fees that may be collected in the ordinary course of servicing a Student Loan.
(b) The Servicer shall make reasonable efforts to claim, pursue and
collect all Guarantee Payments from the applicable Guarantor pursuant to the
Guarantee Agreement with respect to any of the Student Loans as and when the
same shall become due and payable, shall comply with all applicable laws and
agreements with respect to claiming, pursuing and collecting such payments and
shall follow such practices and procedures as it follows with respect to all
comparable guarantee agreements and private student loans that it services. In
connection therewith, the Servicer is hereby authorized and empowered to
convey to the Guarantor the note and the related Student Loan File
representing any Student Loan in connection with submitting a claim to the
Guarantor for a Guarantee Payment in accordance with the terms of the
Guarantee Agreement.
(c) The Owner shall upon the written request of the Servicer furnish
the Servicer with any power of attorney and other documents reasonably
necessary or appropriate to enable the Servicer to prepare and file such
claims forms and other documents and filings.
-5-
<PAGE>
SECTION 3.3. Realization upon Student Loans. The Servicer shall use
reasonable efforts consistent with its customary servicing practices and
procedures and including all efforts that may be specified under the Guarantee
Agreement in its servicing of any delinquent Student Loans.
SECTION 3.4. Servicing Fees. The fees for Servicer's services are
listed on Schedule A to this Agreement. If neither party has given the other
party notice of termination of this Agreement, the Servicer may submit to the
Owner any proposed modification, amendments, or adjustment to the Servicing
Fees; provided however, no change in Servicing Fees shall take place during
the first twenty-four (224) months of this Agreement. The new Servicing Fees
will be for a term of twenty-four (24) months and the new Servicing Fees will
be effective the day following the date of expiration of the prior Servicing
Fees. Servicer can terminate this Agreement in accordance with Section 5.05,
with ninety (90) days written notice if no concurrence on revised fees is
obtained.
Special Services. Owner will compensate Servicer of the performance
by the Servicer of additional services as provided by this paragraph.
Additional services may include but are not limited to the following:
packaging and/or transferring Student Loan documentation or Loans, conversion
of the existing portfolio of the Owner to the Servicer's system, completing
data sheets for the Owner to facilitate the entry of the Owner's existing
Student Loans onto the Servicer's data processing system, ad-hoc computer
reports, data processing expenses, costs of postage and shipping, travel
expenses incurred by the Servicer for training, examining or reviewing Student
Loans at other than the Servicer's offices, supporting audits conducted on the
Servicer by or at the request of the Owner, and providing cure services on
rejected Student Loans (non-Servicer error only). The Owner will also
compensate the Servicer for other miscellaneous services provided by the
'Servicer as requested by the Owner, and for services to remedy the Owner's or
previous owner's failure to perform due diligence and servicing in accordance
with the Guarantor's requirements.
The Servicer will invoice the Owner monthly for Servicing Fees. The
Servicing Fees will be payable monthly and due within thirty (30) days from the
date of the invoice.
SECTION 3.5. Audits. The Servicer agrees to permit the Owner or its
designated agent, at the expense of the Owner, at a reasonable time during
regular business hours and upon at least seventy-two (72) hours notice, to
examine and audit such information as is necessary for the purpose of
verifying the information submitted to the Owner and reviewing the Servicer's
operations with respect to the Serviced Loans. The Owner shall compensate the
Servicer for services provided by the Servicer in support of the audit
including but not limited to the providing of documents, reports, equipment,
and/or research and consultation. The Owner may not use a competitor of the
Servicer (as may reasonably be determined by the Servicer) to perform the
audit. Access to Servicer's confidential or proprietary information is not
allowed.
SECTION 3.6. Access to Certain Documentation and Information
Regarding Student Loans. Upon at least three Business Days' prior notice, the
Servicer shall provide the Owner
-6-
<PAGE>
access to the Student Loan files in such case where the Owner shall be
required by applicable statutes or regulations to review such documentation or
perceives such review necessary and advisable to protect Owner's interests in
Student Loans, as demonstrated by evidence satisfactory to the Servicer in its
reasonably judgment. Access shall be afforded without charge, but only upon
reasonably request and during the normal business hours at the respective
offices of the Servicer. Nothing in this Section shall affect the obligations
of the Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors and the failure of the Servicer to provide
access to information as a result of such obligation shall not constitute a
breach of this Section.
SECTION 3.7. Servicer Expenses. The Servicer shall be required to pay
all expenses incurred by it in connection with its activities required
hereunder, including fees and disbursements of independent accountants, taxes
imposed on the Servicer, and expenses incurred in connection with
distributions and reports by the Servicer.
SECTION 3.8. Appointment of Subservicer. The Servicer may at any time
appoint a subservicer to perform all or any portion of its obligations as
Servicer hereunder; provided, however, that the Servicer shall remain
obligated to the Owner for the Owner for the servicing and administering of
the Student Loans in accordance with the provisions hereof without diminution
of such obligation by virtue of the appointment of such subservicer and to the
same extent and under the same terms and conditions as if the Servicer also
were servicing and administering the Student Loans. The fees and expenses of
the subservicer shall be as agreed between the Servicer and its subservicer
from time to time and the Owner shall not have any responsibility therefor.
SECTION 3.9. Continuity of Servicing.
In the absence of a Servicer Default, the Owner hereby agrees that it
will ensure that all Serviced Loans originated, acquired, held, or sold by the
Owner and subject to this Agreement will remain with the Servicer for the full
term of this Agreement.
SECTION 3.10. No Impairment
The Servicer shall not impair the rights of the Owner in student
loans.
ARTICLE IV.
The Servicer
SECTION 4.1. Deposits into the Collection Account.
The Servicer shall deposit into the Collection Account (in the case
of clauses (a) within two Business Days of receipt of freely available funds
therefor):
(a) all identifiable payments received by the Servicer by or on
behalf of Obligors in the Student Loans, including any Guarantee Payments with
respect to the Student Loans.
-7-
<PAGE>
(b) all other amounts required to be deposited into the Collection
Account by the Servicer pursuant to the terms hereof.
ARTICLE V.
The Servicer
SECTION 5.1. Representations of Servicer. The Servicer makes the
following representations as of the date hereof:
(a) Organization and Good Standing. The Servicer is duly organized
and validly existing as a corporation in good standing under the laws of the
State of Delaware, with the power and authority to own its properties and to
conduct its business as such properties are currently owned and such business
is presently conducted, and has the legal right to service the Student Loans.
(b) Power and Authority of the Servicer. The Servicer has the
corporate power and authority to execute and deliver this Agreement and to
carry out its terms, and the execution, delivery and performance of this
Agreement has been duly authorized by the servicer by all necessary corporate
action.
(c) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and similar laws
relating to creditors' rights generally and subject to general principles of
equity.
(d) No Violation. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof or thereof don to
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time or both) a default under,
the certificate of incorporation or by-laws of the Servicer, or any indenture,
agreement or other instrument to which the Servicer is a party or by which it
shall be bound; nor result in the creation or imposition of any Lien upon any
of its properties pursuant to the terms of any such indenture, agreement or
other instrument; nor violate any law or, to the knowledge of the Servicer,
any order, rule or regulation applicable to the Servicer of any court or of
any Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties. Performance by the Servicer of this servicing duties with respect
to the Student Loans, and compliance by the Servicer with the terms of this
Agreement, will not result in the loss of any guarantee Payments.
Notwithstanding any provision as this Agreement to the contrary, the parties,
acknowledge the Servicer is licensed as a collection agency only in the State
of Maryland and the parties agree that no further licensing is required for
performance of this Agreement.
(e) All Consents. All authorizations, consents, orders or approvals
of or registrations or declarations with any court, regulatory body,
administrative agency or other government instrumentality required to be
obtained, effected or given by the Servicer in connection with the execution
and delivery by the servicer of this Agreement and the performance by the
-8-
<PAGE>
Servicer of its duties contemplated by this Agreement have in each case been
duly obtained, effected or given and are in full force and effect.
SECTION 5.2. Indemnification relating to Serviced Loans.
(a) The liability of Servicer under this Agreement is limited to
reimbursing the Owner its uninsured loss on a Loan, up to the amount of
Servicing fees paid on the loan, caused by Servicer's negligence in performing
under this Agreement in the following situations: 1) Servicer's failure to
file a claim on behalf of Owner in a bankruptcy proceeding, known to Servicer,
or to notify Owner of such proceeding the causes a discharge of the debt in
such bankruptcy; or 2) Servicer's inability to produce a certified copy of the
promissory note that causes the Loan to be uncollectible by the Owner in
litigation against the borrower on the Loan, provided that Servicer is
notified by Owner of such litigation and has the right to conduct it or
intervene in it on behalf of Owner.
-9-
<PAGE>
C. In the event the Servicer is required to appear or is made a defendant
in any legal action or other proceeding commenced by a person or entity
other than the Owner with respect to any Loan, the Owner shall indemnify
and hold harmless the Servicer for all loss, liability or expenses cause
by the negligence or misconduct of the Owner and not caused by the
negligence or misconduct of the Servicer's SECTION 5.4. Merger or
Consolidation of, or Assumption of the Obligations of Servicer. The
Servicer hereby agrees that, upon (a) any merger or consolidation of the
Servicer into another Person, (b) any merger or consolidation to which
the Servicer shall be a party resulting in the creation of another Person
or (c) any person succeeding to the properties and assets of the Servicer
substantially as a whole, the Servicer shall (i) cause such Person (if
other than the Servicer) to execute an agreement of assumption to perform
every obligation of the Servicer hereunder, (ii) deliver to Owner an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption
comply with this Section and that all conditions precedent provided for
in this Agreement relating to such transaction have been complied with,
and (iii) cure any existing Servicer Default or any continuing event
which, after notice or lapse of time or both, would become a Servicer
Default. Upon compliance with the foregoing requirements, such Person
shall be the successor to the Servicer under this Agreement without
further act on the part of any of the parties to this Agreement.
Notwithstanding anything herein to the contrary, compliance with clauses
(i), (ii), and (iii) above shall be conditions to the consummation of any
of the transactions referred to in clause (a), (b) or (c) above.
SECTION 5.4. Limitation on Liability of Servicer or Others. Neither
the Servicer nor any of the directors, officers, employees or agents of the
Servicer shall be under any liability to the Owner, except as provided under
this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement or for errors in judgment. The Servicer and
any director, officer, employee or agent of the Servicer may rely in good
faith on any document of any kind prima face properly executed and submitted
by any person respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute or defend any legal action that shall
not be incidental to its duties to service the Student Loans in accordance
with this Agreement, and that in its opinion may involve it in any expense or
liability, provided, however, that the Servicer may undertake any reasonable
action that it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties to this Agreement.
SECTION 5.5. Resignation of Servicer. Loan Services may resign from
the obligations and duties hereby imposed on it as Servicer under this
Agreement upon determination that the performance of its duties under this
Agreement shall no longer be permissible under applicable law or that
Servicing Fees have gone unpaid for at least ninety (90) days. Notice of any
such determination permitting the resignation of Loan Services shall be
communicated to the Owner at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time) and any such determination shall be evidenced by an Opinion
of Counsel to such effect delivered to the
-10-
<PAGE>
Owner concurrently with or promptly after such notice. No such resignation
shall become effective until the Owner or a successor servicer shall have
assumed the responsibilities and obligations of Loan Services in accordance
with revised fees as provided in Section 3.04, the Owner shall pay Servicer a
fee of $[ ] per Loan to transfer servicing of the Loans to a successor
servicer.
ARTICLE VI.
Default
SECTION 6.1. Servicer Default. If any one of the following event (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deliver to the Owner any payment
required by this Agreement, which failure continues unremedied for three
Business Days after written notice of such failure is received by the Servicer
from the Owner or after discovery of such failure by an officer of the
Servicer; or
(b) any failure by the Servicer duly to observe or to perform in any
material respect any other covenant or agreement of the Servicer set forth in
this Agreement, which failure (i) materially and adversely affects the rights
of Owner and (ii) continues unremedied for a period of thirty (30) days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer, by the Owner; or
(c) an Insolvency Event occurs with respect to the Servicer;
then, and in each and every case, so long as the Servicer Default shall not
have been remedied, the Owner by notice then given in writing to the Servicer
(and to the Owner) may terminate all the rights and obligations (other than
the obligations set forth in Section 5.02) of the Servicer under this
Agreement. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Agreement, shall, without
further action, pass to and be vested in the Owner or such successor servicer
as may be appointed under Section 6.02; and, without limitation, the Owner is
hereby authorized and empowered to execute and deliver, for the benefit of the
predecessor servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement of the Student Loans and
related documents, or otherwise. The predecessor servicer shall cooperate with
the successor servicer, and Owner in effecting the termination of the
responsibilities and rights of the predecessor servicer under this Agreement,
including the transfer to the successor servicer for administration by it of
all cash amounts that shall at the time be held by the predecessor servicer
for deposit, or shall thereafter be received by it with respect to a Student
Loan. All reasonable costs and expenses (including attorneys' fees) incurred
in connection with transferring the Student Loan Files to the successor
servicer and amending this Agreement to reflect such succession as Servicer
pursuant to this Section shall be paid by the predecessor servicer upon
presentation of reasonable documentation of such costs and expenses.
-11-
<PAGE>
SECTION 6.2. Appointment of Successor.
(a) Upon receipt by the Servicer of notice of termination pursuant to
Section 6.01, or the resignation by the Servicer in accordance with the terms
of this Agreement, the predecessor servicer shall continue to perform its
functions as Servicer under this Agreement, in the case of termination, only
until the date specified in such termination notice or, if no such date is
specified in a notice of termination, until receipt of such notice and, in the
case of resignation, until the later of (x) the date 180 days from the
delivery to the Owner of written notice of such resignation (or written
confirmation of such notice) in accordance with the terms of this Agreement
and (y) the date upon which the predecessor servicer shall become unable to
act as Servicer as specified in the notice of resignation and accompanying
Opinion of Counsel. In the event of the termination hereunder of the Servicer,
the Owner shall appoint a successor servicer.
(b) Upon appointment, the successor servicer shall be the successor
in all respects to the predecessor servicer and shall be subject to all the
responsibilities, duties and liabilities placed on the predecessor servicer
that arise thereafter or are related thereto and shall be entitled to an
amount agreed to by such successor servicer (which shall not exceed the
Servicing Fee) and all the rights granted to the predecessor servicer by the
terms and provisions of this Agreement.
SECTION 6.3. Waiver of Past Defaults. The Owner may waive in writing
any default by the Servicer in the performance of its obligations hereunder,
and any consequences thereof. Upon any such waiver of a past default, such
default shall cease to exist, and any Servicer Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto.
SECTION 6.4. Sub-Servicer. Servicer may sub-contract its duties
hereunder to one or more sub-servicers provided that Servicer shall not be
relieved of any duty or liability hereunder in so doing.
ARTICLE VII.
Miscellaneous
SECTION 7.1. Inspection. The Servicer shall permit the Owner and its
agents at any time during normal business hours to inspect, audit and make
copies of and abstracts from the Servicer's records regarding any Student
Loan; provided, however, that the Servicer is given reasonable prior notice of
at lest three (3) Business Days.
SECTION 7.2. Term and Termination.
(a) Unless sooner terminated in accordance with the provisions set
forth hereunder, this Agreement shall remain in full force and effect from the
date of execution hereof for a period of three (3) years.
-12-
<PAGE>
(b) This Agreement may be terminated by either the Owner or the
Servicer without cause by providing the other party ninety (90) days written
notice of the intent to terminate, and subject to the conditions of this
Agreement, including Section 3.09.
SECTION 7.3. Notices. Unless otherwise agreed by the recipient, all
demands, notices and communications upon or to the Servicer, or the Owner
under this Agreement shall be in writing, personally delivered or mailed by
certified mail, return receipt requested (or in the form of telex or facsimile
notice, followed by written notice delivered as aforesaid or postage prepaid,
first class mail), and shall be deemed to have been duly given upon receipt;
(a) in the case of the Owner , to
EFG Student Loan Trust 1999-A
c/o First National Bank
of Chicago, as Trustee
--------------------------
--------------------------
(b) in the case of the Servicer, to
EFG Technologies
Winston-Salem, North Carolina
or, as to each of the foregoing, at such other address as shall be designated
by written notice to the other party.
SECTION 7.4. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.03 and as provided in the
provisions of this Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned.
SECTION 7.5. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 7.6. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 7.7. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 7.8. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Indiana, without reference to its
conflict of law provisions, and
-13-
<PAGE>
the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first
above written.
EFG Student Loan Trust 1999 A EFG Technologies
By: First National Bank of Chicago as Trustee By:
---------------------------
Authorized Signature
By:
---------------------------- ---------------------------
Printed Name Printed Name
---------------------------- ---------------------------
Title Title
----------------------------
Owner ID
-15-
<PAGE>
EFG, INC.
PLATINUM Alternative Loans
THIS SCHEDULE IS CONSIDERED CONFIDENTIAL INFORMATION AND MUST NOT BE COPIED OR
DISCLOSED TO ANYONE OTHER THAN EMPLOYEES OF THE OWNER DIRECTLY CONCERNED WITH
THIS MATERIAL, WITHOUT THE EXPRESS WRITTEN CONSENT OF THE SERVICER.
SCHEDULE A
SCHEDULE OF FEES
As of _______ 1, 1998, the Servicer and EFG Student Loan Trust 1999-A,
hereafter the "Owner", hereby agree that the Servicer shall be paid servicing
fees by the Owner in accordance with the provisions for compensation described
in Article VI of the Servicing Agreement dated as of ________ 1, 1999 (hereafter
"Agreement"), and as further described below; provided, however, that fees set
forth below shall be effective (subject to the provisions of Section 6.1 of the
Agreement) for a period not to exceed twenty-four (24) months beginning as of
the date of this Schedule A.
Section 1. Definitions and Interpretation
1.1 As used in this Schedule A, the following words and phrases shall have the
meanings respectively indicated:
"Agreement" means the Servicing Agreement by and between the Owner
and the servicer and any and all schedules or written instruments thereto.
"Borrower Account" means those combined Loans of a Borrower with the
same Owner and branch, which Loans are in the same status, are the same loan
type (loan types being Stafford, Stafford Unsubsidized, Alternative, PLUS or
SLS), and which require the same processing (including, but not limited to,
interest rate change frequency, interest rate change type (fixed versus
variable, etc.)) and billing requirements.
"Existing Account" means those Loans to be serviced by Servicer which
were previously serviced by a part other than Servicer.
"New Loan" means a newly disbursed Loan to be serviced by Servicer
which was not previously serviced by a party other than the Servicer.
"On-System Transfer" refers to a transfer of an Account currently
serviced on the Servicer's system to the Owner.
1.2 All capitalized words or phrases used in this Schedule and not otherwise
defined herein will have the same meanings as ascribed to such words or
phrases in the Agreement. This Schedule A is hereby incorporated into the
Agreement and made a part thereof.
<PAGE>
Notwithstanding the incorporation of this Schedule A, the Agreement is
intended to and does remain in full force and effect.
Section 2. Loan Servicing Fees
2.1 Conversion Fees. The fees charged for adding Accounts to the Servicer's
data processing system are based on each separate conversion of Accounts.
(a) New Loans. A conversion fee of $[ ] will be charged for each New
Loan received on behalf of the Owner in a tape format.
(b) Existing Account Conversion Fee. A conversion fee of $[ ] will
be charged for each Existing Account received on behalf of the Owner.
(c) Existing Account Document Fee. In addition to the Existing
Account conversion fee identified in subsection 2.1(b) above the Owner will be
charged a $[ ] per hour fee for completion of Conversion Data Sheets
(applies to manual conversion only) and for the performance of a document
check which will be required for all Existing Account conversions.
2.2 Monthly Servicing Fees. The Servicer will be paid a monthly fee as
described in this section for the provision of Services under the Agreement.
a) Deferred-no payments
b) Repayment-current
c) Repayment-delinquent
Loans requiring payments while deferred will be billed at the repayment rate
according to Section 2.2(b) of this Schedule A.
2.3 Commencement of Monthly Rate. The full monthly rate will be effective
commencing with the calendar month in which a Loan is acquired by the
Servicer.
2.4 Billing Status. The billing status of an Account will be determined on the
basis of the status of an Account on the last day of each calendar month.
2.5 Billing Statement. The billing statement for monthly servicing fees will
separately identify (i) fees with respect to each category specified in 2.2,
and (ii) the number of Borrower Accounts and billing rate with respect to each
category. Each billing statement for carrying out transfer and conversion
period servicing will identify the number of Borrowers and the billing rate
for Borrowers transferred and converted to the Servicer's data processing
system during the month.
Section 3. Additional Charges
3.1 Claim Filing. A fee of $[ ] per Account will be billed to the Owner for
completing all Servicer claim documentation and providing said claim
information to the Guarantor. An
-2-
<PAGE>
additional fee of $[ ] per Account is also applicable in the even the
Servicer performs bankruptcy claim processing.
3.2 Minimum Billing Statement. If the monthly billing statement (invoice sent
to the Corporation by the Servicer is less than $300.00, the Corporation will
be billed a minimum fee of $300.00. If the monthly invoice exceeds $300.00,
the Corporation will be billed the actual amount due. Monthly billing will not
begin until the Servicer begins servicing the Corporation's first Loan.
3.3 On-system Transfer Fee. The Corporation will pay the Servicer a fee of
$[ ] for each Account the Corporation purchases from a client being serviced
by the Servicer. Additional fees to support client requests for additional
transfer services, e.g., document checks or file examinations according to the
Custodian Agreement, will be $[ ] for each such Account.
-3-
<PAGE>
APPENDIX A TO THE
SERVICING AGREEMENT
DEFINITIONS AND USAGE
Usage
The following rules of construction and usage shall be applicable to
any instrument that is governed by this Appendix:
(a) All terms defined in this Appendix shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant thereto unless otherwise defined
therein.
(b) As used herein, in any instrument governed hereby and in any
certificate or other document made or delivered pursuant thereto, accounting
terms not defined in this Appendix or in any such instrument, certificate or
other document, and accounting terms partly defined in this Appendix or in any
such instrument, certificate or other document to the extent not defined,
shall have the respective meanings given to them under generally accepted
accounting principles as in effect on the date of such instrument. To the
extent that the definitions of accounting terms in this Appendix or in any
such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Appendix or in any such instrument, certificate
or other document shall control.
(c) The words "hereof", "herein", "hereunder" and words of a similar
import when used in an instrument refer to such instrument as a whole and not
to any particular provision or subdivision thereof; references in an
instrument to "Article", "Section" or another subdivision or to an attachment
are, unless the context otherwise requires, to an article, section or
subdivision of or an attachment to such instrument; and the term "including"
means "including without limitation".
(d) The definitions contained in this Appendix are equally applicable
to both the singular and plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to below
or in any agreement or instrument that is governed by this Appendix means such
agreement or instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein. References to a
Person are also to its permitted successors and assigns.
<PAGE>
Definitions
"Borrower" means an individual who is the maker of a Borrower Note
and who obtains a Student Loan in accordance with the policies and procedures
of a Guarantor.
"Borrower Note" means a promissory note of a Borrower for a Student
Loan set forth on the appropriate form furnished by the Guarantor which
Borrower Note meets the criteria set forth by the policies and procedures of
the Guarantor.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the States of New York or Indiana are
authorized or obligated by law, regulation or executive order to remain
closed.
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 4.01 of the Servicing
Agreement.
"Custodian" means the Servicer, in its capacity as custodian of the
Borrower Notes or any permitted successor Custodian.
"Deferral" means the period defined by the policies of the related
Guarantor during which a Borrower is entitled to postpone making payments upon
the submission of appropriate documentation.
"Guarantee Agreement" means each agreement to guarantee Student Loans
entered into by the Owner with the Guarantor.
"Guarantee Payment" means any payment made by a Guarantor pursuant to
a Guarantee Agreement in respect of a Student Loan.
"Guarantor" means TuitionGard.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in
an involuntary case under any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such
decree or order shall remain unstayed and in effect for a period of sixty
consecutive days; or (b) the commencement by such Person of a voluntary case
under any applicable Federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by such Person to the entry of
an order for relief in an involuntary case under any such law, or the consent
by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure
by such
-2-
<PAGE>
Person generally to pay its debts as such debts become due, or the taking of
action by such Person in furtherance of any of the foregoing.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind, other than tax liens and any other liens, if any,
which attach to the respective Student Loan by operation of law as a result of
any act or omission by the related Obligor.
"Obligor" on a Student Loan means the borrower or co-borrowers of
such Student Loan and any other Person who owes payments in respect of such
Student Loan, including the Guarantor thereof.
"Officers' Certificate" means a certificate signed by any two (2)
officers of the Servicer.
"Opinion of Counsel" means one or more written opinions of counsel,
who may be an employee of or counsel to the Servicer.
"Program Manual" means the Guarantor instructions for the
administration of the Loans, including, but not limited to, the due diligence
requirements. The manual is provided by the Guarantor to the Servicer, and is
attached to this Agreement as a Schedule, and which may be amended from time
to time.
"Servicer" means Loan Services, in its capacity as servicer of the
Student Loans or any permitted successor servicer.
"Servicer Default" means an event specified in Section 6.1 of the
Servicing Agreement.
"Servicing Agreement" means the Private Loan Servicing Agreement
dated as of [insert date] between the Servicer and the Owner.
"Servicing Fee" has the meaning specified in Schedule A of the
Servicing Agreement.
"Student Loan" means an agreement to repay a disbursement of money to
or on behalf of an eligible student, evidenced by a Borrower Note and
guaranteed in accordance with the policies and procedures of the Guarantor.
"Student Loan Files" means the documents relating to the Student
Loans specified in Section 2.1 of the Servicing Agreement.
-3-
<PAGE>
SCHEDULE B
The Servicer shall sub-contract servicing with USA Group Loan Services Inc.
which shall maintain each Student Loan File at one of the locations listed
below:
(a) USA Group Loan Services, Inc.
30 South Meridian Street
Indianapolis, IN 46204
(b) USA Group Loan Services, Inc.
11100 USA Parkway
Fishers, IN 46038
(c) USA Group Loan Services, Inc.
c/o Indianapolis Vault Company
117 East Washington Street
Indianapolis, IN 46204
(d) USA Group Loan Services, Inc.
c/o Indianapolis Vault Company
8257 Zionsville Road
Indianapolis, IN 46268
<PAGE>
WFG 8/3/98
[FORM OF]
ADMINISTRATION AGREEMENT dated as of [______ __, 1999], among
EFG STUDENT LOAN TRUST 1999-[ ], a Delaware trust (the "Issuer"), EDUCATIONAL
FINANCE GROUP, Inc., a Delaware corporation, as administrator (the
"Administrator"), and [INDENTURE TRUSTEE], a [ ] banking corporation, not
in its individual capacity but solely as Indenture Trustee (the "Indenture
Trustee").
W I T N E S S E T H
WHEREAS the Issuer was formed pursuant to the Trust Agreement
dated as of [______ __, 1998] (the "Trust Agreement") among, EFG Funding
Corporation (the "EFG Funding" or the "Depositor"), a Delaware corporation, and
[TRUSTEE], as Trustee (the "Trustee") and is issuing the Floating Rate Asset
Backed Senior Notes (the "Senior Notes") and the Floating Rate Asset Backed
Subordinate Notes (the "Subordinate Notes," and together with the Senior Notes,
the "Notes") pursuant to the Indenture dated as of [______ __, 1999] (the
"Indenture"), between the Issuer and the Indenture Trustee, (capitalized terms
used herein and not defined herein shall have the meanings assigned to such
terms in Appendix A hereto, which also contains rules of usage and construction
that shall be applicable herein);
WHEREAS the Issuer has entered into certain agreements in
connection with the issuance of the Notes, including the Transfer Agreement, the
Servicing Agreement, [the Senior Note Depository Agreement (the "Depository
Agreement")], the Guarantee Agreements, the Trust Agreement and the Indenture
(all such agreements being collectively referred to herein as the "Related
Agreements");
WHEREAS, pursuant to the Related Agreements, the Issuer and
the Trustee are required to perform certain duties in connection with the Notes
and the Collateral therefor pledged pursuant to the Indenture;
WHEREAS the Issuer and the Trustee desire to have the
Administrator perform certain of the duties of the Issuer and the Trustee
referred to in the preceding clause, and to provide such additional services
consistent with the terms of this Agreement and the Related Agreements as the
Issuer and the Trustee may from time to time request;
WHEREAS the Administrator has the capacity to provide the
services required hereby and is willing to perform such services for the Issuer
and the Trustee on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. Representations of the Administrator. The Administrator
makes the following representations on which the Issuer and the Trustee are
deemed to have relied. The
<PAGE>
representations speak as of the execution and delivery of this Agreement and as
of the Closing Date, in the case of the Initial Student Loans, {as of the
applicable Transfer Date, in the case of the Serial Loans and New Loans,} as of
the relevant date of assignment, in the case of any Qualified Substitute Student
Loan, {as of the date of origination, in the case of any Consolidation Loan
originated by the Trust during the Revolving Period, and as of the applicable
Add-on Consolidation Loan Funding Date, in the case of any Consolidation Loan
the principal balance of which is increased by the principal balance of any
related Add-on Consolidation Loan,} but shall survive the sale of the Student
Loans to the Trustee on behalf of the Issuer (and legal title to the FFELP
Student Loans to the Eligible Lender Trustee) and the pledge thereof to the
Indenture Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Administrator is duly
organized and validly existing as a corporation in good standing under
the laws of the State of Delaware, with the power and authority to own
its properties and to conduct its business as such properties are
currently owned and such business is presently conducted.
