<PAGE> 1
As filed with the Securities and Exchange Commission on July 28, 1999
Registration No. 333-64283
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------
<TABLE>
<S> <C> <C>
Delaware STUDENT LOAN FUNDING RIVERFRONT LLC 31-1643003
(State or other (Originator of the trusts described herein) (I.R.S. Employer
jurisdiction of (Exact name of registrant as specified in its charter) Identification No.)
incorporation or ONE WEST FOURTH STREET, SUITE 310
organization) CINCINNATI, Ohio 45202
(513) 763-4415
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
<TABLE>
<S> <C> <C>
MICHAEL H. SHAUT Copies to: AND TO:
PRESIDENT ROBERT A. SELAK PAUL F. SEFCOVIC
ONE WEST FOURTH STREET, SUITE 310 THOMPSON HINE & FLORY LLP SQUIRE, SANDERS & DEMPSEY L.L.P.
CINCINNATI, OHIO 45202 312 WALNUT STREET, SUITE 1400 41 SOUTH HIGH STREET, SUITE 1300
(513) 352-0222 CINCINNATI, OHIO 45202 COLUMBUS, OHIO 43215
(513) 763-4340 (TELECOPY) (513) 352-6700 (614) 365-2700
(Name, address, including zip code and (513) 241-4771 (telecopy) (614) 365-2499 (telecopy)
telephone number, including area code,
of agent for service)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the only securities being registered on this Form are being offered
under 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 under Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
under 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 under 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 under Rule 434, please
check the following box. 9
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Total
Title of Securities Amount to be Offering Price Aggregate Amount of
Being Registered Registered Per Unit Offering Price Registration Fee(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Student Loan
Asset-Backed Notes $1,250,000,000 100% $1,250,000,000 $347,500
===============================================================================================================================
(1) $295.00 previously paid.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Registrant hereby amends this Registration Statement on the date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that the Registration Statement
shall become effective under Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on the date as the SEC, acting
under said Section 8(a), may determine.
================================================================================
<PAGE> 2
The information in this prospectus supplement and the attached prospectus is not
complete and may be changed. The issuer may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the attached prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED __________ ___, 1999
PROSPECTUS SUPPLEMENT
$____________ Student Loan Asset-Backed Notes
Student Loan Funding 1999-A/B Trust
(Issuer)
Student Loan Funding Riverfront LLC
(Depositor)
<TABLE>
<S> <C>
----------------------------------------------
Securities Offered YOU SHOULD CAREFULLY CONSIDER THE RISK
- Series 1999 A-1 Senior LIBOR Rate Notes FACTORS BEGINNING ON PAGE S-7 OF THIS
- Series 1999 A-2 Senior LIBOR Rate Notes PROSPECTUS SUPPLEMENT.
- Series 1999 B-1 Subordinate LIBOR Rate Notes
THE SECURITIES ARE OBLIGATIONS ONLY OF THE
Assets TRUST AND ARE PAYABLE FROM THE STUDENT LOANS
- student loans guaranteed by federal guarantors AND OTHER ASSETS OF THE TRUST.
Credit Enhancement THE PRINCIPAL AMOUNT OF THE NOTES EXCEEDS
- senior notes THE PRINCIPAL AMOUNT OF THE FINANCED STUDENT
- subordination of subordinated notes LOANS PLUS ACCRUED INTEREST ON THE FINANCED
- reserve fund STUDENT LOANS PLUS THE AMOUNT OF FUNDS HELD
- subordinated notes UNDER THE INDENTURE.
- reserve fund
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SERIES 1999 SERIES 1999 SERIES 1999 TOTAL
A-1 NOTES A-2 NOTES B-1 NOTES
<S> <C> <C> <C> <C>
ORIGINAL PRINCIPAL AMOUNT $____________ $____________ $____________ $_________________
INTEREST RATE One-month One-month Three-month
LIBOR plus ___% LIBOR plus ___% LIBOR plus ___%
FINAL MATURITY DATE
PRICE TO PUBLIC (1) ___________% ___________% ___________% $_________________
UNDERWRITING DISCOUNT ___________% ___________% ___________% $_________________
PROCEEDS TO THE SELLER(1)(2) ___________% ___________% ___________% $_________________
(1) Plus accrued interest, if any, from ______________.
(2) Before deducting expenses, estimated to be $_______________.
</TABLE>
Delivery of the securities will be made on or about ________________, 1999,
against payment in immediately available funds.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE NOTES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SALOMON SMITH BARNEY
FIFTH THIRD SECURITIES, INC.
BANC OF AMERICA SECURITIES LLC
PNC CAPITAL MARKETS, INC.
_______________, 1999
<PAGE> 3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
The issuer provides information to you about your notes in two
separate documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
your notes and (b) this prospectus supplement, which describes the specific
terms of your notes.
If the descriptions of the terms of the notes vary between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
This prospectus supplement and the accompanying prospectus include
cross-references to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus provide the pages on which these
captions are located.
The issuer has filed preliminary information regarding the trust
and your notes with the SEC. The information contained in this document
supersedes all of that preliminary information, which was prepared by the
underwriters for prospective investors.
------------------------
Until __________, all dealers that effect transactions in the
notes, whether or not participating in this offering, may be required to deliver
a prospectus and prospectus supplement. This requirement is in addition to the
dealers' obligation to deliver a prospectus and prospectus supplement when
acting as underwriters with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
-----------------
Page
----
SUMMARY OF TERMS ......................... S-1
The Depositor ........................ S-1
The Issuer ........................... S-1
The Servicer ......................... S-1
The Trustees ......................... S-1
Issue Date ........................... S-2
Interest ............................. S-2
Principal ............................ S-2
Final Maturity ....................... S-3
Subordination ...................... S-3
Priority of Payments ............... S-3
Security for the Notes; Trust Assets S-5
Reserve Fund ......................... S-5
Redemption ......................... S-5
ERISA Considerations ................. S-6
Registration, Clearing and Settlement S-6
Rating ............................... S-6
RISK FACTORS ............................. S-7
ii
<PAGE> 4
THE ISSUER ............................................. S-16
The Trust .......................................... S-16
Co-owner Trustee ................................... S-17
Owner Trustee ...................................... S-17
Year 2000 .......................................... S-17
THE DEPOSITOR .......................................... S-17
Year 2000 .......................................... S-18
USE OF PROCEEDS ........................................ S-20
THE FINANCED STUDENT LOANS ............................. S-20
Incentive Programs ................................. S-26
MATURITY AND PREPAYMENT CONSIDERATIONS ................. S-26
THE SERVICERS .......................................... S-29
AFSA Data Corporation .............................. S-29
Great Lakes Higher Education Servicing Corporation S-30
InTuition, Inc. .................................... S-30
Kentucky Higher Education Student Loan Corporation . S-31
Pennsylvania Higher Education Assistance Agency .... S-31
UNIPAC Service Corporation ......................... S-32
USA Group Loan Services, Inc. ...................... S-33
THE GUARANTEE AGENCIES ................................. S-33
EXCHANGE AGREEMENTS .................................... S-37
DESCRIPTION OF THE NOTES ............................... S-38
Interest ........................................... S-38
Principal .......................................... S-40
Subordination of the Series 1999B-1 Notes .......... S-41
REDEMPTION ............................................. S-42
Auction of the Financed Student Loans .............. S-42
Optional Redemption ................................ S-42
Notice of Redemption ............................... S-42
THE INDENTURE .......................................... S-43
Indenture Trustee .................................. S-43
Eligible Lender Trustee ............................ S-43
Reports to Holders ................................. S-43
Acquisition Fund ................................... S-43
Student Loan Portfolio Fund ........................ S-44
Collection Fund .................................... S-45
Reserve Fund ....................................... S-48
UNDERWRITING ........................................... S-50
LEGAL MATTERS .......................................... S-51
RATING ................................................. S-51
APPENDIX A - Glossary of Principal Definitions ......... A-1
iii
<PAGE> 5
SUMMARY OF TERMS
The following summary highlights selected information about the notes and may
not contain all of the information that you find important in making your
investment decision. This prospectus supplement and the accompanying prospectus
contain more detailed terms about the notes being offered to you, as well as
selected business information and financial data. You are strongly encouraged to
read this entire prospectus supplement and the accompanying prospectus before
deciding whether to purchase any of the notes.
THE DEPOSITOR
Student Loan Funding Riverfront LLC
THE ISSUER
Student Loan Funding 1999-A/B Trust
THE SERVICER
Student Loan Funding Resources, Inc., as master servicer, will arrange for the
servicing of the financed student loans under a master servicing agreement. The
master servicer will arrange for one or more other institutions to service the
financed student loans on a day to day basis.
The servicers expected to service the financed student loans are:
- - AFSA Data Corporation
- - Great Lakes Higher Education Loan Servicing Corporation
- - InTuition, Inc.
- - Kentucky Higher Education Student Loan Corporation
- - Pennsylvania Higher Education Assistance Authority
- - UNIPAC Service Corporation
- - USA Group Loan Services, Inc.
THE TRUSTEES
- - Firstar Bank, National Association, a national banking association, is the
eligible lender trustee. One or more additional eligible lender trustees
may be added or substituted for Firstar Bank, National Association from
time to time.
- - First Union Trust Company, National Association is the owner trustee for
purposes of the trust's beneficial ownership of the financed student
loans.
- - Firstar Bank, National Association is the co-owner trustee for purposes of
the trust's beneficial ownership of the financed student loans.
S-1
<PAGE> 6
- - Firstar Bank, National Association is the indenture trustee.
ISSUE DATE
Issuance of the notes is scheduled for _________, 1999.
INTEREST
We will pay you interest on the notes as described below from available funds.
<TABLE>
<CAPTION>
PAYMENT DATE INTEREST RATE MAXIMUM RATE
<S> <C> <C> <C>
SERIES 1999A-1 NOTES Last business day of each One month LIBOR plus ____% Lesser of 18% or net loan
month rate
One month LIBOR plus ____%
SERIES 1999A-2 NOTES Last business day of each Lesser of 18% or net loan
month Three month LIBOR plus rate
____%
SERIES 1999B-1 NOTES Last business day of each Lesser of 18% or net loan
quarter rate
</TABLE>
EXAMPLE: On ____________, 1999, LIBOR was ____% and the interest rate on the
Series 1999A-1 Notes for the period ____________ to ____________ would have been
____________%.
The net loan rate is an annualized percentage rate and for each interest period
equals the weighted average interest rate of the student loans as of the first
day of the applicable collection period, minus the program operating expenses.
Program operating expenses mean all reasonable and proper expenses, including
operating expenses incurred or to be incurred in connection with the program of
financing the financed student loans under the indenture.
PRINCIPAL
We will pay principal on the notes as described below from available funds:
S-2
<PAGE> 7
<TABLE>
<CAPTION>
PAYMENT DATE PRIORITY OF PAYMENT AMOUNT OF PAYMENT
<S> <C> <C> <C>
SERIES 1999A-1 NOTES Last business day of each Equal to the reduction in
month the student loan
principal balance
SERIES 1999A-2 NOTES Last business day of each After the Series 1999A-1 Equal to the reduction in
month Notes are paid the student loan
principal balance
SERIES 1999B-1 NOTES Last business day of each After the Series 1999A-1 Equal to the reduction in
quarter Notes and the Series the student loan
1999A-2 Notes are paid principal balance
</TABLE>
The amount of any payment also may include parity percentage payments and
make-up of shortfalls in prior payments of principal.
FINAL MATURITY
The final payment of principal and interest will be made no later than
__________ on the Series 1999A-1 Notes, no later than __________ on the Series
1999A-2 Notes and no later than __________ on the Series 1999B-1 Notes. For
several reasons, the actual maturity of each series is expected to occur sooner.
SUBORDINATION
The Series 1999B-1 Notes and any exchange counterparties under an interest rate
exchange agreement relating to the Series 1999B-1 Notes are subordinated to the
Series 1999A Notes and any exchange counterparties under an interest rate
exchange agreement relating to the Series 1999A Notes.
As long as any Series 1999A Notes are outstanding, no principal will be paid on
the Series 1999B-1 Notes.
Payments of interest on the Series 1999B-1 Notes and any interest rate exchange
payments relating to the Series 1999B-1 Notes on any quarterly payment date will
be made only after payment of interest on and any interest rate exchange
payments relating to the Series 1999A Notes have been made. In some
circumstances, payment of interest on and any interest rate exchange payments
relating to the Series 1999B-1 Notes may be deferred. As long as any Series
1999A Notes remain outstanding, any shortfall or deferral in the payment will
not constitute an event of default under the indenture unless the shortfall or
deferral exists on the maturity date for the Series 1999B-1 Notes.
PRIORITY OF PAYMENTS
On each monthly payment date, until the Series 1999A Notes are paid, and then on
each quarterly payment date, we will apply funds available after paying expenses
in the following priority:
- - FIRST, to pay interest on the Series 1999A Notes and to pay any related
interest rate exchange payment, including any early termination payment
resulting from a default by the issuer;
S-3
<PAGE> 8
- - SECOND, prior to the payment of principal balance on the Series 1999A
Notes, on each monthly distribution date that is not also a quarterly
distribution date for the Series 1999B-1 Notes, to set aside one-third of
the interest due on the Series 1999B-1 Notes on the next quarterly
distribution date plus one-third of any related interest rate exchange
payment; and, and after taking into account amounts set aside, to pay
interest on the Series 1999B-1 Notes on each quarterly payment date and to
pay any related interest rate exchange payment, including any early
termination payment resulting from a default by the issuer,
- - THIRD, to pay principal on the Series 1999A-1 Notes on each monthly
payment date;
- - FOURTH, after the principal balance of the Series 1999A-1 Notes has been
paid, to pay principal on the Series 1999A-2 Notes on each monthly payment
date;
- - FIFTH, after the principal balance of each of the Series 1999A-1 Notes and
the Series 1999A-2 Notes has been paid, to pay principal on the Series
1999B-1 Notes on each quarterly payment date;
- - SIXTH, to the reserve fund the amount, if any, necessary to maintain the
specified reserve fund balance;
- - SEVENTH, if the parity percentage is not at least ___%, to pay principal
until the parity percentage equals ___%:
- first, on the Series 1999A-1 Notes until the principal balance
is paid,
- then, on the Series 1999A-2 Notes until the principal balance
is paid, and
- then on the Series 1999B-1 Notes;
- - EIGHTH, to pay carryover interest, if any:
- first, ratably on the Series 1999A Notes, and
- then on the Series 1999B-1 Notes;
- - NINTH, to pay the amount, if any, owed an exchange counterparty in respect
of an early termination payment resulting from any event other than a
default by the issuer; and
- - TENTH, we will transfer any remainder to the excess surplus account
established under the indenture.
The above payment order will be modified if, after giving effect to the payments
on any payment date, either:
- the aggregate principal amount of the Series 1999A Notes would
exceed the sum of the principal amount of the financed student
loans (including capitalized interest) plus accruals of special
allowance payments and interest subsidies payable with respect
to the financed student loans as of the end of the preceding
monthly collection period, plus the balance of the reserve fund
as of the computation date,
- a payment event of default has occurred under the indenture, but
prior to the acceleration of maturity of the notes.
S-4
<PAGE> 9
As long as either of these conditions exist, the Series 1999B-1 Notes will not
receive any payments of interest or principal nor will any amount be set aside
to pay interest on the Series 1999B-1 Notes or any related interest exchange
payment on any monthly payment date that is not also a quarterly payment date.
As long as any Series 1999A Notes remain outstanding, any deferral of payments
on the Series 1999B-1 Notes will not constitute an event of default under the
indenture unless the deferral exists on the maturity date for the Series 1999B-1
Notes. Where an event of default has occurred, we will allocate pro rata,
without preference or priority of any kind, principal distributions to all
Series 1999A Notes.
SECURITY FOR THE NOTES; TRUST ASSETS
The trust assets are the sole security for the notes. The primary assets of the
trust are student loans with an aggregate principal balance of $_________ as of
________, 1999. The student loans are expected to be acquired by the eligible
lender trustee on behalf of the trust on or about _______________, 1999. The
student loans consist of education loans to students and parents of students
enrolled in accredited institutions of higher education.
The trust assets also include:
- moneys and investment securities on deposit in funds and accounts
established under the indenture;
- rights of the issuer and the eligible lender trustee under the
master servicing agreement, the servicing agreements, any interest
rate exchange agreement, any interest rate exchange counterparty
guarantee, the student loan purchase agreements and the guarantee
agreements that relate to the financed student loans; and
- rights of the issuer and the eligible lender trustee under other
related contracts.
All of the student loans in the trust are FFELP loans. As of _________, no more
than ___% of the student loans in the trust are more than 30 and not more than
120 days delinquent, and none of the student loans in the trust are more than
120 days delinquent.
The issuer may substitute additional student loans for those comprising the
initial pool of student loans under some circumstances, including the
substitution of student loans with similar characteristics.
RESERVE FUND
The indenture trustee will make an initial deposit of $________ from the
proceeds of the sale of the notes into a reserve fund for the notes. This amount
is the reserve fund's specified reserve fund balance. To the extent necessary,
the initial deposit will be supplemented on each payment date with all amounts
remaining after making all required prior distributions on that payment date
until the specified reserve fund balance is attained.
REDEMPTION
AUCTION OF THE FINANCED STUDENT LOANS
On or after __________, 20__, if the principal balance of the financed student
loans (including capitalized interest) is equal to or less than 10% of the
initial principal amount of the student loans in the trust as of ____________,
1999, the indenture trustee will offer the student loans for sale according to
the procedures described in this prospectus supplement.
S-5
<PAGE> 10
OPTIONAL REDEMPTION
When the principal balance of the financed student loans, including capitalized
interest, equals ____% or less of the initial principal balance of the student
loans, the depositor may purchase the financed student loans for a price equal
to their principal balance, plus all accrued interest and unamortized premiums.
However, in any case, the depositor will not pay less than an amount necessary
to pay transaction costs and all amounts due to all holders of the notes and to
exchange counterparties, if any, including interest for prior periods when the
applicable interest rate was capped by the net loan rate. This optional purchase
of the student loans will result in the redemption of all outstanding notes.
ERISA CONSIDERATIONS
The notes are expected to be treated as debt obligations without significant
equity features for purposes of the regulations of the Department of Labor set
forth in 29 C.F.R. 2510.3-101.
REGISTRATION, CLEARING AND SETTLEMENT
You will hold your interest in the notes through DTC in the United States or
through Cedel Bank, societe anonyme or the Euroclear System in Europe. You will
not receive a definitive certificate representing your interest in the notes,
except in limited circumstances.
The notes will be offered in minimum denominations of $1,000 and integral
multiples of $1,000.
RATING
It is a condition to the issuance and sale of the notes that they be rated by
the following rating agencies as follows:
Fitch Moody's
----- -------
Series 1999A-1 Notes
Series 1999A-2 Notes
Series 1999B-1 Notes
S-6
<PAGE> 11
RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
the notes.
YOU MAY HAVE DIFFICULTY SELLING YOUR NOTES
The notes will not be listed on any securities exchange. As a result, if you
want to sell your notes you must locate a purchaser that is willing to purchase
those notes. The underwriters intend to make a secondary market for the notes.
The underwriters will do so by offering to buy the notes from investors that
wish to sell. However, the underwriters will not be obligated to make offers to
buy the notes and may stop making offers at any time. In addition, any prices
offered may not reflect prices that other potential purchasers would be willing
to pay, were they to be given the opportunity. There have been times in the past
where there have been very few buyers of asset backed securities like the notes
and there may be times in the future. As a result, you may not be able to sell
your notes when you want to do so or you may not be able to obtain the price
that you wish to receive.