(b) Power and Authority of the Administrator. The
Administrator has the organizational power and authority to execute and
deliver this Agreement and to carry out its terms, and the execution,
delivery and performance of this Agreement has been duly authorized by
the Administrator by all necessary corporate action.
(c) Binding Obligation. This Agreement constitutes a legal,
valid and binding obligation of the Administrator, enforceable in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization and similar laws relating to creditors'
rights generally and subject to general principles of equity.
(d) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
or thereof do not conflict with, result in any breach of any of the
terms and provisions of, nor constitute (with or without notice or
lapse of time or both) a default under, the certificate of
incorporation of the Administrator, or any indenture, agreement or
other instrument to which the Administrator is a party or by which it
shall be bound; nor result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument; nor violate any law or, to the knowledge
of the Administrator, any order, rule or regulation applicable to the
Administrator of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Administrator or its properties. The consummation
by the Administrator of the transactions contemplated by this Agreement
will not result in the loss of any Guarantee Payments by the Trust or
any reinsurance payments with respect to any Student Loan.
(e) No Proceedings. There are no proceedings or investigations
pending against the Administrator or, to its best knowledge, threatened
against the Administrator, before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Administrator or its properties: (i) asserting
the invalidity of this Agreement, the Indenture or any of the other
Related Agreements or
- 2 -
<PAGE>
the Notes, (ii) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Agreement,
the Indenture or any of the other Related Agreements, (iii) seeking any
determination or ruling that could reasonably be expected to have a
material and adverse effect on the performance by the Administrator of
its obligations under, or the validity or enforceability of, this
Agreement, the Indenture, any of the other Related Agreements or the
Notes or (iv) seeking to affect adversely the Federal or state income
tax attributes of the Issuer or the Notes.
(f) All Consents. All authorizations, consents, orders or
approvals of or registrations or declarations with any court,
regulatory body, administrative agency or other government
instrumentality required to be obtained, effected or given by the
Administrator in connection with the execution and delivery by the
Administrator of this Agreement and the performance by the
Administrator of the transactions contemplated by this Agreement have
in each case been duly obtained, effected or given and are in full
force and effect.
2. Duties of the Administrator.
(a) Duties with Respect to the Indenture and Depository
Agreement. The Administrator shall perform all its duties as
Administrator and the duties of the Issuer under the Depository
Agreement. In addition, the Administrator shall consult with the
Trustee as the Administrator deems appropriate regarding the duties of
the Issuer under the Indenture and the Depository Agreement. The
Administrator shall monitor the performance of the Issuer and shall
advise the Trustee when action is necessary to comply with the Issuer's
duties under the Indenture and the Depository Agreement. The
Administrator shall prepare for execution by the Issuer or shall cause
the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be
the duty of the Issuer to prepare, file or deliver pursuant to the
Indenture and the Depository Agreement. In furtherance of the
foregoing, the Administrator shall take all appropriate action that is
the duty of the Issuer to take pursuant to the Indenture, including
such of the foregoing as are required with respect to the following
matters (references are to sections of the Indenture):
(i) the duty to cause the Note Registrar to keep the
Note Register and to give the Indenture Trustee prompt notice
of any appointment of a new Note Registrar and the location,
or change in location, of the Note Register (Section 2.04);
(ii) the fixing or causing to be fixed of any
specified record date and the timely notification of the
Indenture Trustee and Noteholders with respect to special
payment dates, if any (Section 2.07(c));
(iii) the preparation of or obtaining of the
documents and instruments required for authentication of the
Notes and delivery of the same to the Indenture Trustee
(Section 2.02);
- 3 -
<PAGE>
(iv) the preparation, obtaining or filing of the
instruments, opinions and certificates and other documents
required for the release of collateral (Section 2.09);
(v) the preparation, obtaining or filing of the
instruments, opinions and certificates and other documents
required for a transfer of Subordinate Notes (Section 2.04);
(vi) [the duty to cause the Note Registrar to
maintain on behalf of the Issuer an office in [ ], for
registration of transfer or exchange of Notes (Section 3.02);]
(vii) the duty to cause newly appointed Paying
Agents, if any, to deliver to the Indenture Trustee the
instrument specified in the Indenture regarding funds held in
trust (Section 3.03);
(viii) the direction to the Paying Agents to deposit
moneys with the Indenture Trustee (Section 3.03);
(ix) the obtaining and preservation of the Issuer's
qualification to do business in each jurisdiction in which
such qualification is or shall be necessary to protect the
validity and enforceability of the Indenture, the Notes, the
Collateral and each other instrument and agreement included in
the Indenture Trust Estate (Section 3.04);
(x) the preparation of all supplements, amendments,
financing statements, continuation statements, instruments of
further assurance and other instruments, in accordance with
Section 3.05 of the Indenture, necessary to protect the
Indenture Trust Estate (Section 3.05);
(xi) the delivery by the Issuer of the Opinion of
Counsel on the Closing Date and the annual delivery of
Opinions of Counsel, in accordance with Section 3.06 of the
Indenture, as to the Indenture Trust Estate, and the annual
delivery of the Officers' Certificate of the Issuer and
certain other statements, in accordance with Section 3.09 of
the Indenture, as to compliance with the Indenture (Sections
3.06 and 3.09);
(xii) the identification to the Indenture Trustee in
an Officers' Certificate of the Issuer of a Person with whom
the Issuer has contracted to perform its duties under the
Indenture (Section 3.07(b));
(xiii) the notification of the Indenture Trustee and
the Rating Agencies of a Servicer Default pursuant to the
Servicing Agreement and, if such Servicer Default arises from
the failure of the Servicer to perform any of its duties under
the Servicing Agreement, the taking of all reasonable steps
available to remedy such failure (Section 3.07(d));
- 4 -
<PAGE>
(xiv) the preparation and obtaining of documents and
instruments required for the release of the Issuer from its
obligations under the Indenture (Section 3.10);
(xv) the prompt delivery of notice to the Indenture
Trustee and the Rating Agencies of each Event of Default, any
Default under Section 5.01(iii) of the Indenture and each
default by the Servicer under the Servicing Agreement or by
the Seller under the Loan Sale Agreement (Section 3.18);
(xvi) the monitoring of the Issuer's obligations as
to the satisfaction and discharge of the Indenture and the
preparation of an Officers' Certificate of the Issuer and the
obtaining of the Opinion of Counsel and the Independent
Certificate relating thereto (Section 4.01);
(xvii) the compliance with any written directive of
the Indenture Trustee with respect to the sale of the
Indenture Trust Estate in a commercially reasonable manner if
an Event of Default shall have occurred and be continuing
(Section 5.04);
(xviii) the preparation of any written instruments
required to confirm more fully the authority of any co-trustee
or separate trustee and any written instruments necessary in
connection with the resignation or removal of any co-trustee
or separate trustee (Sections 6.08 and 6.10);
(xix) the furnishing of the Indenture Trustee with
the names and addresses of Noteholders during any period when
the Indenture Trustee is not the Note Registrar (Section
7.01);
(xx) the preparation and, after execution by the
Issuer, the filing with the Commission, any applicable State
agencies and the Indenture Trustee of documents required to be
filed on a periodic basis with, and summaries thereof as may
be required by rules and regulations prescribed by, the
Commission and any applicable State agencies and the
transmission of such summaries, as necessary, to the
Noteholders (Section 7.03);
(xxi) the opening of one or more accounts in the
Issuer's name, the preparation of Issuer Orders, Officers'
Certificates of the Issuer and Opinions of Counsel and all
other actions necessary with respect to investment and
reinvestment of funds in the Trust Accounts (Sections 8.02 and
8.03);
(xxii) the preparation of an Issuer Request and
Officers' Certificate of the Issuer and the obtaining of an
Opinion of Counsel and Independent Certificates, if necessary,
for the release of the Indenture Trust Estate (Sections 8.04
and 8.05);
(xxiii) the preparation of Issuer Orders and the
obtaining of Opinions of Counsel with respect to the execution
of supplemental indentures and the mailing
- 5 -
<PAGE>
to the Noteholders of notices with respect to such
supplemental indentures (Sections 9.01, 9.02 and 9.03);
(xxiv) the preparation of or obtaining of the
documents and instruments required for the execution and
authentication of new Notes conforming to any supplemental
indenture and the delivery of the same to the Eligible Lender
Trustee and the Indenture Trustee, respectively (Section
9.06);
(xxv) the notification of Noteholders of redemption
of the Notes or the duty to cause the Indenture Trustee to
provide such notification (Section 10.02);
(xxvi) the preparation of all Officers' Certificates
of the Issuer, Opinions of Counsel and Independent
Certificates with respect to any requests by the Issuer to the
Indenture Trustee to take any action under the Indenture
(Section 11.01(a));
(xxvii) the preparation and delivery of Officers'
Certificates of the Issuer and the obtaining of Independent
Certificates, if necessary, for the release of property from
the lien of the Indenture (Section 11.01(b));
(xxviii) the preparation and timely delivery to
Noteholders and the Indenture Trustee of any agreements with
respect to alternate payment and notice provisions (Section
11.06); and
(xxix) the recording of the Indenture, if applicable
(Section 11.15).
(b) Duties with Respect to the Issuer. In addition to the
duties of the Administrator set forth above and in the other Related
Agreements, the Administrator shall perform such calculations and shall
prepare for execution by the Issuer or the Trustee or shall cause the
preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be
the duty of the Issuer or the Trustee to prepare, file or deliver
pursuant to the Related Agreements, and at the request of the Trustee
shall take all appropriate action that it is the duty of the Issuer to
take pursuant to the Related Agreements. In furtherance thereof, the
Trustee shall, on behalf of itself and of the Issuer, execute and
deliver to the Administrator and to each successor Administrator
appointed pursuant to the terms hereof, one or more powers of attorney
substantially in the form of Exhibit A hereto, appointing the
Administrator the attorney-in-fact of the Trustee and the Issuer for
the purpose of executing on behalf of the Trustee and the Issuer all
such documents, reports, filings, instruments, certificates and
opinions. Subject to Section 9 of this Agreement, and in accordance
with the directions of the Trustee, the Administrator shall administer,
perform or supervise the performance of such other activities in
connection with the Collateral (including the Related Agreements) as
are not covered by any of the foregoing provisions and as are expressly
requested by the Trustee and are reasonably within the capability of
the Administrator.
(i) Notwithstanding anything in this Agreement or the
Related Agreements to the contrary, the Administrator shall
deliver to the Trustee, the
- 6 -
<PAGE>
Indenture Trustee, the Rating Agencies and (if the Seller
is not the Administrator) the Seller, an Officers' Certificate
of the Administrator containing all the information necessary:
{(A) to pay the Department any Consolidation
Fees due and payable to the Department, to the extent
such Consolidation Fees are not being deducted by the
Department out of Special Allowance Payments or
Interest Subsidy Payments, which Officers'
Certificate shall be delivered on the date that is
three Business Days prior to the date such fees are
to be remitted to the Department;
(B) during the Revolving Period to pay the
Depositor, for payment to the Seller pursuant to
Section 2.02 of the Loan Sale Agreement, on each
Transfer Date, the Loan Purchase Amount (or if the
Parity Date has occurred the Purchase Collateral
Balance) for New Loans or Serial Loans purchased by
the Issuer on such date and on each Transfer Date
after the end of the Revolving Period, the Purchase
Collateral Balance for Serial Loans so purchased on
such date (but, only to the extent the Purchase
Collateral Balance has not been satisfied by the
exchange of Serial Loans for Exchanged Student
Loans), which Officers' Certificate, in each case,
shall be delivered on the Business Day preceding such
Transfer Date;}
(C) to pay the Servicer the Servicing Fee
due on each Monthly Payment Date pursuant to Section
2(d)(iv)(A), 2(d)(v)(A) and 2(e)(iv)(A) and any
Servicing Fee Shortfall due on each Quarterly Payment
Date pursuant to Section 2(e)(ii)(b)(iv), which
Officers' Certificate shall be delivered on each
Determination Date;
(D) to make all the distributions required
by Sections 2(d), 2(e) and 2(f), for the Monthly
Collection Period or Collection Period, as the case
may be, preceding the date of such Officers'
Certificate, which Officers' Certificate shall be
delivered on each Determination Date.
(ii) In addition, prior to each Determination Date
immediately preceding a Quarterly Payment Date, the
Administrator shall determine, in compliance with its
obligation to prepare an Officers' Certificate on such
Determination Date pursuant to this Section, the Senior Note
Rate and the Subordinate Note Rate that will be applicable to
the Quarterly Payment Date following such Determination Date.
In connection therewith, the Administrator shall calculate the
T-Bill Rate and the Student Loan Rate in accordance with the
respective definitions thereof for the related Quarterly
Interest Period.
(iii) [Reserved.]
- 7 -
<PAGE>
(iv) Notwithstanding anything in this Agreement or
the Related Agreements to the contrary, the Administrator
shall be responsible for performance of the duties of the
Trustee set forth in Section 5.02 of the Trust Agreement with
respect to, among other things, any tax information or
accounting report required to be distributed to Note Owners.
(v) [Reserved.]
(vi) The Administrator shall perform the duties of
the Administrator specified in Sections 10.02 and 10.03 of the
Trust Agreement required to be performed in connection with
the resignation or removal of the Trustee and the appointment
of a successor Trustee, and any other duties expressly
required to be performed by the Administrator under the Trust
Agreement and the other Related Agreements, including those
under Sections 6.07 and 6.08 of the Indenture and those under
Section 6.07 of the Trust Agreement.
(vii) As described in Article IX of the Trust
Agreement, notice of any termination of the Trust shall be
given by the Administrator to the Trustee and the Indenture
Trustee as soon as practicable after the Administrator has
received notice thereof.
(viii) In carrying out the foregoing duties or any of
its other obligations under this Agreement, the Administrator
may enter into transactions with or otherwise deal with any of
its Affiliates; provided, however, that the terms of any such
transactions or dealings shall be in accordance with any
directions received from the Issuer and shall be, in the
Administrators opinion, no less favorable to the Issuer than
would be available from unaffiliated parties.
(c) Establishment and Maintenance of Trust Accounts.
(i) The Administrator, for the benefit of the Issuer,
shall establish and maintain in the name of the Indenture
Trustee an Eligible Deposit Account (the "Collection
Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the
Issuer. The Collection Account will initially be established
as a segregated trust account in the name of the Indenture
Trustee with the corporate trust department of [ ].
(ii) The Administrator, for the benefit of the
Issuer, shall establish and maintain in the name of the
Indenture Trustee an Eligible Deposit Account (the "Reserve
Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the
Issuer. The Reserve Account will initially be established as a
segregated trust account in the name of the Indenture Trustee
with the corporate trust department of [ ].
(iii) The Administrator, for the benefit of the
Issuer, shall establish and maintain in the name of the
Indenture Trustee an Eligible Deposit Account (the
- 8 -
<PAGE>
"Collateral Reinvestment Account"), bearing a designation
clearly indicating that the funds deposited therein are held
for the benefit of the Issuer. The Collateral Reinvestment
Account will initially be established as a segregated trust
account in the name of the Indenture Trustee with the
corporate trust department of [ ].
(iv) [Reserved.]
(v) Funds on deposit in the Collection Account, the
Reserve Account and the Collateral Reinvestment Account
(collectively, the "Trust Accounts") shall be invested by the
Indenture Trustee (or any custodian or designated agent with
respect to any amounts on deposit in such accounts) in
Eligible Investments pursuant to written instructions by the
Administrator; provided, however, it is understood and agreed
that the Indenture Trustee shall not be liable for any loss
arising from such investment in Eligible Investments. All such
Eligible Investments shall be held by (or by any custodian on
behalf of) the Indenture Trustee for the benefit of the
Issuer; provided that on the Business Day preceding each
Monthly Payment Date all interest and other investment income
(net of losses and investment expenses) on funds on deposit
therein shall be deposited into the Collection Account and
shall be deemed to constitute a portion of the Monthly
Available Funds for each Monthly Payment Date that is not a
Quarterly Payment Date, and a portion of the Available Funds
for each Quarterly Payment Date. Other than as permitted by
the Rating Agencies, funds on deposit in the Trust Accounts
shall be invested in Eligible Investments that will mature so
that funds sufficient to pay the Servicing Fee and the
Administration Fee will be available in the Collection Account
on the Business Day preceding each Monthly Payment Date that
is not a Quarterly Payment Date, so that funds on deposit in
the Collateral Reinvestment Account that are required, in the
judgment and at the discretion of the Administrator, to make
Additional Fundings during the Revolving Period will be
available for such purpose and so that the remaining such
funds will be available at the close of business on the
Business Day preceding each Quarterly Payment Date.
(vi) The Indenture Trustee shall possess all right,
title and interest in all funds on deposit from time to time
in the Trust Accounts and in all proceeds thereof (including
all income thereon) and all such funds, investments, proceeds
and income shall be part of the Trust Estate. The Trust
Accounts shall be under the sole dominion and control of the
Indenture Trustee for the benefit of the Issuer. If, at any
time, any of the Trust Accounts ceases to be an Eligible
Deposit Account, the Indenture Trustee (or the Administrator
on its behalf) agrees, by its acceptance hereto, that it shall
within 10 Business Days (or such longer period, not to exceed
30 calendar days, as to which each Rating Agency may consent)
establish a new Trust Account as an Eligible Deposit Account
and shall transfer any cash and/or any investments to such new
Trust Account. In connection with the foregoing, the
Administrator agrees that, in the event that any of the Trust
Accounts are not accounts with the Indenture Trustee, the
Administrator shall
- 9 -
<PAGE>
notify the Indenture Trustee in writing promptly upon any of
such Trust Accounts ceasing to be an Eligible Deposit Account.
(vii) With respect to the Trust Account Property, the
Indenture Trustee agrees, by its acceptance hereof, that:
(1) any Trust Account Property that is held
in deposit accounts shall be held solely in Eligible
Deposit Accounts, subject to the last sentence of
clause (vi) above; and each such Eligible Deposit
Account shall be subject to the exclusive custody and
control of the Indenture Trustee, and the Indenture
Trustee shall have sole signature authority with
respect thereto;
(2) any Trust Account Property that
constitutes Physical Property shall be Delivered to
the Indenture Trustee in accordance with paragraph
(a) of the definition of "Delivery" and shall be
held, pending maturity or disposition, solely by the
Indenture Trustee or a financial intermediary (as
such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a
book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations
shall be Delivered in accordance with paragraph (b)
of the definition of "Delivery" and shall be
maintained by the Indenture Trustee, pending maturity
or disposition, through continued book-entry
registration of such Trust Account Property as
described in such paragraph; and
(4) any Trust Account Property that is an
"uncertificated security" under Article VIII of the
UCC and that is not governed by clause (3) above
shall be Delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of
"Delivery" and shall be maintained by the Indenture
Trustee, pending maturity or disposition, through
continued registration of the Indenture Trustee's (or
its nominees) ownership of such security.
(viii) The Administrator shall have the power,
revocable for cause or upon the occurrence and during the
continuance of an Administrator Default by the Indenture
Trustee or by the Trustee with the consent of the Indenture
Trustee, to instruct the Indenture Trustee to make withdrawals
and payments from the Trust Accounts for the purpose of
permitting the Servicer or the Trustee to carry out its
respective duties under the Servicing Agreement or the Trust
Agreement or permitting the Indenture Trustee to carry out its
duties under the Indenture.
(ix) On each Determination Date, the Administrator
shall calculate all amounts required to determine the amounts
to be deposited in the Collection Account and the other Trust
Accounts and the amounts to be distributed therefrom
- 10 -
<PAGE>
on the related Monthly Payment Date, Quarterly Payment Date or
other dates from which amounts therein are to be distributed.
(d) Withdrawals from the Collection Account. The Administrator
shall instruct the Indenture Trustee (based, in the case of clauses
(iv) and (v) below, on the information contained in the servicer's
report delivered with respect to the applicable Determination Date
pursuant to Section 3.07 of the Servicing Agreement) to make
withdrawals from amounts deposited in the Collection Account at the
following times and for the following purposes, and the Indenture
Trustee shall comply with such instructions:
{(i) from time to time during the Revolving Period,
in so far as the Administrator may so instruct on any Business
Day therein, to deposit all collections in respect of
principal on the Student Loans into the Collateral
Reinvestment Account;
(ii) from time to time during each Collection Period
to pay the Department any Consolidation Fees due and payable
to the Department, to the extent such Consolidation Fees are
not being deducted by the Department out of Special Allowance
Payments or Interest Subsidy Payments;
(A) on each Add-on Consolidation Loan
Funding Date after the Revolving Period, to prepay in
full any Add-on Consolidation Loan not held by the
Issuer pursuant to Section 6.07 of the Trust
Agreement; provided that the amount paid to prepay
any Add-on Consolidation Loan not held by the Issuer
on any date since the preceding Quarterly Payment
Date shall not exceed the Net Principal Cash Flow
Amount for such date minus the aggregate Purchase
Collateral Balance remitted for the purchase of
Serial Loans on each Transfer Date since the
preceding Quarterly Payment Date after the Revolving
Period pursuant to Section 2(d)(iii)(B); and
(B) on each Transfer Date after the
Revolving Period to pay to the Seller, pursuant to
Section 2.02 of the Loan Sale Agreement, the
aggregate Purchase Collateral Balance for Serial
Loans purchased by the Eligible Lender Trustee on
behalf of the Issuer on such date (but only to the
extent such aggregate Purchase Collateral Balance has
not been satisfied by the exchange of Serial Loans
for Exchanged Student Loans); provided that the
amount paid to the Seller for the purchase of Serial
Loans on such Transfer Date plus the amount of funds
remitted for the purchase of Serial Loans on each
Transfer Date since the preceding Quarterly Payment
Date on any Transfer Date after the Revolving Period
shall not exceed the Net Principal Cash Flow Amount
for such Transfer Date minus the sum of (i) all
amounts paid since the last Quarterly Payment Date
pursuant to Section 2(d)(iii)(A) to prepay any Add-on
Consolidation Loan not held by the Issuer and (ii)
all amounts which the Administrator reasonably
estimates will be required to prepay Add-on
Consolidation
- 11 -
<PAGE>
Loans pursuant to Section 2(d)(iii)(A) during the
remainder of the Collection Period; provided,
further, that, any Purchase Premium Amounts for
Serial Loans purchased (including pursuant to the
exchange thereof) after the Revolving Period shall
be paid only out of Reserve Account Excess as set
forth in Section 2(e)(ii).}
(iii) on each Monthly Payment Date that is not a
Quarterly Payment Date, to make the following deposits and
distributions to the Persons specified below by 11:00 a.m.
(New York Time), to the extent of Monthly Available Funds for
such Monthly Payment Date in the Collection Account, in the
following order of priority:
(A) to the Servicer, the Servicing Fee with
respect to the preceding calendar month and all
unpaid Servicing Fees from prior months; and
(B) to the Administrator, from the amount of
Monthly Available Funds remaining after the
application of clause (A), the Administration Fee
with respect to the preceding calendar month and all
unpaid Administration Fees from prior months.
(iv) on each Quarterly Payment Date, to make the
following deposits and distributions to the Persons or the
account specified below by 11:00 a.m. (New York Time), to the
extent of Available Funds for such Quarterly Payment Date in
the Collection Account, in the following order of priority:
(v) to the Servicer, the Servicing Fee with respect
to the preceding calendar month and all unpaid Servicing Fees
from prior months;
(vi) to the Administrator, from the amount of
Available Funds remaining after the application of clause (A),
the Administration Fee with respect to the preceding calendar
month and all unpaid Administration Fees from prior months;
(vii) to the Indenture Trustee for distribution to
the Noteholders pursuant to Section 8.02(c) of the Indenture,
from the amount of Available Funds remaining after the
application of clauses (A) and (B), the Noteholders'
Distribution Amount with respect to such Quarterly Payment
Date; and
(viii) to the Reserve Account, the amount of
Available Funds remaining after the application of clauses (A)
through (C).
Except in the case of amounts deposited pursuant to clause
(viii) into the Reserve Account, amounts properly withdrawn from the Collection
Account and distributed pursuant to this Section 2(d) shall be deemed released
from the Trust Estate and the security interest therein granted to the Indenture
Trustee, and the Persons to whom such amounts are distributed shall in no event
be required to refund any such distributed amounts.
- 12 -
<PAGE>
(e) Reserve Account. The Seller shall deposit the Reserve
Account Initial Deposit into the Reserve Account as required by Section
2.01(b) of the Loan Sale Agreement.
(i) With respect to any amount in the Reserve Account
on any Quarterly Payment Date (after giving effect to all
deposits thereto on such Quarterly Payment Date and to all
withdrawals therefrom necessary to make the distributions
required to be made from Available Funds on such Quarterly
Payment Date) in excess of the Specified Reserve Account
Balance for such Quarterly Payment Date (the "Reserve Account
Excess"), the Administrator shall instruct the Indenture
Trustee to pay such Reserve Account Excess (a) during the
Revolving Period, for deposit to the Collateral Reinvestment
Account; provided, however, if such date is on or after the
Parity Date, to the extent that such funds represent payments
of interest with respect to the Student Loans, such funds
shall be applied in the amounts and the order of priority set
forth in clauses (b)(iii) through (vi) below, and (b) at and
after the termination of the Revolving Period, to the
following (in the priority indicated): (i) to pay to the
Depositor for payment to the Seller any unpaid Purchase
Premium Amounts for any Serial Loans purchased by the Issuer
after the end of the Revolving Period but prior to the end of
the related Collection Period; (ii) if such Quarterly Payment
Date is on or prior to the Parity Date, to pay to the
Indenture Trustee for distribution to Noteholders pursuant to
Section 8.02(d) of the Indenture an amount equal to the lesser
of (x) the remaining amount of such excess and (y) the amount
by which the aggregate principal balance of the Notes, after
giving effect to all other distributions in respect of
principal on the Notes on such Quarterly Payment Date, exceeds
the Pool Balance as of the close of business on the last day
of the related Collection Period; (iii) to pay to the
Indenture Trustee for distribution to Noteholders pursuant to
Section 8.02(d) of the Indenture, out of the remaining amount
of such excess, an amount equal to the aggregate unpaid
Noteholders' Interest T-Bill Carryover; (iv) to pay to the
Servicer, out of the remaining amount of such excess, the
Servicing Fee Shortfall and all prior unpaid Servicing Fee
Shortfalls, if any; (v) to pay to the Depositor for payment to
the Seller, out of the remaining amount of such excess, any
unpaid Purchase Premium Amounts for any Serial Loans or New
Loans purchased during the Revolving Period but after the
Parity Date (or at any time during the Collection Period
during which the Parity Date occurs) and prior to the end of
the related Collection Period; and (vi) any remaining amount
of such excess, after application of clauses (i) through (v)
above, will be released to the Depositor; provided, however,
that if and to the extent that (A) the amount of the
Servicer's unpaid repurchase obligation pursuant to Section
3.05 of the Servicing Agreement exceeds $[500,000] as of the
last day of the preceding Collection Period (and such Servicer
has not been replaced by a Successor Servicer), or (B) the
Department fails by the last day of such preceding Collection
Period to satisfy its obligations to reimburse or replace a
Federal Guarantor pursuant to the Higher Education Act, then
any Reserve Fund Excess remaining on such Quarterly Payment
Date for distribution to the Depositor pursuant to the clause
(vi) above shall not be so
- 13 -
<PAGE>
distributed and shall be retained in the Reserve Account for
application in accordance with this Agreement. Amounts
properly distributed pursuant to this Section 2(e)(i) shall be
deemed released from the Trust Estate and the security
interest therein granted to the Indenture Trustee, and the
Depositor shall in no event thereafter be required to refund
any such distributed amounts.
(ii) Following the payment in full of the aggregate
outstanding principal balance of the Notes and of all other
amounts owing or to be distributed hereunder or under the
Indenture to Noteholders, the Depositor, the Servicer or the
Administrator and the termination of the Trust (including any
Noteholders' Interest T-Bill Carryover, any Servicing Fee
Shortfall and any unpaid Servicing Fee Shortfalls and unpaid
Purchase Premium Amounts), any amount remaining on deposit in
the Reserve Account shall be distributed to the Depositor. The
Depositor shall in no event be required to refund any amounts
properly distributed pursuant to this Section 2(e)(ii).
(iii) In the event that the Servicing Fee for any
Monthly Payment Date exceeds the amount distributed to the
Servicer pursuant to Sections 2(d)(iii)(A) or 2(d)(v) on such
Monthly Payment Date, the Administrator shall instruct the
Indenture Trustee to withdraw from the Reserve Account on each
Monthly Payment Date an amount equal to such excess and to
distribute such amount to the Servicer.
(iv) In the event that the Administration Fee for any
Monthly Payment Date exceeds the amount distributed to the
Administrator pursuant to Sections 2(d)(iii)(B) or 2(d)(vi) on
such Monthly Payment Date, the Administrator shall instruct
the Indenture Trustee to withdraw from the Reserve Account on
such Monthly Payment Date an amount equal to such excess, to
the extent of funds available therein after giving effect to
paragraph (iv)(A) above, and to distribute such amount to the
Administrator.
(v) For any Quarterly Payment Date, in the event that
the Noteholders' Distribution Amount for such Quarterly
Payment Date exceeds the sum of the amount distributed to the
Indenture Trustee for distribution to the Noteholders pursuant
to Section 2(d)(vii) on such Quarterly Payment Date, the
Administrator shall instruct the Indenture Trustee to withdraw
from the Reserve Account on such Quarterly Payment Date an
amount equal to such excess, to the extent of funds available
therein after giving effect to paragraphs (iii) and (iv)
above, and to distribute such amount as required by Section
2(d)(viii) on such Quarterly Payment Date.
{(f) Collateral Reinvestment Account. During the Revolving
Period, the Administrator shall instruct the Indenture Trustee in
writing to withdraw from the Collateral Reinvestment Account, in each
case to the extent of the funds on deposit therein (A) on each Transfer
Date, an amount equal to the Loan Purchase Amount for the Serial Loans
and New Loans transferred to the Eligible Lender Trustee on behalf of
the
- 14 -
<PAGE>
Issuer on such Transfer Date and to distribute such amount to or upon
the order of the Seller upon satisfaction of the conditions set forth
in Section 2.02 of the Loan Sale Agreement with respect to such
transfer, (B) when and as requested by the Eligible Lender Trustee, in
order to facilitate its origination of Consolidation Loans, to transfer
to the order of the Eligible Lender Trustee an amount sufficient to
prepay in full any Student Loan (including any and all Financed Student
Loans) that is to be consolidated through such origination with one or
more Financed Student Loans, (C) when and as requested by the Eligible
Lender Trustee, in order to facilitate its funding of the addition of
the principal balance of any Add-on Consolidation Loan to the principal
balance of a Consolidation Loan an amount sufficient to prepay in full
such Add-on Consolidation Loan, (D) on each Determination Date, to
deposit into the Collection Account an amount equal to the Capitalized
Interest Amount for the Student Loan Rate Accrual Period with respect
to the related Monthly Payment Date and (E) on any Determination Date
and in such amounts as the Administrator may direct, for deposit to the
Collection Account for the purposes of increasing Monthly Available
Funds or Available Funds, as the case may be.
(i) On the Quarterly Payment Date on or next
occurring after the termination of the Revolving Period, the
Administrator shall instruct the Indenture Trustee to withdraw
from the Collateral Reinvestment Account on such Quarterly
Payment Date an amount equal to the entire remaining amount on
deposit in such account and to distribute such amount to
Noteholders pursuant to Section 8.02(e) of the Indenture.}
(g) Statements to Noteholders. On each Determination Date
preceding a Quarterly Payment Date, the Administrator shall provide to
the Indenture Trustee (with a copy to the Rating Agencies) for the
Indenture Trustee to forward on such succeeding Quarterly Payment Date
to each Noteholder of record a statement substantially in the form of
Exhibit B setting forth at least the following information as to the
Notes:
(i) the amount of such distribution allocable to
principal of the Notes, the amount thereof distributable as
principal of the Senior Notes and the Subordinate Notes, the
amount thereof attributable to the Principal Distribution
Amount and the amount thereof attributable to Reserve Account
Excess;
(ii) the amount of the distribution allocable on such
Quarterly Payment Date to interest on the Senior Notes;
(iii) the amount of the distribution allocable on
such Quarterly Payment Date to interest on the Subordinate
Notes;
(iv) the amount, if any, of such distribution
allocable to any Senior Noteholders' Interest T-Bill Carryover
and any Subordinate Noteholders' Interest T-Bill Carryover,
together with any remaining outstanding amount of each
thereof;
- 15 -
<PAGE>
(v) the Pool Balance as of the close of business on
the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under
clause (A) above;
(vi) the aggregate outstanding principal balance of
the Senior Notes and the Subordinate Notes, the Senior Note
Pool Factor and the Subordinate Note Pool Factor as of such
Quarterly Payment Date, after giving effect to payments
allocated to principal reported under clause (A) above;
{(vii) the Note Rate applicable with respect to each
distribution referred to in clauses (B) and (C) above,
indicating whether such interest rate was calculated based on
the Student Loan Rate or based on the T-Bill Rate, and
specifying what each such Note Rate would have been using the
alternate basis for such calculation;
(viii) the amount of the Servicing Fee paid to the
Servicer on such Quarterly Payment Date and on each Monthly
Payment Date following the immediately preceding Quarterly
Payment Date including a breakdown of the components of the
Servicing Fee attributable to each of the items specified in
clauses II(i) through (ix) of Section 3.06 of the Servicing
Agreement and the amount of any Servicing Fee Shortfall for
such Quarterly Payment Date and for each Monthly Payment Date
following the immediately preceding Quarterly Payment Date;
(ix) the amount of the Administration Fee paid to the
Administrator on such Quarterly Payment Date and on each
Monthly Payment Date following the immediately preceding
Quarterly Payment Date;
(x) the amount of the aggregate Realized Losses, if
any, for such Collection Period and the balance of Financed
Student Loans that are delinquent in each delinquency period
as of the end of such Collection Period;
(xi) the balance of the Reserve Account on such
Quarterly Payment Date, after giving effect to changes therein
on such Quarterly Payment Date and indicating whether on such
Quarterly Payment Date or any Monthly Payment Date since the
preceding Quarterly Payment Date any withdrawal was made
therefrom pursuant to Section 2(e)(iv), the amount of each
such withdrawal and the purpose(s) pursuant to Section
2(e)(iv) for each such withdrawal;
(xii) for Quarterly Payment Dates during the
Revolving Period, the amount deposited into the Collateral
Reinvestment Account during the related Collection Period and
on the immediately preceding Quarterly Payment Date, and the
amount on deposit therein after giving effect to changes
therein on such Quarterly Payment Date;
- 16 -
<PAGE>
(xiii) for the Quarterly Payment Date on or
immediately following the end of the Revolving Period, the
amount remaining on deposit in the Collateral Reinvestment
Account that has not been used to make Additional Fundings;
(xiv) the principal balance and number of
Consolidation Loans originated on behalf of the Issuer during
the related Collection Period, (ii) the principal balance and
number of Add-on Consolidation Loans the principal balances of
which have been added to the Trust during the related
Collection Period and (iii) the amount withdrawn from the
Collateral Reinvestment Account to prepay Student Loans not
held by the Issuer that were consolidated through such
origination (or addition, in the case of Add-on Consolidation
Loans) with one or more Financed Student Loans during such
Collection Period;
(xv) the principal balance and number of Serial Loans
conveyed to the Issuer during the related Collection Period,
the aggregate Loan Purchase Amount thereof and the portion
thereof attributable to Purchase Premium Amounts;
(xvi) for Quarterly Payment Dates during the
Revolving Period, the principal balance and number of New
Loans conveyed to the Issuer during the related Collection
Period, the aggregate Loan Purchase Amount thereof and the
portion thereof attributable to Purchase Premium Amounts;} and
(xvii) the number and principal balance of Financed
Student Loans as of the end of the related Collection Period,
that are In-School, Grace, Repayment, Deferral, Forbearance or
Consolidation Loans as of the of the related Collection
Period, and a breakdown by number and principal balance of
Financed Student Loans, by school type, interest rate and loan
program.
Each amount set forth pursuant to clauses (A), (B), (C) and
(D) above shall be expressed as a dollar amount per $1,000 of original principal
balance of a Note. A copy of the statements referred to above may be obtained by
any Note Owner by a written request to the Indenture Trustee addressed to the
Corporate Trust Office.
(h) Non-Ministerial Matters. With respect to matters that in
the reasonable judgment of the Administrator are non-ministerial, the
Administrator shall not take any action unless within a reasonable time
before the taking of such action, the Administrator shall have notified
the Trustee of the proposed action and the Trustee shall have consented
to it. For the purpose of the preceding sentence, "non-ministerial
matters" shall include:
(i) the amendment of or any supplement to the
Indenture;
(ii) the initiation of any claim or lawsuit by the
Issuer and the compromise of any action, claim or lawsuit
brought by or against the Issuer (other than in connection
with the collection of the Student Loans, including any
allegation of forgery by a putative borrower under a Student
Loan);
(iii) the amendment, change or modification of the
Related Agreements;
- 17 -
<PAGE>
(iv) the appointment of successor Note Registrars,
successor Paying Agents and successor Indenture Trustees
pursuant to the Indenture or the appointment of successor
Administrators or Successor Servicers, or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture
Trustee of its obligations under the Indenture; and
(v) the removal of the Indenture Trustee.
[(i) Incentive Loans and Incentive Interest Deposits. The
Administrator may terminate or change the terms of any Incentive
Program with respect to a Student Loan in accordance with the terms of
such program, provided such termination or change is not prohibited by
the Higher Education Act, upon notice to the Trustee and the Indenture
Trustee. Until the effective date of any termination, the Administrator
shall be required to deposit into the Collection Account the Incentive
Interest Deposit with respect to such Incentive Student Loan as
provided below. In the event that the Administrator fails to make such
deposit, the terms of such Incentive Program shall be such that the
Borrower shall be obligated to make such payment and such Incentive
Program shall terminate as to the related loan.]
The Administrator shall deposit or cause to be deposited into
the Collection Account no later than the Determination Date succeeding each
Monthly Collection Period the aggregate Incentive Interest Deposits with respect
to Incentive Student Loans in the Trust as of the last day of such Monthly
Collection Period. Such deposits shall be considered deposits in respect of
interest on such Incentive Student Loans for all purposes of the Basic Documents
and shall be deemed to have been deposited into the Collection Account for all
such purposes as of such last date of such Monthly Collection Period.
3. Annual Statement as to Compliance. (a) The Administrator
shall deliver to the Depositor, the Eligible Lender Trustee and the Indenture
Trustee, on or before ___________ __ of each year beginning __________ __, 1999,
an Officers' Certificate of the Administrator dated as of __________ __ of such
year, stating that (i) a review of the activities of the Administrator during
the preceding 12-month period (or, in the case of the first such certificate,
during the period from the Closing Date to _______ __, 1999) and of its
performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Administrator has fulfilled all its obligations under this Agreement throughout
such year or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officers and the nature
and status thereof. The Indenture Trustee shall send a copy of each such
Officer's Certificate and each report referred to in Section 4 to the Rating
Agencies. A copy of such Officers' Certificate and each report referred to in
Section 4 may be obtained by any Noteholder or Note Owner by a request in
writing to the Indenture Trustee addressed to its Corporate Trust Office,
together with evidence satisfactory to the Indenture Trustee that such Person is
one of the foregoing parties.
(b) The Administrator shall deliver to the Depositor, the
Trustee, the Indenture Trustee, the Servicer, and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later
than two Business Days thereafter, written notice in an
- 18 -
<PAGE>
Officers' Certificate of the Administrator of any event which with the
giving of notice or lapse of time, or both, would become an
Administrator Default under Section 12.
4. Annual Independent Certified Public Accountants' Report.
The Administrator shall cause a firm of independent certified public
accountants, which may also render other services to the Administrator, to
deliver to the Depositor, the Trustee and the Indenture Trustee on or before
________ __ of each year beginning __________ __, 1999, a report addressed to
the Administrator and to the Depositor, the Trustee and the Indenture Trustee
(which report may be combined with other reports required to be delivered by
such accountants to the Administrator, the Trustee and the Indenture Trustee
under the Related Agreements), to the effect that such firm has examined certain
documents and records relating to the administration of the Student Loans and of
the Trust during the preceding fiscal year ended _________ __ (or, in the case
of the first such report, during the period from the Closing Date to __________
__, 1999) and that, on the basis of the accounting and auditing procedures
considered appropriate under the circumstances, such firm is of the opinion that
the administration of the Trust was conducted in compliance with the terms of
this Agreement, except for (i) such exceptions as such firm shall believe to be
immaterial and (ii) such other exceptions as shall be set forth in such report.
The Indenture Trustee shall send a copy of each such report to the Rating
Agencies.
Such report will also indicate that the firm is independent of
the Administrator within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
5. Administrator Expenses. The Administrator shall be required
to pay all expenses incurred by it in connection with its activities hereunder,
including fees and disbursements of independent accountants, taxes imposed on
the Administrator and expenses incurred in connection with distributions and
reports to the Noteholders.
6. Records. The Administrator shall maintain appropriate books
of account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Issuer at any time
during normal business hours.
7. Compensation. As compensation for the performance of the
Administrator's obligations under this Agreement and as reimbursement for its
expenses related thereto, the Administrator shall be entitled to the
Administration Fee payable monthly in arrears on each Monthly Payment Date which
shall be solely an obligation of the Issuer and payable solely as provided
herein.
8. Additional Information To Be Furnished to the Issuer. The
Administrator shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
9. Independence of the Administrator. For all purposes of this
Agreement, the Administrator shall be an independent contractor and shall not be
subject to the supervision of the Issuer, the Trustee or the Eligible Lender
Trustee with respect to the manner in which it
- 19 -
<PAGE>
accomplishes the performance of its obligations hereunder. Unless expressly
authorized by the Issuer, the Administrator shall have no authority to act for
or represent the Issuer, the Trustee or the Eligible Lender Trustee in any way
and shall not otherwise be deemed an agent of the Issuer, the Trustee or the
Eligible Lender Trustee.
10. No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Administrator and any of the Issuer, the Trustee or the
Eligible Lender Trustee as members of any partnership, joint venture,
association, syndicate, unincorporated business or other separate entity, (ii)
shall be construed to impose any liability as such on any of them or (iii) shall
be deemed to confer on any of them any express, implied or apparent authority to
incur any obligation or liability on behalf of the others.
11. Other Activities of Administrator. Nothing herein shall
prevent the Administrator or its Affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or entity
may engage in business activities similar to those of the Issuer, the Trustee,
the Eligible Lender Trustee or the Indenture Trustee.
12. Administrator Default. If any one of the following events
(an "Administrator Default") shall occur and be continuing:
(a) any failure by the Administrator to direct the Indenture
Trustee to make any required distributions from any of the Trust
Accounts, which failure continues unremedied for three Business Days
after written notice of such failure is received by the Administrator
from the Indenture Trustee or the Trustee or after discovery of such
failure by an officer of the Administrator; or
(b) any failure by the Administrator duly to observe or to
perform in any material respect any other covenants or agreements of
the Administrator set forth in this Agreement or any Related
Agreements, which failure shall (i) materially and adversely affect the
rights of Noteholders and (ii) continues unremedied for a period of 30
days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given (A) to the Administrator
by the Indenture Trustee or the Trustee or (B) to the Administrator and
to the Indenture Trustee and the Trustee by the Noteholders,
representing not less than ___% of the Outstanding Amount of the Notes;
or
(c) an Insolvency Event occurs with respect to the
Administrator;
(d) then, and in each and every case, so long as the
Administrator Default shall not have been remedied, either the
Indenture Trustee, or the Noteholders evidencing not less than __% of
the Outstanding Amount of the Notes, by notice then given in writing to
the Administrator (and to the Indenture Trustee and the Trustee if
given by the Noteholders) may terminate all the rights and obligations
(other than the obligations set forth in Section 24 hereof) of the
Administrator under this Agreement. On or after the receipt by the
Administrator of such written notice, all authority and power of the
Administrator under this Agreement, whether with respect to the Notes
or the Financed
- 20 -
<PAGE>
Student Loans or otherwise, shall, without further action, pass to and
be vested in the Indenture Trustee or such successor Administrator as
may be appointed under Section 13; and, without limitation, the
Indenture Trustee and the Trustee are hereby authorized and empowered
to execute and deliver, for the benefit of the predecessor
Administrator, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of
termination. The predecessor Administrator shall cooperate with the
successor Administrator, the Indenture Trustee and the Trustee in
effecting the termination of the responsibilities and rights of the
predecessor Administrator under this Agreement. All reasonable costs
and expenses (including attorneys' fees and expenses) incurred in
connection with amending this Agreement to reflect such succession as
Administrator pursuant to this Section shall be paid by the predecessor
Administrator upon presentation of reasonable documentation of such
costs and expenses. Upon receipt of notice of the occurrence of an
Administrator Default, the Trustee shall give notice thereof to the
Rating Agencies.
13. Appointment of Successor. Upon receipt by the
Administrator of notice of termination pursuant to Section 12, or the
resignation by the Administrator in accordance with the terms of this Agreement,
the predecessor Administrator shall continue to perform its functions as
Administrator, in the case of termination, only until the date specified in such
termination notice or, if no such date is specified in a notice of termination,
until receipt of such notice and, in the case of resignation, until the later of
(x) the date 120 days from the delivery to the Trustee and the Indenture Trustee
of written notice of such resignation (or written confirmation of such notice)
in accordance with the terms of this Agreement and (y) the date upon which the
predecessor Administrator shall become unable to act as Administrator as
specified in the notice of resignation and Depositoring Opinion of Counsel. In
the event of termination hereunder of the Administrator the Issuer shall appoint
a successor Administrator acceptable to the Indenture Trustee and the successor
Administrator shall accept its appointment by a written assumption in form
acceptable to the Indenture Trustee. In the event that a successor Administrator
has not been appointed at the time when the predecessor Administrator has ceased
to act as Administrator in accordance with this Section, the Indenture Trustee
without further action shall automatically be appointed the successor
Administrator and the Indenture Trustee shall be entitled to the Administration
Fee. Notwithstanding the above, the Indenture Trustee shall, if it shall be
unwilling or legally unable so to act, appoint or petition a court of competent
jurisdiction to appoint, any established institution whose regular business
shall include the servicing of student loans, as the successor to the
Administrator under this Agreement and the Administration Agreement.
(a) Upon appointment, the successor Administrator (including
the Indenture Trustee acting as successor Administrator) shall be the
successor in all respects to the predecessor Administrator and shall be
subject to all the responsibilities, duties and liabilities placed on
the predecessor Administrator that arise thereafter or are related
thereto and shall be entitled to an amount agreed to by such successor
Administrator (which shall not exceed the Administration Fee unless
such compensation arrangements will not result in a downgrading of the
rating of the Senior Notes or the Subordinate
- 21 -
<PAGE>
Notes by any Rating Agency) and all the rights granted to the
predecessor Administrator by the terms and provisions of this
Agreement.
(b) The Administrator may not resign unless it is prohibited
from serving as such by law as evidenced by an Opinion of Counsel to
such effect delivered to the Indenture Trustee and the Trustee.
Notwithstanding the foregoing or anything to the contrary herein or in
the Related Agreements, the Indenture Trustee, to the extent it is
acting as successor Administrator pursuant hereto, shall be entitled to
resign to the extent a qualified successor Administrator has been
appointed and has assumed all the obligations of the Administrator in
accordance with the terms of this Agreement and the Related Agreements.
14. Notification to Noteholders. Upon any termination of, or
appointment of a successor to, the Administrator pursuant to Section 12 or 13,
the Indenture Trustee shall give prompt written notice thereof to Noteholders
and the Rating Agencies (which, in the case of any such appointment of a
successor, shall consist of prior written notice thereof to the Rating
Agencies).
15. Waiver of Past Defaults. The Noteholders of Notes
evidencing not less than a majority of the Outstanding Amount of the Notes may,
on behalf of all Noteholders, waive in writing any default by the Administrator
in the performance of its obligations hereunder and any consequences thereof,
except a default in making any required deposits to or payments from any of the
Trust Accounts (or giving instructions regarding the same) in accordance with
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Administrator Default arising therefrom shall be deemed to
have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent
thereto.
16. Notices. Any notice, report or other communication given
hereunder shall be in writing (or in the form of facsimile notice, followed by
written notice) and addressed as follows:
(a) if to the Issuer, to
EFG Student Loan Trust ____-_
with a copy to the Trustee
at the Corporate Trust Office of the
Trustee; and
if to the Trustee, to [___________] at
Attention:
Telephone:
Facsimile:
(b) if to the Eligible Lender Trustee, to
- 22 -
<PAGE>
[ ], National Association
Attention: Corporate Trust Administration
Telephone:
Facsimile:
(c) if to the Administrator, to
Educational Finance Group, Inc.
Attention: President and Chief Executive Officer
Telephone:
Telecopy:
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(d) if to the Indenture Trustee, to
[ ]
Attention: Corporate Trust and Agency Group,
Structured Finance Team
Telephone:
Facsimile:
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand-delivered
to the address of such party as provided above.
17. Amendments. This Agreement may be amended from time to
time by a written amendment duly executed and delivered by the Issuer, the
Administrator and the Indenture Trustee, with the written consent of the
Eligible Lender Trustee, without the consent of the Noteholders, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders; provided that such amendment will not, in an Opinion of Counsel
obtained on behalf of the Issuer and satisfactory to the Indenture Trustee and
the Eligible Lender Trustee, materially and adversely affect the interest of any
Noteholder. This Agreement may also be
- 23 -
<PAGE>
amended by the Issuer, the Administrator and the Indenture Trustee with the
written consent of the Eligible Lender Trustee and the Noteholders of at least a
majority in the Outstanding Amount of the Notes for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of Noteholders;
provided, however, that no such amendment may (i) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments with respect to Student Loans or distributions that are required to be
made for the benefit of the Noteholders or (ii) reduce the aforesaid percentage
of the Noteholders which are required to consent to any such amendment, without
the consent of all Outstanding Noteholders. Prior to the execution of any such
amendment, the Administrator shall furnish written notification of the substance
of such amendment to each of the Rating Agencies.
18. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 13 or 25 of this Agreement
concerning the resignation of the Administrator, this Agreement may not be
assigned by the Administrator.
19. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
20. Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
21. Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall together constitute but one
and the same agreement.
22. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
23. Not Applicable to Educational Finance Group, Inc. in Other
Capacities. Nothing in this Agreement shall affect any obligation Educational
Finance Group, Inc. may have in any other capacity under the Related Agreements.
24. Liability of Administrator; Indemnities. The Administrator
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Administrator under this Agreement.
The Administrator shall indemnify, defend and hold harmless
the Issuer, the Trustee, the Eligible Lender Trustee, the Indenture Trustee, the
Servicer and the Noteholders and any of the officers, directors, employees and
agents of the Issuer, the Trustee, the Eligible Lender Trustee, the Indenture
Trustee and the Servicer from and against any and all costs, expenses,
- 24 -
<PAGE>
losses, claims, damages and liabilities to the extent that such cost, expense,
loss, claim, damage or liability arose out of, or was imposed upon any such
Person through, the negligence, willful misfeasance or bad faith of the
Administrator in the performance of its duties under this Agreement or by reason
of reckless disregard of its obligations and duties hereunder or thereunder.
The Administrator shall pay reasonable compensation to the
Indenture Trustee and shall reimburse the Indenture Trustee for all reasonable
expenses, disbursements and advances, and indemnify, defend and hold harmless
the Indenture Trustee and its officers, directors, employees and agents from and
against all costs, expenses, losses, claims, damages and liabilities, to the
extent and in the manner provided in, and subject to the limitations of, Section
6.07 of the Indenture.
For purposes of this Section, in the event of the termination
of the rights and obligations of the Administrator (or any successor thereto
pursuant to Section 25) as Administrator pursuant to Section 12 or a resignation
by such Administrator pursuant to this Agreement, such Administrator shall be
deemed to be the Administrator pending appointment of a successor Administrator
pursuant to Section 13.
Indemnification under this Section shall survive the
resignation or removal of the Trustee, the Eligible Lender Trustee or the
Indenture Trustee or the termination of this Agreement and shall include
reasonable fees and expenses of counsel and expenses of litigation. If the
Administrator shall have made any indemnity payments pursuant to this Agreement
and the Person to or on behalf of whom such payments are made thereafter
collects any of such amounts from others, such Person shall promptly repay such
amounts to the Administrator, without interest.
25. Merger or Consolidation of, or Assumption of the
Obligations of, Administrator. Any Person (a) into which the Administrator may
be merged or consolidated, (b) which may result from any merger or consolidation
to which the Administrator shall be a party or (c) which may succeed to the
properties and assets of the Administrator substantially as a whole, shall be
the successor to the Administrator without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
however, that the Administrator hereby covenants that it will not consummate any
of the foregoing transactions except upon satisfaction of the following: (i) the
surviving Administrator, if other than Educational Finance Group, LLP, executes
an agreement of assumption to perform every obligation of the Administrator
under this Agreement, (ii) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Section 1 shall have been
breached and no Administrator Default, and no event that, after notice or lapse
of time, or both, would become an Administrator Default shall have occurred and
be continuing, (iii) the Administrator shall have delivered to the Trustee and
the Indenture Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section and that all conditions precedent, if any,
provided for in this Agreement relating to such transaction have been complied
with, and that the Rating Agency Condition shall have been satisfied with
respect to such transaction, (iv) the surviving Administrator shall have a
consolidated net worth at least equal to that of the predecessor
- 25 -
<PAGE>
Administrator, (v) such transaction will not result in a material adverse
Federal or state tax consequence to the Issuer or the Noteholders and (vi)
unless Educational Finance Group, LLP is the surviving entity, the Administrator
shall have delivered to the Trustee and the Indenture Trustee an Opinion of
Counsel either (A) stating that, in the opinion of such counsel, all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary fully to preserve and protect the interest of the
Trustee and Indenture Trustee, respectively, in the Student Loans and reciting
the details of such filings, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interests.
26. Limitation on Liability of Administrator and Others.
Neither the Administrator nor any of its directors, officers, employees or
agents shall be under any liability to the Issuer, the Noteholders, the Trustee,
the Indenture Trustee or the Eligible Lender Trustee except as provided under
this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement or for errors in judgment; provided, however,
that this provision shall not protect the Administrator or any such person
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of obligations and its duties under this Agreement.
The Administrator and any of its directors, officers, employees or agents may
rely in good faith on the advice of counsel or on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder.
Except as provided in this Agreement, the Administrator shall
not be under any obligation to appear in, prosecute or defend any legal action
that shall not be incidental to its duties to administer the Student Loans and
the Trust in accordance with this Agreement, and that in its opinion may involve
it in any expense or liability; provided, however, that the Administrator may
undertake any reasonable action that it may deem necessary or desirable in
respect of this Agreement and the other Basic Documents and the rights and
duties of the parties to this Agreement and the Related Agreements and the
interests of the Noteholders under the Indenture.
27. Educational Finance Group, Inc. Not to Resign as
Administrator. Subject to the provisions of Section 25, Educational Finance
Group, Inc. shall not resign from the obligations and duties imposed on it as
Administrator under this Agreement except upon determination that the
performance of its duties under this Agreement shall no longer be permissible
under applicable law or shall violate any final order of a court or
administrative agency with jurisdiction over Educational Finance Group, Inc. or
its properties. Notice of any such determination permitting the resignation of
Educational Finance Group, Inc. shall be communicated to the Trustee, the
Eligible Lender Trustee and the Indenture Trustee at the earliest practicable
time (and, if such communication is not in writing, shall be confirmed in
writing at the earliest practicable time) and any such determination shall be
evidenced by an Opinion of Counsel to such effect delivered to the Trustee, the
Eligible Lender Trustee and the Indenture Trustee concurrently with or promptly
after such notice. No such resignation shall become effective until the
Indenture Trustee or a successor Administrator shall have assumed the
responsibilities and obligations of Educational Finance Group, Inc. in
accordance with Section 13.