IF THE TRUST ASSETS ARE INSUFFICIENT TO MAKE PAYMENTS ON THE NOTES, YOU MAY
INCUR A LOSS
The trust is not permitted to have any significant assets or sources of funds
other than the student loans, the guarantee agreements and the reserve fund. The
notes will not be insured or guaranteed by any entity. Consequently, you must
rely for repayment on payments only from the trust's assets. If the reserve fund
is exhausted, the trust will depend solely on payments with respect to the
student loans to make payments on the notes and you could suffer a loss. You
will have no claim to any amounts properly distributed to the depositor or the
servicers from time to time.
FAILURE BY STUDENT LOAN HOLDERS OR SERVICERS TO COMPLY WITH STUDENT LOAN
ORIGINATION AND SERVICING PROCEDURES COULD ADVERSELY AFFECT THE ABILITY TO PAY
PRINCIPAL AND INTEREST ON YOUR NOTES
The Higher Education Act requires student loan holders and servicers to follow
specified procedures to ensure that the FFELP loans are properly originated and
serviced. Failure to follow these procedures results in:
- LOSS OF REINSURANCE PAYMENTS, INTEREST SUBSIDIES AND SPECIAL
ALLOWANCE PAYMENTS. The Department of Education's refusal to
make reinsurance payments to the guarantee agencies or to
make interest subsidy payments and special allowance
payments to the eligible lender trustee with respect to the
FFELP loans; and
- LOSS OF GUARANTEE PAYMENTS. The guarantee agencies'
inability or refusal to make guarantee payments with respect
to the FFELP loans.
The loss of any payments may adversely affect the ability to pay principal and
interest on your notes.
S-7
<PAGE> 12
THE SUBORDINATE NOTES WILL ABSORB CASH SHORTFALLS AND LOSSES BEFORE THE SENIOR
NOTES
The rights of the holders of subordinate notes to receive payments of interest
are subordinated to the rights of the holders of senior notes to receive
payments of interest. The holders of subordinate notes will not receive any
payments of principal until the senior notes are paid. Consequently, amounts
available to cover cash shortfalls will be applied to the payment of interest on
the senior notes before payment of interest on the subordinate notes. In
addition, if the pool of student loans is liquidated because of an event of
default under the indenture or the depositor's insolvency, all amounts due on
the senior notes will be payable before any amounts are payable on the
subordinate notes. Additionally, if the outstanding principal balance of the
senior notes is in excess of the assets of the trust, principal will be payable
to the holders of the senior notes in the amount of the excess to the extent of
funds available before any amounts are payable to the holders of the subordinate
notes. If amounts otherwise allocable to the subordinate notes are used to fund
payments of interest or principal on the senior notes, distributions of
principal and interest on the subordinate notes may be delayed or reduced.
OFFSET BY GUARANTEE AGENCIES OR A REDUCTION IN THE AMOUNT OF AVAILABLE FUNDS BY
THE DEPARTMENT OF EDUCATION COULD ADVERSELY AFFECT THE ABILITY TO PAY PRINCIPAL
AND INTEREST ON YOUR NOTES
If the Department of Education or a guarantee agency determines that the
eligible lender trustee owes a liability to the Department of Education or the
guarantee agency on any FFELP loan for which the eligible lender trustee is or
was legal titleholder, including FFELP loans held under your indenture or other
indentures, the Department of Education or the guarantee agency might seek to
collect that liability by offsetting against payments due the eligible lender
trustee under the trust. The offsetting or shortfall of payments due to the
eligible lender trustee with respect to the trust could adversely affect the
amount of available funds for any collection period and the trust's ability to
pay interest and principal on your notes. Indentures of the depositor, the
administrator and their affiliates prior to September, 1998 do not contain
provisions for cross-indemnification with respect to payments and offsets. The
indenture for your notes and other indentures of the depositor, the
administrator and their affiliates entered into during or after September, 1998
contain the cross-indemnification provisions. Although these indentures will
include these provisions, there can be no assurance that the amount of funds
available to the trust with respect to the right of indemnification will be
adequate to compensate the trust and you for any previous reduction in the
available funds for a collection period. Also, the fact that prior indentures
did not contain these provisions could adversely affect the amount of available
funds for any collection period to the extent any shortfall or offset affects
the trust and the trust cannot be adequately compensated.
S-8
<PAGE> 13
A DECLINE IN THE FINANCIAL HEALTH OF GUARANTEE AGENCIES COULD ADVERSELY AFFECT
THE ABILITY TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES
The FFELP loans are not secured by any collateral of the borrowers. Payments of
principal and interest are guaranteed by guarantee agencies to the extent
described in this prospectus supplement and in the prospectus. Excessive
borrower defaults could impair a guarantee agency's ability to meet its
guarantee obligations. In addition, recently enacted legislation is expected to
reduce the guarantee agencies' reserves under the FFEL Program. The financial
health of a guarantee agency could affect the timing and amount of available
funds for any collection period and the ability to pay principal of and interest
on your notes. Although a holder of FFELP loans could submit claims for payment
directly to the Department of Education if the Department determines that a
guarantee agency is unable to meet its guarantee obligations, there is no
assurance that the Department of Education would ever make that determination or
that it would pay claims in a timely manner. In its capacity as holder of FFELP
loans, the eligible lender trustee may receive claim payments directly from the
Department of Education under Section 432(o) of the Higher Education Act if that
determination is made.
POTENTIAL ADVERSE CHANGES TO FFEL PROGRAM COULD ADVERSELY AFFECT THE ABILITY TO
PAY PRINCIPAL AND INTEREST ON YOUR NOTES
The Higher Education Act and other relevant federal or state laws may be amended
or modified in the future. In particular, the level of guarantee payments may be
adjusted from time to time which may affect the ability to pay principal and
interest on your notes. The issuer cannot predict whether any changes will be
adopted or, if adopted, what impact the changes may have on the trust or your
notes.
A DECLINE IN THE FINANCIAL HEALTH OF ANY EXCHANGE COUNTERPARTY OR ANY PROVIDER
OF AN EXCHANGE COUNTERPARTY GUARANTEE COULD REDUCE THE AMOUNT OF AVAILABLE FUNDS
TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES
If any interest rate exchange agreement relating to the notes is executed, any
time that the exchange rate being paid by an exchange counterparty is greater
than the exchange rate being paid by the issuer, the indenture trustee's ability
to make principal and interest payments on your notes will be affected by the
exchange counterparty's ability or the ability of any provider of an exchange
counterparty guarantee to meet its net payment obligation to the indenture
trustee. In addition, under some circumstances, the failure by the issuer to
make an exchange payment under an interest rate exchange agreement may
constitute an event of default under the indenture.
INCREASED COMPETITION FROM THE FEDERAL DIRECT STUDENT LOAN PROGRAM COULD
ADVERSELY AFFECT THE ABILITY TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES
The Federal Direct Student Loan Program has been established under the Higher
Education Act. This program has resulted and could continue to result in
reductions in the volume of loans made under the FFEL Program. If so, the
depositor, the administrator, the master servicer and the servicers may
experience increased costs due to reduced economies of scale. These cost
increases could reduce the ability of the master servicer or the servicers to
satisfy their obligations to service the student loans. This could also reduce
revenues received by the guarantee agencies available to pay claims on defaulted
FFELP loans. The competition currently existing in the secondary market for
loans made under the FFEL Program could be reduced, resulting in fewer potential
buyers of the FFELP loans and lower
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prices available in the secondary market for those loans. The Department of
Education also has implemented a direct consolidation loan program, which may
reduce the volume of loans made under the FFEL Program and is expected to result
in prepayments of student loans.
PREPAYMENTS BY BORROWERS MAY CREATE REINVESTMENT RISK
Student loans may be prepaid by borrowers at any time without penalty. The rate
of prepayments cannot be predicted and may be influenced by economic and other
factors, such as interest rates, the availability of other financing and the
general job market.
To the extent that borrowers elect to borrow money through consolidation loans,
the trust will receive as a prepayment of principal the aggregate principal
amount of the loan.
If loan prepayments result in a series of notes being prepaid before its
expected maturity date, you may not be able to reinvest your funds at the same
yield as the yield on the notes. The issuer cannot predict the prepayment rate
of any notes, and reinvestment risks resulting from a faster or slower
prepayment speed will be borne entirely by you and the other holders of the
notes. Generally, the effect of prepayments initially will be to increase the
rate of payment on each series of notes on which interest is then being paid.
Reinvestment risk resulting from prepayments is expected to be borne first by
the holders of any senior series of notes, and then by the holders of
subordinated series of notes.
UNCERTAINTY OF THE MATURITY OF YOUR INVESTMENT MAY CREATE REINVESTMENT RISK
Scheduled payments on the student loans and the maturities of the student loans
may be extended without your consent, which may lengthen the weighted average
life of your investment. Prepayments of principal on the student loans, parity
percentage payments and other factors may shorten the life of your investment
which may result in reinvestment risk to you.
BORROWERS OF STUDENT LOANS ARE SUBJECT TO A VARIETY OF FACTORS THAT MAY
ADVERSELY AFFECT THEIR REPAYMENT ABILITY
Collections on the student loans during a collection period may vary greatly in
both timing and amount from the payments actually due on the student loan for
that collection period for a variety of economic, social and other factors.
Failures by borrowers to pay timely the principal and interest on their student
loans or an increase in deferments or forbearances could affect the timing and
amount of available funds for any collection period and the ability to pay
principal and interest on your notes. The effect of these factors, including the
effect on the timing and amount of available funds for any collection period and
the ability to pay principal and interest on your notes is impossible to
predict.
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THE INTEREST RATES ON THE NOTES ARE SUBJECT TO LIMITATIONS WHICH MAY CREATE AN
INTEREST SHORTFALL ON YOUR NOTES WHICH MAY NOT BE RECOVERED
The interest rate for the Series 1999A Notes will be based on one month LIBOR.
The interest rate for the Series 1999B-1 Notes will be based on three month
LIBOR. The student loans, however, bear interest fixed or variable rates with an
effective rate equal to the rate borne by Treasury bills plus a stated margin.
The interest rates on the notes will be limited by the net loan rate for each
series which will equal the weighted average effective interest rate of the
student loans in the trust, reduced by the program operating expenses. For a
payment date on which the net loan rate applies, the difference between the
amount of interest at the rate described above and the amount of interest at the
net loan rate will be paid on succeeding payment dates to the extent of
available funds and may never be paid.
THE INTEREST RATES ON STUDENT LOANS AND OTHER INVESTMENTS MAY BE INSUFFICIENT TO
COVER INTEREST ON THE NOTES DUE TO RATE-INDEX DIFFERENCES
The interest rates on your notes are variable and will fluctuate from one
interest period to another in response to changes in benchmark rates or general
market conditions. The issuer can make no representation as to what these rates
may be in the future. As described above, the interest rates on the Series 1999A
Notes will be based on one month LIBOR and the interest rates on the Series
1999B-1 Notes will be based on three month LIBOR. The student loans, however,
bear interest at fixed or variable rates with an effective rate (taking into
account any special allowance payments) equal to the rate borne by Treasury
bills plus a stated margin.
As a result of these differences between the fixed interest rate on some of the
financed student loans and the variable interest rates on the notes and between
the indices used to determine the interest rates on some of the financed student
loans and the interest rates on the notes, there could be periods of time when
the interest rates on student loans are inadequate to cover the interest due on
the notes and expenses required under the indenture. To the extent that the
interest rates on student loans are fixed or decrease or do not increase as fast
as the interest rates on the notes, the interest rates with respect to those
notes may be limited to the net loan rate or may be deferred to future periods.
There can be no assurance that sufficient funds will be available in future
periods to make up for any shortfalls in the current payments of interest on
those notes. Further, if there is a decline in the interest rates on student
loans, the amount of funds representing interest deposited into the trust may be
reduced and, even if there is a similar reduction in the interest rates
applicable to any series of notes, there may not necessarily be a similar
reduction in the other amounts required to be funded out of these funds (such as
some administrative expenses). In addition, proceeds of and revenues relating to
the notes in the funds and accounts under the indenture will be used to acquire
investment agreements bearing interest at fluctuating interest rates. Although
the issuer expects to structure the investment agreements to minimize the risk
resulting from differences in the fluctuation of the interest rates on the
investment agreements and your notes, there can be no assurance that it will be
successful.
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THE TRUST'S PURCHASE OF STUDENT LOANS AT A PREMIUM MAY RESULT IN LOSSES
The original principal amount of the notes will be equal to approximately
______% of the sum of the outstanding principal balance of the student loans as
of the cutoff date and the amount deposited in the reserve fund and the
collection account on the closing date. We cannot assure you as to when the
aggregate principal amount of the notes will be equal to or less than the sum of
the principal amount of the pool of student loans and the amounts on deposit in
the reserve fund. If the student loans were liquidated at a time when the
outstanding principal amount of the notes exceeded the sum of the principal
amount of the student loans and the amount on deposit in the reserve fund and
the collection account, you may suffer a loss.
IF THE INDENTURE TRUSTEE HAS DIFFICULTY LIQUIDATING FINANCED STUDENT LOANS YOU
MAY SUFFER A LOSS
Generally, during an event of default, the indenture trustee is authorized to
sell the financed student loans. However, the indenture trustee may not find a
purchaser for the financed student loans. Also, the market value of the financed
student loans might not equal the principal amount of notes plus accrued
interest. In either event, you may suffer a loss.
THE INSUFFICIENCY OF FUNDS FOR PRINCIPAL DISTRIBUTIONS IS NOT AN EVENT OF
DEFAULT AND YOU WOULD NOT HAVE ANY REMEDIES
The principal amount required to be paid on the notes on any payment date under
the indenture generally is limited to amounts available for payment. Therefore,
failure to pay principal will not result in the occurrence of an event of
default until the legal final maturity of the notes.
BANKRUPTCY OF DEPOSITOR, ISSUER OR STUDENT LOAN FUNDING RESOURCES, INC. COULD
RESULT IN ACCELERATED PREPAYMENT ON NOTES, REDUCTIONS IN PAYMENT OR DELAYS IN
PAYMENT
If the depositor becomes bankrupt, and the assets and liabilities of the trust
are included in the depositor's bankruptcy estate, the United States Bankruptcy
Code could materially limit or prevent the enforcement of the issuer's
obligations, including, without limitation, its obligations under the notes. The
depositor's trustee in bankruptcy (or the depositor itself as
debtor-in-possession) may seek to accelerate payment on your notes and liquidate
the assets in the trust. If principal on your notes is declared due and payable,
you may lose the right to future payments and face the reinvestment risks
mentioned above.
The depositor has structured the issuer as a common law trust under Delaware
law, as opposed to a business trust. Business trusts generally are eligible for
relief under the United States Bankruptcy Code. If a court were to conclude that
the issuer was a business trust and, therefore, eligible to be a debtor under
the United States Bankruptcy Code, a bankruptcy filing by or against the issuer
could result in delays in payments on your notes or reductions in the amounts of
payments.
The depositor is organized to prevent any voluntary or involuntary application
for relief by Student Loan Funding Resources, Inc. under the United States
Bankruptcy Code or other insolvency laws, as the case may be, resulting in the
consolidation of the assets and liabilities of the depositor with those of
Resources.
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If a court were to conclude that the assets and liabilities of the depositor
should be consolidated with those of Resources in a bankruptcy or other
proceeding under any insolvency law, then even a "true sale" to the depositor
would not be effective to remove the student loans and other assets from the
bankruptcy estate of Resources and you could experience delays in payments on
your notes or reductions in the amount of payments.
IF SALE OF STUDENT LOANS FROM THE DEPOSITOR TO THE ISSUER IS NOT A TRUE SALE,
DELAYS OR REDUCTIONS IN PAYMENTS TO YOU COULD RESULT
The depositor has taken steps in structuring its purchase of student loans from
its affiliates to increase the likelihood that each purchase will be deemed a
"true sale."
If any transfer to the depositor of student loans from an affiliate of the
depositor is deemed to be a secured financing, other persons may have an
interest in the loans superior to the interest of the issuer, the depositor or
the eligible lender trustee, as applicable. In addition, if the affiliate became
a debtor under the United States Bankruptcy Code and a creditor or trustee in
bankruptcy or the affiliate itself took the position that its transfer of
student loans to the depositor was a secured financing instead of a "true sale,"
then delays in payments on your notes could occur or (should the court rule in
favor of the creditor, trustee or affiliate) reductions in the amount of
payments to you could result.
In addition, the issuer and the eligible lender trustee will treat the transfer
of the student loans from the depositor to the eligible lender trustee as a
"true sale" and will take all actions that are required so that the issuer, or
the eligible lender trustee on behalf of the issuer, will be treated as the
legal owner of the student loans. Despite our efforts, if the depositor or the
issuer were to become a debtor in a bankruptcy case and a creditor or trustee in
bankruptcy of the debtor or the debtor itself were to take the position that the
transfer should instead be treated as a secured financing, then delays in
payments on the notes could occur. If the court ruled in favor of any trustee,
debtor or creditor, reductions in the amount of payments on the notes could
occur.
CHANGES IN INCENTIVE AND REPAYMENT TERMS RESULT IN YIELD UNCERTAINTIES FOR YOU
Under some incentive programs, the depositor and the sellers of the financed
student loans may terminate or change the terms of the incentives with respect
to any or all of a borrower's loans. The issuer cannot predict which borrowers
will qualify or decide to participate in these programs. The effect of these
incentive programs may be to reduce the yield on the financed student loans.
CONSUMER PROTECTION LAWS MAY INCREASE COSTS AND UNCERTAINTIES OF YOUR INVESTMENT
Consumer protection laws impose substantial requirements on lenders and
servicers. Some state laws impose finance charge ceilings and other restrictions
on some transactions and require contract disclosures. These state laws are
generally preempted by the Higher Education Act for FFELP loans. However, the
form of promissory notes required by the Department of Education for FFELP loans
provides that holders of promissory notes
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evidencing some loans made to borrowers attending for-profit schools are subject
to any claims and legal defenses that the borrower may have against the school.
BOOK-ENTRY REGISTRATION MAY LIMIT INVESTORS' ABILITY TO PARTICIPATE DIRECTLY AS
A HOLDER
The notes will be represented by one or more certificates registered in the name
of Cede & Co., the nominee for DTC, and will not be registered in the names of
the holders of the notes. You will only be able to exercise your rights
indirectly through DTC and its participating organizations.
ABILITY OF MAJORITY HOLDERS TO WAIVE DEFAULTS UNDER THE INDENTURE MAY ADVERSELY
AFFECT YOU
Under the indenture, holders of a majority in principal amount of notes may
amend or supplement provisions of the indenture and the notes and waive
defaults, events of defaults and compliance provisions without the consent of
the other holders. You have no recourse if the majority of holders votes and you
disagree with the majority vote on these matters. The majority of holders may
vote in a manner which impairs the ability to pay principal and interest on your
notes.
The holders of subordinate notes have no voting rights while any senior notes
are outstanding. The holders of subordinate notes have no recourse if the
holders of a majority in principal amount of the senior notes vote and the
subordinate holders disagree. The majority of holders of senior notes may vote
in a manner which impairs the ability to pay principal and interest on the
subordinate notes.
DEPOSITOR MAY NOT HAVE RESOURCES TO MEET ITS OBLIGATIONS TO PURCHASE FINANCED
STUDENT LOANS FOR ITS BREACH OF A REPRESENTATION OR WARRANTY
The depositor is obligated to repurchase student loans if it breaches any of its
representations, warranties or obligations and that breach results in a loss of
guarantee payments. The depositor may not have the financial resources to
repurchase any student loan. The failure of the depositor to repurchase a
student loan is a breach of the transfer and sale agreement, enforceable by the
trust or by the indenture trustee, but is not an event of default under the
indenture.