- 26 -
<PAGE>
28. Limitation of Liability of Eligible Lender Trustee and
Indenture Trustee. Notwithstanding anything contained herein to the contrary,
this instrument has been countersigned by [TRUSTEE], National Association not in
its individual capacity but solely in its capacity as Trustee of the Issuer and
in no event shall [TRUSTEE], National Association in its individual capacity or
any Owner of the Issuer have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder, as to all of
which recourse shall be had solely to the assets of the Issuer. For all purposes
of this Agreement, in the performance of any duties or obligations of the Issuer
thereunder, the Trustee shall be subject to, and entitled to the benefits of,
the terms and provisions of Articles VI, VII and VIII of the Trust Agreement.
Notwithstanding anything contained herein to the contrary,
this Agreement has been countersigned by [ ] and [ ] not in their
individual capacities but solely as [Eligible Lender Trustee and] Indenture
Trustee and in no event shall [ ] and [ ] have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer.
29. Insolvency of Depositor. (a) Upon any sale of the assets
of the Trust pursuant to Section 9.02 of the Trust Agreement, the Indenture
Trustee shall deposit the net proceeds from such sale after all payments and
reserves therefrom (including the expenses of such sale) have been made (the
"Insolvency Proceeds") in the Collection Account. On the Quarterly Payment Date
on, or, if such proceeds are not so deposited on a Quarterly Payment Date, on
the first Quarterly Payment Date following the date on which the Insolvency
Proceeds are deposited in the Collection Account, the Administrator shall
instruct the Indenture Trustee to make the following distributions (after the
application on such Quarterly Payment Date of the amount of Available Funds and
amounts on deposit in the Reserve Account pursuant to Sections 2(d) and 2(e))
from the Insolvency Proceeds and any funds remaining on deposit in the Reserve
Account (including the proceeds of any sale of investments therein as described
in the following sentence):
(i) to the Senior Noteholders, any portion of the
Senior Noteholders' Interest Distribution Amount not otherwise
distributed to the Senior Noteholders on such Quarterly
Payment Date;
(ii) to the Subordinate Noteholders, any portion of
the Subordinate Noteholders' Interest Distribution Amount not
otherwise distributed to the Subordinate Noteholders on such
Quarterly Payment Date;
(iii) to the Senior Noteholders, the outstanding
principal balance of the Senior Notes (after giving effect to
the reduction in the outstanding principal balance of the
Senior Notes to result from the distributions to Senior
Noteholders on such Quarterly Payment Date and on prior
Quarterly Payment Dates);
(iv) to the Subordinate Noteholders, the outstanding
principal balance of the Subordinate Notes (after giving
effect to the reduction in the outstanding principal balance
of the Subordinate Notes to result from the distributions to
- 27 -
<PAGE>
Subordinate Noteholders on such Quarterly Payment Date and on
prior Quarterly Payment Dates);
(v) to the Senior Noteholders, any unpaid Senior
Noteholders' Interest T-Bill Carryover not otherwise
distributed to the Senior Noteholders on such Quarterly
Payment Date; and
(vi) to the Subordinate Noteholders, any unpaid
Subordinate Noteholders' Interest T-Bill Carryover not
otherwise distributed to the Subordinate Noteholders on such
Quarterly Payment Date. Any investments on deposit in the
Reserve Account which will not mature on or before such
Quarterly Payment Date shall be sold by the Indenture Trustee
at such time as will result in the Indenture Trustee receiving
the proceeds from such sale not later than the Business Day
preceding such Quarterly Payment Date. Any Insolvency Proceeds
remaining after the deposits described above shall be paid to
the Depositor.
(b) As described in Article IX of the Trust Agreement,
notice of any termination of the Trust shall be given by the
Administrator to the Trustee and the Indenture Trustee as soon as
practicable after the Administrator has received notice thereof.
30. Third-Party Beneficiaries. The Eligible Lender Trustee is
a third party beneficiary to this Agreement and is entitled to the rights and
benefits hereunder and may enforce the provisions hereof as if it were a party
hereto.
- 28 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
EFG STUDENT LOAN TRUST 1999-[ ]
by [ ], NATIONAL ASSOCIATION, not
in its individual capacity but solely as
Trustee,
by
--------------------------------------
Name:
Title:
[INDENTURE TRUSTEE] and not in its
individual capacity but solely as
Indenture Trustee,
by
--------------------------------------
Name:
Title:
EDUCATIONAL FINANCE GROUP, Inc., as
Administrator,
by
--------------------------------------
Name:
Title:
- 29 -
<PAGE>
EXHIBIT A TO THE
ADMINISTRATION AGREEMENT
POWER OF ATTORNEY
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that [ ], NATIONAL
ASSOCIATION, a national bank, not in its individual capacity but solely as
trustee ("Trustee") for the EFG Student Loan Trust ____-_ (the "Trust"), does
hereby make, constitute and appoint Educational Finance Group, Inc., as
Administrator under the Administration Agreement (as defined below), and its
agents and attorneys, as Agents and Attorneys-in-Fact to execute on behalf of
Trustee or the Trust all such documents, reports, filings, instruments,
certificates and opinions as it should be the duty of Trustee or the Trust to
prepare, file or deliver pursuant to the Related Documents (as defined in the
Administration Agreement) or pursuant to Section 5.02 of the Trust Agreement (as
defined in the Administration Agreement), including without limitation, to
appear for and represent Trustee and the Trust in connection with the
preparation, filing and audit of any federal, state and local tax returns
pertaining to the Trust, and with full power to perform any and all acts
associated with such returns and audits that the Trustee could perform,
including without limitation, the right to distribute and receive confidential
information, defend and assert positions in response to audits, initiate and
defend litigation, and to execute waivers of restriction on assessments of
deficiencies, consents to the extension of any statutory or regulatory time
limit, and settlements. For the purpose of this Power of Attorney, the term
"Administration Agreement" means the Administration Agreement dated as of
_______ __, 1999, among the Trust, Educational Finance Group, Inc., as
Administrator, and [ ], as Indenture Trustee, as such may be amended from
time to time.
All powers of attorney for this purpose heretofore filed or
executed by Trustee are hereby revoked.
EXECUTED as of the _______ day of _______, 1999.
[ ], NATIONAL ASSOCIATION, not in its
individual capacity but solely as Trustee
by
--------------------------------------
Name:
Title:
A-1
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Before me, the undersigned authority, on this day personally
appeared [ ] known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that such person signed the same
for the purposes and considerations therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this [ ] day of [ ], 1999.
------------------------------
Notary Public in and for the
State of New York
------------------------------
Printed Name of Notary Public
Commission Expires
-----------
A-2
<PAGE>
EXHIBIT B
TO THE
ADMINISTRATION AGREEMENT
Form of Noteholders' Statement pursuant to Section 2(g) of Administration
Agreement (capitalized terms used herein are defined in Appendix A thereto)
Quarterly Payment Date: _____________________
(i) Amount of principal being paid or distributed:
Senior __________* ($_______* per $1,000 original
principal amount of Notes)
Subordinate __________* ($_______* per $1,000 original
principal amount of Notes)
- ---------
* Portion of each such amount attributable to Reserve Account Excess: _________.
(ii) Amount of interest being paid or distributed:
Senior __________ ($_______ per $1,000 original
principal amount of Notes)
Subordinate __________ ($_______ per $1,000 original
principal amount of Notes)
(iii) Amount of Senior Noteholders' Interest T-Bill Carryover being paid or
distributed (if any) and amount remaining (if any):
(a) Distributed:__________ ($_______ per $1,000 original
principal amount of Notes)
(b) Balance:______________ ($_______ per $1,000 original
principal amount of Notes)
(iv) Amount of Subordinate Noteholders' Interest T-Bill Carryover being paid
or distributed (if any) and amount remaining (if any):
(a) Distributed:__________ ($_______ per $1,000 original
principal amount of Notes)
B-1
<PAGE>
(b) Balance:______________ ($_______ per $1,000 original)
principal amount of Notes)
(v) Pool Balance at end of related Collection Period: __________
(vi) After giving effect to distributions on this Quarterly Payment Date:
(a) (1) outstanding principal amount of Senior Notes:________
(2) Senior Note Pool Factor:__________
(b) (1) outstanding principal amount of Subordinate Notes:___
(2) Subordinate Note Pool Factor:__________
(vii) Applicable Note Rate:
In general:
(1) T-Bill Rate for Quarterly Interest Period commencing on the
previous Quarterly Payment Date was _______%.
(2) the Student Loan Rate was _____%.
Senior Note Rate:_____% (based on
[T-Bill Rate]
[Student Loan Rate])
Subordinate Note Rate:_____% (based on
[T-Bill Rate]
[Student Loan Rate])
(viii) Amount of Servicing Fee for related Collection Period including a
breakdown of the components of the Servicing Fee attributable to each
of the items specified in clauses II(i) through (ix) of Section 3.06 of
the Servicing Agreement and the amount of any Servicing Fee Shortfall
for such Quarterly Payment Date and for each Monthly Payment Date
following the immediately preceding Quarterly Payment Date:
(ix) Amount of Administration Fee for related Collection
Period:__________ ($_______ per $1,000 original principal amount of
Notes)
(x) Aggregate amount of Realized Losses (if any) for the related
Collection Period:__________
(xi) Financed Student Loans delinquent at end of related Collection Period:
number of delinquent loans: ________; aggregate unpaid principal
balance of delinquent loans: ___________________
B-2
<PAGE>
(xii) Withdrawal from Reserve Account on related Quarterly Payment Date
(other than Reserve Account Excess) and on any Monthly Payment Date
since the preceding Quarterly Payment Date (list each withdrawal
separately): _______________ [purpose of each withdrawal]
Reserve Account Excess on related Quarterly Payment Date $________
Principal balance of Notes to be paid to reach Parity Date: $_______
(xiii) Deposits to Collateral Reinvestment Account during related Collection
Period: $__________; amount to be deposited on related Quarterly
Payment Date $___________.
Withdrawal from Collateral Reinvestment Account during related
Collection Period: $__________
(xiv) Amount in the Reserve Account (after giving effect to (xii)):__________
(xv) Amount in the Collateral Reinvestment Account (after giving effect to
(xiii)):__________
(xvi) Consolidation loans: ___________ loans with aggregate principal balance
of $________ were originated during related Collection Period;
withdrawal from Collateral Reinvestment Account to fund origination of
Consolidation Loans during related Collection Period: $_______
(xvii) Add-on Consolidation Loans: ______ loans with aggregate principal
balance of $________ were added to the principal balance of a
Consolidation Loan; withdrawal from Collateral Reinvestment Account to
fund the addition of the principal balances of Add-on Consolidation
Loans during the related Collection Period: $________
(xviii) Serial Loans: _______ loans with aggregate principal balance of
$_______ (portion represented by Purchase Premium Amounts $________)
were purchased during the related Collection Period.
(xix) New Loans: _______ loans with aggregate principal balance of $_______
(portion represented by Purchase Premium Amounts $________) were
purchased during the related Collection Period.
(xx) Financed Student Loans in the following categories as of the end of the
related Collection Period:
Weighted Average Number of Principal
Interest Rate Loans Balance
Status Type:
In-School
Grace
B-3
<PAGE>
Repayment
Forbearance
Deferment
Delinquencies
Claims Filed Awaiting Payment
Delinquencies:
- --------------
30-60 Days
61-90 Days
91-120 Days
More than 120 Days Delinquent
Claims Filed Awaiting Payment
Loan Type:
- --------------
Stafford Loans
SLS Loans
PLUS Loans
Consolidation Loans
School Type:
- --------------
Traditional
Vocational/Proprietary
B-4
<PAGE>
APPENDIX A TO THE
ADMINISTRATION AGREEMENT
[FORM OF]
DEFINITIONS AND USAGE
Usage
-----
The following rules of construction and usage shall be
applicable to any instrument that is governed by this Appendix:
a) All terms defined in this Appendix shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant thereto unless otherwise defined
therein.
b) As used herein, in any instrument governed hereby and in
any certificate or other document made or delivered pursuant thereto,
accounting terms not defined in this Appendix or in any such instrument,
certificate or other document, and accounting terms partly defined in this
Appendix or in any such instrument, certificate or other document to the
extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of such
instrument. To the extent that the definitions of accounting terms in this
Appendix or in any such instrument, certificate or other document are
inconsistent with the meanings of such terms under generally accepted
accounting principles, the definitions contained in this Appendix or in any
such instrument, certificate or other document shall control.
c) The words "hereof", "herein", "hereunder" and words of
similar import when used in an instrument refer to such instrument as a whole
and not to any particular provision or subdivision thereof; references in an
instrument to "Article", "Section" or another subdivision or to an attachment
are, unless the context otherwise requires, to an article, section or
subdivision of or an attachment to such instrument; and the term "including"
means "including without limitation".
d) The definitions contained in this Appendix are equally
applicable to both the singular and plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
e) Any agreement, instrument or statute defined or referred
to below or in any agreement or instrument that is governed by this Appendix
means such agreement or instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes) by succession of comparable
successor statutes and includes (in the case of agreements or
<PAGE>
instruments) references to all attachments thereto and instruments
incorporated therein. References to a Person are also to its permitted
successors and assigns.
Definitions
-----------
"Act" has the meaning specified in Section 11.03(a) of the
Indenture.
"Additional Fundings" means any withdrawals from the
Collateral Reinvestment Account for any of the purposes set forth in Section
2(f) of the Administration Agreement.
"Additional Guarantor" means a Federal Guarantor (other than
an Initial Guarantor) of a FFELP Student Loan (other than an Initial Student
Loan) which has entered into a guarantee agreement with the Eligible Lender
Trustee or a Private Guarantor of a Private Student Loan.
"Add-on Consolidation Loan" means a Student Loan, the
principal balance of which is added to an existing Consolidation Loan within
210 days from the date that the existing Consolidation Loan was made, as
required by the Higher Education Act.
"Add-on Consolidation Loan Funding Date" means each day,
prior to the end of the Add-on Period, on which the principal balance of an
Add-on Consolidation Loan is added to the principal balance of a Consolidation
Loan in the Trust pursuant to Section 6.07 of the Trust Agreement.
"Add-on Period" means the period starting on the closing
Date and ending on the date that is 210 days from the date that the last
Consolidation Loan was originated by the Trust during the Revolving Period.
"Administration Agreement" means the Administration
Agreement dated as of [__________ __, 1999], among the Issuer, the
Administrator and the Indenture Trustee.
"Administration Fee" means, with respect to each Monthly
Payment Date, an amount equal to one-twelfth of the product of (i) [ ]% and
(ii) the Pool Balance as of the close of business on the last day of the
calendar month immediately preceding such Monthly Payment Date.
"Administrator" means Educational Finance Group, Inc., a
Texas limited liability partnership, in its capacity as administrator of the
Issuer and the Financed Student Loans.
"Administrator Default" shall have the meaning set forth in
Section 12 of the Administration Agreement.
"Administrator's Certificate" means an Officers' Certificate
of the Administrator delivered pursuant to Section 2(g) of the Administration
Agreement, substantially in the form of Exhibit B thereto.
2
<PAGE>
"Affiliate" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whetherthrough the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Assignment" means a duly executed assignment delivered
pursuant to Section 3.02 of the Loan Sale Agreement in the form set forth in
Exhibit F to such Agreement.
"Authorized Officer" means (i) with respect to the Issuer,
any officer of the Trustee who is authorized to act for the Trustee in matters
relating to the Issuer pursuant to the Basic Documents and who is identified
on the list of Authorized Officers delivered by the Trustee to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter) and (ii) with respect to the Seller, the Servicer and
the Administrator, any officer of the Seller, the Servicer or the
Administrator, respectively, who is authorized to act for the Seller, the
Servicer or the Administrator, respectively, in matters relating to itself or
to the Issuer and to be acted upon by the Seller, the Servicer or the
Administrator, respectively, pursuant to the Basic Documents and who is
identified on the list of Authorized Officers delivered by the Seller, the
Servicer and the Administrator, respectively, to the Indenture Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter).
"Available Funds" means, with respect to a Quarterly Payment
Date and the related Collection Period, the sum of the amounts specified in
clauses (i)-(vi) of the definition of Monthly Available Funds for each of the
three Monthly Collection Periods included in such Collection Period; provided,
however, that if with respect to any Quarterly Payment Date there would not be
sufficient funds, after application of Available Funds (as defined above) and
amounts available from the Reserve Account, to pay any of the items specified
in clauses (v)(A) through (v)(C) of Section 2(d) of the Administration
Agreement, then Available Funds for such Quarterly Payment Date will include,
in addition to the Available Funds (as defined above), amounts on deposit in
the Collection Account on the Determination Date relating to such Quarterly
Payment Date which would have constituted Available Funds for the Quarterly
Payment Date succeeding such Quarterly Payment Date up to the amount necessary
to pay suc items, and the Available Funds for such succeeding Quarterly
Payment Date will be adjusted accordingly; and provided, further, that
Available Funds will exclude (A) all payments and proceeds (including
Liquidation Proceeds) of any Financed Student Loans the Purchase Amount of
which has been included in Available Funds for a prior Collection Period; (B)
except as expressly included in clause (iv) of the definition of Monthly
Available Funds, amounts released from the Collateral Reinvestment Account;
(C) an Monthly Rebate Fees paid during the related Collection Period by or on
behalf of the Trust; (D) any collections in respect of principal on the
Financed Student Loans applied by the Eligible Lender Trustee on behalf of the
Trust prior to the end of the Revolving Period to make deposits to the
Collateral Reinvestment Account pursuant to Section 2(d)(i) of the
Administration Agreement, and after the end of the Revolving Period, any
expenditure of the Net Principal Cash Flow Amount used
3
<PAGE>
to fund the addition o any Add-on Consolidation Loans, to purchase Serial
Loans or to fund the acquisition of Exchanged Serial Loans during the related
Collection Period; and (E) the Servicing Fee, all overdue Servicing Fees, the
Administration Fee and all overdue Administration Fees paid on each Monthly
Payment Date that is not a Quarterly Payment Date during the related
Collection Period.
"Basic Documents" means the Trust Agreement, the Indenture,
the Eligible Lender Trust Agreement, the Loan Sale Agreement, the Servicing
Agreement, the Administration Agreement, the Depository Agreement, the
Guarantee Agreements and other documents and certificates delivered in
connection with any thereof.
"Book-Entry Note" means a beneficial interest in the Senior
Notes, ownership and transfers of which shall be made through book entries by
a Clearing Agency as described in Section 2.10 of the Indenture.
"Borrower" means an individual who is the maker of a
Borrower Note and who obtains a Student Loan from an "eligible lender" in
accordance with the Higher Education Act (in the case of FFELP Student Loans)
and the policies and procedures of a Guarantor.
"Borrower Account" means those combined loans of a Borrower
with the same lender and branch, which loans are in the same status, are the
same loan type and which require the same processing and billing requirements.
Stafford Loans which are already in repayment and being serviced by the
Servicer will not be merged with new Stafford Loans for the same Borrower, and
each such Stafford Loan will be treated as a separate Borrower Account.
"Borrower Note" means a promissory note of a Borrower for a
Student Loan set forth on the appropriate form furnished by the Guarantor
which Borrower Note meets the criteria set forth by the Higher Education Act
(in the case of FFELP Student Loans) and the policies and procedures of the
Guarantor.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions or trust companies in the State of
[Illinois, New York or Texas] are authorized or obligated by law, regulation
or executive order to remain closed.
"Business Trust Statute" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from
time to time.
"Capitalized Interest Amount" means for any Monthly
Collection Period or other period of determination, the amount of interest
that accrued on the Financed Student Loans during such period but was not then
payable and that has been or will, pursuant to the terms of such Financed
Student Loans, be capitalized and added to the principal balances of such
loans.
4
<PAGE>
"Certificate of Trust" means the Certificate of Trust in the
form of Exhibit A to the Trust Agreement to be filed for the Trust pursuant to
Section 3810(a) of the Business Trust Statute.
["_________Program" means the [Incentive Program] of the
Seller which provides that Borrowers of Stafford Loans whose loans were
disbursed on or after[_____________] and who make their first payments on time
receive a __% per annum interest rate reduction for the remaining term of
their Student Loan, as such program may be modified from time to time.]
["__________Program" means the Incentive Program of the
Seller which provides for Borrowers of Stafford Loans whose loans were
disbursed on or after _______________ and who use the [ ] to remit payments
directly from their bank accounts to receive a __% per annum interest rate
reduction on their Student Loans, as such program may be modified after the
Cutoff Date, other than as it may be modified to increase such interest rate
reduction.]
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities
deposited with the Clearing Agency.
"Closing Date" means __________ __, 1999.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting
Clause of the Indenture.
"Collateral Reinvestment Account" means the account
designated as such, established and maintained pursuant to Section 2(c) of the
Administration Agreement.
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 2(c) of the Administration
Agreement.
"Collection Period" means, with respect to the first
Quarterly Payment Date, the period beginning on the Cutoff Date and ending on
[ 1999], and with respect to each subsequent Quarterly Payment Date, the
Collection Period means the three calendar months immediately following the
end of the previous Collection Period.
"Commission" means the Securities and Exchange Commission.
"Company" means Educational Finance Group, Inc., a Delaware
corporation.
5
<PAGE>
"Company Note" means the Subordinate Note in a principal
amount of $[ ] which is required to be retained by the Company pursuant to
Section 2.13 of the Indenture and which is nontransferable.
"Consolidation Fee" means any Federal Origination Fee,
Monthly Rebate Fee or similar fee payable to the Department relating to the
origination or ownership of Consolidation Loans.
"Consolidation Loan" means a Student Loan made pursuant to
the Higher Education Act to consolidate the Borrower's obligations under
various federally authorized student loan programs into a single loan, as
supplemented by the addition of any related Add-on Consolidation Loans.
"Corporate Trust Office" means (i) with respect to the
Indenture Trustee, the principal office of the Indenture Trustee at which at
any particular time its corporate trust business shall be administered, which
office at the Closing Date is located at [ ]; or at such other address as the
Indenture Trustee may designate from time to time by notice to the Noteholders
and the Depositor, or the principal corporate trust office of any successor
Indenture Trustee (the address of which the successor Indenture Trustee will
notify the Noteholders and the Depositor); (ii) with respect to the Eligible
Lender Trustee, the principal corporate trust office of the Eligible Lender
Trustee located at [ ]; or at such other address as the Eligible Lender
Trustee may designate by notice to the Depositor, or the principal corporate
trust office of any successor Eligible Lender Trustee (the address of which
the successor Eligible Lender Trustee will notify the Depositor) and (iii)
with respect to the Eligible Lender Trustee, the principal corporate trust
office of the Eligible Lender Trustee located at [ ]; or at such other address
as the Eligible Lender Trustee may designate by notice to the Depositor, or
the principal corporate trust office of any successor Eligible Lender Trustee
(the address of which the successor Eligible Lender Trustee will notify the
Depositor).
"Custodian" means [CUSTODIAN] and/or [____________], each,
if more than one in its capacity as custodian of the Borrower Notes or any
permitted successor Custodian.
"Cutoff Date" means [ 1999].
"Default" means any occurrence that is, or with notice or
the lapse of time or both would become, an Event of Default.
"Deferral" means the period defined by the Higher Education
Act and the policies of the related Guarantor during which a Borrower (in
Repayment) is entitled to postpone making payments upon the submission of
appropriate documentation.
"Deferral Loan" means a Student Loan during a period of
Deferral.
"Definitive Notes" has the meaning specified in Section 2.10
of the Indenture.
6
<PAGE>
"Delaware Trust" has the meaning specified in Section 10.01
of the Trust Agreement.
"Delaware Trustee" has the meaning set forth in Section
10.01 of the Trust Agreement.
"Deleted Student Loan" has the meaning specified in Section
3.02 of the Loan Sale Agreement.
"Delinquency Percentage" means, as of any date of
determination, the percentage equivalent of a fraction the numerator of which
is the aggregate principal balance of the FFELP Student Loans which are
Repayment Loans and which either (a) are over 120 days delinquent or (b) have
had claims filed with the Department for which payment is still awaited, and
the denominator of which is the aggregate principal balance of the FFELP
Student Loans which are Repayment Loans.
"Delivery" when used with respect to Trust Account Property
means:
a) with respect to bankers' acceptances, commercial
paper, negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105(1)(i) of
the UCC and are susceptible of physical delivery, transfer thereof to
the Indenture Trustee or its nominee or custodian by physical delivery
to the Indenture Trustee or its nominee or custodian endorsed to, or
registered in the name of, the Indenture Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated
security (as defined in Section 8-102 of the UCC) transfer thereof (i)
by delivery of such certificated security endorsed to, or registered in
the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank to a financial intermediary (as defined in Section
8-313) of the UCC) and the making by such financial intermediary of
entries on its books and records identifying such certificated
securities as belonging to the Indenture Trustee or its nominee or
custodian and the sending by such financial intermediary of a
confirmation of the purchase of such certificated security by the
Indenture Trustee or its nominee or custodian, or (ii) by delivery
thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate
entries on its books reducing the appropriate securities account of the
transferor and increasing the appropriate securities accoun of a
financial intermediary by the amount of such certificated security, the
identification by the clearing corporation of the certificated
securities for the sole and exclusive account of the financial
intermediary, the maintenance of such certificated securities by such
clearing corporation or a "custodian bank" (as defined in Section
8-102(4) of the UCC) or the nominee of either subject to the clearing
corporation's exclusive control, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its
nominee or custodian of such securities and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Indenture Trustee or its
nominee or custodian (all of the foregoing, "Physical
7
<PAGE>
Property"), and, in any event, any such Physical Property in registered
form shall be in the name of the Indenture Trustee or its nominee or
custodian; and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of
ownership of any such Trust Account Property to the Indenture Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof;
b) with respect to any securities issued by the U.S.
Treasury, the Federal Home Loan Mortgage Corporation or by the Federal
National Mortgage Association that is a book-entry security held through
the Federal Reserve System pursuant to Federal book-entry regulations,
the following procedures, all in accordance with applicable law,
including applicable Federal regulations and Articles 8 and 9 of the
UCC: book-entry registration of such Trust Account Property to an
appropriate book-entry account maintained with a Federal Reserve Bank by
a financial intermediary which is also a "depository" pursuant to
applicable Federal regulations and issuance by such financial
intermediary of a deposit advice or other written confirmation of such
book-entry registration to the Indenture Trustee or its nominee or
custodian of the purchase by the Indenture Trustee or its nominee or
custodian of such book-entry securities; the making by such financial
intermediary of entries in its books and records identifying such
book-entry security held through the Federal Reserve System pursuant to
Federal book-entry regulations as belonging to the Indenture Trustee or
its nominee or custodian and indicating that such custodian holds such
Trust Account Property solely as agent for the Indenture Trustee or its
nominee or custodian; and such additional or alternative procedures as
may hereafter become appropriate to effect complete transfer of
ownership of any such Trust Account Property to the Indenture Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof; and
c) with respect to any item of Trust Account
Property that is an uncertificated security under Article 8 of the UCC
and that is not governed by clause (b) above, registration on the books
and records of the issuer thereof in the name of the financial
intermediary, the sending of a confirmation by the financial
intermediary of the purchase by the Indenture Trustee or its nominee or
custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such
uncertificated certificates as belonging to the Indenture Trustee or its
nominee or custodian.
"Department" means the United States Department of
Education, an agency of the Federal government.
"Depositor" means the EFG Funding in its capacity as
Depositor under the Trust Agreement.
"Depository Agreement" means the agreement with respect to
the Senior Notes attached to the Indenture as Exhibit B.
8
<PAGE>
"Determination Date" means, with respect to any Monthly
Payment Date, the third Business Day preceding such Monthly Payment Date.
"Early Amortization Event" means any of the following
events:
(i) an Event of Default occurring under the Indenture,
a Servicer Default occurring under the Servicing Agreement or an
Administrator Default occurring under the Administration Agreement;
(ii) the Issuer becoming subject to registration as an
investment company under the Investment Company Act of 1940, as amended;
(iii) as of the end of any Collection Period,
the percentage by principal balance of Student Loans the Borrowers of
which use such loans to attend schools identified by the related
Guarantor as proprietary or vocational exceeds 30% of the Pool Balance;
(iv) as of the end of any Collection Period,
the percentage by principal balance of FFELP Student Loans which are not
in repayment and are not eligible for Interest Subsidy Payments exceeds
40% of the Pool Balance;
(v) the Excess Spread, with respect to each of
any two successive Quarterly Payment Dates, commencing with the
Quarterly Payment Date in October 1997, is less than 1%; or
(vi) the arithmetic average of the Delinquency
Percentage as of the end of each of two successive Collection Periods
exceeds 20%.
"Educational Institution" means any institution of higher
education that participates in the guaranteed loan programs authorized by
Title IV of the Higher Education Act and which is deemed eligible by a
Guarantor to participate in such Guarantor's program.
"EFG" means Educational Finance Group, LLP a limited
liability partnership organized under the laws of the State of Texas.
"EFG Funding" means EFG Funding Corporation, a corporation
organized under the laws of the State of Delaware.
"EFG Subsequent Transfer Agreement" has the meaning provided
in Section 2.03 of Loan Sale Agreement.
"EFG Trustee" means the First National Bank of Chicago, as
eligible lender trustee for EFG.
"Eligible Deposit Account" means either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with
the corporate trust department of a depository institution organized under the
laws of the United States of America or any one of
9
<PAGE>
the States (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade.
"Eligible Institution" means a depository institution
organized under the laws of the United States of America or any one of the
States (or any domestic branch of a foreign bank), which (i) has (A) either a
long-term senior unsecured debt rating of AAA or a short-term senior unsecured
debt or certificate of deposit rating of A-1+ by Standard & Poor's and (B)(1)
a long-term senior unsecured debt rating of A1 or better and (2) a short-term
senior unsecured debt rating of P-1 by Moody's, or any other long-term,
short-term or certificate of deposit rating acceptable to the Rating Agencies
and (C) unsecured debt rating of AAA (if rated by Fitch) or a short-term
senior unsecured debt or certificate of deposit rating of F-1+ (if rated by
Fitch) by Fitch and (ii) whose deposits are insured by the FDIC. If so
qualified, the Trustee or the Indenture Trustee may be considered an Eligible
Institution.
"Eligible Investments" means book-entry securities,
negotiable instruments or securities represented by instruments in bearer or
registered form which evidence:
a) direct obligations of, and obligations fully
guaranteed as to timely payment by, the United States of America;
b) demand deposits, time deposits or certificates of
deposit of any depository institution or trust company incorporated
under the laws of the United States of America or any State (or any
domestic branch of a foreign bank) and subject to supervision and
examination by Federal or state banking or depository institution
authorities (including depository receipts issued by any such
institution or trust company as custodian with respect to any obligation
referred to in clause (a) above or portion of such obligation for the
benefit of the holders of such depository receipts); provided, however,
that at the time of the investment or contractual commitment to invest
therein (which shall be deemed to be made again each time funds are
reinvested following each Quarterly Payment Date), the commercial paper
or other short-term senior unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a Person other
than such depository institution or trust company) thereof shall have a
credit rating from each of the Rating Agencies in the highest investment
category granted thereby;
c) commercial paper having, at the time of the
investment or contractual commitment to invest therein, a rating from
each of the Rating Agencies in the highest investment category granted
thereby;
d) investments in money market funds having a rating
from each of the Rating Agencies in the highest investment category
granted thereby (including funds for which the Indenture Trustee, the
Servicer or the Eligible Lender Trustee or any of their respective
Affiliates is investment manager or advisor);
10
<PAGE>
e) bankers' acceptances issued by any depository 0
institution or trust company referred to in clause (b) above;
f) repurchase obligations with respect to any
security that is a direct obligation of, or fully guaranteed by, the
United States of America or any agency or instrumentality thereof the
obligations of which are backed by the full faith and credit of the
United States of America, in either case entered into with a depository
institution or trust company (acting as principal) described in clause
(b) above; and
g) any other investment permitted by each of the Rating
Agencies as set forth in writing delivered to the Indenture Trustee.
Fitch shall be considered to be a "Rating Agency" for the purpose of assessing
the eligibility hereunder of any investment pursuant to clause (b), (c), (d),
(e), and (f) only if Fitch is providing a rating which can be used, pursuant
to the terms of the applicable clause, to assess such investment.
"Eligible Lender Trust Agreement" means the Trust Agreement
between the Eligible Lender Trustee and the Depositor under which the Eligible
Lender Trustee holds legal title to FFELP Loans of which the Depositor is the
beneficial owner and FFELP Student Loans of which the Trust is beneficial
owner and one or more Future Trusts may be the beneficial owners.
"Eligible Lender Trustee" means [ELIGIBLE LENDER TRUSTEE], a
national banking association, not in its individual capacity but solely as
Eligible Lender Trustee under the Eligible Lender Trust Agreement.
"Event of Default" has the meaning specified in Section 5.01
of the Indenture.
"Excess Spread" means, with respect to any Quarterly Payment
Date, the percentage equivalent of a fraction the numerator of which is the
product of (a) four and (b) the difference between (x) the Expected Interest
Collections for such Quarterly Payment Date and (y) the sum of (i) the
Servicing Fee for such Quarterly Payment Date and all prior unpaid Servicing
Fees, (ii) the Administration Fee for such Quarterly Payment Date and all
prior unpaid Administration Fees, and (iii) the Noteholders' Interest
Distribution Amount for such Quarterly Payment Date, and the denominator of
which is the average of the amount of the Pool Balance as of the first and the
last day of the related Collection Period.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchanged Student Loan" means a Student Loan that (i) was
originated under the same loan program and is guaranteed by a Guarantor and
entitles the holder thereof to receive interest based on the same interest
rate index as the Serial Loan for which it is to be exchanged (the "Exchanged
Serial Loan") and (ii) will not, at any level of such interest rate index,
have an interest rate that is greater than that of the Exchanged Serial Loan.
11
<PAGE>
"Executive Officer" means, with respect to any corporation,
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Secretary or the Treasurer of such corporation; and with
respect to any partnership, any general partner thereof.
"Expected Interest Collections" means, with respect to any
Quarterly Interest Period, the sum of (i) the amount of interest accrued, net
of accrued Monthly Rebate Fees and other amounts required by the Higher
Education Act to be paid to the Department, with respect to the FFELP Student
Loans for the related Student Loan Rate Accrual Period (whether or not such
interest is actually paid), (ii) all Interest Subsidy Payments and Special
Allowance Payments estimated to have accrued for such Student Loan Rate
Accrual Period whether or not actually received (taking into account any
expected deduction therefrom of Federal Origination Fees) and (iii) Investment
Earnings for such Student Loan Rate Accrual Period.
"Expenses" means any and all liabilities, obligations,
losses, damages, taxes, claims, actions and suits, and any and all reasonable
costs, expenses and disbursements (including reasonable legal fees and
expenses) of any kind and nature whatsoever which may at any time be imposed
on, incurred by, or asserted against the Trustee, the Eligible Lender Trustee
or any of either's officers, directors or agents in any way relating to or
arising out of the Trust Agreement, the Eligible Lender Trust Agreement, the
other Basic Documents, the Trust Estate, the administration of the Trust
Estate or the action or inaction of the Trustee or the Eligible Lender Trustee
under the Trust Agreement, the Eligible Lender Trust Agreement or the other
Basic Documents.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Guarantor" means a state or private non-profit
guarantor that guarantees the payment of principal of and interest on any of
the FFELP Student Loans, which agency is reinsured by the Department under the
Higher Education Act for between 80% and 100% of the amount of default claims
paid by such Federal Guarantor for a given federal fiscal year for loans
disbursed prior to October 1, 1993, for 78% to 98% of default claims paid for
loans disbursed on or after October 1, 1993 and for 100% of death, disability,
bankruptcy, closed school and false certification claims paid.
"Federal Origination Fee" means, with respect to each
Consolidation Loan that is originated by the Eligible Lender Trustee on behalf
of the Issuer and each Add-on Consolidation Loan that is added to the
principal balance of a Consolidation Loan, the origination fee payable to the
Department equal to 0.5% of the initial principal balance of such
Consolidation Loan or Add-on Consolidation Loan.
"FFELP Loans" means loans that finance post-secondary
education and are the subject of guarantees by Federal Guarantors.
"FFELP Student Loans" means those Student Loans that are
FFELP Loans.
12
<PAGE>
"Financed" means, with respect to Student Loans, that, as of
any date of determination, the loans have been conveyed to the Issuer,
consisting of the Initial Student Loans as of the Closing Date and,
thereafter, any Serial Loans or New Loans conveyed to the Issuer from the
Transferor, {any Consolidation Loans originated by the Trust as provided in
Section 6.07 of the Trust Agreement, any Consolidation Loans the principal
balance of which is increased by the principal balance of any related Add-on
Consolidation Loan as provided in Section 6.07 of the Trust Agreement and any
Qualified Substitute Student Loans conveyed to the Depositor as provided in
Section 3.02 of the Loan Sale Agreement.}
"Fitch" means Fitch Investors Service, L.P. or any successor
thereto.
"Forbearance Loan" means a Student Loan during a period of
forbearance of loan collections pursuant to the Higher Education Act.
"Grace" means the initial period following reduction by the
student Borrower to less than the minimum course load required by the Higher
Education Act, during which the student Borrower is not required to make
payments on the principal amount of the Borrower Note(s).
"Grace Loan" means a Student Loan during a period of Grace.
"Grant" means mortgage, pledge, bargain, sell, warrant,
alienate, remise, release, convey, assign, transfer, create, and grant a lien
upon and a security interest in and right of set-off against, deposit, set
over and confirm pursuant to the Indenture. A Grant of the Collateral or of
any other agreement or instrument shall include all rights, powers and options
(but none of the obligations) of the Granting party thereunder, including the
immediate and continuing right to claim for, collect, receive and give receipt
for principal and interest payments in respect of the Collateral and all other
moneys payable thereunder, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights
and options, to bring Proceedings in the name of the Granting party or
otherwise and generally to do and receive anything that the Granting party is
or may be entitled to do or receive thereunder or with respect thereto.
"Guarantee Agreement" means each agreement to guarantee
Student Loans entered into by the Eligible Lender Trustee, in the case of
FFELP Student Loans, on with a Guarantor.
"Guarantee Payment" means any payment made by a Guarantor
pursuant to a Guarantee Agreement in respect of a Student Loan.
"Guarantor" means the Initial Guarantors and any Additional
Guarantors.
"Higher Education Act" means the Higher Education Act of
1965, as amended, together with any rules, regulations and interpretations
thereunder.
13
<PAGE>
["Incentive Student Loan" means a Student Loan which is
subject to an Incentive Program other than the Seller's Program.]
"[Incentive Interest Deposit" means, with respect to each
Monthly Collection Period and each Incentive Student Loan, the difference, if
any, between the amount of interest or other amounts which would have been
payable with respect to such Incentive Student Loan during such Monthly
Collection Period had no Incentive Program been in effect with respect to such
Incentive Student Loan and the amount of interest and other amounts which were
payable with respect to such Incentive Student Loan during such Monthly
Collection Period after giving effect to such Incentive Program.]
["Incentive Program" means any program terminable at will by
the Seller pursuant to which the Seller may choose to reduce the interest rate
or offer any other benefit on a Student Loan, and shall initially include the
Seller's [ ] Programs, as such program may be modified from time to time.]
"Indenture" means the Indenture dated as of [_________ __,
1999], between the Issuer and the Indenture Trustee.
"Indenture Trust Estate" means all money, instruments,
rights and other property that are subject or intended to be subject to the
lien and security interest of the Indenture for the benefit of the Noteholders
(including all property and interests Granted to the Indenture Trustee),
including all proceeds thereof.
"Indenture Trustee" means [INDENTURE TRUSTEE], a [New York]
banking corporation, not in its individual capacity but solely as Indenture
Trustee under the Indenture.
"Independent" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Issuer, any other
obligor upon the Notes, the Seller, the Transferor and any Affiliate of any of
the foregoing Persons, (b) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor,
the Seller, the Transferor or any Affiliate of any of the foregoing Persons
and (c) is not connected with the Issuer, any such other obligor, the Seller,
the Transferor or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Independent Certificate" means a certificate or opinion to
be delivered to the Indenture Trustee under the circumstances described in,
and otherwise complying with, the applicable requirements of Section 11.01 of
the Indenture, made by an Independent appraiser or other expert appointed by
an Issuer Order and approved by the Indenture Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer
has read the definition of "Independent" in the Indenture and that the signer
is Independent within the meaning thereof.
"Initial Student Loans" means those Student Loans conveyed
to the Issuer on the Closing Date.
14
<PAGE>
"Initial Guarantors" means [ ] and their respective
successors.
"Initial Pool Balance" means $[ ].
"In-School Loan" means a Student Loan during the period,
excluding periods of in-school Deferral, during which a student Borrower is
enrolled at an Educational Institution for at least the minimum course load
required to maintain such student Borrower's eligibility to borrow under the
education loan programs administered by the Guarantor.
"Insolvency Event" means, with respect to a specified
Person, (a) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of such Person or any substantial part
of its property in an involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its
property, or ordering the winding-up or liquidation of such Person's affairs,
and such decree or order shall remain unstayed and in effect for a period of
sixty consecutive days; or (b) the commencement by such Person of a voluntary
case under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or the
making by such Person of any general assignment for the benefit of creditors,
or the failure by such Person generally to pay its debts as such debts become
due, or the taking of action by such Person in furtherance of any of the
foregoing.
"Interest Subsidy Payments" means payments, designated as
such, consisting of interest subsidies by the Department in respect of the
FFELP Student Loans to the Eligible Lender Trustee on behalf of the Trust in
accordance with the Higher Education Act.
"Investment Earnings" means, with respect to any Monthly
Payment Date, the investment earnings (net of losses and investment expenses)
on amounts on deposit in the Trust Accounts to be deposited into the
Collection Account on or prior to such Monthly Payment Date pursuant to
Section 2(c)(v) of the Administration Agreement.
"Issuer" means [EFG Student Loan Trust 1999-A] until a
successor replaces it and, thereafter, means the successor and, for purposes
of any provision contained in the Indenture and required by the TIA, each
other obligor on the Notes.
"Issuer Order" and "Issuer Request" means a written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Indenture Trustee.
"Lien" means a security interest, lien, charge, pledge,
equity or encumbrance of any kind, other than tax liens and any other liens,
if any, which attach to the respective Student Loan by operation of law as a
result of any act or omission by the related Obligor.
15
<PAGE>
"Liquidated Student Loan" means any defaulted Student Loan
liquidated by the Servicer or which the Servicer has, after using all
reasonable efforts to realize upon the such Student Loan, determined to charge
off.
"Liquidation Proceeds" means, with respect to any Liquidated
Student Loan, the moneys collected in respect thereof from whatever source,
other than Recoveries, net of the sum of any amounts expended by the Servicer
in connection with such liquidation and any amounts required by law to be
remitted to the Borrower on such Liquidated Student Loan.
["Loan Purchase Amount" means with respect to a New Loan or
a Serial Loan to be purchased from the Seller by the Depositor, and by the
Issuer from the Depositor, an amount equal to the sum of (i) the Purchase
Collateral Balance and (ii) the Purchase Premium Amount; provided, however,
that after the Revolving Period, the Purchase Premium Amount payable in
respect of the purchase of a Serial Loan will be payable on the next
succeeding Quarterly Payment Date from Reserve Account Excess, if any, for
such Quarterly Payment Date; and provided, further, that if the Parity Date
occurs before the end of the Revolving Period, then, from the Parity Date to
the end of the Revolving Period, the Purchase Premium Amount payable in
respect of the purchase of a Serial Loan or a New Loan will be payable on the
next succeeding Quarterly Payment Date from Reserve Account Excess, if any,
for such Quarterly Payment Date that is available after all distributions from
such excess having a higher priority than payment of such Purchase Premium
Amounts have been made.]
"Loan Sale Agreement" means the Loan Sale Agreement dated as
of [ 1999], among the EFG Trustee, the Seller, EFG Funding and the Eligible
Lender Trustee.
"Lock-in Period" means the period of days preceding any
Quarterly Payment Date during which the T-Bill Rate in effect on the first day
of such period shall remain in effect until the end of the related Quarterly
Interest Period.
"Minimum Purchase Price" means as to any Quarterly Payment
Date, an amount equal to the greater of (i) the Purchase Amounts of the
Student Loans as of the end of the Collection Period immediately preceding
such Quarterly Payment Date or (ii) an amount that would be sufficient to (A)
reduce the outstanding principal amount of the Notes then outstanding on such
Quarterly Payment Date to zero and (B) pay to the Noteholders the Noteholders'
Interest Distribution Amount payable on such Quarterly Payment Date.
"Monthly Available Funds" means, with respect to each
Monthly Payment Date that is not a Quarterly Payment Date, the sum of the
following amounts with respect to the related Monthly Collection Period: (i)
all collections received by the Servicer on the Student Loans (including any
Guarantee Payments received with respect to the Student Loans); (ii) any
Interest Subsidy Payments and Special Allowance Payments received by the
Eligible Lender Trustee during such Monthly Collection Period with respect to
the FFELP Student Loans; (iii) all Liquidation Proceeds from any Student Loans
which became Liquidated Student Loans during such Monthly Collection Period in
accordance with the Servicer's customary servicing procedures, and all
recoveries in respect of Liquidated Student Loans which were written off in
prior Monthly Collection Periods; (iv) that portion of the amounts released
from the
16
<PAGE>
Collateral Reinvestment Account with respect to Additional Fundings relating
to those interest costs on the Student Loans which are or will be capitalized
and any amounts transferred on a Determination Date from the Collateral
Reinvestment Account to the Collection Account pursuant to Section 2(f)(i)(E)
of the Administration Agreement; (v) the aggregate Purchase Amounts received
for those Student Loans repurchased by the Seller or purchased by the Servicer
under an obligation which arose during the related Monthly Collection Period;
(vi) Investment Earnings for such Monthly Payment Date and (vii) with respect
to each Monthly Payment Date other than a Quarterly Payment Date and other
than an Monthly Payment Date immediately succeeding a Quarterly Payment Date,
Monthly Available Funds remaining from the Monthly Collection Period relating
to the preceding Monthly Payment Date, after giving effect to the application
of such Monthly Available Funds on such preceding Monthly Payment Date;
provided, however, that if with respect to any Monthly Payment Date there
would not be sufficient funds, after applicatio of Monthly Available Funds (as
defined above) and amounts available from the Reserve Account, to pay any of
the items specified in Section 2(d)(iv) of the Administration Agreement, then
Monthly Available Funds for such Monthly Payment Date will include, in
addition to the Monthly Available Funds (as defined above), amounts on deposit
in the Collection Account on the Determination Date relating to such Monthly
Payment Date which would have constituted Monthly Available Funds for the
Monthly Payment Date succeeding such Monthly Payment Date up to the amount
necessary to pay such items, and the Monthly Available Funds for such
succeeding Monthly Payment Date will be adjusted accordingly; and provided,
further, that Monthly Available Funds will exclude (A) all payments and
proceeds (including Liquidation Proceeds) of any Financed Student Loans the
Purchase Amount of which has been included in Monthly Available Funds for a
prior Monthly Collection Period, (B) except as expressly included in clause
(iv) above amounts released from the Collateral Reinvestment Account, (C) any
Monthly Rebate Fees paid during the related Monthly Collection Period by or on
behalf of the Trust and (D) any collections in respect of principal on the
Financed Student Loans applied during the related Monthly Collection Period by
the Eligible Lender Trustee on behalf of the Trust prior to the end of the
Revolving Period to make deposits to the Collateral Reinvestment Account
pursuant to Section 2(d)(i) of the Administration Agreement and after the
Revolving Period, any expenditure of the Net Principal Cash Flow Amount used
to fund the addition of any Add-on Consolidation Loans, to purchase Serial
Loans or to fund the acquisition of Exchanged Serial Loans during such Monthly
Collection Period.
"Monthly Collection Period" means, with respect to any
Monthly Payment Date that is not a Quarterly Payment Date, the calendar month
immediately preceding the month of such Monthly Payment Date.
"Monthly Payment Date" means the twenty-seventh day of each
month (or, if any such date is not a Business Day, on the next succeeding
Business Day) commencing [ 1998].
"Monthly Rebate Fee" means, for each calendar month and with
respect to each Consolidation Loan that is originated by the Eligible Lender
Trustee on behalf of the Issuer, the fee payable to the Department equal to
the product of (x) one-twelfth, (y) 1.05% and (z)
17
<PAGE>
the outstanding principal balance of such Consolidation Loan (including any
increases in the principal balance of a Consolidation Loan due to the addition
of the principal balance of a related Add-on Consolidation Loan) plus accrued
interest on such Consolidation Loan as of the last day of such month.
"Moody's" means Moody's Investors Service, Inc.
"Net Principal Cash Flow Amount" means, as of any date, the
Principal Cash Flow Amount (calculated for the Collection Period ending in the
preceding calendar month or, if no Collection Period ended in the preceding
calendar month, calculated for each preceding calendar month during the
current Collection Period) minus, after the Revolving Period, the Capitalized
Interest Amount for such Collection Period or for each such preceding calendar
month, as the case may be.
"New Loan" means a Student Loan which (i) is made by an
eligible lender under the Higher Education Act (in the case of a FFELP Student
Loan) to a Borrower who is not a Borrower under any Initial Student Loan, (ii)
is made under a loan program which existed as of the Closing Date, and (iii)
is guaranteed by a Guarantor.
"91-Day Treasury Bills" means direct obligations of the
United States with a maturity of thirteen weeks.
"Noteholder" means the Person in whose name a Note is
registered in the Note Register.
"Noteholders' Distribution Amount" means, with respect to
any Quarterly Payment Date, the sum of the Senior Noteholders' Distribution
Amount and the Subordinate Noteholders' Distribution Amount for such Quarterly
Payment Date.
"Noteholders' Interest Distribution Amount" means, with
respect to any Quarterly Payment Date, the sum of the Senior Noteholders'
Interest Distribution Amount and the Subordinate Noteholders' Interest
Distribution Amount.
"Noteholders' Interest T-Bill Carryover" means, collectively
with respect to each Quarterly Payment Date, the Senior Noteholders' Interest
T-Bill Carryover and the Subordinate Noteholders' Interest T-Bill Carryover.
"Note Owner" means, with respect to a Book-Entry Note, the
Person who is the owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency, or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect participant, in each case in accordance with the rules of such
Clearing Agency).
"Note Rate" means any one of the Senior Note Rate or the
Subordinate Note Rate.
18
<PAGE>
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 2.04 of the Indenture.
"Obligor" on a Student Loan means the borrower or
co-borrowers of such Student Loan and any other Person who owes payments in
respect of such Student Loan, including the Guarantor thereof and, with
respect to any Interest Subsidy Payment or Special Allowance Payment, if any,
thereon, the Department.
"Officers' Certificate" means (i) in the case of the Issuer,
a certificate signed by any two Authorized Officers of the Trustee, under the
circumstances described in, and otherwise complying with, the applicable
requirements of Section 11.01 of the Indenture, and delivered to the Indenture
Trustee and (ii) in the case of the Seller, the Depositor, the Servicer, or
the Administrator, a certificate signed by any two Authorized Officers of the
Seller, the Depositor, the Servicer, or the Administrator, as appropriate.
"Opinion of Counsel" means (i) with respect to the Issuer,
one or more written opinions of counsel who may, except as otherwise expressly
provided in the Indenture, be employees of or counsel to the Issuer and who
shall be satisfactory to the Indenture Trustee, and which opinion or opinions
shall be addressed to the Indenture Trustee as Indenture Trustee, shall comply
with any applicable requirements of Section 11.01 of the Indenture, and shall
be in form and substance satisfactory to th Indenture Trustee and (ii) with
respect to the Seller, the Depositor, the Administrator, the Servicer or a
Guarantor, one or more written opinions of counsel who may be an employee of
or counsel to the Seller, the Depositor, the Administrator, the Servicer or
such Guarantor, which counsel shall be acceptable to the Indenture Trustee,
the Eligible Lender Trustee or the Rating Agencies, as applicable.
"Outstanding" means, as of the date of determination, all
Notes theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for
which money in the necessary amount has been theretofore deposited with
the Indenture Trustee or any Paying Agent in trust for the Noteholders
thereof (provided, however, that if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to the
Indenture); and
(iii) Notes in exchange for or in lieu of other
Notes which have been authenticated and delivered pursuant to the
Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a bona fide purchaser;
provided that in determining whether the Noteholders of the requisite
Outstanding Amount of the Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or under any other Basic
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Seller or any Affiliate of any of the foregoing Persons shall be disregarded
19
<PAGE>
and deemed not to be Outstanding, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that a
Responsible Officer of the Indenture Trustee either actually knows to be so
owned or has received written notice thereof shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is
not the Issuer, any other obligor upon the Notes, the Seller or any Affiliate
of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of
all Notes Outstanding at the date of determination.
"Parity Date" means the first Quarterly Payment Date on
which the aggregate principal balance of the Notes, after giving effect to all
distributions on such date, is no longer in excess of the Pool Balance as of
the last day of the related Collection Period.
"Partnership Qualification Provisions" has the meaning
specified in Section 5.04 of the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other
Person that meets the eligibility standards for the Indenture Trustee
specified in Section 6.11 of the Indenture and is authorized by the Issuer to
make the payments to and distributions from the Collection Account and
payments of principal of and interest and any other amounts owing on the Notes
on behalf of the Issuer.
"Person" means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term as
the definition of "Delivery" above.
"PLUS Loan" means a Student Loan designated as such that is
made under the Parent Loans to Undergraduate Students Program pursuant to the
Higher Education Act.
"Pool Balance" means, as of the close of business on the
last day of any Collection Period, the aggregate principal balance of the
Student Loans as of such day (including accrued interest thereon for the
immediately preceding Collection Period to the extent such interest will be
capitalized upon commencement of repayment, excluding any Purchased Student
Loans and Liquidated Student Loans).
"Predecessor Note" means, with respect to any particular
Note, every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition,
any Note authenticated and delivered under Section 2.05 of the Indenture and
in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to
evidence the same debt is the mutilated, lost, destroyed or stolen Note.
20
<PAGE>
"Principal Cash Flow Amount" means, with respect to any
Quarterly Payment Date, the sum of the following amounts with respect to the
related Collection Period, or with respect to any other date of determination,
the sum of the following amounts with respect to the period specified: (i)
that portion of all collections received by the Servicer on the Student Loans
that is allocable to principal (including the portion of any Guarantee
Payments received that is allocable to principal of the Student Loans); (ii)
all Liquidation Proceeds attributable to the principal amount of Student Loans
which became Liquidated Student Loans during such Collection Period, or such
other specified period, in accordance with the Servicer's customary servicing
procedures, together with all Realized Losses on such Student Loans; (iii) to
the extent attributable to principal, the Purchase Amount received with
respect to each Student Loan repurchased by the Seller or purchased by the
Servicer as a result of a breach of a representation, warranty or covenant
which arose during the related Collection Period or such other specified
period; and (iv) the Principal Distribution Adjustment; provided, however,
that the Principal Distribution Amount will exclude all payments and proceeds
(including Liquidation Proceeds) of any Student Loans the Purchase Amount of
which has been included in Available Funds for a prior Collection Period and
during the Revolving Period will exclude the amount of collections in respect
of principal on the Student Loans during such Collection Period that were
deposited in the Collateral Reinvestment Account during such Collection
Period.
"Principal Distribution Adjustment" means, with respect to
any Quarterly Payment Date, the amount of Available Funds on such Quarterly
Payment Date to be used to make additional principal distributions to
Noteholders to account for (i) the amount of any insignificant balance
remaining outstanding as of such Quarterly Payment Date on a Student Loan
after receipt of a final payment from a Borrower or a Guarantor, when such
insignificant balances are waived in the ordinary course of busines by the
Servicer at the direction of the Administrator in accordance with the
Servicing Agreement or (ii) the amount of principal collections erroneously
treated as interest collections including, without limitation, by reason of
the failure by a borrower to capitalized interest that had been expected to be
capitalized; provided, however, that the Principal Distribution Adjustment for
any Quarterly Payment Date shall not exceed the lesser of (x) $100,000 and (y)
the Reserve Account Excess after giving effect to all distributions to be made
on such Quarterly Payment Date other than distributions to the Company out of
such excess.
"Principal Distribution Amount" means, with respect to any
Quarterly Payment Date occurring after the Revolving Period, the Net Principal
Cash Flow Amount for such Quarterly Payment Date minus the sum of (i) {any
funds remitted to the Seller during the preceding Collection Period for the
Purchase Collateral Balance of Serial Loans and (ii) any funds which are
applied during the preceding Collection Period to fund the addition of the
principal balance of any Add-on Consolidation Loan to the principal balance of
a related Consolidation Loan.}
"Private Guarantor" a guarantor as to principal and/or
interest on post-secondary education loans that are not FFELP Loans.