INABILITY OF SELLER TO MEET ITS REPURCHASE OBLIGATIONS MAY ADVERSELY AFFECT THE
ABILITY TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES
The eligible lender trustee on behalf of the issuer, as the successor to the
depositor under the transfer and sale agreement, has the right, under each
student loan purchase agreement or the transfer and sale agreement, as
applicable, to cause any seller, including the depositor as a seller under the
transfer and sale agreement, to repurchase any student loan in the event of a
breach of the representations, warranties or covenants of the seller with
respect to the student loan. There can be no assurance, however, that any seller
will have the financial resources to do so. The failure of the seller to so
repurchase a student loan would constitute a breach of the related student loan
purchase agreement but would not constitute an event of default under the
indenture.
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PROBLEMS CAUSED BY YEAR 2000 ISSUES COULD RESULT IN REDUCTIONS OR DELAYS IN
PAYMENT WHICH MAY ADVERSELY AFFECT THE ABILITY TO PAY PRINCIPAL AND INTEREST ON
YOUR NOTES
If computer programs and information systems used by the administrator, the
master servicer or third parties on which the issuer depends for its programming
and financial operations or with which it conducts business (including without
limitation, guarantee agencies, the Department of Education, the trustee, the
eligible lender trustee, DTC and others providing services to the master
servicer, the administrator or these parties), are not year 2000 compliant, the
administrator's, the master servicer's and the parties' ability to provide
services required in connection with the administration of the administrator's
student loan program and the payment of the principal of and interest on your
notes may be adversely affected.
PROBLEMS CAUSED BY YEAR 2000 ISSUES WITH THE DEPARTMENT OF EDUCATION COULD
RESULT IN REDUCTIONS OR DELAYS IN PAYMENT WHICH MAY ADVERSELY AFFECT THE ABILITY
TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES
If computer programs and information systems used by the Department of Education
are not year 2000 compliant, the master servicer's, the servicers' and the
guarantee agencies' ability to provide services required in connection with the
administration of student loan programs, the payment of reimbursement payments
to guarantee agencies and of special allowance payments and interest subsidy
payments and the payment of principal and interest on your notes may be
adversely affected.
WITHDRAWAL OR DOWNGRADING OF INITIAL RATINGS WILL ADVERSELY AFFECT THE PRICES
FOR THE NOTES
A security rating is not a recommendation to buy, sell or hold securities.
Similar ratings on different types of securities do not necessarily mean the
same thing. We recommend that you analyze the significance of each rating
independently from any other rating. Any rating agency may change its rating of
the notes after the notes are issued if that rating agency believes that
circumstances have changed. Any subsequent withdrawal or downgrading of a rating
will likely reduce the price that a subsequent purchaser will be willing to pay
for the applicable notes. The ratings do not address the likelihood of the
ultimate payment to you of any interest not paid as a result of the interest
rate being limited by the net loan rate.
THE NOTES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS
The notes are not a suitable investment if you require a regular or predictable
schedule of payments or payment on any specific date. The notes are complex
investments that should be considered only by investors who, either alone or
with their financial, tax and legal advisors, have the expertise to analyze the
prepayment, reinvestment, default and market risk, the tax consequences of an
investment, and the interaction of these factors.
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THE ISSUER
THE TRUST
Student Loan Funding 1999-A/B Trust (known as the issuer or the trust) is a
common law trust that will be formed on or prior to the closing date under the
laws of the State of Delaware. The trust will not engage in any activity other
than:
(1) acquiring, holding, selling and managing the financed student loans
and the other assets of the trust and proceeds from the financed
student loans,
(2) issuing one or more classes of its certificates and notes,
(3) making payments on its certificates and notes, and
(4) engaging in other activities related to the activities listed in (1)
through (3) above.
The trust initially will be capitalized with a nominal cash payment for the
trust certificate. The right to receive any amount remaining after payment of
the notes will be represented by the trust certificate which initially will be
held by the depositor. The equity of the trust, together with the proceeds of
the sale of the notes, will be used by the trust acting on its own behalf or
through an eligible lender trustee, to acquire student loans from the depositor
under a transfer and sale agreement.
The assets of the trust will include:
(1) the pool of financed student loans,
(2) all funds related to the financed student loans collected on or after
the cut-off date, and
(3) all moneys and investments on deposit in the collection account,
capitalized interest account, note payment account, expense account,
reserve fund and excess surplus account.
All of the accounts in (3) above are held in the name of the indenture trustee.
To facilitate servicing and to minimize administrative burden and expense, the
servicers will be appointed custodians of the promissory notes representing the
financed student loans by the eligible lender trustee.
Under the trust agreement, the co-owner trustee, when acting on behalf of the
trust, will not engage in any activity other than:
(1) assigning, granting, transferring, pledging, mortgaging and conveying
the assets of the trust to the indenture trustee for the benefit of
the holders of the notes,
(2) holding, managing and distributing to the holder any portion of the
assets of the trust released from the lien of, and remitted to the
co-owner trustee for the trust,
(3) issuing the certificates and notes of the issuer,
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(4) making payments on the certificates and notes of the issuer, and
(5) engaging in other activities related to the activities listed in (1)
through (4) above.
The depositor has structured the issuer as a common law trust, as opposed to a
business trust. Business trusts generally are eligible for relief under the
United States Bankruptcy Code or other insolvency laws. Common law trusts may
not be eligible to be debtors under the insolvency laws if their activities are
insufficient to allow them to be characterized as business trusts. The depositor
has restricted the activities of the issuer in the trust agreement so that it
would not be characterized as a business trust eligible to be a debtor under the
insolvency laws. If a court were to conclude that the issuer was a business
trust and, therefore, eligible to be a debtor under the insolvency laws, a
bankruptcy filing by or against the issuer could result in delays in payments on
your notes or reductions in the amounts of these payments.
The trust's principal offices are located in the offices of the co-owner
trustee, c/o Firstar Bank, National Association, 425 Walnut Street, Cincinnati,
Ohio 45202.
The notes are obligations of the trust only and are payable solely form the
assets of the trust under the indenture. See "Security for the Notes -- The
Trust Assets" in the prospectus.
CO-OWNER TRUSTEE
Firstar Bank, National Association, a national banking corporation, will serve
as co-owner trustee of the trust. Its address is 425 Walnut Street, Cincinnati,
Ohio 45202. The trust, the depositor, the administrator or their affiliates may
maintain other banking relationships with Firstar Bank, National Association and
its affiliates from time to time.
OWNER TRUSTEE
First Union Trust Company, National Association, a national banking corporation,
will serve as owner trustee of the trust. Its address is One Rodney Square,
Suite 100, 920 King Street, Wilmington, Delaware 19801. The trust, the
depositor, the administrator or their affiliates may maintain other banking
relationships with First Union Trust Company, and its affiliates from time to
time.
YEAR 2000
For information describing the trust's, the depositor's and the administrator's
readiness for year 2000, see "The Depositor -- Year 2000."
THE DEPOSITOR
Student Loan Funding Riverfront LLC, a Delaware limited liability company
organized as a bankruptcy remote special purpose entity, is the depositor. The
sole member of the depositor is Student Loan Funding Holdings LLC, a Delaware
limited liability corporation. The members of Student Loan Funding Holdings LLC
are:
(1) Student Loan Funding Resources, Inc. (99% ownership), an Ohio
corporation that also acts as the administrator for the depositor's
business activities and the master servicer, and
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(2) SLF Enterprises, Inc. (1% ownership), an Ohio corporation and wholly
owned subsidiary of Resources.
YEAR 2000
The "year 2000" issue refers to a wide variety of potential computer program and
electronic processing and functionality issues that may arise from the inability
to properly process date-sensitive information relating to the year 2000, later
years and to a lesser degree, the year 1999. As a result of computer programs
and other electronic devices historically being programmed using two digits
rather than four to define the applicable year, time-sensitive software may not
properly recognize a year that begins with "20" instead of the familiar "19,"
which could result in system failure or miscalculations. The inability or
failure to adequately address year 2000 issues by any of the parties below
(including by any party on which any of the parties rely) could have a material
adverse impact on the timely receipt and amount of collections on the financed
student loans. If the collections were to be so affected, the timing and amount
of payments on the notes could be adversely affected.
The issuer and the depositor are wholly dependent on the administrator's
information systems. The administrator has conducted a review of its own
information systems and has completed all critical modifications to those
systems. Minor system refinements will continue throughout the remainder of
1999. The administrator has also developed high level contingency plans for its
mission-critical applications and will refine these plans in 1999. It is not
clear whether adequate contingency plans can be developed for all possible
problems.
The administrator does not expect the cost of its year 2000 efforts to
materially adversely impact its student loan program or the timely payment of
the notes. The administrator spent approximately $43,000 in 1998 and expects to
spend an additional $40,000 in 1999 on year 2000 efforts. However, if the
administrator's actual costs or timing for its own year 2000 remediation efforts
differ from its present estimates, or if there are unexpected increases in the
cost of its student loan program operation due to year 2000 issues, then the
student loan program could be adversely affected, and the timing and amount of
payments on the notes could be adversely affected.
The administrator has made inquiries of the indenture trustee, the eligible
lender trustee, each of the servicers and each of the guarantee agencies that
guarantee more than 10% of the initial financed student loans, and each of these
parties has confirmed to the administrator that it is reviewing its own
information systems and is taking the necessary steps to make any necessary
modifications to those systems.
The administrator made follow-up inquiries to material servicers to reasonably
assure the adequacy of year 2000 testing and contingency plans. The
administrator visited key servicers as necessary to review these test plans,
test results and contingency plans. There can be no assurance that the computer
systems of these entities or other companies on which:
- the issuer,
- the depositor,
- the administrator,
- the master servicer,
- owner trustee
- co-owner trustee
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- the indenture trustee,
- the eligible lender trustee,
- any servicer, or
- any guarantee agency
relies will be compliant on a timely basis, or that a failure to resolve year
2000 issues by any of these parties or another party on which any of these
parties rely, or a remediation or conversion that is incompatible with the
administrator's, the master servicer's, indenture trustee's, eligible lender
trustee's, any guarantee agency's or any servicer's computer systems, will not
have a material adverse effect on the issuer, the depositor, the administrator,
the indenture trustee, the eligible lender trustee, a guarantee agency or a
servicer.
Also, to the extent any additional eligible lender trustee, guarantee agency or
servicer is added for financed student loans in the trust, or a replacement or
successor to the initial indenture trustee is necessary, the relative state of
preparedness or unpreparedness of these entities with regard to year 2000 issues
may have an adverse impact on the issuer, the depositor or the administrator and
the timing and amount of payments on the notes. The administrator will continue
to monitor the progress of the master servicer, the indenture trustee, the
eligible lender trustee, each of the servicers and each of the guarantee
agencies in addressing their respective year 2000 issues. For information
regarding the efforts of DTC in addressing year 2000 issues, see "Description of
the Notes -- Book-entry Registration."
The administrator maintains other material third party vendor relationships with
human resources, finance and facilities providers. The administrator made
inquiries of those vendors whose failure of year 2000 readiness would constitute
a potential material impact on its business. These inquiries have confirmed that
the administrator's vendors have taken, or are taking reasonable necessary steps
toward resolution of year 2000 issues, if any, which may materially affect the
administrator. The administrator will continue to monitor the process of third
party vendors and has developed or is developing reasonable contingency plans to
address any material year 2000 failures or deficiencies.
The administrator has also made inquiries to the Department of Education, and
the Department of Education has confirmed to the administrator that it is
reviewing its own information systems and is taking the necessary steps to make
any necessary modifications to those systems. The Department of Education has
undertaken a year 2000 compliance project to address year 2000 issues.
Information regarding the Department of Education's year 2000 efforts can be
obtained at the Department of Education's site on the world wide web at
http://www.ed.gov. This website indicates that the Department of Education has
completed the five phases recommended by the General Accounting office for all
its mission critical systems. In addition, the Department of Education's Year
2000 Progress Report Card has been upgraded to a grade of "A-" by the U.S. House
of Representatives Committee on Government Reform and Oversight. Any failure by
the Department of Education to resolve any year 2000 issues or any adverse
effect on the Department of Education caused by a party on which the Department
of Education relies as a result of year 2000 issues may have a material adverse
effect on the FFEL Program and the timely receipt of payments on financed FFELP
loans, such as interest subsidy payments and special allowance payments.
Even if the depositor or the administrator does not incur significant direct
costs in modifying its own information systems, there can be no assurance that
the failure or delay of the indenture trustee, any eligible lender trustee, any
servicer, any guarantee agency, the Department of Education or any other third
parties (including any party on which any of these parties rely or any
calculation agent, exchange counterparty,
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investment agreement provider or provider of credit enhancement under the
indenture or any other indenture of the depositor) in addressing year 2000
issues or the costs involved in this process will not have a material adverse
impact on the timely receipt and amount of collections on the financed student
loans. If the collections were to be so affected, the timing and amounts of
payments on the notes could be adversely affected.
USE OF PROCEEDS
The proceeds of the sale of the notes, net of underwriters' discount of
$____________ (____%) of gross proceeds), will be transferred to the indenture
trustee for deposit to the credit of the following funds and accounts in the
following estimated amounts:
Percentage of
Fund or Account Amount Net Proceeds
--------------- ----------- ------------
Acquisition Fund $ %
Reserve Fund %
Collection Account %
Capitalized Interest Account %
Expense Account %
Total Uses $ 100%
THE FINANCED STUDENT LOANS
This section sets forth tables and other information describing some
characteristics, as of __________, of the financed student loans expected to be
acquired by the eligible lender trustee on behalf of the trust on or about
____________________, 1999. The financed student loans will be FFELP loans that
meet several criteria, including the following. Each financed student loan:
(1) was or will be originated in the United States or its territories or
possessions under the FFEL Program to or on behalf of a student who
has graduated or is expected to graduate from an accredited
institution of higher education within the meaning of the Higher
Education Act;
(2) bears interest at the maximum interest rate permitted under the Higher
Education Act, or the lesser rate of interest as is approved by the
rating agencies under the indenture;
(3) contains terms required by the FFEL Program, the guarantee agreements
and other applicable requirements; and
(4) is not more than 120 days past due as of the date the financed student
loan is financed.
As of the cut-off date:
(1) $________ principal amount of the initial financed student loans were
delinquent for up to 30 days;
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<PAGE> 25
(2) $________ principal amount of the initial financed student loans were
delinquent between 31 and 60 days;
(3) $________ principal amount of the initial financed student loans were
delinquent between 61 and 90 days;
(4) $________ principal amount of the initial financed student loans were
delinquent between 91 and 120 days; and
(5) none of the initial financed student loans was delinquent for more
than 120 days.
For this purpose, delinquency refers to the number of days for which any part of
a payment is past due. All of the financed student loans in the trust are FFELP
loans.
Each financed student loan is required to be guaranteed as to principal and
interest by a guarantee agency and reinsured by the Department of Education to
the extent provided under the Higher Education Act and eligible for special
allowance payments and, with respect to each financed student loan that is a
subsidized Stafford Loan, interest subsidy payments paid by the Department of
Education. See "Description of the FFEL Program" in the prospectus.
Additional student loans may be substituted for financed student loans in the
trust if the additional student loans meet specific characteristics including:
- an aggregate principal amount no less than the aggregate principal
amount of the financed student loans being exchanged,
- the same rates of interest,
- eligible, after exchange, for the same special allowance payments, and
- the same status, whether interim, grace or repayment.
The aggregate characteristics of the financed student loans include the
composition of the financed student loans, the borrowers of the financed student
loans and the distribution by interest and by principal balance described by the
tables below.
Each of the financed student loans provides for the amortization of the
outstanding principal balance of that financed student loan over a series of
regular payments. Each regular payment consists of an installment of interest.
The interest installment is calculated on the basis of the outstanding principal
balance of that financed student loan multiplied by the applicable interest rate
and further multiplied by the period elapsed since the preceding payment of
interest was made. As payments are received in respect of that financed student
loan, the amount received is applied first to outstanding late fees, if
collected, then to interest accrued to the date of payment, and the balance is
applied to reduce the unpaid principal balance. Accordingly, if a borrower pays
a regular installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made, will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if a borrower pays a monthly installment
after its
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<PAGE> 26
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly less. In
either case, subject to any applicable grace periods, deferment periods or
forbearance periods, the borrower pays 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 the borrower's financed student loan.
The tables below describe characteristics of the initial financed student loans
as of the cut-off date.
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF DATE
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance .............................................. $
Aggregate Outstanding Accrued Interest ...............................................
Number of Borrowers ..................................................................
Average Outstanding Principal Balance Per Borrower ...................................
Number of Loans ......................................................................
Average Outstanding Principal Balance Per Loan .......................................
Weighted Average Annual Borrower Interest Rate .......................................
Weighted Average Remaining Term (months) (does not include the months ................
remaining for the in-school, grace, deferment or forbearance periods)(1) ..........
Weighted Average Remaining Term (months) (including the months .......................
remaining for the in-school, grace, deferment or forbearance periods)(1) ..........
</TABLE>
- ---------------
(1)Refers to the payment status of the borrower of each financed student loan as
of the cut-off date, i.e., the borrower may still be attending school, may be in
a grace period after completing school and prior to repayment commencing, may be
currently required to repay the loan or may have temporarily ceased repaying the
loan through a deferral or a forbearance period. See "Description of the FFEL
Program" in the prospectus.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY LOAN TYPE AS OF THE
CUT-OFF DATE
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Loan Type Loans Balance Balance
- --------- ---------- ------------ ----------
Stafford-Subsidized ..........
Stafford-Unsubsidized ........
Consolidation ................
PLUS .........................
SLS ..........................
Total ...................
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<PAGE> 27
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY MINIMUM GUARANTEE
LEVEL AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Minimum Guarantee Level Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100% ......................................
FFELP Loan Guaranteed 98% .......................................
FFELP Loan Guaranteed 95% .......................................
Total ......................................................
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY AS
OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Guarantee Agency Loans Balance Balance
- ---------------- ---------- ------------ ----------
<S> <C> <C> <C>
Florida Department of Education, Office of Student Financial ....
Assistance ..................................................
Great Lakes Higher Education Guaranty Corporation ...............
USA Group, Inc. .................................................
Other Guarantee Agencies(1) .....................................
Total ......................................................
</TABLE>
(1) Outstanding principal balance guaranteed by each other guarantee agency
amounts to less than ____% of loans by outstanding principal balance.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER INTEREST
RATE AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Interest Rate (1) Loans Balance Balance
- ----------------- ---------- ------------- -----------
<S> <C> <C> <C>
Less than 7.50% .................................................
7.50% to 7.99% ..................................................
8.00% to 8.49% ..................................................
8.50% to 8.99% ..................................................
9.00% to 9.49% ..................................................
9.50% or greater ................................................
Total ......................................................
</TABLE>
(1) Determined using the interest rates applicable to the initial financed
student loans as of the cut-off date. However, because some of the initial
financed student loans bear interest at variable rates per annum, the existing
interest rates are not indicative of future interest rates on the financed
student loans. See "Description of the FFEL Program" in the prospectus.
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<PAGE> 28
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY RANGE OF OUTSTANDING
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Principal Balance Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than $1,000 ................................................
$1,000-$1,999 ...................................................
$2,000-$2,999 ...................................................
$3,000-$3,999 ...................................................
$4,000-$4,999 ...................................................
$5,000-$5,999 ...................................................
$6,000-$6,999 ...................................................
$7,000-$7,999 ...................................................
$8,000-$8,999 ...................................................
$9,000-$9,999 ...................................................
$10,000-$10,999 .................................................
$11,000-$11,999 .................................................
$12,000-$12,999 .................................................
$13,000-$13,999 .................................................
$14,000-$14,999 .................................................
$15,000 or greater ..............................................
Total ......................................................
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER PAYMENT STATUS
AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Borrower Payment Status Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
In School .......................................................
Grace ...........................................................
Repayment .......................................................
Deferment .......................................................
Forbearance .....................................................
Total ......................................................
</TABLE>
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<PAGE> 29
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY REMAINING TERM TO
SCHEDULED MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Remaining Months Outstanding Outstanding
Until Scheduled Number of Principal Principal
Maturity Loans Balance Balance
- -------- ----- ------- -------
<S> <C> <C> <C>
1 to 12
13 to 24
25 to 36
37 to 48
49 to 60
61 to 72
73 to 84
85 to 96
97 to 108
109 to 120
121 to 180
181 to 240
241 to 300
Over 300
Total .................................................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS AS OF THE CUT-OFF
DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Location (1) Loans Balance Balance
- ------------ ----- ------- -------
<S> <C> <C> <C>
Ohio
Others(2)
Total ......................................................
</TABLE>
(1) Based on the current permanent billing addresses of the borrowers of the
initial financed student loans shown on the servicers' records.
(2) Consist of locations that include [___] other states, U.S. territories,
possessions and commonwealths, foreign countries, overseas military
establishments, and unknown locations; the aggregate principal balance of the
financed student loans relating to each of these locations does not exceed ___%
of the initial pool balance.
To the extent that states with a large concentration of financed student loans
experience adverse economic or other conditions to a greater degree than other
areas of the country, the ability of these borrowers to repay their financed
student loans may be impacted to a larger extent than if these borrowers were
dispersed more geographically.
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<PAGE> 30
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY SCHOOL TYPES AS OF THE
CUT-OFF DATE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
School Type Loans Balance Balance
- ----------- ----- ------- -------
<S> <C> <C> <C>
4 Year Public
4 Year Private
2 Year Public
2 Year Private
Proprietary/Vocational
Other/Unknown
Total ......................................................
</TABLE>
INCENTIVE PROGRAMS
The depositor and its affiliates currently make available to or have acquired
loans that offer incentive programs to borrowers.
One of these incentive programs is the depositor's FastStart Program. The
FastStart Program generally applies to Stafford loans and Unsubsidized Stafford
loans which are originated on or after January 1, 1997. The applicable interest
rate on a FastStart loan is reduced by 2.25% after the timely receipt of the
initial 48 payments from the borrower; ____% of the initial financed student
loans are eligible for the FastStart Program.
The initial financed student loans also include loans originated by lenders for
whom the depositor provides a secondary market. Some of these lenders also offer
various incentive loan programs. These other incentive loan programs apply to
Stafford loans and Unsubsidized Stafford loans and include programs whereby the
applicable interest rate is reduced by:
- 2.00% after the timely receipt of the initial 48 payments; ____%
of the initial financed student loans are eligible for this benefit;
and
- 1.00% after the timely receipt of the initial 36 payments; ____%
of the initial financed student loans are eligible for this benefit.
All of the financed student loans are also eligible for the EasyPay program. The
EasyPay program applies to student borrowers who authorize automatic payment of
student loans from a checking or savings account. These eligible students
receive an interest rate which is .25% less than the usual rate.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the notes and the yield on the notes will be
affected by:
(1) prepayments of the financed student loans that may occur as described
below;
(2) the sale by the issuer of financed student loans;
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<PAGE> 31
(3) parity percentage payments; and
(4) deferrals or delays in payments on the financed student loans
resulting from defaults, grace periods, deferment periods and, under
some circumstances, forbearance periods.
All the financed student loans, including those resulting from consolidation
loans, are prepayable in whole or in part by the borrowers at any time without
penalty and may be prepaid as a result of:
(1) borrower's default, death, disability or bankruptcy;
(2) a closing of or false certification by the borrower's school;
(3) subsequent liquidation or collection of guarantee payments with
respect to loans; and
(4) as a result of financed student loans being repurchased by depositor
or the respective sellers as a result of a breach of a representation
and warranty.
The rate of prepayments cannot be predicted and may be influenced by a variety
of economic, social and other factors, including those described below. As a
rule, prepayments are more likely to occur if other financing alternatives are
available to borrowers. However, because many of the financed student loans bear
interest at a rate that either actually or effectively is floating, it is
impossible to determine whether changes in prevailing interest rates will be
similar to or vary from changes in the interest rates on the financed student
loans. To the extent borrowers of financed student loans elect to borrow
consolidation loans, these financed student loans will be prepaid. See
"Description of the FFEL Program -- Loan Terms -- Consolidation Loans."
The indenture trustee will offer for sale any financed student loans remaining
in the trust on or after ____________, if the outstanding pool balance is equal
to or less than ____% of the initial pool balance. The depositor has an option
to repurchase all remaining financed student loans in the trust if, on any
distribution date, the outstanding pool balance is equal to or less than ____%
of the initial pool balance.
Scheduled payments with respect to, and maturities of, the financed student
loans may be extended under grace periods, deferment periods and, under some
circumstances, forbearance periods. The rate of payment of principal of the
notes and the yield on the notes may also be affected by the rate of defaults
resulting in losses on financed student loans, by the severity of those losses,
and by the timing of those losses, which may affect the ability of the guarantee
agencies to make guarantee payments with respect to financed student loans.
The rate of prepayment on the financed student loans cannot be predicted, and
any reinvestment risks resulting from a faster or slower incidence of prepayment
of financed student loans will be borne entirely by the holders. These
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time holders
receive payments from the trust than interest rates and spreads would have been
had prepayments not been made or had the prepayments been made at a different
time.
THE FOLLOWING INFORMATION IS GIVEN SOLELY TO ILLUSTRATE THE EFFECT OF
PREPAYMENTS ON THE FINANCED STUDENT LOANS ON THE WEIGHTED AVERAGE LIFE OF THE
NOTES UNDER THE ASSUMPTIONS STATED BELOW AND IS NOT A
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<PAGE> 32
PREDICTION OF THE PREPAYMENT RATE THAT MIGHT ACTUALLY BE EXPERIENCED BY THE
FINANCED STUDENT LOANS IN THE TRUST.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of the security will be
repaid to the investor. The weighted average life of the notes will be primarily
a function of the rate at which payments are made on the financed student loans
in the trust. Payments on the financed student loans may be in the form of
scheduled amortization of principal or prepayments, including guarantee
payments. For this purpose, the term prepayments includes:
(1) prepayments resulting from borrowers obtaining consolidation loans;
and
(2) prepayments, in full or in part, as a result of:
(a) borrower default, death, disability or bankruptcy;
(b) a closing of or a false certification by the borrower's school;
(c) subsequent liquidation of guarantee payments with respect to the
loans; and
(d) as a result of financed student loans being repurchased by the
respective depositor or the sellers as a result of a breach of a
representation and warranty.
All of the financed student loans are prepayable at any time without penalty by
the borrower. See "Risk Factors--Prepayments by Borrowers May Create
Reinvestment Risk."
The constant prepayment rate prepayment model represents an assumed constant
rate of prepayment of financed student loans in the trust, outstanding as of the
beginning of each quarter expressed as a percentage. There can be no assurance
that these financed student loans will experience prepayments at a constant
prepayment rate or otherwise in the manner assumed by the prepayment model.
The weighted average lives in the following table were determined assuming that:
(1) schedule payments of principal on the financed student loans are
received in a timely manner and prepayments are made at the
percentages of the prepayment model set forth in the table;
(2) the initial principal balance of the financed student loans is
$____________ and the financed student loans have the characteristics
described under the heading "The Financed Student Loans;"
(3) payments are made on the Series 1999A Notes on the last business day
of each month, and on the Series 1999B-1 Notes on the last business
day of each quarter;
(4) the financed student loans in the trust are auctioned on ___________,
20___; and
(5) the notes are issued on ______________, 1999.
No representation is made that these assumptions will be correct, including the
assumption that the financed student loans in the trust will not experience
delinquencies or unanticipated losses.
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<PAGE> 33
In making an investment decision with respect to the notes, investors should
consider a variety of possible prepayment scenarios, including the limited
scenarios described in the table below.
WEIGHTED AVERAGE LIFE OF THE NOTES AT THE CONSTANT PREPAYMENT RATES SET FORTH
BELOW:
<TABLE>
<CAPTION>
Weighted Average Life (years)
0% CPR 3% CPR 5% CPR 7% CPR 9% CPR 15% CPR
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Series 1999A-1 Notes ...................
Series 1999A-2 Notes ...................
Series 1999B-1 Notes ...................
</TABLE>
THE SERVICERS
Student Loan Funding Resources, Inc., in its capacity as the master servicer,
will arrange for the servicing of the financed student loans under to the Master
Servicing Agreement, dated as of _________________, 1999 between the co-owner
trustee, on behalf of the issuer, and the master servicer. The master servicer
and the co-owner trustee have entered or will enter into servicing agreements
with various approved servicers to service the financed student loans.
Initially, AFSA Data Corporation, Great Lakes Higher Education Servicing
Corporation, InTuition, Inc., Kentucky Higher Education Student Loan
Corporation, Pennsylvania Higher Education Assistance Agency, UNIPAC Service
Corporation and USA Group Loan Services, Inc. each are expected to service more
than 10% of the initial financed student loans. The financed student loans will
be serviced by servicers as may be selected by the master servicer from time to
time, and servicers may be replaced or added from time to time by the master
servicer (all subject to the approval of the rating agencies). Under a servicing
agreement, each servicer has agreed to service and perform all other related
tasks with respect to, the financed student loans in compliance with applicable
standards and procedures. See "Servicing" in the prospectus.
Information relating to the particular servicers set forth in this prospectus
supplement, which is particularly within each servicer's knowledge, has been
requested of and has been provided by the respective servicers. This information
and information included in the reports referred to herein have not been
verified or independently confirmed by the issuer, the depositor, the
administrator, the master servicer, the underwriters or their respective
counsel, and comprises all information in respect of each servicer that the
issuer obtained after a reasonable request and inquiry. With the exception of
InTuition, Inc., no servicer is affiliated with the issuer, the depositor, the
administrator, the master servicer or any underwriter.
AFSA DATA CORPORATION
AFSA Data Corporation (AFSA) acts as a loan servicing agent for the issuer. AFSA
is a for-profit corporation and a wholly-owned subsidiary of Fleet Holding
Corporation, a subsidiary of Fleet National Bank, which in turn is a
wholly-owned subsidiary of Fleet Financial Group of Boston, Massachusetts, a
diversified financial services company. As of February 28, 1998, AFSA provided
loan servicing for approximately $9.3 billion in FFELP guaranteed student and
parental loans, approximately $2.4 billion in Perkins Loans, Health
Professionals Student Loans, and institutional loans, and $27.0 billion in
Federal Direct Student Loans under contract with the U.S. Department of
Education. AFSA has its principal offices in Long Beach, California, and a
Regional Processing Center in Utica, NY, which services the guaranteed student
loan and parental loan programs, and a Regional Processing Center in Lombard,
Illinois, which
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<PAGE> 34
services campus based programs. AFSA's principal office is located at 2277 E.
220th Street, Long Beach, California 90810-1690; telephone (313) 513-2700.
(Source: AFSA)
GREAT LAKES HIGHER EDUCATION SERVICING CORPORATION
As of March 31, 1999, Great Lakes Higher Education Servicing Corporation
(GLHESC) serviced 894,290 student and parental accounts with an outstanding
balance of $6,669,502,707 for 1,146 lenders nationwide. Less than 6% of the
portfolio serviced by GLHESC is made up of loans to students at for-profit trade
schools. As of March 31, 1999, 64% of the portfolio serviced by GLHESC was in
repayment status, 4% was in grace status and the remaining 32% was in interim
status.
The staff and management at GLHESC take the issue of year 2000 compliance very
seriously. GLHESC is committed to take the reasonable and necessary actions to
prepare its systems to accurately process dates from the twentieth and
twenty-first centuries. GLHESC is seeking to minimize, if not eliminate, the
risk of error, interruption or loss of functionality for the lenders, schools,
and borrowers who rely on its systems. The remedies available to the issuer or
other third parties shall be subject to the terms and limitations of its
servicing agreement with GLHESC.
GLHESC has adopted a structured management approach to ensure its systems are
compliant. The Chief Information Officer has been assigned overall
responsibility for year 2000 compliance. GLHESC has not evaluated any computer
system, product or procedure of any third party with whom GLHESC exchanges data,
including but not limited to, the U.S. Department of Education, schools or
lenders. Accordingly, GLHESC is unable to provide any assurances regarding the
year 2000 compliance of any third parties or their effect on GLHESC's ability to
properly perform its activities.
GLHESC will provide a copy of its most recent audited financial statements on
receipt of a written request directed to 2401 International Lane, Madison,
Wisconsin 53704, Attention: Vice President and Chief Financial Officer.
(Source: GLHESC)
INTUITION, INC.
InTuition, Inc. (InTuition) was incorporated in 1991 as a Florida corporation.
InTuition is a wholly owned subsidiary of InTuition Holdings, Inc., a Florida
corporation, which is 50% owned by the administrator and 50% owned by parties
unrelated to the administrator and the issuer. InTuition provides complete
student loan servicing and administration to lending institutions and secondary
markets nationwide. InTuition has approximately 182 employees, all of whom are
in its Jacksonville, Florida office.
As of September 30, 1998, InTuition serviced 481,088 student loan accounts with
an outstanding balance of $1.966 billion for 14 lenders and secondary markets
nationwide. Approximately 10% of the portfolio serviced by InTuition is made up
of loans to students at for-profit trade schools. As of September 30, 1998, 61%
of the portfolio serviced by InTuition was in repayment status, 8% was in grace
status and the remaining 31% was in interim status. InTuition is located at 6420
Southpoint Parkway, Jacksonville, Florida 32216. Telephone: (904) 281-7100.
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<PAGE> 35
InTuition understands the concerns and importance regarding the effectiveness of
computer systems beyond December 31, 1999. InTuition has developed a plan to
deal with year 2000 issues and has begun converting its computer systems to be
year 2000 compliant. It is InTuition's intent to have all systems and processes
year 2000 compliant on or before December 31, 1999 and InTuition is planning to
be ready to perform normal business functions after January 1, 2000. No
representations or warranty is made with respect to whether any third parties
are or will be year 2000 compliant. InTuition is unable to give any assurance at
this time that all year 2000 related problems will be avoided.
(Source: InTuition)
KENTUCKY HIGHER EDUCATION STUDENT LOAN CORPORATION
The General Assembly of the Commonwealth of Kentucky established the Kentucky
Higher Education Student Loan Corporation (KHESLC) in 1978 to provide a program
of financing, making, purchasing and servicing insured student loans in the
Commonwealth. KHESLC is an independent de jure municipal corporation and
political subdivision of the Commonwealth. KHESLC is authorized to service and
collect educational loans for other lenders, holders and educational
institutions.
KHESLC has a staff of approximately 115 full-time employees as of May 1, 1998,
most of whom are currently assigned to its ongoing Federal Family Education Loan
Program activities. Its principal office is located at 10180 Linn Station Road,
Post Office Box 24266, Louisville, Kentucky 40224-0266, telephone number (502)
329-7079.
As of March 31, 1998, KHESLC serviced approximately $350 million outstanding
principal amount of FFELP loans which are pledged to secure its own obligations
and approximately $100 million of FFELP Loans on behalf of other eligible
lenders pursuant to servicing agreements, including servicing agreements which
provide for the acquisition by KHESLC of the FFELP Loans serviced. KHESLC
currently subcontracts certain FFELP Loan servicing functions such as computer
programming and mailing service.
(Source: KHESLC)
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
Pennsylvania Higher Education Assistance Agency (PHEAA) is a body corporate and
politic constituting a public corporation and government instrumentality created
pursuant to an act of the Pennsylvania Legislature. Under its enabling
legislation, PHEAA is authorized to issue bonds or notes, with the approval of
the Governor of the Commonwealth of Pennsylvania for the purpose of purchasing,
making, or guaranteeing loans. Its enabling legislation also authorizes PHEAA to
undertake the origination and servicing of loans made by PHEAA and others.
PHEAA's headquarters are located in Harrisburg, Pennsylvania with regional
offices located throughout Pennsylvania and additional offices located in
California, Delaware and West Virginia. As of September 30, 1998 it had
approximately 2,300 employees.
As of September 30, 1998, PHEAA has outstanding debt and/or credit facilities
(under which the entire aggregate amount of funds available had not been drawn)
in the amount (including amounts drawn or available under such credit
facilities) of approximately $2.3 billion. As of September 30, 1998, PHEAA owned
approximately $1.7 billion outstanding principal amount of student loans
financed with the proceeds of its long-term debt, and had funds available for
acquisition of student loans in the amount of approximately $249 million.
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<PAGE> 36
PHEAA has been guaranteeing student loans since 1964 and has guaranteed a total
of approximately $18.1 billion principal amount of Stafford Loans and
approximately $1.8 billion principal amount of PLUS Loans and SLS Loans under
the Higher Education Act. In addition to guaranteeing loans under the Higher
Education Act, PHEAA also operates certain guarantee programs for which it
receives no federal reinsurance. PHEAA has outstanding guarantee obligations of
such loans in the amount of approximately $42.7 million as of September 30,
1998.
PHEAA's two principal servicing products are its full servicing operation (in
which it performs all student loan servicing functions on behalf of its
customers) and its remote servicing operation (in which it provides only data
processing services to its customers that have their own servicing operations).
As of September 30, 1998, PHEAA was servicing under its full service operation
approximately 1.3 million student loan accounts representing approximately $12.6
billion outstanding principal amount for more than 450 customers and under its
remote servicing operation, approximately 725,000 student loans representing
approximately $4.3 billion outstanding principal amount for 5 customers.
PHEAA has agreed that it will provide a copy of its most recent audited
financial statements to Noteholders upon receipt of a written request directed
to Mr. Tim Guenther, Chief Financial Officer, Financial Management, 1200 North
Seventh Street, Harrisburg, Pennsylvania 17102.
(Source: PHEAA)
UNIPAC SERVICE CORPORATION
UNIPAC Service Corporation, a Nebraska corporation (UNIPAC), began its education
loan servicing operations on January 1, 1978, and provides education loan
servicing, time sharing, administration and other services to lenders, secondary
market purchasers and Guarantee Agencies throughout the United States. UNIPAC is
a privately held corporation, owned primarily by Union Bank and Trust Company,
Lincoln, Nebraska. UNIPAC offers student loan servicing to lending institutions
and secondary markets. UNIPAC's corporate headquarters is located in Aurora,
Colorado, where UNIPAC employs approximately 733 people. In December 1989,
UNIPAC opened a second servicing center in Lincoln, Nebraska, which as of
October 31, 1998 employed approximately 262 people. In November 1997, UNIPAC
opened a third servicing center in St. Paul, Minnesota, which as of October 31,
1998, employed approximately 167 people. As of October 31, 1998, UNIPAC's
servicing volume was approximately $8.8 billion for its full-service and
secondary market clients.
The following information covers UNIPAC's Year 2000 Plan and provides a status
of UNIPAC's Year 2000 compliance initiative to date. UNIPAC's student loan
servicing system, UNISTAR, has been modified to process dates into the next
century. UNIPAC's Private Loan System (STAR) is written in a combination of SQL
Server version 6.5 and Visual Basic version 4.0. These software programming
languages are believed to be Year 2000 compliant and address Year 2000 dates.