21
<PAGE>
"Private Student Loan" means a Student Loan that is
guaranteed by a Private Guarantor and is not a FFELP Student Loan.
"Proceeding" means any suit in equity, action at law or
other judicial or administrative proceeding.
"Purchase Amount" means, with respect to a Student Loan
other than a Serial Loan to be purchased from the Issuer, the amount required,
as of the close of business on the last day of an Interest Period to prepay in
full the respective Student Loan under the terms thereof including all accrued
borrower interest thereon; provided, however, that the Purchase Amount for a
Student Loan, which is being repurchased by the Seller as a result of a breach
of the representation and warranty provided for in the last sentence of the
first paragraph of Exhibit C to the Loan Sale Agreement, will be calculated
without regard to any amount which the Seller has advanced with respect to
such loan and which was not reflected by the principal balance of such loan as
of the Cutoff Date (or the applicable Subsequent Cutoff Date, as the case may
be) after the Loan has been sold into the Trust.
"Purchase Collateral Balance" means with respect to a New
Loan or a Serial Loan to be purchased by the Issuer, an amount equal, as of
the related Subsequent Cut-off Date, to the principal balance of such loan
plus accrued borrower interest thereon if and to the extent that such interest
is not then payable and will, pursuant to the terms of such loan, be
capitalized and added to the principal balance of such loan.
"Purchase Premium Amount" means with respect to a New Loan
or a Serial Loan to be purchased by the Issuer, an additional amount to the
Purchase Collateral Balance not to exceed 2.5% of the principal balance owed
by the applicable borrower thereon.
"Purchased Student Loan" means a Student Loan purchased as
of the close of business on the last day of a Monthly Collection Period by the
Servicer pursuant to Section 3.05 of the Servicing Agreement or repurchased by
the Seller pursuant to Section 3.02 of the Loan Sale Agreement.
"Qualified Substitute Student Loan" means a Student Loan
that (i) was originated under the same loan program and is guaranteed by a
Guarantor and entitles the holder thereof to receive interest based on the
same interest rate index as the related Deleted Student Loan for which it is
to be substituted, and (ii) will not, at any level of such interest rate
index, have an interest rate that is less than that of such Deleted Student
Loan.
"Quarterly Payment Date" means the Monthly Payment Date
occurring in each [January, April, July and October, commencing with the
Monthly Payment Date occurring in ].
"Quarterly Interest Period" means, with respect to a
Quarterly Payment Date, the period from and including the Quarterly Payment
Date immediately preceding such Quarterly Payment Date (or in the case of the
first Quarterly Payment Date, the Closing Date) to but excluding the such
Quarterly Payment Date.
22
<PAGE>
["Rating Agency" means each of Moody's, Fitch and S&P if and
for so long as it is the rating notes at the request of the Depositor. If no
such organization or successor is any longer in existence, "Rating Agency"
shall be a nationally recognized statistical rating organization or other
comparable Person designated by the Seller, notice of which designation shall
be given to the Indenture Trustee, the Trustee, the Eligible Lender Trustee
and the Servicer.]
"Rating Agency Condition" means, with respect to any action,
that each Rating Agency shall have been given 10 days' prior notice thereof
and that each of the Rating Agencies shall have notified the Depositor, the
Servicer, the Trustee and the Indenture Trustee in writing that such action
will not result in and of itself in a reduction or withdrawal of the then
current rating of the Senior Notes or the Subordinate Notes.
"Realized Losses" means the excess of the aggregate
principal balance of any Liquidated Student Loan plus accrued but unpaid
interest thereon over Liquidation Proceeds to the extent allocable to
principal.
"Record Date" means, with respect to any Quarterly Payment
Date or a Redemption Date, the close of business on the twenty-sixth day of
the calendar month in which such Quarterly Payment Date or Redemption Date
occurs (whether or not such date is a Business Day).
"Recoveries" means, with respect to any Liquidated Student
Loan, moneys collected in respect thereof, from whatever source, during any
Monthly Collection Period following the Monthly Collection Period in which
such Student Loan became a Liquidated Student Loan, net of the sum of any
amounts expended by the Servicer for the account of any Obligor and any
amounts required by law to be remitted to the Obligor.
"Redemption Date" means in the case of a payment to
Noteholders pursuant to Section 10.01 of the Indenture, the Quarterly Payment
Date specified by the Administrator or the Issuer pursuant to Section 10.01 of
the Indenture.
"Redemption Price" means in the case of a payment made to
Noteholders pursuant to Section 10.01 of the Indenture, the amount to be so
paid pursuant to such Section 10.01.
"Repayment" means the period of time during which a Borrower
is required to make installment payments to repay the aggregate principal
amount plus accrued interest of all amounts borrowed by virtue of the Borrower
Note(s) executed by such Borrower.
"Repayment Loan" means a Student Loan during a period of
Repayment.
"Reserve Account" means the account designated as such,
established and maintained pursuant to Section 2(c) of the Administration
Agreement.
23
<PAGE>
"Reserve Account Excess" has the meaning specified in
Section 2(e)(ii) of the Administration Agreement.
"Reserve Account Initial Deposit" means $[ ].
"Responsible Officer" means, with respect to the Indenture
Trustee, any officer within the Corporate Trust Office of the Indenture
Trustee, including any vice president, assistant vice president, assistant
treasurer, assistant secretary, or any other officer of the Indenture Trustee
customarily performing functions similar to those performed by any of the
above designated officers, with direct responsibility for the administration
of the Indenture and the other Basic Documents on behalf of the Indenture
Trustee and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Revolving Period" means the period from the Closing Date
until the first to occur of (i) an Early Amortization Event or (ii) the last
day of the Collection Period preceding the [ ] Quarterly Payment Date.
"Schedule of Student Loans" means the listing of the Student
Loans set forth in Schedule A to the Loan Sale Agreement and to the Indenture
(which Schedule may be in the form of microfiche) as the same may be amended
from time to time.
"Secretary" means the Secretary of the Department, or any
predecessor or successor to the functions thereof under the Higher Education
Act.
"Seller" means EFG in its capacity as seller under the Loan
Sale Agreement.
"Senior Note" means a Floating Rate Asset Backed Senior Note
issued pursuant to the Indenture, substantially in the form of Exhibit A-1
thereto.
"Senior Note Final Maturity Date" means the [ ]
Quarterly Payment Date.
"Senior Noteholders' Distribution Amount" means, with
respect to any Quarterly Payment Date, the sum of the Senior Noteholders'
Interest Distribution Amount and the Senior Noteholders' Principal
Distribution Amount for such Quarterly Payment Date.
"Senior Noteholders' Interest Carryover Shortfall" means,
with respect to any Quarterly Payment Date, the excess of (i) the Senior
Noteholders' Interest Distribution Amount on the preceding Quarterly Payment
Date over (ii) the amount of interest actually distributed to the Senior
Noteholders on such preceding Quarterly Payment Date, plus interest on the
amount of such excess, to the extent permitted by law, at the interest rate
borne by the Senior Notes from such preceding Quarterly Payment Date to the
current Quarterly Payment Date.
"Senior Noteholders' Interest Distribution Amount" means,
with respect to any Quarterly Payment Date, the sum of (i) the amount of
interest accrued at the Senior Note Rate
24
<PAGE>
for the related Quarterly Interest Period on the outstanding principal balance
of the Senior Notes on the immediately preceding Quarterly Payment Date after
giving effect to all principal distributions to holders of Senior Notes on
such date (or, in the case of the first Quarterly Payment Date, on the Closing
Date) and (ii) the Senior Noteholders' Interest Carryover Shortfall for such
Quarterly Payment Date; provided, however, that the Senior Noteholders'
Interest Distribution Amount will not include any Senior Noteholders' Interest
T-Bill Carryover.
"Senior Noteholders' Interest T-Bill Carryover" means, with
respect to each Quarterly Payment Date commencing in [ ], the amount equal to
the excess, if any, of (a) the amount of interest on the Senior Notes that
would have accrued in respect of the related Quarterly Interest Period had
interest been calculated based on the Senior Note T-Bill Rate over (b) the
amount of interest on the Senior Notes actually accrued in respect of such
Quarterly Interest Period based on the Student Loan Rate for such Quarterly
Interest Period, together with the unpaid portion of any such excess from
prior Quarterly Payment Dates (and interest accrued thereon, to the extent
permitted by law, at the Senior Note Rate calculated based on the Senior Note
T-Bill Rate); provided, however, that, on the Senior Note Final Maturity Date,
the Senior Noteholders' Interest T-Bill Carryover will be equal to the lesser
of (i) the Senior Noteholders' Interest T-Bill Carryover on such date
determined as described above and (ii) the amount of funds, if any, required
and available to be distributed to the Senior Noteholders on such date
pursuant to Sections 2(e)(ii)(b)(iii) and 2(e)(iii) of the Administration
Agreement and Section 8.02 of the Indenture.
"Senior Noteholders' Principal Carryover Shortfall" means,
as of the close of any Quarterly Payment Date, the excess of (i) the Senior
Noteholders' Principal Distribution Amount on such Quarterly Payment Date over
(ii) the amount of principal actually distributed to the Senior Noteholders on
such Quarterly Payment Date.
"Senior Noteholders' Principal Distribution Amount" means,
with respect to any Quarterly Payment Date (if the Revolving Period has
terminated on or prior to the end of the related Collection Period with
respect to such Quarterly Payment Date), the Principal Distribution Amount for
such Quarterly Payment Date plus the Senior Noteholders' Principal Carryover
Shortfall as of the close of the preceding Quarterly Payment Date; provided,
however, that the Senior Noteholders' Principal Distribution Amount will not
exceed the outstanding aggregate principal balance of the Senior Notes. In
addition, on the Senior Note Final Maturity Date, the principal required to be
distributed to Senior Noteholders will include the amount required to reduce
the outstanding principal balance of the Senior Notes to zero.
"Senior Note Pool Factor" as of the close of business on a
Quarterly Payment Date means a seven-digit decimal figure equal to the
outstanding principal balance of the Senior Notes divided by the original
outstanding principal balance of the Senior Notes. The Senior Note Pool Factor
will be [1.0000000] as of the Closing Date; thereafter, the Senior Note Pool
Factor will decline to reflect reductions in the outstanding principal balance
of the Senior Notes.
25
<PAGE>
"Senior Note Rate" means, with respect to any Quarterly
Payment Date and the related Quarterly Interest Period, the interest rate per
annum (computed on the basis of the actual number of days in such Quarterly
Interest Period over a year of 365 days (366 in the case of a leap year))
equal to the lesser of (i) the Senior Note T-Bill Rate for such Quarterly
Interest Period and (ii) the Student Loan Rate for such Quarterly Interest
Period; provided, that, notwithstanding the foregoing, the Senior Note Rate
for the first Quarterly Interest Period shall be equal to the Senior Note
T-Bill Rate for such Quarterly Interest Period.
"Senior Note T-Bill Rate" means the weighted average of the
T-Bill Rates within the applicable Quarterly Interest Period plus 0.60%.
"Serial Loan" means a Student Loan which (i) is made by an
eligible lender under the Higher Education Act to a Borrower who is also a
Borrower under at least one outstanding Initial Student Loan and is acquired
by the Seller, (ii) is made under the same federal loan program as such
Initial Financed Student Loan and (iii) has the same Guarantor as such Initial
Student Loan.
"Servicer" means EFG Technologies, Inc. in its capacity as
servicer of the Student Loans or any permitted Successor Servicer or Successor
Servicers.
"Servicer Default" means an event specified in Section 6.01
of the Servicing Agreement.
"Servicer Liability Limit" has the meaning specified in
Section 3.05(a) of the Servicing Agreement.
"Servicer Liability Period" has the meaning specified in
Section 3.05(a) of the Servicing Agreement.
"Servicing Agreement" means the Servicing Agreement dated as
of [ 1998], among the Issuer, the Servicer, the and the Eligible Lender
Trustee.
"Servicing Fee" has the meaning specified in Section 3.06 of
the Servicing Agreement.
"Servicing Fee Shortfall" has the meaning specified in
Section 3.06 of the Servicing Agreement.
"SLS Loan" means a Student Loan designated as such that is
made under the Supplemental Loans for Students Program pursuant to the Higher
Education Act.
"S&P" means Standard & Poor's Corporation.
"Special Allowance Payments" means payments, designated as
such, consisting of effective interest subsidies by the Department in respect
of the Student Loans to the Eligible Lender Trustee on behalf of the Trust in
accordance with the Higher Education Act.
26
<PAGE>
"Specified Reserve Account Balance" with respect to any
Quarterly Payment Date means the greater of: (a) 0.40% of the principal
balance of the Notes after taking into account the effect of distributions on
such Quarterly Payment Date and (b) $1,361,108; provided, however, that in no
event shall the Specified Reserve Account Balance exceed the sum of the
outstanding principal balance of the Notes.
"Stafford Loan" means a Student Loan designated as such that
is made under the Robert T. Stafford Student Loan Program in accordance with
the Higher Education Act.
"State" means any one of the 50 States of the United States
of America, the trust territories of the United States, or the District of
Columbia.
"Student Loan" means an agreement to repay a disbursement of
money to or on behalf of an eligible student, evidenced by a Borrower Note and
guaranteed in accordance with the policies and procedures of the Guarantor
that is Financed.
"Student Loan Files" means the documents relating to the
Financed Student Loans specified in Section 2.01 of the Servicing Agreement.
"Student Loan Rate" means, with respect to any Quarterly
Interest Period, the interest rate equal to the product of (a) the quotient
obtained by dividing (i) 365 (366 in the case of a leap year) by (ii) the
actual number of days elapsed in such Quarterly Interest Period and (b) the
percentage equivalent of a fraction, the numerator of which is equal to
Expected Interest Collections for the related Quarterly Interest Period less
the Servicing Fee and the Administration Fee with respect to such Quarterly
Interest Period and (ii) the denominator of which is the aggregate principal
balance of the Notes as of the last day of such Quarterly Interest Period.
"Student Loan Rate Accrual Period" means, with respect to
any Quarterly Interest Period, the related Collection Period.
"Subordinate Note" means a Subordinate Floating Rate Asset
Backed Note issued pursuant to the Indenture, substantially in the form of
Exhibit A-2 thereto.
"Subordinate Note Final Maturity Date" means the [ ]
Quarterly Payment Date.
"Subordinate Noteholders' Distribution Amount" means, with
respect to any Quarterly Payment Date, the Subordinate Noteholders' Interest
Distribution Amount for such Quarterly Payment Date plus with respect to any
Quarterly Payment Date on and after which the Senior Notes have been paid in
full, the Subordinate Noteholders' Principal Distribution Amount for such
Quarterly Payment Date.
"Subordinate Noteholders' Interest Carryover Shortfall"
means, with respect to any Quarterly Payment Date, the excess of (i) the
Subordinate Noteholders' Interest Distribution Amount on the preceding
Quarterly Payment Date over (ii) the amount of interest
27
<PAGE>
actually distributed to the Subordinate Noteholders on such preceding
Quarterly Payment Date, plus interest on the amount of such excess, to the
extent permitted by law, at the rate borne by the Subordinate Notes from such
preceding Quarterly Payment Date to the current Quarterly Payment Date.
"Subordinate Noteholders' Interest Distribution Amount"
means, with respect to any Quarterly Payment Date, the sum of (i) the amount
of interest accrued at the Subordinate Note Rate for the related Quarterly
Interest Period on the outstanding principal balance of the Subordinate Notes
on the immediately preceding Quarterly Payment Date, after giving effect to
all principal distributions to Subordinate Noteholders on such Quarterly
Payment Date (or, in the case of the first Quarterly Payment Date, on the
Closing Date) and (ii) the Subordinate Noteholders' Interest Carryover
Shortfall for such Quarterly Payment Date; provided, however, that the
Subordinate Noteholders' Interest Distribution Amount will not include any
Subordinate Noteholders' Interest T-Bill Carryover.
"Subordinate Noteholders' Interest T-Bill Carryover" means,
with respect to each Quarterly Payment Date commencing in October 1997, the
amount equal to the excess, if any, of (a) the amount of interest on the
Subordinate Notes that would have accrued in respect of the related Quarterly
Interest Period had interest been calculated based on the Subordinate Note
T-Bill Rate over (b) the amount of interest on the Subordinate Notes actually
accrued in respect of such Quarterly Interest Period based on the Student Loan
Rate for such Quarterly Interest Period, together with the unpaid portion of
any such excess from prior Quarterly Payment Dates (and interest accrued
thereon, to the extent permitted by law, at the Subordinate Note Rate
calculated based on the Subordinate Note T-Bill Rate); provided, however,
that, on the Subordinate Note Final Maturity Date, the Subordinate
Noteholders' Interest T-Bill Carryover will be equal to the lesser of (i) the
Subordinate Noteholders' Interest T-Bill Carryover on such date determined as
described above and (ii) the amount of funds, if any, required and available
to be distributed to Subordinate Noteholders on such date pursuant to Sections
2(e)(ii)(b)(iii) and 2(e)(iii) of the Administration Agreement and Section
8.02 the Indenture.
"Subordinate Noteholders' Principal Carryover Shortfall"
means, as of the close of any Quarterly Payment Date on or after which the
Senior Notes have been paid in full, the excess of (i) the Subordinate
Noteholders' Principal Distribution Amount on such Quarterly Payment Date over
(ii) the amount of principal actually distributed to the Subordinate
Noteholders on such Quarterly Payment Date.
"Subordinate Noteholders' Principal Distribution Amount"
means, on each Quarterly Payment Date on and after which the aggregate
principal balance of the Senior Notes has been paid in full, the sum of (a)
the Principal Distribution Amount for such Quarterly Payment Date (or, in the
case of the Quarterly Payment Date on which the aggregate principal balance of
the Senior Notes is paid in full, any remaining Principal Distribution Amount
not otherwise distributed to Senior Noteholders on such Quarterly Payment
Date) and (b) the Subordinate Noteholders' Principal Carryover Shortfall as of
the close of the preceding Quarterly Payment Date; provided, however, that the
Subordinate Noteholders' Principal
28
<PAGE>
Distribution Amount will in no event exceed the outstanding principal balance
of the Subordinate Notes. In addition, on the Subordinate Note Final Maturity
Date, the principal required to be distributed to the Subordinate Noteholders
will include the amount required to reduce the outstanding principal balance
of the Subordinate Notes to zero.
"Subordinate Note Pool Factor" as of the close of business
on a Quarterly Payment Date means a seven-digit decimal figure equal to the
outstanding principal balance of the Subordinate Notes divided by the original
outstanding principal balance of the Subordinate Notes. The Subordinate Note
Pool Factor will be [1.0000000] as of the Closing Date; thereafter, the
Subordinate Note Pool Factor will decline to reflect reductions in the
outstanding principal balance of the Subordinate Notes.
"Subordinate Note Rate" means, with respect to any Quarterly
Payment Date and the related Quarterly Interest Period, the interest rate per
annum (computed on the basis of the actual number of days in such Quarterly
Interest Period over a year of 365 days (366 in the case of a leap year))
equal to the lesser of (i) the Subordinate Note T-Bill Rate for such Quarterly
Interest Period and (ii) the Student Loan Rate for such Quarterly Interest
Period; provided, that, notwithstanding the foregoing, the Subordinate Note
Rate for the first Quarterly Interest Period shall be equal to the Subordinate
Note T-Bill Rate for such Quarterly Interest Period.
"Subordinate Note T-Bill Rate" means the weighted average of
the T-Bill Rates within the applicable Quarterly Interest Period plus [ ]%.
"Subsequent Cutoff Date" means the date as of which any New
Loan or Serial Loan is transferred to the Issuer and the date on and after
which all distributions on such loan are property of the Issuer or the date of
the related Assignment in the case of any Qualified Substitute Student Loan.
"Subsequent Transfer Agreement" has the meaning provided in
Section 2.03 of Transfer Agreement.
"Substitution Adjustment Amount" has the meaning specified
in Section 3.02 of the Loan Sale Agreement.
"Successor Servicer" has the meaning specified in Section
3.07(e) of the Indenture.
"Tax Characterization Amendment" has the meaning specified
in Section 5.04 of the Trust Agreement.
"T-Bill Rate" means, on any day, the weighted average per
annum discount rate (expressed on a bond equivalent basis and applied on a
daily basis) for 91-day Treasury Bills sold at the most recent 91-day Treasury
Bill auction prior to such date as reported by the U.S. Treasury Department.
In the event that the results of the auctions of 91-day Treasury Bills cease
to be published or reported as provided above, or that no such auction is held
in a
29
<PAGE>
particular week, then the "T-Bill Rate" i effect as a result of the last such
publication or report shall remain in effect until such time, if any, as the
results of auctions of 91-day Treasury shall again be so published or reported
or such auction is held, as the case may be. The T-Bill Rate shall be subject
to a Lock-In Period of six Business Days.
"Transfer" means any direct or indirect transfer, sale,
pledge, hypothecation or other form of assignment of any ownership interest in
a Note or, with respect Section 3.01 of the Trust Agreement, in the Trust.
"Transfer Agreement" means the Transfer Agreement dated as
of ______ __, 1999, among the Issuer, the Transferor and the Eligible Lender
Trustee.
["Transfer Date" means the day fixed for the transfer of any
New Loans or Serial Loans by the Seller to the Issuer; provided that no
Transfer Date shall occur during the period from a Determination Date to the
end of the calendar month in which such Determination Date occurs.]
"Transferor" means EFG Funding.
"Treasury Regulations" means regulations, including proposed
or temporary regulations, promulgated under the Code. References in any
document or instrument to specific provisions of proposed or temporary
regulations shall include analogous provisions of final Treasury Regulations
or other successor Treasury Regulations.
"Trust" means the Issuer, established pursuant to the Trust
Agreement.
"Trust Account Property" means the Trust Accounts, all
amounts and investments held from time to time in any Trust Account (whether
in the form of deposit accounts, Physical Property, book-entry securities,
uncertificated securities or otherwise), including the Reserve Account Initial
Deposit and all proceeds of the foregoing.
"Trust Accounts" has the meaning specified in Section 2(c)
of the Administration Agreement.
"Trust Agreement" means the Trust Agreement dated as of
[ 1999], among the Depositor, the Trustee and the Eligible Lender Trustee.
"Trust Estate" means all right, title and interest of the
Trust (or the Eligible Lender Trustee on behalf of the Trust) in and to the
property and rights assigned to the Trust pursuant to Article II of the
Transfer Agreement, all funds on deposit from time to time in the Trust
Accounts and all other property of the Trust from time to time, including any
rights of the Trustee and the Trust pursuant to the Loan Sale Agreement and
the Administration Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force on the date hereof, unless otherwise specifically
provided.
30
<PAGE>
"UCC" means, unless the context otherwise requires, the
Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended
from time to time.
"United States Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in, or under the laws of, the United States or any political subdivision
thereof, or an estate whose income is subject to United States federal income
tax regardless of its source, or a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States fiduciaries have the authority to control all
substantial decisions of the trust.
31
<PAGE>
Exhibit 99.5
[FORM OF]
LOAN SALE AGREEMENT
among
EDUCATIONAL FINANCE GROUP, INC.,
as Seller,
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but solely
as Eligible Lender Trustee for the Seller
EFG FUNDING CORPORATION
as Purchaser,
and
[ELIGIBLE LENDER TRUSTEE],
not in its individual capacity but solely
as Eligible Lender Trustee for the Purchaser
<PAGE>
Dated as of , 1999
----------- ----
<PAGE>
LOAN SALE AGREEMENT dated as of ______ __, 1999, among Educational
Finance Group, Inc., a Delaware corporation ("EFG" or the "Seller"), as
seller, The First National Bank of Chicago (the "EFG Trustee"), as the
eligible lender trustee on behalf of EFG, EFG Funding Corporation (""EFG
Funding" or the "Purchaser"), as purchaser and The First National Bank of
Chicago (the "Eligible Lender Trustee") not in its individual capacity but
solely on behalf of EFG Funding, the EFG STUDENT LOAN TRUST 1998-A (the
"Issuer) and one or more trusts settled by EFG Funding from time to time and
their permitted successors and assigns.
WHEREAS the Purchaser desires to purchase from the Seller a portfolio
of guaranteed and federally reinsured student loans originated under the
Higher Education Act of 1965, as amended and privately guaranteed student
loans not originated under said act that were purchased or originated by the
Seller in the course of its business;
WHEREAS in order to comply with the requirements of the Higher
Education Act, legal title to the Seller's student loan portfolio is vested in
The First National Bank of Chicago, as trustee on behalf of the Seller as
beneficiary;
WHEREAS the Seller is willing to sell its beneficial interest in such
student loans that are FFELP Loans and its legal and beneficial interest in
such loans that are Private Loans to the Purchaser;
WHEREAS the EFG Trustee is willing to transfer legal title to such
student loans that are FFELP Loans to the Eligible Lender Trustee and the
Eligible Lender Trustee is willing to hold legal title to, and serve as
eligible lender trustee with respect to, such student loans on behalf of the
Purchaser.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions and Usage
---------------------
Capitalized terms used but not defined herein are defined in Appendix
A to the Administration Agreement, dated as of [_____ _, 1999], among the
Issuer, the Seller, as Administrator, and [ ], as Indenture Trustee, which
also contains rules as to usage and construction that shall be applicable
herein.
ARTICLE II.
Conveyance of Financed Student Loans
------------------------------------
SECTION 2.1. Conveyance of Initial Financed Student Loans. (a) In
consideration of the Purchaser's payment of the Purchase Price on the Closing
Date in accordance with the terms of this Agreement, the Seller (and, with
respect to legal title to the
<PAGE>
FFELP Student Loans, the EFG Trustee as trustee on behalf of the Seller) does
hereby, as evidenced by a duly executed Bill of Sale in the form of Exhibit A
hereto, sell, assign, and otherwise convey to the Purchaser (or, in the case
of legal title only, to the Initial Student Loans that are FFELP Loans, to the
Eligible Lender Trustee on behalf of the Purchaser) (i) all right, title and
interest in and to the Initial Student Loans, and all obligations of the
Obligors thereunder, together with all documents, the related Student Loan
Files and all rights and privileges relating thereto, (ii) all payments on or
collections received thereunder on and after the Cutoff Date; and (iii) all
proceeds of any and all of the foregoing.
(b) On the Closing Date, the Seller will deposit, or cause to be
deposited, into the Collection Account all amounts or collections received
under the Initial Financed Student Loans on and after the Cutoff Date.
{SECTION 2.2. Conveyance of New Loans and Serial Loans to the
Eligible Lender Trustee on Behalf of the Issuer. (a) Subject to the conditions
set forth in paragraph (d) below, upon the order of the Purchaser (each a
"Purchase Order") to the Seller and in consideration of the delivery on the
related Transfer Date to the Purchaser and payment of the Loan Purchase Amount
for each such New Loan or Serial Loan to be delivered to the Purchaser, the
Seller does hereby sell, transfer, assign, set over and otherwise convey to
the Purchaser (or, in the case of legal title to the New Loans and Serial
Loans that are FFELP Loans, to the Eligible Lender Trustee on behalf of the
Purchaser), (i) all right, title and interest of the Seller in and to each New
Loan and Serial Loan and all obligations of the Obligors thereunder, together
with all documents, the related Student Loan Files and all rights and
privileges relating thereto, (ii) all payments on or collections received
thereunder on and after the related Subsequent Cutoff Date and (iii) all
proceeds of any and all of the foregoing.
(b) During the Revolving Period, upon delivery of New Loans or
Serial Loans by the Seller, on the related Transfer Date and the satisfaction
of the conditions set forth in subsection (a) and (d) of this Section 2.2, the
Purchaser will remit or cause to be remitted the Loan Purchase Amount to the
Seller. The Seller covenants to transfer during the Revolving Period to the
Purchaser and the Eligible Lender Trustee on behalf of the Purchaser pursuant
to paragraph (a) above New Loans or Serial Loans with an aggregate principal
balance substantially equal to the amount stated in the Purchaser Order;
provided, however, that the Seller shall have no liability for a breach of the
foregoing covenant as a result of the Seller not having originated or
acquired, or having caused to be originated or acquired, during the Revolving
Period New Loans or Serial Loans equal to the amount specified above.
(c) After the Revolving Period, upon the purchase of Serial Loans
by the Seller on the related Transfer Date and the satisfaction of the
conditions set forth in subsection (d) of this Section 2.2, the Purchaser will
remit or cause to be remitted to the Seller the Loan Purchase Amount.