For the last several years (since 1994), UNIPAC has been planning system changes
for the Year 2000. As a result, UNIPAC completed major program changes for its
student loan servicing mainframe system during 1997. As of May 1997, all date
fields, stored in the files and processed in program logic, contain 8 digits for
the expanded century usage. All phases (analysis, design, construction, quality
assurance, testing, and implementation) of the project were completed relative
to the 8 byte dates usage. These processes have been documented as part of
UNIPAC's quality assurance processes. Systems integration testing was completed
in April 1997 and production implementation occurred in May 1997.
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(Source: UNIPAC)
USA GROUP LOAN SERVICES, INC.
USA Group Loan Services, Inc. now referred to as Loan Services, formerly known
as Education Loan Servicing Center, Inc., is a private, nonprofit, non-stock
membership corporation which was organized in 1982 under the provisions of the
General Corporation Law of the State of Delaware. Loan Services is an affiliate
of USA Group, Inc., a nonprofit corporation which is also affiliated with United
Student Aid Funds, Inc., a student loan guarantee agency and one of the issuer's
guarantee agencies. As of September 30, 1998 (Loan Services' fiscal year end),
Loan Services provided loan servicing for in excess of 3,500,000 student and
parent loans with outstanding balances of over $13.4 billion for approximately
150 different lenders and secondary market corporations. Loan Services'
principal office is located in Indianapolis, Indiana, where, as of September 30,
1998, it had nearly 800 full-time employees.
Loan Services is aware of concerns relating to the functional effectiveness and
usage of computer systems beyond December 31, 1999 known as year 2000. Loan
Services is dedicated to resolving the potential impact of the year 2000 on the
ability of Loan Services' computerized information systems to accurately process
information that may be date sensitive. Loan Services is seeking to assure
itself that both the internal systems and the systems of third parties, which
include but are not limited to the U.S. Department of Education, which provide
services to Loan Services or on whose computer software and operating systems
Loan Services may rely are taking sufficient actions to avoid year 2000 related
problems. No representation or warranty is made with respect to whether third
parties are or will be year 2000 compliant. Loan Services is planning to be
ready to perform normal business functions and intends to meet its obligations
both before and after January 1, 2000. However, Loan Services is unable to give
any assurances at this time that all year 2000 related problems will be avoided.
(Source: Loan Services)
THE GUARANTEE AGENCIES
United Student Aid Funds, Inc., Great Lakes Higher Education Guaranty
Corporation and Florida Department of Education, Office of Student Financial
Assistance are the principal guarantee agencies for the financed student loans.
These guarantee agencies collectively guarantee in excess of ____% of the
initial financed student loans. Set forth below is certain current and
historical information with respect to each of these guarantee agencies. [No
such information is provided with respect to _______ because the aggregate
principal amount of financed student loans guaranteed by _________ is less than
___% of the financed student loans.]
Guaranty Volume. The following table sets forth the approximate aggregate
principal amount of federally reinsured education loans (including loans under
the PLUS program but excluding consolidation loans) that have first become
guaranteed by each guarantee agency and by all guarantee agencies in each of the
last five federal fiscal years:*
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Stafford, SLS and PLUS Loans Guaranteed
---------------------------------------
(dollars in millions)
<TABLE>
<CAPTION>
FEDERAL FISCAL GREAT LAKES FLORIDA
YEAR USA FUNDS GUARANTY OSFA ALL GUARANTORS
---- --------- -------- ---- --------------
<S> <C> <C> <C> <C>
1994 --
1995 --
1996 --
1997 --
1998 --
</TABLE>
* The information set forth in this table has been obtained from the
Joseph Boyd & Associates, Guaranty Agency Report for the applicable
year.
Reserve Ratio. Each guarantee agency's reserve ratio is determined by dividing
its cumulative cash reserves by the original principal amount of the outstanding
loans it has agreed to guarantee. The term "cumulative cash reserves" refers to
cash reserves plus (a) sources of funds (including insurance premiums, state
appropriations, federal advances, federal reinsurance payments, administrative
cost allowances, collections on claims paid and investment earnings) minus (b)
uses of funds (including claims paid to lenders, operating expenses, lender
fees, the Department of Education'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 that guarantee agency minus (x) the original principal amount of loans
canceled, claims paid, loans paid in full and loan guarantees transferred from
that guarantee agency to other guarantors, plus (y) the original principal
amount of loan guarantees transferred to that guarantee agency from other
guarantors. The following tables set forth for each of USA Funds, Great Lakes
Guaranty and Florida OSFA, their respective cumulative cash reserves and
corresponding reserve ratios and the national average reserve ratio for all
federal guarantors for the last five federal fiscal years:*
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<PAGE> 39
<TABLE>
<CAPTION>
Great Lakes National
USA Funds Guaranty Florida OSFA Average
-------------------------- --------------------------- --------------------------- -------
Cumulative Cumulative Cumulative
Federal Fiscal Cash Reserve Cash Reserve Cash Reserve
Year Reserves Ratio Reserves Ratio Reserves Ratio
---- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1994 --
1995 --
1996 --
1997 --
1998 --
</TABLE>
* The information set forth in this table has been obtained from the
Joseph Boyd & Associates, Guaranty Agency Report for the applicable
year.
Recovery Rates. A guarantee agency's recovery rate, which provides a measure of
the effectiveness of the collection efforts against defaulting borrowers after
the guarantee claim has been satisfied, is determined by dividing the amount
recovered from borrowers by the guarantee agency by the aggregate amount of
default claims paid by the guarantee agency during the applicable federal fiscal
year with respect to borrowers. The table below sets forth the recovery rates
for each of USA Funds, Great Lakes Guaranty and Florida OSFA for the last five
federal fiscal years:*
<TABLE>
<CAPTION>
RECOVERY RATE
-------------------------------------------------------------------
FEDERAL FISCAL YEAR USA FUNDS GREAT LAKES GUARANTY FLORIDA OSFA
------------------- --------- -------------------- ------------
<S> <C> <C> <C>
1994
1995
1996
1997
1998
</TABLE>
* The information set forth in this table has been obtained from the
Joseph Boyd & Associates, Guaranty Agency Report for the applicable
year.
Loans Loss Reserve. In the event that a guarantee agency receives less than full
reimbursement of its guarantee obligations from the Department of Education,
that guarantee agency would be forced to look to its existing assets to satisfy
any of these guarantee obligations not so reimbursed. Because guarantee agencies
are no longer reinsured by the Department of Education at 100% (98% for loans
disbursed between October 1, 1993 and October 1, 1998 and 95% for loans
disbursed on and after October 1, 1998), many guarantee agencies have begun to
maintain reserves for the 2% to 5% "risk-sharing" associated with these
guarantees. In general, the guarantee agencies use historical default and
recovery rates to attempt to predict the reserves that should be maintained for
this purpose. [As of September 30, 1998, ________ has not
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<PAGE> 40
specifically provided for this risk. _________ does have deferred guaranty fees
of $_______ million and cash reserves of $________ million to cover this risk.
________ has a loan loss reserve in the amount of $______ million and _________
maintains a reserve of $________ million.]
(Source: Joseph Boyd & Associates, Guaranty Agency Report)
Claims Rate. For each of the past five federal fiscal years, the claims rate for
USA Funds, Great Lakes Guaranty or Florida OSFA has not exceeded 5%, and as a
result, all claims of USA Funds, Great Lakes Guaranty and Florida OSFA have been
reimbursed by the Department of Education at the maximum reinsurance rate
permitted by the Higher Education Act. However, there can be no assurance that
any guarantee agency will continue to receive the maximum reimbursement for
these claims. The following table sets forth the claims rates of each guarantee
agency for each of the last five fiscal years.*
<TABLE>
<CAPTION>
Claims Rate
-------------------------------------------------------------------
Great Lakes
Federal Fiscal Year USA Funds Guaranty Florida OSFA
------------------- --------- -------- ------------
<S> <C> <C> <C>
1994
1995
1996
1997
1998
</TABLE>
* The information set forth in this table has been obtained from the
Joseph Boyd & Associates, Guaranty Agency Report for the applicable
year.
The following table provides information with respect to the portion of financed
student loans guaranteed by each guarantor:
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<PAGE> 41
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY GUARANTEE AGENCY
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Guarantee Agency Loans Balance Balance
- ---------------- ----- ------- -------
<S> <C> <C> <C>
Florida Department of Education, Office of
Student Financial Assistance
United Student Aid Funds, Inc.
Great Lakes Higher Education Guaranty Corporation
Other Guarantee Agencies
---------- ------------ -----------
Total 100.00%
</TABLE>
The most recent national default rate reported by the Department of Education
was 9.6% for the federal fiscal year 1996. As recently as federal fiscal year
1990, this national default rate was over 22%. This trend, coupled with the
claims and recovery information listed above, shows improvement in the repayment
of student loans by borrowers. The claims rate of each of the three guarantee
agencies described in this section for the financed student loans is lower than
5% resulting in the maximum reimbursement for reinsurance claims. The depositor
is not aware of any circumstances which would cause the reimbursement levels for
those guarantors to be less than the maximum levels permitted.
EXCHANGE AGREEMENTS
Under the indenture, the issuer has the right to enter into one or more interest
rate exchange agreements with one or more exchange counterparties. Any exchange
counterparty must have a rating of its long-term debt securities of at least Aa1
(or its equivalent) from a rating agency. Payments by the issuer under any
exchange agreement may be on a parity with the Series 1999A Notes, a senior
exchange agreement, or on a parity with the Series 1999B-1 Notes, a subordinate
exchange agreement. If the issuer enters into an agreement with an exchange
counterparty, the exchange counterparty will agree to pay the indenture trustee
on each applicable distribution date a fixed or variable exchange rate on a
notional amount, which may be equal to, greater or less than the principal
amount of any series of the notes. The issuer will agree to have the indenture
trustee pay to the exchange counterparty a fixed or variable exchange rate on
the notional amount. The issuer expects that any exchange agreement will provide
that the payment obligations of the issuer and an exchange counterparty to each
other will be netted on the applicable payment date and only one payment will be
made by one party to the other. The exchange counterparty will deposit any
payment to the collection account under the agreement. Payments made under
exchange agreements on a parity with the Series 1999A Notes issued under the
indenture are senior exchange payments. Payments made under exchange agreements
on a parity with the Series 1999B-1 Notes issued under the indenture are
subordinate exchange payments.
If the exchange counterparty's exchange rate is greater than the issuer's
exchange rate, the indenture trustee's ability to make principal and interest
payments on the notes will be affected by the exchange counterparty's ability to
meet its net payment obligation to the indenture trustee. In addition, under
some circumstances, the issuer's failure to make an issuer exchange payment may
constitute an event of default under the indenture. See "Risk Factors" in this
prospectus supplement and "The Indentures -- Events of Default" in the
prospectus. Prior to the date the issuer enters into an exchange agreement, the
issuer must obtain written evidence from each rating agency then rating any of
the notes that the execution and delivery of the exchange agreement will not
adversely affect that rating agency's rating on those notes.
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<PAGE> 42
DESCRIPTION OF THE NOTES
The notes will be issued under the terms of the indenture. The following summary
describes the material terms of the notes as described in the indenture. Other
terms of the notes are set forth in the prospectus. See "Description of the
Notes" in the prospectus. This summary does not restate the entire indenture. We
encourage you to read the indenture because it, not this summary, defines your
rights as holders. We filed a copy of the form of the indenture as an exhibit to
the registration statement of which this prospectus summary is part.
The notes will be available for purchase in denominations of $1,000 and integral
multiples of $1,000 in book-entry form only. The notes will initially be
represented by one or more notes registered in the name of DTC's nominee, the
security depository. Unless definitive notes are issued under the limited
circumstances described under "Description of the Notes -- Definitive Notes" in
the prospectus, no holder will be entitled to receive a physical certificate
representing a note. All references to actions by holders refer to actions taken
by DTC on instructions from its participating organizations and all references
to distributions, notices, reports and statements to holders refer to
distributions, notices, reports and statements to DTC or its nominee, as the
registered holder of the notes, for distribution to holders under DTC's
procedures. See "Description of the Notes -- Book-entry Registration" in the
prospectus.
INTEREST
Interest Accrual Period
Interest will accrue during each interest accrual period on the principal
balance of each series of notes at a rate equal to the related series interest
rate calculated as described below. Interest on the Series 1999A Notes will be
payable monthly to the applicable holders as of the record date on the monthly
distribution date, which is the last business day of each month. Interest on the
Series 1999B-1 Notes will be payable quarterly to the applicable holders as of
the record date on the quarterly distribution date, which is the last business
day of every third month, beginning _______________.
Record Date
The record date for the Series 1999A Notes is the second business day preceding
a monthly distribution date. The record date for the Series 1999B-1 Notes is the
second business day preceding a quarterly distribution date. Interest accrued as
of any distribution date for a series of notes but not paid on the applicable
distribution date will be payable on the next applicable distribution date for
each series, together with interest on these notes at the applicable series
interest rate. Interest will be paid pro rata to the holders of each series of
notes outstanding.
The first interest accrual period for a series of notes will begin on the
closing date. All later interest accrual periods shall begin on the preceding
distribution date for that series and end on the day preceding the distribution
date.
Interest Determination Date
The interest determination date for each series of notes is as follows:
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<PAGE> 43
- the Series 1999A-1 Notes and the Series 1999A-2 Notes interest
determination date is the second London banking day prior to the
first day of the next succeeding interest accrual period; and
- the Series 1999B-1 Notes interest determination date is the second
London banking day prior to the first day of every third monthly
interest accrual period.
Determination of Interest Rates
The series interest rate for each series of notes for each interest accrual
period will equal the formula rate, subject to a cap of the net loan rate for
the applicable interest accrual period.
The formula rate for each interest accrual period for the Series 1999A Notes
will equal one-month LIBOR as of the interest determination date for the
interest accrual period plus ____% in the case of the Series 1999A-1 Notes and
____% in the case of the Series 1999A-2 Notes, but never greater than 18%. The
formula rate for each interest accrual period for the Series 1999B-1 Notes will
equal three-month LIBOR as of the interest determination date for the interest
accrual period plus ____%, but never greater than 18%. See "Description of the
Notes -- Determination of LIBOR" in the prospectus. Interest on each series of
notes will be calculated on the basis of the actual number of days elapsed in
each interest accrual period divided by 360.
Net Loan Rate
The net loan rate will be calculated by the administrator. The series interest
rate for each series of notes will be determined by the calculation agent, which
initially is Salomon Smith Barney Inc.
Information concerning the current series interest rates will be available by
telephoning the indenture trustee at (513) 762-8870 between the hours of 9 a.m.
and 5 p.m. Eastern time on any day on which the Cincinnati Corporate Trust
Office of the indenture trustee is open for business and will also be available
through Dow Jones Telerate Service of Bloomberg L.P.
The net loan rate for any interest accrual period is equal to the annualized
percentage rate determined by multiplying (a) the ratio of 360 to the actual
number of days in the interest accrual period, and (b) the ratio of (1) expected
interest collections for the applicable collection period less program operating
expenses for that collection period, to (2) the pool balance as of the first day
of that collection period. In calculating the net loan rate, the applicable
collection period for the Series 1999A Notes is the monthly collection period
immediately preceding the collection period in which the monthly distribution
date occurs and the applicable collection period for the Series 1999B-1 Notes is
the quarterly collection period immediately preceding the collection period in
which the quarterly distribution date occurs.
Expected interest collections mean, with respect to any collection period, the
sum of:
(1) the amount of interest accrued, net of amounts required to be paid to
the Department of Education or to be repaid to guarantee agencies,
with respect to the financed student loans in the trust for the
applicable collection period (whether or not the interest is actually
paid);
(2) interest subsidy payments and special allowance payments under claims
submitted for the collection period (whether or not actually
received), net of amounts required to be paid to
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<PAGE> 44
the Department of Education, with respect to financed FFELP loans in
the trust, to the extent not included in (1) above;
(3) plus or minus the net of any counterparty exchange payments less any
issuer exchange payments to be made on the related distribution date;
and
(4) investment earnings on the amounts on deposit allocable to the trust
with respect to the applicable collection period prior to the related
distribution date.
Carryover Interest
If interest at the formula rate for any series of the notes for any interest
accrual period exceeds interest at the net loan rate, carryover interest
consisting of the excess interest, together with interest on the notes at the
applicable formula rate will be paid on subsequent distribution dates only to
the extent funds are available after other required payments on the notes. See
"The Indenture-- Collection Fund." Carryover interest will continue to be so
payable although the principal amount of the applicable series of notes is paid
until (1) no notes remain outstanding and (2) the balances in the indenture
funds and accounts have been reduced to zero. The ratings of the notes do not
address the likelihood of payment of carryover interest. Any reference in this
prospectus supplement or the prospectus to interest excludes carryover interest.
PRINCIPAL
UNLESS AN EVENT OF DEFAULT HAS OCCURRED, NO PRINCIPAL WILL BE PAID ON THE SERIES
1999A-2 NOTES UNTIL THE SERIES 1999A-1 NOTES HAVE BEEN PAID AND NO PRINCIPAL
WILL BE PAID ON THE SERIES 1999B-1 NOTES UNTIL THE SERIES 1999A-1 NOTES AND THE
SERIES 1999A-2 NOTES HAVE BEEN PAID. FOLLOWING THE OCCURRENCE OF AN EVENT OF
DEFAULT, PRINCIPAL PAYMENTS ON THE SERIES 1999A NOTES WILL BE MADE PRO RATA,
WITHOUT PREFERENCE OR PRIORITY.
Series 1999A-1 Notes
Principal payments on the Series 1999A-1 Notes will be made on each monthly
distribution date in an amount generally equal to the Series 1999A Holders'
Principal Distribution Amount for the monthly distribution date until the
principal balance of the Series 1999A-1 Notes is paid.
Series 1999A-2 Notes
After the Series 1999A-1 Notes have been paid, principal payments on the Series
1999A-2 Notes will be made on each monthly distribution date in an amount
generally equal to the Series 1999A Holders' Principal Distribution Amount for
the monthly distribution date until the principal balance of the Series 1999A-2
Notes is paid.
Series 1999B-1 Notes
After the Series 1999A Notes have been paid, principal payments on the Series
1999B-1 Notes will be made on each quarterly distribution date in an amount
generally equal to the Series 1999B-1 Holders' Principal Distribution Amount for
the quarterly distribution date until the principal balance of the Series
1999B-1 Notes is paid.
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<PAGE> 45
Parity Percentage Payments
In addition, parity percentage payments will be payable on each applicable
distribution date (to the series of Series 1999A Notes then receiving principal
payments and afterwards to the Series 1999B-1 Notes) until the parity percentage
equals ____%.
Final Maturities
The final payment of principal and interest will be made no later than
__________, 20___ on the Series 1999A-1 Notes, __________, 20___ on the Series
1999A-2 Notes and __________, 20___ on the Series 1999B-1 Notes (each, a legal
final maturity). The actual maturity of one or more series of notes is expected
to occur sooner as a result of a variety of factors. See "Maturity and
Prepayment Considerations" in this prospectus supplement and in the prospectus.
Principal Shortfall
If available funds are insufficient to pay the Series 1999A Principal
Distribution Amount or the Series 1999B-1 Principal Distribution Amount on an
applicable distribution date, this shortfall will be added to the principal
payable to these holders on subsequent distribution dates, as applicable, and
(except with respect to the legal final maturity of a series of notes) this
shortfall will not constitute an event of default. Additionally, on the legal
final maturity for a series of notes and on any date the notes are to be
redeemed in whole, amounts in the reserve fund will be available to pay the
principal balance of the series of notes. See "The Indenture -- Reserve Fund."
All principal payments on a series of notes will be made pro rata within that
series. In connection with each principal payment on a series of notes the
indenture trustee shall compute the principal factor for that series. The
principal factor shall be a number, carried to a seven-digit decimal, indicating
the principal balance of each note of a series as of a distribution date (after
giving effect to any payments made on that date) as a fraction of the original
principal amount of the note. The principal factor for each series of notes
shall be initially 1.0000000 and will afterwards decline to reflect the
reduction in the principal balance of the notes of that series after any payment
of principal. The principal balance of any note can be determined by multiplying
the original principal amount of the note by the principal factor applicable to
that series of notes.
SUBORDINATION OF THE SERIES 1999B-1 NOTES
The rights of the holders of the Series 1999B-1 Notes to receive principal and
interest payments will be subordinated to the same rights of the holders of the
Series 1999A Notes and to exchange counterparties under senior exchange
agreements to the extent described in this prospectus supplement. This
subordination is intended to enhance the likelihood of regular receipt of
principal and interest by the holders of the Series 1999A Notes and the payment
of any senior issuer exchange payments. See "The Indenture -- Collection Fund."
The rights of the holders of the Series 1999A Notes are on a parity with the
rights of any exchange counterparty under any senior exchange agreement. The
rights of the holders of the Series 1999A Notes and exchange counterparties
under any senior exchange agreements are superior to the rights of the holders
of the Series 1999B-1 Notes and the rights of any exchange counterparty under
any subordinate exchange agreement with respect to the trust.
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<PAGE> 46
The rights of the holders of the Series 1999B-1 Notes are on a parity with the
rights of exchange counterparties under any subordinate exchange agreements with
respect to the trust.
REDEMPTION
The notes will be subject to redemption prior to maturity only as described
below.
AUCTION OF THE FINANCED STUDENT LOANS
On or after __________, 20__, if the then outstanding pool balance is 10% or
less of the initial pool balance, the indenture trustee will offer the financed
student loans in the trust for sale. The depositor, the administrator, their
affiliates and unrelated third parties may offer bids to purchase the financed
student loans on or prior to the date. If at least two bids are received, the
indenture trustee will accept the higher bid if it will pay transaction costs
and all amounts due and payable to the holders (including carryover interest)
after application of funds on deposit in the collection account and the reserve
fund. If at least two bids are not received or the bid proceeds are not
sufficient to pay transactions costs and all amounts due to the holders, the
indenture trustee may, but does not have to, solicit bids for the sale of the
financed student loans on future distribution dates. The net proceeds of any
sale will be used to redeem any outstanding notes at par plus accrued interest
on the next applicable distribution date. No assurance can be given that the
indenture trustee will be successful in soliciting acceptable bids to purchase
the financed student loans on any auction date.
OPTIONAL REDEMPTION
The issuer may redeem all outstanding series of notes in whole, at a redemption
price of par plus accrued interest plus unpaid carryover interest, on any
applicable distribution date if the depositor exercises its option to repurchase
all remaining financed student loans. This repurchase will cause the early
retirement of the notes. The notes may be redeemed on any applicable
distribution date on or after the applicable distribution date when the pool
balance is equal to 10% or less of the initial pool balance. [The initial pool
balance is $__________.] The financed student loans will be purchased at a price
at least equal to, for each financed student loan, the outstanding principal
balance of that financed student loan as of the end of the preceding collection
period, together with all accrued interest and unamortized premiums, if any. The
purchase price must be sufficient to pay transaction costs and all amounts due
to the holders, including carryover interest, after application of funds on
deposit in the collection account and the reserve fund. An optional purchase of
the financed student loans will result in the redemption of all outstanding
notes.
NOTICE OF REDEMPTION
The indenture trustee must give written notice of redemption of the notes to the
holders not less than 15 days prior to the redemption date. Each note must be
surrendered to the indenture trustee in exchange for payment of the redemption
price. If the indenture trustee gives notice of redemption as provided above,
and on deposit with the indenture trustee of moneys for payment of the
redemption price, including accrued interest, to the redemption date, the notes
so called for redemption will become due and payable at the redemption price
specified in the notice. On the redemption date, interest on these notes will
cease to accrue, and interest on any unpaid carryover interest also will cease
to accrue.
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<PAGE> 47
THE INDENTURE
The notes will be issued under an Indenture of Trust, dated as of _______ ___,
1999, as supplemented from time to time, and a related Terms Supplement, dated
as of _______ ___, 1999 (known together as the indenture), among the issuer, the
eligible lender trustee and the indenture trustee. On the closing date, the
issuer and the eligible lender trustee will pledge the financed student loans
and other moneys received from the net proceeds of the notes to the indenture
trustee under the indenture.
INDENTURE TRUSTEE
Firstar Bank, National Association, a national banking association organized
under the laws of the United States, is the indenture trustee for the notes. The
indenture trustee's corporate trust office is located at 425 Walnut Street,
ML5125, Cincinnati, Ohio 45202, and its telephone number is (513) 762-8870. The
indenture trustee is also acting as the initial eligible lender trustee under
the indenture, as a co-owner trustee of the trust and may serve from time to
time as trustee under other indentures or eligible lender trust agreements with
the depositor or its affiliates relating to other issues of securities. In
addition, the issuer, the depositor, the administrator or their affiliates may
maintain other banking relationships with Firstar Bank, National Association and
its affiliates from time to time.
ELIGIBLE LENDER TRUSTEE
Firstar Bank, National Association also is the initial eligible lender trustee
for the issuer under the Eligible Lender Trust Agreement, dated as of
____________, 1999, as amended, between the issuer and the eligible lender
trustee. The office of the eligible lender trustee is located at 425 Walnut
Street, Cincinnati, Ohio 45202. The eligible lender trustee, on behalf of the
issuer, will hold legal title to the financed FFELP loans in the trust. The
eligible lender trustee on behalf of the issuer has entered or will enter into a
guarantee agreement with each of the guarantee agencies with respect to each
financed FFELP loan. The eligible lender trustee is qualified as an eligible
lender for all purposes under the Higher Education Act and the guarantee
agreements with respect to the financed FFELP loans. Failure of the financed
FFELP loans to be owned by an eligible lender would result in the loss of
guarantee payments, interest subsidy payments and special allowance payments
with respect to financed FFELP loans. See "Description of the FFEL Program."
The issuer, the depositor, the administrator and their affiliates may maintain
other banking relationships with Firstar Bank, National Association, its
affiliates, any other eligible lender trustees and their affiliates from time to
time.
REPORTS TO HOLDERS
The indenture trustee will provide by each applicable distribution date to
rating agencies and the applicable holders of record as of the related record
date, a statement setting forth substantially the information set forth under
the heading "The Indentures -- Reports to Holders" in the prospectus.
ACQUISITION FUND
In connection with the issuance of the notes, the indenture trustee will
establish an acquisition fund under the indenture. See "The Indentures -- Funds
and Accounts" in the prospectus. On the closing date, the indenture trustee will
deposit $________ in cash or eligible investments into the acquisition fund. See
"Use
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<PAGE> 48
of Proceeds." The trust will use this amount to acquire the financed student
loans described under the heading "The Financed Student Loans" on or about
____________, 1999, acting on its own behalf or through the eligible lender
trustee. No pre-funding account will be established under the indenture.
Any balance of the acquisition fund not used to acquire financed student loans
prior to __________ will be transferred to the collection account.
Student Loan Portfolio Fund
In connection with the issuance of the notes, the indenture trustee will
establish a student loan portfolio fund. All financed student loans will be
included in the balances of the student loan portfolio fund. Financed student
loans may also be disposed of:
- as provided in the applicable student loan purchase agreements with
respect to rejections and repurchases of financed student loans;
- as provided in the applicable servicing agreements;
- as provided for defeasance of the indenture;
- as required to obtain the benefits of a guarantee in case of default
on that financed student loan; and
- in connection with the consolidation of that financed student loan by
the borrower.
To the extent necessary or appropriate, the issuer and the indenture trustee may
establish accounts within the student loan portfolio fund and subaccounts within
these accounts.
The indenture trustee shall permit the sale of financed student loans selected
by the issuer only:
(1) to avoid an event of default or, if an event of default has occurred,
as may be required or appropriate under the indenture,
(2) in an exchange of financed student loans as described below,
(3) in connection with a mandatory auction of the financed student loans
in the trust as described under "Redemption," and
(4) in connection with the purchase of the financed student loans by the
issuer when the pool balance is equal to ____% or less of the initial
pool balance as described under "Redemption."
The issuer may at any time and from time to time instruct the indenture trustee
to exchange financed student loans for other student loans having the same
characteristics including:
- an aggregate principal amount no less than the aggregate principal
amount of the financed student loans being exchanged;
- the same rate of interest;
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<PAGE> 49
- eligible, after exchange, for the same special allowance payments; and
- the same status, whether interim, grace or repayment.
Any sale, exchange or other disposition of financed student loans will be only
to or with one or more eligible lenders under the Higher Education Act so long
as the Higher Education Act requires the owner or holder of FFELP loans to be an
eligible lender.
COLLECTION FUND
In connection with the issuance of the notes, the following accounts will be
established in the collection fund: a collection account, a capitalized interest
account, a note payment account, an expense account and an excess surplus
account.
Collection Account
The issuer will, and will cause each seller and servicer under the applicable
student loan purchase agreement or servicing agreement to, transfer all
available funds received by it to the indenture trustee. The indenture trustee
will, on receipt of any available funds with respect to the financed student
loans held in the student loan portfolio fund, immediately deposit and credit
the available funds to the collection account.
The indenture trustee will also deposit to the credit of the collection account
the amount of any related counterparty exchange payment received by the
indenture trustee from an exchange counterparty under the provisions of its
exchange agreement.
Expenses relating to the notes may be paid from time to time from available
funds in the collection account by transfers to the expense account for payment
of these expenses. See "-- Expense Account."
On each monthly distribution date until the Series 1999A Notes are paid and on
each quarterly distribution date after the Series 1999A Notes are paid, as
described below, from funds on deposit at the end of the preceding applicable
collection period, the indenture trustee will transfer from the collection
account the following amounts in the following priority:
(1) to the expense account, to the extent required to increase the
balance of the account to the program expense requirement
calculated as of the applicable distribution date;
(2) to the note payment account, an amount up to (A) the Series 1999A
Holders' Interest Distribution Amount for payment on the monthly
distribution date to the holders of the Series 1999A Notes, and
(B) any related senior issuer exchange payment with respect to
the Series 1999A Notes for payment to the related senior exchange
counterparty, including any early termination payment resulting
from a default by the issuer; and
(3) to the note payment account,
(a) until the principal balance of the Series 1999A Notes has
been paid, on each monthly distribution date that is not
also a quarterly distribution date for the Series 1999B-1
Notes, an amount up to:
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<PAGE> 50
(A) one-third of the Series 1999B-1 Holders' Interest
Distribution Amount for payment on the next quarterly
distribution date to the holders of the Series 1999B-1
Notes, and
(B) one-third of any related subordinate issuer exchange
payment with respect to the Series 1999B-1 Notes for
payment to the related subordinate exchange
counterparty; and
(b) on each quarterly distribution date, an amount, after taking into
account the amounts previously set aside, up to:
(A) the Series 1999B-1 Holders' Interest Distribution
Amount for payment on the quarterly distribution date
to the holders of the Series 1999B-1 Notes, and
(B) any related subordinate issuer exchange payment with
respect to the Series 1999B-1 Notes for payment to the
related subordinate exchange counterparty, including
any early termination payment resulting from a default
by the issuer;
(4) to the note payment account:
(a) an amount up to the Series 1999A Holders' Principal Distribution
Amount for payment on the monthly distribution date to the
holders of the Series 1999A-1 Notes until the principal balance
is paid; then
(b) once the Series 1999A-1 Notes are no longer outstanding, an
amount up to the Series 1999A Holders' Principal Distribution
Amount for payment on the monthly distribution date to the
holders of the Series 1999A-2 Notes until the principal balance
is paid;
(5) after the Series 1999A Notes have been paid, to the note payment
account, an amount up to the Series 1999B-1 Holders' Principal
Distribution Amount for payment on the quarterly distribution date to
the holders of the Series 1999B-1 Notes;
(6) to the reserve fund, the amount, if any, required to increase the
balance to the specified reserve fund balance as described under the
heading "-- Reserve Fund;"
(7) to the note payment account, the amount of parity percentage payments
to the extent then required:
(a) for payment to the holders of the Series 1999A-1 Notes on the
monthly distribution date until the principal balance of the
Series 1999A-1 Notes is paid; then
(b) for payment to the holders of the Series 1999A-2 Notes on the
monthly distribution date until the principal balance of the
Series 1999A-2 Notes is paid; then
(c) for payment to the holders of the Series 1999B-1 Notes on the
quarterly distribution date until the principal balance of the
Series 1999B-1 Notes is paid;
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<PAGE> 51
(8) to the note payment account, an amount up to any carryover
interest:
(a) ratably to the holders of the Series 1999A Notes for payment
on the monthly distribution date, and on payment of all
carryover interest due to the holders of the Series 1999A
Notes; then
(b) to the holders of the Series 1999B-1 Notes for payment on
the quarterly distribution date;
(9) to the note payment account, an amount up to the amount, if any,
owed an exchange counterparty in respect of an early termination
payment or damages for early termination resulting from any event
other than a default by the issuer; and
(10) any remainder, to the excess surplus account.
If, on any distribution date following all distributions to be made on the
distribution date, either:
(A) the aggregate principal amount of the Series 1999A Notes would
exceed the sum of the principal amount of the financed student
loans (including capitalized interest) plus accruals of special
allowance payments and interest subsidies payable with respect to
the financed student loans as of the end of the preceding
collection period plus the balance of the reserve fund as of the
computation date, or
(B) a payment event of default has occurred (but prior to the
acceleration of the maturity of the notes),
then, until the applicable conditions described in clauses (A) and (B) above no
longer exist, the Series 1999B-1 Holders' Interest Distribution Amount and the
Series 1999B-1 Holders' Principal Distribution Amount will not be paid to the
holders of the Series 1999B-1 Notes under clauses (3) and (5) above and no
subordinate issuer exchange payments will be made. As long as any Series 1999A
Notes remain outstanding, a deferral in the payment of the Series 1999B-1
Holders' Interest Distribution Amount, Series 1999B-1 Holders' Principal
Distribution Amount or subordinate issuer exchange payments (except with respect
to the legal final maturity of the Series 1999B-1 Notes) will not constitute an
event of default under the indenture. In addition, as long as the applicable
conditions described in clause (B) above exist, the Series 1999A Holders'
Principal Distribution Amount will be allocated and paid pro rata among each
series of Series 1999A Notes. See "The Indentures -- Event of Default" in the
prospectus.
Capitalized Interest Account
A portion of the proceeds from the sale of the notes will be deposited into the
capitalized interest account. See "Use of Proceeds." On each distribution date,
funds in the capitalized interest account will be used to pay interest on the
notes if there is a deficiency in the collection account prior to any transfer
from the reserve fund. On _____________, any funds remaining in the capitalized
interest account will be deposited into the collection account.
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<PAGE> 52
Note Payment Account
On each distribution date, following the transfers to the note payment account
described above, the indenture trustee will distribute to the applicable holders
as of the related record date and exchange counterparties, if any, the amounts
transferred to the note payment account, together with any amounts transferred
from the reserve fund and any advances, as described under the heading "--
Collection Account."
Expense Account
A portion of the proceeds from the sale of the notes will be deposited into the
expense account. See "Use of Proceeds." Funds will also be deposited into the
expense account from the collection account and from the reserve fund. See "--
Collection Account" and "-- Reserve Fund." Funds in the expense account will be
applied to pay costs of issuance of the notes and expenses to operate the
program, as described in the indenture. In addition, expenses relating to the
notes may be paid from time to time from available funds on deposit in the
collection account by transfers to the expense account for payment of expenses.
Excess Surplus Account
On each distribution date, any available funds remaining after all required
distributions are made on the distribution date will be deposited to the credit
of the excess surplus account. Amounts on deposit in the excess surplus account
may be withdrawn by the issuer at any time upon written request to the indenture
trustee to be used for any lawful purpose; if after the withdrawal the parity
percentage is at least ____%. Any available funds distributed to the issuer from
the excess surplus account will not be available to make payments on the notes.
Until withdrawal by the issuer, amounts on deposit in the excess surplus account
will be available for transfer by the indenture trustee to the reserve fund if a
deficiency in the reserve fund remains after the transfers from the collection
account. The issuer may also direct in writing that the indenture trustee
transfer amounts on deposit in the excess surplus account to the collection
account or the reserve fund.
RESERVE FUND
In connection with the issuance of the notes, the indenture trustee will
establish a reserve fund for the notes. See "Description of the Notes -- Credit
Enhancement" in the prospectus. On the closing date, the indenture trustee will
deposit $__________ in cash or eligible investments into the reserve fund which
is equal to its specified reserve fund balance.
The specified reserve fund balance on any distribution date for the reserve fund
is equal to the greater of ____% of the outstanding principal balance of the
notes on the distribution date after giving effect to payments on the
distribution date, or $__________, but not in excess of the outstanding
principal balance of the notes.
At any time the balance of the reserve fund is below the specified reserve fund
balance, the indenture trustee will restore the reserve fund to the specified
reserve fund balance by transfers on the next distribution date from among the
following accounts in the following order of priority:
FIRST, from the collection account after making all prior
distributions on the distribution date as described under
"-- Collection Fund," and
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<PAGE> 53
SECOND, from the excess surplus account.
If the full amount required to restore the reserve fund to the specified reserve
fund balance is not available in the collection account or excess surplus
account on the next succeeding distribution date, the indenture trustee will
continue to transfer funds in the order of priority from the collection account
as they become available and under the instructions for transfers from the
account as described under the heading "-- Collection Fund" and from the excess
surplus account until the deficiency in the reserve fund has been eliminated.
Also, if amounts were transferred from the reserve fund to cover any unpaid
principal balance (a realized loss) on a financed student loan, any subsequent
payments of principal received on or with respect to the financed student loan
will be deposited into the reserve fund.
On each distribution date, the indenture trustee will transfer any excess over
the related specified reserve fund balance in the reserve fund to the collection
account. After the transfer of any excess balance, the reserve fund will be used
solely for the following purposes in the following order of priority:
FIRST, to make up any deficiency in the expense account
immediately following the transfer of moneys into the
account under the indenture;
SECOND, to increase the amount in the note payment account to
the amount required to pay interest on the notes and
any related issuer exchange payment (other than
carryover interest, interest on the Series 1999B-1
Notes or any subordinate issuer exchange payment when
the payment of the interest or subordinate issuer
exchange payment is deferred as described under the
heading "--Collection Fund") on any distribution date
or on any other date on which interest is due on
redemption in whole or payment of the notes or on any
other date on which any related issuer exchange payment
is due and payable (other than any subordinate issuer
exchange payments when their payment is deferred as
described under the heading "--Collection Fund"), by
transfer and deposit by the indenture trustee to the
credit of the note payment account; and
THIRD, to provide for payment of the principal of any series
of notes at the legal final maturity of any series of
notes or for the payment of the principal of the series
being redeemed in whole as described under the heading
"Redemption," by transfer and deposit by the indenture
trustee to the credit of the note payment account on
the legal final maturity of the series of notes or the
date of any redemption, as the case may be.
The reserve fund:
- enhances the likelihood of timely receipt by the holders of the
full amount of interest due them on each distribution date,
- enhances the likelihood of timely receipt by the holders of the
full amount of the principal due them on the legal final
maturity of the notes or a date when the notes are to be
redeemed in whole, and
- decreases the likelihood that the notes will experience losses.