(d) The Seller (and with respect to legal title to the New Loans
and Serial Loans that are FFELP Loans, the EFG Trustee as trustee on behalf of
the Seller) shall transfer to the Purchaser (and, with respect to legal title
to the New Loans and Serial Loans
2
<PAGE>
that are FFELP Loans, the Eligible Lender Trustee) the New Loans and Serial
Loans for a given Transfer Date and the other property and rights related
thereto described in paragraph (a) above only upon the satisfaction of each of
the following conditions on or prior to such Transfer Date:
(i) the Seller (and with respect to legal title to the New
Loans and Serial Loans that are FFELP Loans, the EFG Trustee as
trustee on behalf of the Seller) shall have delivered to the
Purchaser and the Eligible Lender Trustee a duly executed written
assignment (including an acceptance by the Trustee and the Eligible
Lender Trustee) in substantially the form of Exhibit B hereto (each,
a "EFG Subsequent Transfer Agreement"), which shall include
supplements to Schedule A hereto, listing such New Loans and Serial
Loans;
(ii) the Seller shall have paid, to or upon the order of the
Purchaser, all amounts on or collections received in respect of the
New Loans and Serial Loans on and after each applicable Subsequent
Cutoff Date;
(iii) as of the Transfer Date, the Seller was not insolvent
nor will it have been made insolvent by such transfer nor is it aware
of any pending insolvency;
(iv) such addition will not result in a material adverse
Federal or State tax consequence to the Purchaser;
(v) the Seller shall have delivered to the Purchaser an
Officers' Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (d);
(vi) the Seller shall have delivered (A) on each preceding
____________ _ and _______ _, commencing __________ __, 1999, to the
Rating Agencies an Opinion of Counsel with respect to the transfer of
the New Loans and Serial Loans transferred to the Purchaser on such
Transfer Date, substantially in the form of the Opinion of Counsel
delivered to the Rating Agencies on the Closing Date, and (B) to the
Purchaser the Opinion of Counsel as required by Section 6.2(f)(1)
hereof; provided that, notwithstanding the -------- foregoing, no
opinion shall be required under Subclause (B) and, if the Revolving
Period has terminated, no opinion shall be required under subclause
(A) unless the Seller or the Purchaser determines that, with regard
to the most recent opinion on the matters described in either such
subclause that was delivered with respect to the Student Loans
(whether on the Closing Date or thereafter under this subsection or
under another provision of the Basic Documents), the conclusion of,
or the reasoning underlying, such opinion is no longer correct in all
material respects due to a change in law or regulations or the ruling
of a court, an administrative tribunal or a regulatory or other
governmental authority; upon making any such determination, the
Seller or the Purchaser shall notify the Rating Agencies; and
provided, further, that neither the Seller nor the Purchaser shall
have any obligation to -------- ------- monitor changes in laws or
regulations or the rulings of courts or other governmental agencies
for the purpose of making any determination described in the
preceding proviso;
3
<PAGE>
(vii) with respect to any New Loan which is guaranteed by an
Additional Guarantor that is a Federal Guarantor, such Additional
Guarantor shall have entered into a Guarantee Agreement with the
Eligible Lender Trustee which guarantees such New Loan in
substantially the form of the Guarantee Agreements between the
Initial Guarantors and the Eligible Lender Trustee;
(viii) the Seller shall have taken any action required to
maintain the first perfected ownership interest of the Purchaser in
the Student Loans;
(ix) no selection procedures believed by the Seller to be
adverse to the interests of the Purchaser or its successor and
assigns shall have been utilized in selecting the New Loans or the
Serial Loans;
provided, however, that the Seller shall not incur any liability as a result
of transferring Serial Loans on any Transfer Date at a time when the condition
set forth in clause (v) was not satisfied, if at the time of such transfer the
Authorized Officers of the Seller, after reasonable inquiry of counsel to the
Seller, were not aware of any fact that would reasonably suggest that such
condition would not be satisfied as of such date.}
SECTION 2.3. Treatment as a Security Agreement. The parties intend
that the conveyance of the Seller's (and, with respect to legal title to the
FFELP Student Loans, the EFG Trustee's) right, title and interest in and to
the Initial Student Loans pursuant to this Agreement {and any New Loans and
Serial Loans pursuant to a related EFG Subsequent Transfer Agreement} shall
constitute a valid purchase and sale and not a loan. If such conveyance is
deemed to be a loan and not a sale, then the parties also intend and agree
that the Seller (and, with respect to legal title to the FFELP Student Loans,
EFG Trustee) shall be deemed to have granted, and in such event do hereby
grant to the Purchaser, a first priority security interest in all of the
Seller's and EFG Trustee's right, title and interest in, to and under the
Initial Student Loans {and any New Loans or Serial Loans} and the other items
specified in Sections 2.1 {and 2.2,} and that this Agreement (with respect to
the Initial Student Loans) {and any applicable EFG Subsequent Transfer
Agreement (with respect to the New Loans or Serial Loans conveyed thereby)}
shall each constitute a security agreement under applicable law with respect
to such loans. If such conveyance is deemed to be a loan and not a sale, the
Purchaser shall assign such security interest to the Issuer, and the Issuer
(and the Eligible Lender Trustee with respect to FFELP Student Loans) shall in
order to secure the Issuer's own borrowings under the Indenture, repledge all
or any portion of such loans and the other items specified in Sections 2.1
{and 2.2 hereof} pledged to the Purchaser and not released from the security
interest of this Agreement at the time of such pledge. Such a repledge may be
made by the Purchaser (and the Eligible Lender Trustee with respect to FFELP
Student Loans) with or without a repledge by the Purchaser of its rights under
this Agreement, and without further notice to or acknowledgment from the
Seller or EFG Trustee. Each of the Seller and the EFG Trustee waives, to the
extent permitted by applicable law, all claims, causes of action and remedies
whether legal or equitable (including any rights of set-off) against the
Purchaser, the Issuer (and the Eligible Lender Trustee with respect to FFELP
Student Loans), as well as any assignee of the Purchaser, the Issuer or the
Eligible Lender
4
<PAGE>
Trustee relating to such action by the Purchaser or the Issuer in connection
with the transactions contemplated by this Agreement, {each EFG Subsequent
Transfer Agreement,} the Transfer Agreement, the Trust Agreement and the
Indenture.
SECTION 2.4. Endorsement. The Seller (and, with respect to legal
title to the FFELP Student Loans, EFG Trustee as trustee on behalf of the
Seller) hereby appoint each of the Purchaser, the Eligible Lender Trustee and
the Indenture Trustee as assignee of the Purchaser and the Eligible Lender
Trustee as the Seller's (and EFG Trustee's) true and lawful attorney-in-fact
with full power of substitution to endorse the Seller's (and EFG Trustee's)
name on any promissory note evidencing the Initial Student Loans {and any New
Loans or Serial Loans} transferred to the Purchaser and Eligible Lender
Trustee on behalf of the Purchaser and the Issuer pursuant to Sections 2.1
{and 2.2.} The Seller (and, with respect to legal title to the Student Loans,
EFG Trustee as trustee on behalf of the Seller) acknowledge and agree that
this power of attorney shall be construed as a power coupled with an interest,
shall be irrevocable as long as the Trust Agreement remains in effect and
shall continue in effect until the Trust Agreement terminates.
ARTICLE III.
The Student Loans
-----------------
SECTION 3.1. Representations and Warranties of Seller with Respect to
the Student Loans. The Seller represents and warrants with respect to the
Student Loans as set forth in Exhibit C hereto. Such representations and
warranties speak as of the execution and delivery of this Agreement and as of
the Closing Date, in the case of the Initial Student Loans, {as of the
applicable Transfer Date, in the case of the New Loans and Serial Loans,} as
of the date of the relevant Assignment in the case of any Qualified Substitute
Student Loan, {as of the date of origination in the case of any Consolidation
Loan conveyed to the Purchaser during the Revolving Period and as of the
applicable Add-on Consolidation Loan Funding Date, in the case of any
Consolidation Loan the principal balance of which is increased by the
principal balance of any related Add-on Consolidation Loan,} but shall survive
the sale, transfer and assignment of legal title to the Student Loans to the
Eligible Lender Trustee on behalf of the Issuer {(and both the origination of
such Consolidation Loans and the addition of the principal balance of any
Add-on Consolidation Loan)} and the pledge thereof to the Indenture Trustee
pursuant to the Indenture.
SECTION 3.2. Repurchase; Reimbursement. (a) Upon discovery by the
Seller, the Purchaser, EFG Trustee, the Servicer, the Eligible Lender Trustee
or the Indenture Trustee of any breach of the Seller's representations and
warranties made by the Seller pursuant to Section 3.1 or Section 4.1, the
party discovering the breach shall give prompt written notice to the others.
Unless any such breach shall have been cured within sixty (60) days after the
Seller becomes aware or receives written notice (whichever is earlier) of such
breach, the Seller shall be obligated to either (i) repurchase any Student
Loan in which the interests of the beneficial owner thereof are materially and
adversely affected by any such breach as of the first day succeeding the end
of such 60-day period that is the last day of a
5
<PAGE>
Monthly Collection Period or (ii) substitute a Qualified Substitute Student
Loan in the manner specified in this Section; provided that it is understood
that any such breach that does not affect the Guarantor's obligation to
guarantee payment of such Student Loan will not be considered to have a
material adverse effect for this purpose and it is further understood that any
dispute as to whether the Guarantor's obligation has been so affected will be
resolved by the decision of the Indenture Trustee for so long as Notes are
Outstanding and otherwise by the Trustee for so long as the Trust exists and
thereafter by the Purchaser. In addition, if any such breach by the Seller
does not trigger such a repurchase obligation but does result in the refusal
by the Guarantor to guarantee all or a portion of the accrued interest, or the
loss (including any obligation to repay the Department) of certain Interest
Subsidy Payments and Special Allowance Payments in the case of FFELP Loans,
then, unless such breach, if curable, is cured within sixty (60) days, the
Seller shall reimburse the beneficial owner of the Student Loan by remitting
an amount equal to all such non-guaranteed interest amounts and such forfeited
Interest Payments and Special Allowance Payments in the manner specified in
Section 3.3. Subject to the provisions of Section 4.3, the sole remedy of any
party with respect to a breach of representations and warranties pursuant to
Section 3.1, and the agreement contained in this Section, shall be to require
the Seller to repurchase or substitute for Student Loans or to reimburse the
beneficial owner as provided above pursuant to this Section, subject to the
conditions contained herein.
(b) The Seller may, at its option, cause a Student Loan to be
repurchased by a Person not affiliated with the Seller as of the last day of a
Monthly Collection Period if there is a dispute with the related Borrower
during such Monthly Collection Period which in the Servicer's reasonable
judgment would call into question whether such Student Loan will be repaid by
the Borrower.
(c) In consideration of and simultaneously with the repurchase of
a Student Loan, the Seller shall remit the Purchase Amount therefor, in the
manner specified in Section 3.3, and the legal and beneficial owner or owners
thereof shall execute such assignments and other documents reasonably
requested by the Seller in order to effect such transfer. Upon any such
transfer of a Student Loan, legal title to, and beneficial ownership and
control of, the related Student Loan File will thereafter belong to the Seller
or in the case of legal title thereto an eligible lender under the Higher
Education Act designated by the Seller.
With respect to any Qualified Substitute Student Loan or Loans, the
Seller shall deliver to the Eligible Lender Trustee (in the case of legal
title to FFELP Loans) and the Purchaser (in the case of beneficial title to
FFELP Loans and legal and beneficial title to Private Loans) for the benefit
of the Noteholders such documents and agreements together with a duly executed
Assignment in the form of Exhibit F hereto. No substitution is permitted to be
made during the period beginning on the day after each Determination Date and
ending on the last day of the calendar month of such Determination Date.
Payments due with respect to Qualified Substitute Student Loans on and after
the date of such Assignment shall be property of the transferee. Upon such
substitution, the Qualified Substitute Student Loan or Loans shall be subject
to the terms of this Agreement in all respects, and the Seller shall be deemed
to
6
<PAGE>
have made with respect to such Qualified Substitute Student Loan or Loans, as
of the date of substitution, the representations and warranties made pursuant
to Section 3.1 with respect to any such Student Loan. In addition, any such
substitution shall occur only upon satisfaction of each of the following
conditions on or prior to the date of the related Assignment:
(i) the Seller shall have paid to or upon the order of the
Purchaser (or deposited in the Collection Account if the beneficial
owner of the Deleted Loan is the Issuer) all collections in respect
of the Qualified Substitute Student Loans on and after each
applicable date of Assignment;
(ii) as of the date of the related Assignment, the Seller
shall not have been insolvent nor will it have been made insolvent by
such transfer nor is it aware of any pending insolvency;
(iii) such addition will not result in a material adverse
Federal or State tax consequence to the Purchaser, the Issuer or the
Noteholders;
(iv) the Seller shall have delivered (A) to the Rating
Agencies, an Opinion of Counsel with respect to each transfer of
Qualified Substitute Student Loans, substantially in the form of the
Opinion of Counsel delivered to the Rating Agencies on the Closing
Date, and (B) to the Purchaser, the Opinion of Counsel required by
Section 6.2(f)(1) hereof; provided that no opinion shall be required
under either subclause (A) or (B) -------- unless the Seller or the
Purchaser determines that, with regard to the most recent opinion on
the matters described in either such subclause that was delivered
with respect to the Student Loans (whether on the Closing Date or
thereafter under this subsection or under another provision of the
Basic Documents), the conclusion of, or the reasoning underlying,
such opinion is no longer correct in all material respects due to a
change in law or regulations or the ruling of a court, an
administrative tribunal or a regulatory or other governmental
authority; upon making any such determination, the Seller shall
notify the others and the Rating Agencies; and provided, further,
that neither of the Seller or the Purchaser shall have any obligation
to monitor changes in laws or regulations or the rulings of courts or
other governmental agencies for the purpose of making any
determination described in this clause (iv);
(v) the Seller shall have taken any action required to
maintain the first perfected ownership interest of the Purchaser in
the Qualified Substitute Student Loans;
(vi) no selection procedures believed by the Seller to be
adverse to the interests of the beneficial owner shall have been
utilized in selecting the Qualified Substitute Student Loans; and
(vii) no Event of Default shall have occurred under the
Indenture, no Servicer Default shall have occurred under the
Servicing Agreement and no Administrator Default shall have occurred
under the Administration Agreement.
7
<PAGE>
Upon any such substitution and the payment to or upon the order of
the Purchaser (or deposit to the Collection Account if the beneficial owner of
the Deleted Loan is the Issuer) of the amount required to be deposited therein
in connection with such substitution as described in the following paragraph,
the Eligible Lender Trustee, the Purchaser and the Trustee shall release any
documentation held with respect to the Student Loan being substituted for (the
"Deleted Student Loan") to the Seller and shall execute and deliver at the
Seller's direction such instruments of transfer or assignment prepared by the
Seller, in each case without recourse, as shall be necessary to vest in the
Seller, or (in the case of legal title thereto an eligible lender under the
Higher Education Act designated by the Seller), the Eligible Lender Trustee's
interest, the Purchaser's interest and the Trustee's interest in any Deleted
Student Loan substituted for pursuant to this Section 3.2.
For any month in which the Seller substitutes one or more Qualified
Substitute Student Loans for one or more Deleted Student Loans, the Servicer
will determine the amount (if any) by which as of the date of the relevant
Assignment the aggregate principal balance of all such Qualified Substitute
Student Loans is less than the aggregate principal balance of all such Deleted
Student Loans. The amount of such shortage (the "Substitution Adjustment
Amount") shall be paid to or upon the order of the Purchaser (or deposited in
the Collection Account if the beneficial owner of the Deleted Loan is the
Issuer) by the Seller on or before the date of the relevant Assignment.
SECTION 3.3. Repurchase Deposits. The Seller shall deposit or cause
to be paid to or upon the order of the Purchaser (or deposited in the
Collection Account if the beneficial owner of the Deleted Loan is the Issuer)
the aggregate Purchase Amount with respect to Purchased Student Loans and all
other amounts to be paid by the Seller under Section 3.2 and Section 5.1 when
such amounts are due.
ARTICLE IV.
The Seller
----------
SECTION 4.1. Representations of Seller and EFG Trustee. The Seller
represents as set forth in Exhibit D hereto and EFG Trustee represents as set
forth in Exhibit E hereto. Such representations speak as of the execution and
delivery of this Agreement and as of the Closing Date in the case of the
Initial Student Loans, {as of the applicable Transfer Date in the case of the
New Loans and the Serial Loans,} as of the date of the relevant Assignment in
the case of any Qualified Substitute Student Loan, {as of the date of
origination in the case of any Consolidation Loan transferred hereunder during
the Revolving Period and as of the applicable Add-on Consolidation Loan
Funding Date, in the case of a Consolidation Loan the principal balance of
which is increased by the principal balance of any related Add-on
Consolidation Loan,} and shall survive the sale, transfer and pledge or
assignment of legal and/or beneficial interest in the Student Loans to or on
behalf of the Issuer or the Indenture Trustee {(and both the origination of
such Consolidation Loans and the addition of the principal balance of any
Add-on Consolidation Loan)}.
8
<PAGE>
SECTION 4.2. Existence. During the term of this Agreement, the Seller
will keep in full force and effect its existence, rights and franchises as a
corporation under the laws of the jurisdiction of its organization and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the other Basic Documents and each other
instrument or agreement necessary or appropriate to the proper administration
of this Agreement and the transactions contemplated hereby. In addition, all
transactions between the Seller and its Affiliates will be conducted on an
arm's-length basis. For so long, during the term of this Agreement, as the
Seller shall not be an eligible lender under the Higher Education Act with
respect to FFELP Student Loans, the Seller agrees to keep in full force and
effect an agreement with EFG Trustee or another eligible lender under the
Higher Education Act providing for such eligible lender meeting the
requirements set forth in the following sentence to hold title to the FFELP
Student Loans in trust for and on behalf of the Seller. The Seller shall not
convey any New Loan, Serial Loan or Qualified Substitute Student Loan if the
eligible lender holding legal title to such loan is other than the EFG Trustee
unless, prior to such conveyance, such other eligible lender shall agree in
writing to be bound, in the conveyance of each such loan for which it acts as
eligible lender, by the provisions of this Agreement that are applicable to
the EFG Trustee, to the same extent as if it were named separately from the
EFG Trustee in each of such provisions.
[SECTION 4.3. Liability of Seller; Indemnities. The Seller shall be
liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Issuer, the Eligible Lender Trustee, the Trustee, the
Indenture Trustee and the Noteholders and the officers, directors,
employees and agents of the Purchaser, the Trustee, the Eligible
Lender Trustee and the Indenture Trustee from and against any and all
costs, expenses, losses, claims, damages and liabilities arising out
of, or imposed upon such Person through, the Seller's willful
misfeasance, bad faith or negligence in the performance of its duties
under this Agreement, or by reason of reckless disregard of its
obligations and duties under this Agreement.
(b) The Seller shall indemnify, defend and hold harmless
each of the Trustee, the Eligible Lender Trustee, the Indenture
Trustee and its officers, directors, employees and agents from and
against, all costs, expenses, losses, claims, damages, obligations
and liabilities arising out of, incurred in connection with or
relating to the Basic Documents and the acceptance or performance of
the trusts and duties set forth therein (including the fees and
expenses of the indemnified party to which the Seller has agreed),
except to the extent that such cost, expense, loss, claim damage,
obligation or liability: (i) shall be due to the willful misfeasance,
bad faith or negligence of the indemnified party; (ii) shall arise
from any breach by the indemnified party of its covenants under any
of the Basic Documents; or (iii) shall arise from the breach by the
indemnified party of any of its representations or warranties set
forth in any of the Basic Documents. In the event of any claim,
action or proceeding for which
9
<PAGE>
indemnity will be sought pursuant to this paragraph, the indemnified
party's choice of legal counsel shall be subject to the approval of
the Seller, which approval shall not be unreasonably withheld.
Indemnification under this Section shall survive the resignation or
removal of the indemnified party and the termination of this Agreement, the
Eligible Lender Trust Agreement, the Indenture or the Trust Agreement, as
applicable, and shall include reasonable fees and expenses of counsel and
expenses of litigation. If the Seller shall have made any indemnity payments
pursuant to this Section and the Person to or on behalf of whom such payments
are made thereafter shall collect any of such amounts from others, such Person
shall promptly repay such amounts to the Seller, without interest.]
SECTION 4.4. Merger or Consolidation of, or Assumption of the
Obligations of, Seller or the EFG Trustee. Any person (a) into which the
Seller or the EFG Trustee may be merged or consolidated, (b) which may result
from any merger or consolidation to which the Seller or the EFG Trustee shall
be a party or (c) which may succeed to the properties and assets of the Seller
or the EFG Trustee substantially as a whole, shall be the successor to the
Seller or the EFG Trustee, respectively, without the execution or filing of
any document or any further act by any of the parties to this Agreement;
provided, however, that the Seller hereby covenants that it will not
consummate any of the foregoing transactions except upon satisfaction of the
following: (i) the surviving Seller, executes an agreement of assumption to
perform every obligation of the Seller under this Agreement, (ii) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.1 or 4.1 shall have been breached and no Servicer
Default, Event of Default or Administrator Default and no event that, after
notice or lapse of time, or both, would become a Servicer Default, Event of
Default or Administrative Default shall have occurred and be continuing, (iii)
the Seller shall have delivered to the Purchaser an Officers' Certificate and
an Opinion of Counsel each stating that such consolidation, merger or
succession and such agreement of assumption comply with this Section and that
all conditions precedent, if any, provided for in this Agreement relating to
such transaction have been complied with, and that the Rating Agency Condition
shall have been satisfied with respect to such transaction, (iv) the surviving
Seller shall have a consolidated net worth at least equal to that of the
predecessor Seller, (v) such transaction will not result in a material adverse
Federal or state tax consequence to the Purchaser or its assigns and (vi)
unless the Seller is the surviving entity, the Seller shall have delivered to
the Purchaser or its assigns an Opinion of Counsel either (A) stating that, in
the opinion of such counsel, all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the Purchaser in the
Student Loans and reciting the details of such filings, or (B) stating that,
in the opinion of such counsel, no such action shall be necessary to preserve
and protect such interests; provided, further, that the EFG Trustee hereby
covenants that, unless the EFG Trustee is the surviving entity, it will not
consummate any of the foregoing transactions unless the EFG Trustee shall have
delivered to the Purchaser an Opinion of Counsel either stating that, in the
opinion of such counsel, all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary fully
to preserve and protect the interest of the Eligible Lender Trustee in
10
<PAGE>
the Student Loans and reciting the details of such filings, or stating that, in
the opinion of such counsel, no such action shall be necessary to preserve and
protect such interests.
SECTION 4.5. Limitation on Liabilities of Seller, the EFG Trustee and
Others. The Seller, the EFG Trustee and any director or officer or employee or
agent of the Seller or the EFG Trustee may rely in good faith on the advice of
counsel or on any document of any kind, prima facie properly executed and
submitted by any Person respecting any matters arising hereunder (provided
that such reliance shall not limit in any way the Seller's obligations under
Section 3.2). Neither the Seller nor the EFG Trustee shall be under any
obligation to appear in, prosecute or defend any legal action that shall not
be incidental to its respective obligations under this Agreement, and that in
its opinion may involve it in any expense or liability.
SECTION 4.6. Seller and the EFG Trustee May Own Notes. The Seller,
the EFG Trustee and any Affiliate of either may in its individual or any other
capacity become the owner or pledgee of Notes with the same rights as it would
have if it were not the Seller or the EFG Trustee, as the case may be or an
Affiliate of either, except as expressly provided herein or in any other Basic
Document.
ARTICLE V.
Termination
-----------
SECTION 5.1. Termination. (a). This Agreement will terminate one year
after the termination of the Trust Agreement pursuant to the terms of the
Trust Agreement.
(a) Insolvency of Purchaser. Upon any sale of the assets of the
Trust Estate pursuant to Section 9.2 of the Trust Agreement, the Seller shall
cooperate with and assist the Administrator consistent with the provisions of
the Administration Agreement with respect to a Purchaser insolvency.
ARTICLE VI.
Miscellaneous
-------------
SECTION 6.1. Amendment. This Agreement may be amended in writing from
time to time by the Seller, the EFG Trustee, the Purchaser and the Eligible
Lender Trustee.
Prior to the execution of any amendment to this Agreement, the
parties shall receive upon request and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement and the Opinion of Counsel referred to in Section 6.2(f).
11
<PAGE>
SECTION 6.2. Protection of Interests of the Purchaser and its
Successors and Assigns. (a) Each of the Seller and the EFG Trustee shall
execute and file such financing statements and cause to be executed and filed
such continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain, and protect the interest of the
Purchaser and its successors and assigns in the Student Loans and in the
proceeds thereof. Each of the Seller and the EFG Trustee shall deliver (or
cause to be delivered) to the Trustee and the Indenture Trustee file-stamped
copies of, or filing receipts for, any document filed as provided above, as
soon as available following such filing.
(b) Neither the Seller nor the EFG Trustee shall change its name,
identity or corporate structure in any manner that would, could, or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of ss.9-402(7) of
the UCC, unless it shall have given the Purchaser at least five (5) days'
prior written notice thereof and shall have promptly filed appropriate
amendments to all previously filed financing statements or continuation
statements.
(c) Each of the Seller and the EFG Trustee shall have an
obligationto give the Purchaser and the Rating Agencies at least sixty (60)
days prior written notice of any relocation of its principal executive office
if, as a result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and shall promptly
file any such amendment.
(d) If at any time the Seller or the EFG Trustee shall propose to
sell, grant a security interest in, or otherwise transfer any interest in
student loans to any prospective purchaser, lender or other transferee, the
Seller or the EFG Trustee, as the case may be, shall give to such prospective
purchaser, lender or other transferee computer tapes, records or printouts
(including any restored from backup archives) that, if they shall refer in any
manner whatsoever to any Student Loan, shall indicate clearly that such
Student Loan has been sold to the Purchaser.
(e) Reserved.
(f) The Seller shall deliver to the Purchaser:
(1) promptly after the execution and delivery of this
Agreement and of each amendment thereto, on each Transfer Date as set
forth in Section 2.2 and on the date of each Assignment as set forth
in Section 3.2, an Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all financing statements and continuation
statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Eligible Lender Trustee and
the Purchaser in the Financed Student Loans, and reciting the details
of such filings or referring to prior Opinions of Counsel in which
such details are given, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect
such interest; and
12
<PAGE>
(2) within 120 days after the beginning of each calendar
year beginning with the first calendar year beginning more than three
months after the Cutoff Date, an Opinion of Counsel, dated as of a
date during such 120-day period, either (A) stating that, in the
opinion of such counsel, all financing statements and continuation
statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Eligible Lender Trustee and
the Purchaser in the Financed Student Loans, and reciting the details
of such filings or referring to prior Opinions of Counsel in which
such details are given, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect
such interest; provided that a single Opinion of Counsel may be
delivered in satisfaction of the foregoing requirement.
Each Opinion of Counsel referred to in clause (1) or (2) above shall
specify (as of the date of such opinion and given all applicable laws as in
effect on such date) any action necessary to be taken in the following year to
preserve and protect such interest.
SECTION 6.3. Notices. Unless otherwise agreed by the recipient, all
demands, notices and communications upon or to the Seller, the EFG Trustee,
the Servicer, the Purchaser, the Eligible Lender Trustee, the Administrator or
the Rating Agencies under this Agreement shall be in writing, personally
delivered or mailed by certified mail, return receipt requested (or in the
form of telex or facsimile notice, followed by written notice delivered as
aforesaid or postage prepaid, first class mail), and shall be deemed to have
been duly given upon receipt;
(a) in the case of the Seller, to
Educational Finance Group, Inc.
Attention: President and Chief Executive Officer
Educational Funding Services, Inc.
Telephone:
Telecopy:
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(b) in the case of [EFG TRUSTEE], to
[ ], Bank, as trustee for [EFG]
13
<PAGE>
Attention:
Telephone:
Telecopy:
with a copy to
[ ]
Attention:
Telephone:
Telecopy:
(c) in the case of the Servicer, to
EFG Technologies, Inc.
Attention: President
Telephone:
Telecopy:
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(d) in the case of the Purchaser, to
EFG Funding Corporation
Attention:
Telephone:
Telecopy:
(e) in the case of the Eligible Lender Trustee,
to
the Eligible Lender Trustee
at the Corporate Trust Office
of the Eligible Lender Trustee
Attention:
Telephone:
Telecopy:
14
<PAGE>
(f) in the case of the Administrator, to Educational Finance
Group, Inc.;
Attention: President and Chief Executive
Officer
Telephone:
Telecopy:
15
<PAGE>
with a copy to
Office of the General Counsel
Attention:
Telephone:
Telecopy:
(g) in the case of S&P
Standard & Poor's Corporation
25 Broadway
New York, New York
Attention:
Telephone:
Telecopy:
(h) in the case of Fitch, to
Fitch Investors Service, L.P.