However, the reserve fund could be depleted. If the amount required to be
withdrawn from the reserve fund to cover shortfalls in the amount of available
funds exceeds the amount of cash in the reserve fund, a
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<PAGE> 54
temporary shortfall in the amount of principal and interest distributed to the
holders of the notes could result. This shortfall could, in turn, increase the
average life of the notes. In addition, amounts on deposit in the reserve fund,
other than amounts in excess of the specified reserve fund balance, will not be
available to cover any aggregate unpaid carryover interest.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement dated
_________ ___, 1999, among the issuer, the depositor, the master servicer and
Salomon Smith Barney Inc., Fifth Third Securities, Inc., Banc of America
Securities LLC and PNC Capital Markets, Inc. (known as the underwriters), the
issuer has agreed to sell to the underwriters, and the underwriters have agreed
to purchase from the issuer, the principal balance of each series of notes set
forth below its name on the following chart:
<TABLE>
<CAPTION>
Series of Notes Salomon Smith Fifth Third Banc of America PNC Capital
Barney Inc. Securities, Inc. Securities LLC Markets, Inc.
<S> <C> <C> <C> <C>
Series 1999A-1 Notes ..............
Series 1999A-2 Notes ..............
Series 1999B-1 Notes ..............
Total ........................
------------- ---------------- ----------------- -------------
</TABLE>
In the underwriting agreement, the underwriters have agreed severally, subject
to the terms and conditions set forth therein, that if they purchase any of the
notes they will purchase all of them. The underwriting agreement provides that,
in some circumstances, if any underwriter defaults, purchase commitments of any
non-defaulting underwriter may be increased or purchase commitments of all
underwriters may be terminated. The underwriters have advised the issuer that
the underwriters propose initially to offer the notes to the public at the
public offering price with respect to each series set forth on the cover page of
this prospectus supplement. After the initial public offering, the public
offering price may be changed.
The underwriting agreement provides that the issuer, the depositor and the
master servicer will indemnify the underwriters against some liabilities
(including liabilities under applicable securities laws), or contribute to
payments the underwriters may be required to make as a result of these
liabilities.
The notes are new issues of securities with no established trading market. The
underwriters intend to make a market in the notes but they do not have to do so
and may discontinue market making activities at any time without notice. We
cannot assure you that you will be able to sell your notes.
The underwriters and some of their affiliates have in the past, and may in the
future, engage in commercial and investment banking activities with the issuer,
the depositor, the master servicer, the administrator and their affiliates.
The issuer may, from time to time, invest the funds in the funds and accounts in
eligible investments acquired from the underwriters.
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<PAGE> 55
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids under Regulation M under the
Securities Exchange Act of 1934, as amended. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a
syndicate member when the notes originally sold by the syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. The stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the notes to be higher than it would
otherwise be in the absence of the transactions.
LEGAL MATTERS
Legal matters relating to the issuer, the depositor, the master servicer, the
administrator, the notes and federal income tax matters will be passed on by
Thompson Hine & Flory LLP. Specific legal matters relating to the perfection of
the transfers of an ownership interest in or a security interest in, as the case
may be, the student loan notes will be passed on for the depositor by Calfee,
Halter & Griswold LLP. Certain legal matters will be passed upon for the
underwriters by Squire, Sanders & Dempsey L.L.P. Each of these firms has
performed legal services for the depositor and/or its affiliates in the past,
and it is expected that they will continue to perform these services in the
future.
RATING
It is a condition to the issuance and sale of each series of Series 1999A Notes
that they each be rated "AAA" by Fitch and "Aaa" by Moody's. It is a condition
to the issuance of the Series 1999B-1 Notes that they be rated at least "A" by
Fitch and at least "A2" by Moody's. A securities rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency. The ratings of the notes address the
likelihood of the ultimate payment of principal of and interest on the notes
under their terms. The rating agencies do not evaluate the likelihood of
prepayments on the notes or the likelihood of payment of carryover interest.
The issuer has furnished and will furnish to the rating agencies information and
materials, some of which have not been included in this prospectus supplement or
the prospectus. Generally, a rating agency bases its rating on this information
and materials, investigations, studies and assumptions obtained by the rating
agency. There is no assurance that any the rating will apply for any given
period of time or that it will not be lowered or withdrawn entirely by the
rating agency.
Each rating is subject to change or withdrawal at any time and any change or
withdrawal may affect the market price or marketability of the notes. The
underwriters undertake no responsibility either to bring to the attention of the
holders any proposed change in or withdrawal of any rating of the notes or to
oppose any change or withdrawal.
S-51
<PAGE> 56
APPENDIX A
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
prospectus supplement.
"MONTHLY COLLECTION PERIOD" means any calendar month.
"PROGRAM OPERATING EXPENSES" means all items of expense allocable
to the operation of the program, including
(1) fees and expenses of and any other amounts payable to the
indenture trustee, the owner trustee, the co-owner trustee and
the authenticating agent, if any, and any fees charged by a
depository,
(2) the fees and expenses of and any other amounts payable to the
calculation agent or other agent in connection with the notes
issued under the indenture,
(3) fees and expenses of and any other amounts payable to the
servicers, the eligible lender trustee and any bank providing
lock-box or similar services in connection with financed
student loans and servicing development fees,
(4) the fees and expenses incurred by or on behalf of the issuer,
including fees and expenses payable to the master servicer and
the administrator in the administration of the program under
the Higher Education Act.
"QUARTERLY COLLECTION PERIOD" means the collection period beginning on
the closing date and running through ______, ______, and afterwards, a period of
three consecutive calendar months.
"SERIES 1999A HOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, with
respect to any monthly distribution date for a Series of Series 1999A Notes, the
Series 1999A Principal Distribution Amount for the monthly distribution date
plus the Series 1999A Principal Shortfall as of the close of the preceding
monthly distribution date; provided that the Series 1999A Holders' Principal
Distribution Amount will not exceed the outstanding principal balance of the
Series 1999A Notes. In addition,
(1) on the legal final maturity of the Series 1999A-1 Notes, the
principal required to be distributed will include the amount
required to pay in full the outstanding principal balance of
the Series 1999A-1 Notes, and
(2) on the legal final maturity of the Series 1999A-2 Notes, the
principal required to be distributed will include the amount
required to pay in full the outstanding principal balance on
the Series 1999A-2 Notes.
"SERIES 1999A NOTES" means the Series 1999A-1 Notes together with the
Series 1999A-2 Notes.
"SERIES 1999A PRINCIPAL DISTRIBUTION AMOUNT" means
A-1
<PAGE> 57
(1) with respect to the Series 1999A-1 Notes, an amount equal to
the decline in the pool balance between the end of the second
monthly collection period preceding a monthly distribution
date and the end of the immediately preceding monthly
collection period, and
(2) with respect to the Series 1999A-2 Notes on and after the
principal balance of the Series 1999A-1 Notes has been paid,
an amount equal to the decline in the pool balance between the
end of the second monthly collection period preceding a
monthly distribution date and the end of the immediately
preceding monthly collection period.
"SERIES 1999A PRINCIPAL SHORTFALL" means, as of any monthly
distribution date for a series of Series 1999A Notes, the excess of the Series
1999A Principal Distribution Amount on the monthly distribution date over the
amount of principal actually distributed to the holders of Series 1999A Notes on
the monthly distribution date.
"SERIES 1999A-1 HOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any monthly distribution date, the sum of:
(1) the amount of interest accrued at the series interest rate for
the related interest accrual period on the aggregate
outstanding principal balance of the Series 1999A-1 Notes on
the immediately preceding monthly distribution date after
giving effect to all principal distributions to holders of
Series 1999A-1 Notes on the preceding monthly distribution
date (or, in the case of the first monthly distribution date,
on the closing date) plus
(2) the Series 1999A Interest Shortfall for the monthly
distribution date; provided that the Series 1999A-1 Holders'
Interest Distribution Amount will not include any carryover
interest on the Series 1999A-1 Notes.
"SERIES 1999A-1 INTEREST SHORTFALL" means, with respect to any monthly
distribution date, the excess of the Series 1999A-1 Holders' Interest
Distribution Amount on the preceding monthly distribution date over the amount
of interest actually distributed to the holders of Series 1999A-1 Notes on the
preceding monthly distribution date; plus interest on the amount of the excess
interest due to the holders of Series 1999A-1 Notes, to the extent permitted by
law, at the series interest rate borne by the Section 1999A-1 Notes from the
preceding monthly distribution date to the current monthly distribution date.
"SERIES 1999A-1 NOTES" means the Student Loan Senior LIBOR Rate
Asset-Backed Notes, Series 1999A-1 issued and outstanding.
"SERIES 1999A-2 HOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any monthly distribution date, the sum of:
(1) the amount of interest accrued at the related series interest
rate for the related interest accrual period on the aggregate
outstanding principal balance of the Series 1999A-2 Notes on
the immediately preceding monthly distribution date after
giving effect to all principal distributions to holders of the
Series 1999A-2 Notes on the preceding monthly distribution
date (or, in the case of the first monthly distribution date,
on the closing date) plus
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<PAGE> 58
(2) the Series 1999A-2 Interest Shortfall for the monthly
distribution date; provided that the Series 1999A-2 Holders'
Interest Distribution Amount will not include any carryover
interest on the Series 1999A-2 Notes.
"SERIES 1999A-2 INTEREST SHORTFALL" means, with respect to any monthly
distribution date, the excess of the Series 1999A-2 Holders' Interest
Distribution Amount on the preceding monthly distribution date over the amount
of interest actually distributed to the holders of Series 1999A-2 Notes on the
preceding monthly distribution date; plus interest on the amount of the excess
interest due to the holders of Series 1999A-2 Notes, to the extent permitted by
law, at the related series interest rate from the preceding monthly distribution
date to the current monthly distribution date.
"SERIES 1999A-2 NOTES" means the Student Loan Senior LIBOR Rate
Asset-Backed Notes, Series 1999A-2 issued and outstanding.
"SERIES 1999B-1 HOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with
respect to any quarterly distribution date, the sum of
(1) the amount of interest accrued at the related series interest
rate for the related interest accrual period on the aggregate
outstanding principal balance of the Series 1999B-1 Notes on
the immediately preceding quarterly distribution date after
giving effect to all principal distributions to Series 1999B-1
Notes on the preceding quarterly distribution date (or, in the
case of the first quarterly distribution date, on the closing
date) plus
(2) the Series 1999B-1 Interest Shortfall for the quarterly
distribution date, provided that the Series 1999B-1 Holders'
Interest Distribution Amount will not include any carryover
interest on the Series 1999B-1 Notes.
"SERIES 1999B-1 HOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, with
respect to any quarterly distribution date, the Series 1999B-1 Principal
Distribution Amount for the quarterly distribution date plus the Series 1999B-1
Principal Shortfall as of the close of the preceding quarterly distribution
date; provided that the Series 1999B-1 Holders' Principal Distribution Amount
will not exceed the outstanding principal balance of the Series 1999B-1 Notes.
In addition, on the legal final maturity of the Series 1999B-1 Notes, the
principal required to be distributed to the holders of Series 1999B-1 Notes will
include the amount required to pay in full the outstanding principal balance on
the Series 1999B-1 Notes.
"SERIES 1999B-1 INTEREST SHORTFALL" means, with respect to any
quarterly distribution date, the excess of the Series 1999B-1 Holders' Interest
Distribution Amount on the preceding quarterly distribution date over the amount
of interest actually distributed to the holders of Series 1999B-1 Notes on the
preceding quarterly distribution date; plus interest on the amount of the excess
interest due to the holders of Series 1999B-1 Notes, to the extent permitted by
law, at the related series interest rate from the preceding quarterly
distribution date to the current quarterly distribution date.
"SERIES 1999B-1 NOTES" means the Student Loan Subordinate LIBOR Rate
Asset-Backed Notes Series 1999B-1 issued and outstanding.
"SERIES 1999B-1 PRINCIPAL DISTRIBUTION AMOUNT" means, on each quarterly
distribution date on and after which the principal balance of the Series 1999A
Notes has been paid an amount equal to the decline
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<PAGE> 59
in the pool balance between the end of the second quarterly collection period
preceding a quarterly distribution date and the end of the immediately preceding
quarterly collection period (reduced with respect to the first quarterly
distribution date on which principal is to be paid on the Series 1999B-1 Notes
by the Series 1999A Holders' Principal Distribution Amount on the quarterly
distribution date).
"SERIES 1999B-1 PRINCIPAL SHORTFALL" means, as of the close of any
quarterly distribution date, the excess of the Series 1999B-1 Principal
Distribution Amount on the quarterly distribution date over the amount of
principal actually distributed to the holders of Series 1999B-1 Notes on the
quarterly distribution date.
A-4
<PAGE> 60
PROSPECTUS
STUDENT LOAN FUNDING TRUSTS
STUDENT LOAN FUNDING RIVERFRONT LLC
DEPOSITOR
STUDENT LOAN FUNDING RESOURCES, INC.
MASTER SERVICER AND ADMINISTRATOR
STUDENT LOAN ASSET-BACKED NOTES
<TABLE>
<S> <C>
---------------------------------
Notes Offered YOU SHOULD CAREFULLY CONSIDER
- asset backed notes THE RISK FACTORS IN THE
- may include senior and subordinated notes ACCOMPANYING PROSPECTUS
- rated in one of four highest rating categories by at least one SUPPLEMENT.
nationally recognized rating organization
- not listed on any trading exchange THE NOTES ARE OBLIGATIONS ONLY
- obligations only of the related trust OF THE RELATED TRUST AND ARE
PAYABLE SOLELY FROM THE STUDENT
Assets LOANS AND OTHER ASSETS OF THAT
- student loans TRUST.
- may include one or more forms of credit enhancement
THIS PROSPECTUS MUST BE
ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT FOR
THE PARTICULAR SERIES.
---------------------------------
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE NOTES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________, 1999
<PAGE> 61
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
The issuer provides information to you about the notes in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to a particular series
of notes, including your series, and (b) the accompanying prospectus supplement,
which will describe the specific terms of your series of notes, including:
- the timing of interest and principal payments;
- financial and other information about the financed student loans;
- information about credit enhancement;
- the ratings; and
- the method for selling the notes.
IF THE TERMS OF A PARTICULAR SERIES OF NOTES VARY BETWEEN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. The issuer has not authorized anyone to provide you with different
information. The notes are not offered in any state where the offer is not
permitted.
The issuer has included cross-references in this prospectus and in the
accompanying prospectus supplement to captions in these materials where you can
find further related discussions. The following table of contents and the table
of contents included in the accompanying prospectus supplement provide the pages
on which these captions are located.
--------------------
ii
<PAGE> 62
TABLE OF CONTENTS
Page
----
FORMATION OF THE TRUSTS ................................................. 1
The Trusts ......................................................... 1
The Administrator and Master Servicer1
Directors of Resources ........................................... 2
Officers of Resources ............................................ 3
THE DEPOSITOR 3
Depositor as Bankruptcy Remote Entity .............................. 4
THE FINANCED STUDENT LOAN POOL .......................................... 5
MATURITY AND PREPAYMENT CONSIDERATIONS .................................. 7
DESCRIPTION OF THE FFEL PROGRAM ......................................... 8
Loan Terms 12
Contracts with Guarantee Agencies ................................ 22
Federal Special Allowance Payments ............................... 26
Education Loans Generally Not Subject to Discharge in Bankruptcy . 27
Direct Loans ..................................................... 27
DESCRIPTION OF THE GUARANTEE AGENCIES ................................... 28
Federal Agreements ............................................... 30
Effect of Annual Claims Rate 31
THE PRIVATE LOAN PROGRAMS ............................................... 31
TRANSFER AND SALE AGREEMENTS ............................................ 32
Conveyance of Financed Student Loans; Representations and Warranties 33
Repurchase of Financed Student Loans ............................... 33
Subsequent Finance Period and Subsequent Financed Student Loans .... 34
Amendment .......................................................... 35
SERVICING ............................................................... 36
Master Servicer .................................................... 36
Servicing Procedures ............................................. 37
Servicer Covenants ............................................... 37
Servicing Compensation ........................................... 38
DESCRIPTION OF THE NOTES ................................................ 38
Payment of Available Funds ....................................... 40
Interest ......................................................... 42
Principal ........................................................ 44
Determination of LIBOR ........................................... 44
Determination of the Treasury Bill Rate Index .................... 45
Determination of Auction Rate .................................... 45
Auction Procedures ............................................... 46
Credit Enhancement ............................................... 48
Book-entry Registration .......................................... 50
Definitive Notes ................................................. 54
List of Holders .................................................. 55
Reports to Holders ............................................... 55
REDEMPTION .............................................................. 57
SECURITY FOR THE NOTES .................................................. 57
The Trust Assets ................................................. 57
Exchange Agreements .............................................. 58
Proceedings Affecting Eligible Lender Trustee 59
THE INDENTURES .......................................................... 59
Indenture Trustee ................................................ 59
Eligible Lender Trustee .......................................... 60
Funds and Accounts ............................................... 60
Acquisition Fund ................................................. 60
Student Loan Portfolio Fund ...................................... 61
Collection Fund .................................................. 62
Advances ......................................................... 63
Investment ....................................................... 63
Covenants of the Issuer .......................................... 65
Events of Default ................................................ 66
Amendment and Supplemental Indentures ............................ 71
Defeasance ....................................................... 73
Nonpresentment ................................................... 74
Removal of an Indenture Trustee; Resignation; Successors ......... 75
FEDERAL INCOME TAX CONSEQUENCES ......................................... 75
Payments Received on Notes ......................................... 76
Subordination76
Characterization of the Notes as Indebtedness .................... 76
Characterization of the Trust .................................... 77
Original Issue Discount .......................................... 78
Variable Rate Notes .............................................. 83
Anti-Abuse Rule .................................................. 86
Market Discount .................................................. 87
Amortizable Premium .............................................. 88
Gain or Loss on Disposition ...................................... 89
Backup Withholding, Foreign Holders, and Other Tax Matters ....... 90
STATE TAX CONSIDERATIONS ................................................ 91
USE OF PROCEEDS ......................................................... 91
ERISA CONSIDERATIONS .................................................... 92
WHERE YOU CAN FIND MORE INFORMATION ..................................... 92
REPORTS TO HOLDERS ...................................................... 93
INCORPORATION OF DOCUMENTS BY REFERENCE ................................. 93
PLAN OF DISTRIBUTION .................................................... 93
RATING .................................................................. 94
APPENDIX A - GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES ........................................ A-1
iii
<PAGE> 63
FORMATION OF THE TRUSTS
THE TRUSTS
Each trust will be formed under the laws of the jurisdiction set forth in the
related prospectus supplement under a trust agreement for the transactions
described in this prospectus and each prospectus supplement. Each trust will be
a common law trust. A trust will not engage in any activity other than:
(1) acquiring, holding, selling and managing the financed student
loans and the other assets of the trust and proceeds from the
financed student loans;
(2) issuing one or more classes of its certificates and notes;
(3) making payments on its certificates and notes; and
(4) engaging in other activities related to the activities listed in
(1) through (3) above.
A trust initially will be capitalized with a nominal cash payment for the trust
certificate. The right to receive any amounts remaining after payment of the
notes will be represented by the trust certificate which initially will be held
by the depositor. The equity of the trust, together with the proceeds from the
sale of each series of notes, will be used by the trust, acting on its own
behalf or through an eligible lender trustee to acquire financed student loans
from the depositor under any transfer and sale agreement. The assets of the
trust will include:
(1) the pool of financed student loans;
(2) all funds related to the financed student loans collected after
the applicable cut-off date;
(3) all moneys and investments on deposit in the collection account,
capitalized interest account, note payment account, expense
account, reserve fund and excess surplus account; and
(4) any other property specified in the prospectus supplement.
All of the accounts in (3) above are held in the name of the indenture trustee.