One State Street Plaza
New York, New York 10004
Attention: Asset Backed Monitoring Unit
Telephone: (212) 908-0500
Telecopy: (212) 480-4425; and
(i) in the case of Moody's, to
Moody's Investors Service, L.P.
99 Church Street
New York, New York 10007
Attention: ABS Monitoring Department
Telephone: (212) 553-0300
or, as to each of the foregoing, at such other address as shall be designated
by written notice to the other parties.]
SECTION 6.4. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 4.4, this Agreement may not be
assigned by the Seller or the EFG Trustee. This Agreement may be assigned in
whole or in part by the Purchaser and Eligible Lender Trustee to the Issuer
and the Indenture Trustee for the benefit of the Noteholders and its permitted
successor pursuant to the Trust Agreement.
16
<PAGE>
SECTION 6.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Seller, the EFG Trustee, the
Purchaser, the Eligible Lender Trustee and their permitted successors and
assigns, and nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
SECTION 6.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 6.7. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.8. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 6.9. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 6.10. Assignment to Indenture Trustee. The Seller hereby
acknowledges and consents to any mortgage, pledge, assignment or grant by the
Purchaser to the Issuer pursuant to the Transfer Agreement and by the Issuer
to the Indenture Trustee pursuant to the Indenture for the benefit of the
Noteholders of an interest in all right, title and interest of the Purchaser
in, to and under the Student Loans conveyed hereunder and any rights or
benefits that may exist under this Agreement.
SECTION 6.11. Non-Petition Covenants. Notwithstanding any prior
termination of this Agreement, neither the Seller nor the EFG Trustee shall,
prior to the date which is one year and one day after the termination of this
Agreement with respect to the Purchaser, acquiesce, petition or otherwise
invoke or cause the Purchaser to invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against the
Purchaser under any Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Purchaser or any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the
Purchaser.
SECTION 6.12. Limitation of Liability of the EFG Trustee and the
Eligible Lender Trustee. (a) Notwithstanding anything contained herein to the
contrary, this
17
<PAGE>
Agreement has been signed by the EFG Trustee not in its individual capacity
but solely in its capacity as trustee for the Seller and in no event shall the
EFG Trustee in its individual capacity or, except as expressly provided herein
or in the trust agreement between Seller and the EFG Trustee dated [ ], as
legal owner of the Financed Student Loans, have any liability for
representations, warranties, covenants, agreements or other obligations of the
Seller hereunder or in any of the certificates, notices or agreements
delivered by the Seller pursuant hereto as to all of which recourse shall be
had solely against the Seller.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been signed by [ ], not in its individual capacity but
solely in its capacity as Eligible Lender Trustee of the Purchaser and in no
event shall [ ], in its individual capacity or, except as expressly
provided in the Eligible Lender Trust Agreement, as beneficial owner of the
Purchaser have any liability for the representations, warranties, covenants,
agreements or other obligations of the Purchaser hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto as to all of which
recourse shall be had solely to the assets of the Purchaser.
SECTION 6.13. Agreement of Seller and [ ]. Each of the Seller and
the EFG Trustee agrees to execute and deliver such instruments and to take such
actions as the Purchaser or the Eligible Lender Trustee may reasonably request
in order to effectuate the terms and carry out the purposes of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first
above written.
EDUCATIONAL FINANCE GROUP, INC.
by:
-------------------------------------------
Name:
Title:
EFG FUNDING CORPORATION, as Purchaser
by:
-------------------------------------------
Name:
Title:
18
<PAGE>
[EFG TRUSTEE], AS TRUSTEE FOR THE SELLER
by:
-------------------------------------------
Name:
Title:
[ELIGIBLE LENDER TRUSTEE],
not in its individual capacity but solely as
Eligible Lender Trustee
by:
-------------------------------------------
Name:
Title:
19
<PAGE>
EXHIBIT A
TO THE LOAN SALE AGREEMENT
BILL OF SALE
For value received, in accordance with the Loan Sale Agreement (the
"Loan Sale Agreement") dated as of ______ __, 1999, among Educational Finance
Group, Inc., a Delaware corporation ("EFG" or the "Seller"), as seller,
[EFG TRUSTEE], (the "EFG Trustee") as the eligible lender trustee on behalf of
EFG, EFG Funding Corporation (""EFG Funding" or the "Purchaser"), as purchaser
and the [ELIGIBLE LENDER TRUSTEE] (the "Eligible Lender Trustee") not in its
individual capacity but solely on behalf of EFG Funding, the Seller (and, with
respect to legal title to the Initial Student Loans that are FFELP Loans, the
EFG Trustee as trustee on behalf of the Seller) does hereby sell, assign,
transfer and otherwise convey unto the Purchaser (and, with respect to legal
title to the Initial Student Loans that are FFELP Loans, the Eligible Lender
Trustee), without recourse (subject to the obligations set forth in the Loan
Sale Agreement), all right, title and interest in and to (i) the Initial
Student Loans and all obligations of the Obligors thereunder, together with
all documents, the related Student Loan Files and all rights and privileges
related thereto, (ii) all payments and/or collections received thereunder on
and after the Cutoff Date and (iv) all proceeds of any and all of the
foregoing (including but not limited to proceeds derived from the voluntary or
involuntary conversion of any of the Initial Student Loans into cash or other
liquidated property, such as proceeds from the applicable Guarantee
Agreement). The foregoing sale does not constitute and is not intended to
result in any assumption by the Eligible Lender Trustee or the Purchaser of
any obligation of the Seller or EFG Trustee to the borrowers of Initial
Student Loans or any other Person in connection with the Initial Student Loans
or any agreement or instrument relating to any of them.
In addition, the undersigned, by execution of this instrument, hereby
endorse the promissory notes evidencing each Initial Student Loan described in
Schedule A to the Loan Sale Agreement in favor of the Purchaser (and, with
respect to legal title to Initial Student Loans that are FFELP Loans, the
Eligible Lender Trustee on behalf of the Purchaser) without recourse (subject
to the obligations set forth in the Loan Sale Agreement) against the
undersigned. This endorsement may be effected by attaching a facsimile hereof
to each or any of such promissory notes.
This Bill of Sale is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the Loan
Sale Agreement and is to be governed by the Loan Sale Agreement.
Capitalized terms used but not defined herein shall have the meaning
assigned to them in Appendix A to the Administration Agreement, dated as of
[_____ __, 1999], among the [ Trust ], the Seller, as Administrator, and
[INDENTURE TRUSTEE], as Indenture Trustee, which also contains rules as to
usage that shall be applicable herein.
IN WITNESS WHEREOF, the undersigned has caused this Bill of Sale to
be duly executed as of _________ __, 1999.
A-1
<PAGE>
EDUCATIONAL FINANCE GROUP, INC.
by:
-------------------------------------------
Name:
Title:
[EFG Trustee], AS TRUSTEE FOR
THE SELLER]
by:
-------------------------------------------
Name:
Title:
A-2
<PAGE>
EXHIBIT B
TO THE
LOAN SALE AGREEMENT
{EFG SUBSEQUENT TRANSFER AGREEMENT}
TRANSFER No. _____ Of [NEW] [SERIAL] LOANS dated as of
______________, _____, among Educational Finance Group, Inc., a Delaware
corporation ("EFG" or the "Seller"), as seller, [EFG TRUSTEE], (the "EFG
Trustee") as the eligible lender trustee on behalf of EFG, EFG Funding
Corporation (""EFG Funding" or the "Purchaser"), as purchaser and the
[ELIGIBLE LENDER TRUSTEE] (the "Eligible Lender Trustee") not in its
individual capacity but solely on behalf of EFG Funding.
W I T N E S S E T H:
WHEREAS the Seller, the Purchaser, the EFG Trustee and the Eligible
Lender Trustee are parties to the Loan Sale Agreement dated as of [______ __,
1999] (as amended or supplemented, the "Loan Sale Agreement");
WHEREAS the Purchaser and the Eligible Lender Trustee are parties to
the Eligible Lender Trust Agreement dated as of [______ __, 1999] (as amended
or supplemented, the "Trust Agreement");
WHEREAS pursuant to the Loan Sale Agreement, the Seller wishes to
convey the [New] [Serial] Loans referred to in Section 2 (the "Additional
Student Loans") to the Purchaser and the Eligible Lender Trustee on behalf of
the Purchaser;
WHEREAS in order to comply with the requirements of the Higher
Education Act, legal title to the Seller's FFELP Loan portfolio is vested in
the EFG Trustee, as trustee on behalf of the Seller; and
WHEREAS, the Eligible Lender Trustee and the Purchaser are willing to
accept such conveyance subject to the terms and conditions hereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions and Usage. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in
Appendix A to the Administration Agreement, dated as of _______ __, 1999,
among the [EFG Student Loan Trust ____________], the Seller, as Administrator,
and [ ], as Indenture Trustee, which also contains rules of construction and
usage that shall be applicable herein.
In addition, the following terms have the following meanings:
"Subsequent Cutoff Date" means, with respect to each Additional
Student Loan, the date specified as such on Schedule A hereto.
B-1
<PAGE>
"Transfer Date" means, with respect to the Additional Student Loans,
________________, _______.
2. Schedule of Financed Student Loans. Attached hereto as Schedule A
is a supplement to Schedule A to the Loan Sale Agreement listing the
Additional Student Loans to be conveyed on the Transfer Date to the Eligible
Lender Trustee on behalf of the Purchaser in the case of FFELP Loans and the
Purchaser in the case of Private Loans, all pursuant to this Agreement.
3. Conveyance of Additional Student Loans. In consideration of
Purchaser's delivery to or upon the order of the Seller of $___________, the
Seller (and, with respect to legal title to the Additional Student Loans that
are FFELP Loans, the EFG Trustee as trustee on behalf of the Seller) does
hereby sell, assign and otherwise convey, without recourse (except as
expressly provided in the Loan Sale Agreement), to the Purchaser (and, with
respect to legal title to the Additional Student Loans that are FFELP Loans,
the Eligible Lender Trustee on behalf of the Purchaser:
(a) All right, title and interest in and to the Additional
Student Loans and all obligations of the Obligors thereunder,
together with all documents, the related Student Loan Files and all
rights and privileges relating thereto;
(b) all payments on or collections received thereunder, on
and after the related Subsequent Cutoff Date;
(c) all proceeds of any and all of the foregoing.
4. Conditions Precedent. The obligation of the Purchaser to acquire
the Additional Student Loans hereunder is subject to the satisfaction, on or
prior to the Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Seller in Sections 3.1 and
4.1 of the Loan Sale Agreement and by the EFG Trustee in Section 4.1
of the Loan Sale Agreement shall be true and correct as of the
Transfer Date.
(b) Loan Sale Agreement Conditions. Each of the conditions
set forth in Section 2.2(d).
(c) Delivery of Bill of Sale. The Seller and the EFG Trustee
shall have delivered a Bill of Sale substantially in the form of
Annex A hereto.
(d) Additional Information. The Seller and the EFG Trustee
shall have delivered to the Purchaser such information as was
reasonably requested by the Purchaser to satisfy itself as to (i) the
accuracy of the representations and warranties set forth in Sections
3.1 and 4.1 of the Loan Sale Agreement and (ii) the satisfaction of
the conditions set forth in this Section 4.
B-2
<PAGE>
5. Ratification of Agreement. As supplemented by this Agreement, the
Loan Sale Agreement is in all respects ratified and confirmed and the Loan
Sale Agreement as so supplemented by this Agreement shall be read, taken and
construed as one and the same instrument.
6. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument.
7. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York, without reference to its conflict of
law provisions, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
8. Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the day and the year first above written.
B-3
<PAGE>
EDUCATIONAL FINANCE GROUP, INC.
by:
-------------------------------------------
Name:
Title:
EFG FUNDING CORPORATION, as Purchaser
by:
-------------------------------------------
Name:
Title:
[EFG TRUSTEE], AS ELIGIBLE LENDER TRUSTEE
FOR THE SELLER
by:
-------------------------------------------
Name:
Title:
[ELIGIBLE LENDER TRUSTEE],
not in its individual capacity but solely as
Eligible Lender Trustee for the Purchaser
by:
-------------------------------------------
Name:
Title:
B-4
<PAGE>
SCHEDULE A
TO THE
EFG SUBSEQUENT TRANSFER AGREEMENT NO. ___
[List of Additional Student Loans
and their related Subsequent Cutoff Dates]
<PAGE>
ANNEX A
TO EFG SUBSEQUENT TRANSFER AGREEMENT
{BILL OF SALE}
For value received, in accordance with the Loan Sale Agreement (the
"Loan Sale Agreement") dated as of ________ _, 1999, among Educational Finance
Group, Inc., a Delaware corporation ("EFG" or the "Seller"), [EFG
TRUSTEE], (the "EFG Trustee") as the eligible lender trustee on behalf of EFG,
EFG Funding Corporation (""EFG Funding" or the "Purchaser"), as purchaser and
the [ELIGIBLE LENDER TRUSTEE] (the "Eligible Lender Trustee") not in its
individual capacity but solely on behalf of EFG Funding and the EFG Subsequent
Transfer Agreement No. ____ dated as of ______, ______ (the "Transfer
Agreement") the Seller, the Purchaser, the EFG Trustee and the Eligible Lender
Trustee, the Seller (and, with respect to legal title to the Additional
Student Loans that are FFELP Loans, the EFG Trustee as trustee on behalf of
the Seller) does hereby sell, assign, transfer and otherwise convey unto the
Purchaser (and, with respect to legal title to the Additional Student Loans
that are FFELP Loans, the Eligible Lender Trustee on behalf of the Issuer),
without recourse (subject to the obligations set forth in the Loan Sale
Agreement), all right, title and interest in and to (i) the Additional Student
Loans and all obligations of the Obligors thereunder, together with all
documents, the related Student Loan Files and all rights and privileges
related thereto, (ii) all payments and collections received thereunder, on and
after the Subsequent Cutoff Date and (iii) all proceeds of any and all of the
foregoing (including but not limited to proceeds derived from the voluntary or
involuntary conversion of any of the Additional Student Loans into cash or
other liquidated property, such as proceeds from the applicable Guarantee
Agreement). The foregoing sale does not constitute and is not intended to
result in any assumption by the Eligible Lender Trustee or the Purchaser of
any obligation of the Seller or the EFG Trustee to the borrowers of the
Additional Student Loans or any other person in connection with the Additional
Student Loans or any agreement or instrument relating to any of them.
In addition, the undersigned, by execution of this instrument, hereby
endorse the promissory notes evidencing each Additional Student Loan described
in Schedule A to the EFG Subsequent Transfer Agreement in favor of the
Purchaser (and, with respect to legal title to the Additional Student Loans
that are FFELP Loans, the Eligible Lender Trustee on behalf of the Purchaser),
without recourse (subject to the obligations set forth in the Loan Sale
Agreement) against the undersigned. This endorsement may be effected by
attaching a facsimile hereof to each or any of such promissory notes.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the Loan
Sale Agreement and the Transfer Agreement and is to be governed by the Loan
Sale Agreement and the Transfer Agreement.
Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Transfer Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Bill of Sale to
be duly executed as of ______ __, 1999.
EDUCATIONAL FINANCE GROUP, INC.
by:
-------------------------------------------
Name:
Title:
[EFG Trustee], AS ELIGIBLE LENDER
TRUSTEE FOR THE SELLER.]
by:
-------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
TO THE LOAN SALE AGREEMENT
1. Characteristics of Student Loans. Each Student Loan (A) was
originated in the United States of America, its territories, its possessions
or other areas subject to its jurisdiction by (in the case of a FFELP Loan) an
"eligible lender" under the Higher Education Act in the ordinary course of its
business to an eligible borrower under applicable law and agreements and was
fully and properly executed by the parties thereto, (B) was acquired or
originated by the Seller in the ordinary course of its business, and (C)
provides or, when the payment schedule with respect thereto is determined,
will provide for payments on a periodic basis that fully amortizes the
principal amount of such Student Loan by its maturity, as such maturity may be
modified in accordance with any applicable deferral or forbearance periods
granted in accordance with applicable laws and restrictions, including those
of the Higher Education Act (in the case of a FFELP Loan) or the applicable
Guarantee Agreement, and yield interest at the rate applicable thereto. Each
FFELP Student Loan is guaranteed by an eligible guarantor under the Higher
Education Act and qualifies the holder thereof to receive Interest Subsidy
Payments (other than SLS Loans, unsubsidized Stafford Loans, and those
Consolidation Loans for which the related loan application was submitted prior
to [January 1, 1993]) and Special Allowance Payments from the Department and
Guarantee Payments from the Guarantor and qualifies the Guarantor to receive
reinsurance payments thereon from the Department. If such Student Loan is a
New Loan or a Qualified Substitute Loan and is, in either case, guaranteed by
an Additional Guarantor, the aggregate principal balance of all Student Loans
guaranteed by such Additional Guarantor (measured as of the Subsequent Cutoff
Date for such Student Loan) following the sale of such Student Loan to the
Purchaser, did not exceed [5%] of the principal balance of all Student Loans
sold to the Purchaser by the Seller as of such date, and the aggregate
principal balance of all Student Loans guaranteed by all Additional Guarantors
measured as of such date, following such addition, did not exceed [20%] of the
principal balance of all Student Loans sold to the Purchaser by the Seller as
of such date. The principal balance of each Student Loan is not subject to
change by reason of adjustments to the related Borrower's account after the
Cutoff Date relating to matters or events occurring prior to the Cutoff Date.
2. Schedule of Student Loans. The information set forth in Schedule A
to this Agreement is true and correct in all material respects as of the
opening of business on the Cutoff Date. With respect to any {Consolidation
Loan originated by the Purchaser or any permitted successor or assign or any
New Loan, Serial Loan} or Qualified Substitute Student Loan conveyed to the
Purchaser after the Closing Date, information for each category set forth in
Schedule A has been provided with respect to such loan and such information is
true and correct {in all material respects, as of the date of origination, in
the case of such Consolidation Loan, and as of the opening of business on the
applicable Subsequent Cutoff Date in the case of a New Loan, Serial Loan or}
Qualified Substitute Student Loan. {With respect to any Consolidation Loan,
the principal balance of which has been increased by the principal balance of
any related Add-on Consolidation Loan, information for each category set forth
in Schedule A has been provided with respect to such Add-on Consolidation Loan
and such information is true and correct in all material respects as of the
related Add-on Consolidation Loan Funding
C-1
<PAGE>
Date.} No selection procedures believed to be adverse to the Purchaser were
utilized in selecting any Student Loan. The computer tape regarding the
Initial Student Loans made available to the Purchaser and its assigns is true
and correct in all respects as of the Cutoff Date, and, after the Closing
Date, any computer tape regarding any {Consolidation Loan, New Loan, Serial
Loan or} Qualified Substitute Student Loan made available to the Purchaser and
its assigns is true and correct in all respects as of the date of origination,
{in the case of a Consolidation Loan originated by the Purchaser or a
permitted successor or assign, as of the applicable Add-on Consolidation Loan
Funding Date, in the case of a Consolidation Loan the principal balance of
which is increased by the principal balance of any related Add-on
Consolidation Loan, and as of the applicable Subsequent Cutoff Date, in the
case of a New Loan, Serial Loan or} a Qualified Substitute Student Loan.
3. Compliance with Law. Each Student Loan complied at the time of
origination and at the time of the execution of this Agreement {or the
applicable Transfer Agreement or Assignment, as the case may be, at the time
of origination in the case of a Consolidation Loan originated by the Purchaser
or a permitted successor or assign and as of the applicable Add-on
Consolidation Loan Funding Date in the case of a Consolidation Loan the
principal balance of which is increased by the principal balance of any Add-on
Consolidation Loan,} in all material respects with all applicable requirements
of local, state, and federal laws, rules and regulations which govern the
making of such Student Loan including the requirements of the applicable
Guarantee Agreement.
4. Binding Obligation. The terms and conditions of each Student Loan
are consistent with the application of the Borrower, all signatures for the
Student Loans are genuine and the Borrower Note evidencing each Student Loan
has been duly executed and delivered and constitutes the legal, valid, and
binding obligation of the Borrower enforceable in accordance with its terms.
5. No Defenses. No right of rescission, setoff, counterclaim, or
defense has been asserted or threatened or exists with respect to any Student
Loan.
6. No Default. No Student Loan has a payment that is more than 180
days overdue as of the Cutoff Date {or more than 90 days overdue as of the
applicable Subsequent Cutoff Date, as the case may be,} and, except as
permitted in this paragraph, no default, breach, violation or event permitting
acceleration under the terms of any Student Loan has occurred; and, except for
payment defaults continuing for a period of not more than 180 days {or 90
days, as applicable,} no continuing condition that with notice or the lapse of
time or both would constitute a default, breach, violation or event permitting
acceleration under the terms of any Student Loan has arisen; and the Seller
has not waived and shall not waive any of the foregoing other than as
permitted by the Basic Documents.
7. Title. It is the intention of the Seller that the transfer and
assignment herein contemplated constitute a sale of the Student Loans from the
Seller to the Purchaser and that the beneficial interest in and title to such
Student Loans not be part of the estate of the Seller in the event of the
appointment of a receiver with respect to the Seller. {Except in the
C-2
<PAGE>
case of Consolidation Loans originated by the Purchaser or a permitted
successor or assign,} immediately prior to the transfer and sale of each
Student Loan to the Purchaser, each Borrower Note is owned by the Seller and
the Seller has good title to each Student Loan, free and clear of any lien,
charge, encumbrance, or other interest therein and immediately upon the
transfer and sale of such Student Loan to the Purchaser, the Purchaser and/or
the Eligible Lender Trustee on behalf of the Purchaser will have good title to
such Student Loan free and clear of any lien, charge, encumbrance, or other
interest therein except as contemplated by the Basic Documents.
8. All Filings Made. All filings (including UCC filings) necessary in
any jurisdiction to give the Purchaser a first perfected ownership interest in
the Student Loans have been made.
9. No Bankruptcies. No Borrower of any Student Loan as of the Cutoff
Date {or the applicable Subsequent Cutoff Date (in the case of Qualified
Substitute Student Loans, New Loans or Serial Loans), as of the date of
origination (in the case of a Consolidation Loan originated by the Purchaser
or a permitted successor or assign) or as of the applicable Add-on
Consolidation Loan Funding Date (in the case of a Consolidation Loan the
principal balance of which is increased by the principal balance of any
related Add-on Consolidation Loan)} was noted in the related Student Loan File
as being currently involved in a bankruptcy proceeding.
10. Lawful Assignment. No Student Loan has been originated in, or is
subject to the laws of, any jurisdiction under which the origination, sale,
transfer and assignment of such Student Loan or any Student Loan under this
Agreement, is unlawful, void or voidable.
11. One Original. There is only one original executed copy of the
promissory note evidencing each Student Loan.
12. U.S. Obligors. Less than 1% of the Student Loans are due from
Persons not having a mailing address in the United States of America.
13. Accounts. Each FFELP Student Loan may be pledged or transferred
as an "account" as defined in the UCC and each Private Loan may be pledged as
an "instrument" as defined in the UCC.
14. Interest Accruing. Each FFELP Student Loan is accruing interest
(whether or not such interest is being paid currently, by the Borrower or by
the Department, or is being capitalized) at the maximum interest rate
permitted by the Higher Education Act and qualifies for Special Allowance
Payments, except as expressly permitted by the Basic Documents.
15. Seller's Representations. The representations and warranties of
the Seller contained in Section 4.1 are true and correct.
C-3
<PAGE>
EXHIBIT D
TO THE LOAN SALE AGREEMENT
1. Organization and Good Standing. The Seller has been organized and
is existing under the Delaware Corporation Law [Texas] and is authorized to do
business in every state in which it is doing business (except where any failure
to be so authorized shall not have a material adverse effect on either the
Seller or its obligations hereunder) as well as the state in which it is
organized.
2. Power and Authority of the Seller. The Seller has the
organizational power and authority to execute and deliver this Agreement and
to carry out its terms; the Seller has full organizational power and authority
to sell (with the EFG Trustee conveying legal title as trustee on behalf of
the Seller) and assign the property to be sold and assigned to and deposited
with the Purchaser (or with the Eligible Lender Trustee on behalf of the
Purchaser) and the Seller has duly authorized such sale and assignment to the
Purchaser (or to the Eligible Lender Trustee on behalf of the Purchaser) by
all necessary action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Seller by all necessary corporate
action.
3. Binding Obligation. This Agreement has been executed and delivered
by the Seller and, assuming authorization, execution, and delivery by the
other parties thereto, this Agreement constitutes a valid obligation of the
Seller enforceable against it in accordance with the express terms of this
Agreement, except as enforcement thereof may be limited by the bankruptcy,
insolvency, reorganization, moratorium, liquidation, readjustment of debt, or
other federal or state laws or equitable principles relating to or affecting
the enforcement of creditor's rights.
4. No Violation. The consummation of the transactions contemplated by
this Agreement or the Administration Agreement and the fulfillment of the
terms hereof or thereof do not conflict with, result in any breach of any of
the terms and provisions of, nor constitute (with or without notice or lapse
of time or both) a default under, certificate of incorporation of the Seller,
or any indenture, agreement or other instrument to which the Seller is a party
or by which it shall be bound; nor result in the creation or imposition of any
Lien upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than pursuant to the Basic Documents);
nor violate any law or, to the knowledge of the Seller, any order, rule or
regulation applicable to the Seller of any court or of any Federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Seller or its properties. The consummation of the
transactions contemplated by this Agreement or by the Administration Agreement
and the fulfillment of the terms hereof and thereof will not result in the
loss of any Guarantee Payments by the Trust or any reinsurance payments with
respect to any Student Loans by the Guarantor.
5. No Proceedings. There is no action, suit, claim, investigation, or
proceeding, in any such case whether pending or to the knowledge of the
Seller, threatened
D-1
<PAGE>
against the Seller before any court, governmental agency, or arbitrator (i)
asserting the invalidity of this Agreement, (ii) seeking to prevent the
consummation of any transactions contemplated by this Agreement, or (iii)
seeking any determination or ruling that could reasonably be expected to have
a material and adverse effect on the performance by the Seller of its
obligations under, or the validity or enforceability of, this Agreement.
6. All Consents. No action, including, without limitation, the
granting or issuing of any consent, permit, license, approval, or
authorization which is required to be made on or prior to the date of this
Agreement in connection with the sale of Student Loans under this Agreement
(with the possible exception of routine filings which, if not made, will not
render the Seller liable to any material penalties or will not result in the
transactions contemplated by this Agreement being subject to challenge) is
required.
D-2
<PAGE>
EXHIBIT E
TO THE LOAN SALE AGREEMENT
1. Organization and Good Standing. [ ] is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States and is an "eligible lender" for purposes of the
Higher Education Act.
2. Power and Authority of the [ ]. [ ] has authorized the execution
and delivery of this Agreement and has full legal power and authority to
consummate all transactions contemplated by this Agreement and any and all
other agreements relating hereto.
3. Binding Obligation. This Agreement has been executed and delivered
by [ ] and, assuming authorization, execution, and delivery by the other
parties thereto, this Agreement constitutes a valid obligation of [ ]
enforceable against it in accordance with the express terms of this Agreement,
except as enforcement thereof may be limited by the bankruptcy, insolvency,
reorganization, moratorium, liquidation, readjustment of debt, or other
federal or state laws or equitable principles relating to or affecting the
enforcement of creditor's rights.
4. No Violation. Compliance by [ ] with this Agreement does not in
any material respect violate any law or regulation by which [ ] or its assets
are bound, or any writ, order, judgment, or decree of any court or government
instrumentality or arbitrator in which [ ] is named, or the charter or by-laws
of [ ] or any indenture, contract, or agreement to which [ ] is a party or by
which it is or its properties are bound or affected.
5. No Proceedings. There is no action, suit, claim, investigation, or
proceeding, in any case pending or, to the knowledge of [ ], threatened
against [ ] before any court, governmental agency, or arbitrator which, if
decided adversely to [ ], is likely to have a material adverse effect upon the
validity or enforceability of this Agreement.
6. All Consents. No action, including, without limitation, the
granting or issuing of any consent, permit, license, approval, or
authorization which is required to be made on or prior to the date of this
Agreement in connection with the sale of Student Loans under this Agreement
(with the possible exception of routine filings which, if not made, will not
render [ ] liable to any material penalties or will not result in the
transactions contemplated by this Agreement being subject to challenge) is
required.
E-1
<PAGE>
F-1