To facilitate servicing and to minimize administrative burden and expense, the
servicers will be appointed custodians of the promissory notes representing the
financed FFELP loans by the eligible lender trustee.
A trust's principal offices will be located at the address of the applicable
eligible lender trustee, owner trustee or co-owner trustee set forth in the
prospectus supplement. For information regarding the eligible lender trustee,
see "The Indentures -- Eligible Lender Trustee."
THE ADMINISTRATOR AND MASTER SERVICER
Student Loan Funding Resources, Inc., an Ohio corporation, offers a broad range
of educational related financial services, including student loan secondary
market services for lenders, education information outreach, and technical and
other assistance to colleges and universities. Resources is a wholly-owned
subsidiary of the Thomas L. Conlan Education Foundation (formerly known as The
Student Loan Funding
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<PAGE> 64
Corporation), an Ohio nonprofit corporation. The principal executive offices of
Resources are located at One West Fourth Street, Suite 200, Cincinnati, Ohio
45202. Its telephone number is (513) 352-0222.
Resources will undertake some responsibilities of the co-owner trustee, on
behalf of the issuer, under the indenture. Under an administration agreement
between Resources and the co-owner trustee, on behalf of the issuer, Resources,
as administrator, will provide management and administrative services to the
issuer. The administrator will receive an administration fee as compensation for
the performance of its obligations and as reimbursement for its expenses related
to its duties as administrator.
Under a master servicing agreement between Resources, as master servicer, and
the co-owner trustee, on behalf of the issuer, Resources will provide for the
servicing of the financed student loans. The master servicer will receive a
master servicing fee as compensation for the performance of the obligations and
the reimbursement for its expenses related to its duties as master servicer.
However, the notes are neither obligations of nor guaranteed or insured by
Resources in its capacity as the administrator or the master servicer.
Directors of Resources
Resources is governed by a board of directors that is currently authorized to
have seven members. The following table sets forth some information with respect
to the directors of Resources:
<TABLE>
<CAPTION>
JOINED TERM BOARD POSITIONS PRINCIPAL ADDRESS OCCUPATION (PAST
DIRECTOR AGE BOARD ENDING AND OFFICES FIVE YEARS)
<S> <C> <C> <C> <C> <C> <C>
Susan E. Arnold 45 1998 2002 One Procter & Gamble Vice President &
Plaza General Manager,
Cincinnati, Ohio 45201 Procter &
Gamble North America
Ronald D. Brown 45 1998 2002 4701 Marburg Avenue Senior Vice
Cincinnati, Ohio 45209 President & CFO, Milacron, Inc.
Lawrence A. Leser 63 1998 2001 Chairman P.O. Box 5380 Chairman, The E.W.
Cincinnati, Ohio 45201 Scripps Company
Chairman & CEO
(1994-96)
Serves as Director of:
----------------------
The E.W. Scripps
Company, Union
Central Life
Insurance Company &
AK Steel Holding
Company
William S. Newcomb, 55 1998 2001 Vice Chairman 52 East Gay Street Partner, Vorys
Jr. Columbus, Ohio 43215 Sater, Seymour & Pease LLP
Michael H. Shaut 48 1999 2002 President & One West 4th Street Previously:
CEO Suite 200 President, Education
Cincinnati, Ohio 45202 Planning Services,
Inc.
Previously:
Executive Vice
President and Chief
Operating Officer,
the Student Loan
Funding Corporation
</TABLE>
2
<PAGE> 65
<TABLE>
<CAPTION>
JOINED TERM BOARD POSITIONS PRINCIPAL ADDRESS OCCUPATION (PAST
DIRECTOR AGE BOARD ENDING AND OFFICES FIVE YEARS)
<S> <C> <C> <C> <C> <C> <C>
Patricia Mann Smitson 53 Ex- Ex- Secretary 312 Walnut Street Partner, Thompson
Officio Officio Suite 1400 Hine & Flory LLP
Cincinnati, Ohio 45202
Walker J. Wallace 55 1998 2002 1017 Choctawhatchee Drive Retired, Vice
Niceville, FL 32578 President, Procter &
Gamble
</TABLE>
OFFICERS OF RESOURCES
The principal executive officers of Resources are:
Michael H. Shaut, 48, is President and Chief Executive Officer of Resources. Mr.
Shaut assumed that position on May 18, 1999. Mr. Shaut has 19 years of
diversified financial services industry experience including student and
consumer lending and corporate development. From December, 1995 through June,
1997, Mr. Shaut was Executive Vice President and Chief Operating Officer of the
Foundation (then known as The Student Loan Funding Corporation). Mr. Shaut holds
a Bachelor of Arts from Colgate University and a Juris Doctorate from Georgetown
University Law Center. Mr. Shaut is a member of the Bar Associations of Arizona,
Ohio, Pennsylvania, Virginia and the District of Columbia.
Perry D. Moore, 36, is Senior Vice President and Chief Financial Officer of
Resources. Mr. Moore has over 10 years of financial management experience. He
has also been employed by a major public accounting firm where he participated
in the audits of numerous financial institutions including The Student Loan
Funding Corporation. Mr. Moore has over 7 years experience in the student loan
industry in the areas of accounting, finance, product development and
operations. He holds a Bachelor of Science in Accounting from Bowling Green
State University and is a member of the American Institute of Certified Public
Accountants, Ohio Society of Certified Public Accountants and Institute of
Management Accountants.
James H. Eickhoff, Jr., 37, is Senior Vice President of Business Development and
Marketing Services of Resources. Mr. Eickhoff has 14 years of sales and
marketing leadership experience within the health care and education fields. He
has served on several state and national committees promoting literacy and
school-to-work initiatives. He holds a Bachelor of Arts from Hope College,
Holland, Michigan.
THE DEPOSITOR
Student Loan Funding Riverfront LLC, a Delaware limited liability company
organized as a bankruptcy remote special purpose entity, is the depositor. The
sole member of the depositor is Student Loan Funding Holdings LLC, a Delaware
limited liability company. The members of Student Loan Funding Holdings LLC are
Resources (99% ownership) and SLF Enterprises, Inc. (1% ownership), an Ohio
corporation and wholly-owned subsidiary of Resources.
The depositor is governed by a five-member management committee, which consists
of the following individuals: Daniel R. Bley, Perry D. Moore, Michael H. Shaut,
Kathryn A. Widdoes and Sandra K. Zimmerman. Mr. Bley, Mr. Moore and Mr. Shaut
are officers and/or employees of Resources and Ms. Widdoes and Ms. Zimmerman are
independent members of the management committee. The depositor has no full-time
employees. The principal executive offices of the depositor are located at One
West Fourth Street, Suite 310, Cincinnati, Ohio 42502. The telephone number of
the offices is (513) 352-0570.
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<PAGE> 66
Under the depositor's limited liability company agreement, the depositor will
not engage in any activity other than:
(1) acquiring, holding, selling and managing student loans and other
assets (consisting of moneys and investment securities on deposit in
the funds and accounts under its indentures and the depositor's rights
under particular contracts) in any of the trusts established by the
depositor;
(2) issuing one or more series of notes or other debt obligations under
one or more indentures of the depositor;
(3) making payments on the notes or other debt obligations of the
depositor; and
(4) engaging in other activities that are related to those activities.
DEPOSITOR AS BANKRUPTCY REMOTE ENTITY
Resources structured the depositor to prevent any voluntary or involuntary
application for relief by Resources under insolvency laws from resulting in
consolidation of the assets and liabilities of the depositor with those of
Resources. The depositor was created as a separate, special purpose subsidiary
under a limited liability company agreement containing limitations (including
restrictions on the nature of the depositor's business and a restriction on the
depositor's ability to commence a voluntary proceeding under insolvency laws
without the unanimous affirmative vote of its management committee, including
the independent members). There can be no assurance that the activities of the
depositor will not result in a court concluding that the assets and the
liabilities of the depositor should be consolidated with those of Resources in a
proceeding under any insolvency laws.
The depositor has received the advice of its counsel to the effect that, subject
to specified facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate legal
existence of the depositor and to require the consolidation of the assets and
liabilities of the depositor with the assets and liabilities of Resources in the
event of the application of any insolvency laws to Resources. Among other
things, it is assumed by counsel that the depositor will follow some procedures
in the conduct of its affairs, including:
- maintaining records and books of accounts separate from those of
Resources;
- refraining from commingling its assets with those of Resources; and
- refraining from holding itself out as having agreed to pay, or being
liable for, the debts of Resources.
The depositor intends to follow these and other procedures related to
maintaining its separate identity.
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 Resources. If
a court were to reach that conclusion, or a filing were made under any
insolvency laws by or against the depositor, or if an attempt were made to
litigate any of the above issues, delays in distributions on the notes could
occur or reductions in the amounts of these distributions could result. See
"Risk Factors" in the related prospectus supplement.
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<PAGE> 67
After the occurrence of any event of bankruptcy or insolvency of the depositor,
the financed student loans and other assets of a trust may be liquidated. The
proceeds from that liquidation would be treated as collections on these assets
and deposited under the indenture. There can be no assurance that the proceeds
from the liquidation of these assets and amounts (if any) on deposit in the
funds and accounts held under the indenture would be sufficient to pay the
notes.
THE FINANCED STUDENT LOAN POOL
The notes are secured by and payable solely from the assets of the trust issuing
the notes. The trust will include:
(1) a pool of financed student loans and moneys payable with respect to
these loans after their respective dates of acquisition or origination
from moneys under the indenture;
(2) money and investment securities in the funds and accounts held by the
indenture trustee under the indenture; and
(3) all rights of the issuer and the eligible lender trustee in and to
specific contracts. See "Security for the Notes-- The Trust."
Financed student loans are student loans made or acquired by the trust, on its
own behalf or through the eligible lender trustee, with the proceeds of the
notes or moneys in the acquisition fund or the collection account. The pool of
financed student loans will include the student loans to be financed by the
issuer or the eligible lender trustee of the issuer.
The financed student loans will include FFELP loans and private loans that meet
several criteria, including the following. Each financed student loan:
(1) was originated in the United States or its territories or possessions
under the FFEL Program to or on behalf of a student who has graduated
or is expected to graduate from an accredited institution of higher
education within the meaning of the Higher Education Act;
(2) bears interest at the maximum interest rate permitted under the Higher
Education Act, or a lesser rate of interest as is approved by the
rating agencies under the related indenture;
(3) contains terms required by the FFEL Program, the guarantee agreements,
private loan programs and other applicable requirements; and
(4) is not more than 120 days past due as of the date that financed
student loan is acquired. See "Description of the FFEL Program" and
"Description of the Guarantee Agencies."
The relative percentages of each type of financed student loan to be included in
the pool of financed student loans will be determined from time to time under
the related indenture. See "Description of the FFEL Program," "Description of
the Guarantee Agencies" and "The Private Loan Programs."
In addition to the criteria described in the preceding paragraphs, a provider of
credit enhancement may require other characteristics for additional financed
student loans in the related trust. However, following each acquisition of
additional financed student loans into a trust by the issuer or an eligible
lender trustee
5
<PAGE> 68
on behalf of the issuer, the aggregate characteristics of the entire pool of
financed student loans in the trust, including the composition and type of the
financed student loans, the distribution by weighted average interest rate and
the distribution by principal amount to be described in tables included in each
prospectus supplement, may vary significantly from those of the financed student
loans, if any, acquired by the issuer or the eligible lender trustee on behalf
of the issuer and constituting a portion of the trust as of the applicable
cut-off date. In addition, the distribution by weighted average interest rate
applicable to the financed student loans in the trust on any date following the
related cut-off date may vary significantly from that set forth in the tables
included in the related prospectus supplement as a result of variation in the
effective rates of interest applicable to the financed student loans. The
information included in the related prospectus supplement with respect to the
original term to maturity and remaining term to maturity of financed student
loans as of the related cut-off date may vary significantly from the actual term
to maturity of any of the financed student loans as a result of the granting of
deferral and forbearance periods.
Each prospectus supplement will set forth information regarding the initial
financed student loans in the related trust, including the following:
- the composition of the financed student loans,
- the distribution by loan type,
- the distribution by interest rates,
- the distribution by outstanding principal balance,
- the distribution by geography,
- the distribution by insurance or guarantee level,
- the distribution by school type,
- the distribution by guarantee agency or private loan program,
- the distribution by remaining term to scheduled maturity and
- the distribution by borrower payment status.
See "The Financed Student Loans" in the related prospectus supplement. Each
prospectus supplement also will contain information with respect to other
financed student loans constituting the related trust.
Each of the FFELP loans provides or will provide for the amortization of the
outstanding principal balance of the financed student loan over a series of
regular payments. Each regular payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of the
financed student loan multiplied by the applicable interest rate and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received for the
financed student loan, the amount received is applied first to outstanding late
fees, if collected, then to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular installment before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than it would
6
<PAGE> 69
have been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if a borrower pays a monthly installment after its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case,
subject to any applicable grace periods, deferment periods or forbearance
periods, the borrower pays 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 a
financed student loan. Private loans may contain different amortization
provisions.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the notes and the yield on the notes will be
affected by:
(1) prepayments of the financed student loans that may occur as described
below;
(2) the sale by the issuer of financed student loans;
(3) parity percentage payments; and
(4) deferrals or delays in payment on the financed student loans resulting
from defaults, grace periods, deferment periods and, under some
circumstances, forbearance periods or as a result of refinancing
through consolidation loans.
All the financed student loans are prepayable in whole or in part by the
borrowers at any time (including by means of consolidation loans as discussed
below) and may be prepaid as a result of:
(1) borrower default, death, disability or bankruptcy;
(2) a closing of or false certification by the borrower's school;
(3) subsequent liquidation or collection of guarantee payments (including
for the purpose payments by any guarantor or escrow fund under a
private loan program); and
(4) financed student loans being repurchased by the seller as a result of
a breach of a representation and warranty.
The rate of the prepayments by borrowers cannot be predicted and may be
influenced by a variety of economic, social and other factors, including those
described below. In general, the rate of prepayments may tend to increase to the
extent that alternative financing becomes available at prevailing interest rates
which fall significantly below the interest rates applicable to the financed
student loans. However, because many of the financed student loans bear interest
at a rate that either actually or effectively is floating, it is impossible to
determine whether changes in prevailing interest rates will be similar to or
vary from changes in the interest rates on the financed student loans.
Scheduled payments with respect to the financed student loans and maturities of,
the financed student loans may be extended, due to grace periods, deferment
periods and, under some circumstances, forbearance periods. The payments and
maturities may also be extended as a result of refinancing through consolidation
7
<PAGE> 70
loans to the extent the consolidation loans are sold to the applicable eligible
lender trustee on behalf of the issuer as described above. If that happens, the
fact that the consolidation loans will likely have longer maturities than the
financed student loans they are replacing may lengthen the remaining term of the
financed student loans in the related trust and the average life of the related
notes. The rate of payment of principal of the notes and the yield on the notes
may also be affected by the rate of defaults resulting in losses on financed
student loans, by the severity of those losses and by the timing of those
losses, which may affect the ability of guarantee agencies to make guarantee
payments with respect to financed student loans.
The rate of prepayment on the financed student loans cannot be predicted and any
reinvestment risks resulting from a faster or slower incidence of prepayment of
financed student loans will be born entirely by the holders of the notes. These
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time the holders
of the notes receive payments from the related trust than the interest rates and
the spreads would otherwise have been had the prepayments not been made or had
the prepayments been made at a different time.
DESCRIPTION OF THE FFEL PROGRAM
The Higher Education Act sets forth provisions establishing the FFEL Program,
under which state agencies or private nonprofit corporations administering
student loan insurance programs (referred to as guarantee agencies) are
reimbursed for losses sustained in the operation of their programs, and holders
of some loans made under the programs are paid subsidies for owning the loans.
The Higher Education Act currently authorizes FFELP loans to be originated under
the FFEL Program through June 30, 2003. Congress has extended similar
authorization dates in prior versions of the Higher Education Act; however,
there can be no assurance that the current authorization dates will again be
extended or that the other provisions of the Higher Education Act will be
continued in their present form.
Various amendments to the Higher Education Act have revised the FFEL Program
from time to time. These amendments include, but are not limited to the
following:
- the Higher Education Amendments of 1998 (the 1998 Reauthorization
Bill);
- the Intermodal Surface Transportation Efficiency Act of 1998;
- the 1997 Budget Reconciliation Act (P.L. 105-33);
- the Emergency Student Loan Consolidation Act of 1997;
- the Higher Education Technical Amendments Act of 1993;
- the Omnibus Budget Reconciliation Act of 1993 (the 1993 Amendments);
- the Higher Education Amendments of 1992, which reauthorized the FFEL
Program;
- the Omnibus Budget Reconciliation Acts of 1990, 1989, 1987;
- the Higher Education Technical Amendments Act of 1987;
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<PAGE> 71
- the Higher Education Amendments of 1986, which reauthorized the FFEL
Program;
- the Consolidated Omnibus Budget Reconciliation Act of 1985;
- the Postsecondary Student Assistance Amendments of 1981; and
- the Education Amendments of 1980.
Omnibus Budget Reconciliation Act of 1993. Under the 1993 Amendments, Congress
made a number of changes that may adversely affect the financial condition of
the guarantee agencies, as these changes reduce financial benefits previously
enjoyed by guarantee agencies and give the Department of Education broad powers
over guarantee agencies and their reserves. See "-- Contracts with Guarantee
Agencies" and "The Guarantee Agencies" for a more detailed description of the
impact of this legislation on guarantee agencies. The changes create a
significant risk that the resources available to the guarantee agencies to meet
their guarantee obligations will be substantially reduced.
In addition, this legislation sought to greatly expand the loan volume under the
direct lending program of the Department of Education known as the Federal
Direct Student Loan Program, to a target of approximately 60% of student loan
demand in academic year 1998-1999. Only about 35% of the loan demand is
currently being met under the direct lending program. The expansion of this
program in the future could result in increasing reductions in the volume of
loans made under the FFEL Program.
Under the Federal Direct Student Loan Program, the Department of Education
directly originates and holds student loans without the involvement of private
lenders. If the Federal Direct Student Loan Program expands, the master servicer
or the servicers may experience increased costs due to reduced economies of
scale or other adverse effects on their business to the extent the volume of
loans serviced by the servicers is reduced. The consequences could occur from
reductions in either:
- the volume of new loans made under the FFEL Program; or
- the consolidation of existing loans under the Federal Direct Student
Loan Program.
These cost increases could affect the ability of the master servicer or the
servicers to satisfy their obligations to service the financed student loans or
to purchase financed student loans in the event of breaches of the servicers'
covenants. See "Servicing -- Servicer Covenants."
Volume reductions could further reduce revenues received by the guarantee
agencies available to pay claims on defaulted financed FFELP loans. Finally, the
level of competition currently in existence in the secondary market for loans
made under the FFEL Program could be reduced, resulting in fewer potential
buyers of the financed FFELP loans and lower prices available in the secondary
market for those loans.
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 consolidation loan;
9
<PAGE> 72
(2) changing the borrower interest rate on new 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%);
(3) providing that the portion of a consolidation 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 consolidation loans.
Except for the last of the above changes, all of these 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.
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 FFEL Program.
These provisions include, among other things, requiring guarantee agencies 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
guarantee agencies and a continuation of the administrative cost allowance
payable to guarantee agencies (which is a fee paid to federal guarantors equal
to 0.85% of new loans guaranteed). See "-- Contracts with Guarantee Agencies."
1998 Amendments. On May 22, 1998, Congress passed, and on June 9, 1998,
President Clinton 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, known as the 1998 Amendments, that revised interest rate
changes under the FFEL Program 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).
1998 Reauthorization Bill. On October 7, 1998, President Clinton signed into law
the 1998 Reauthorization Bill, which enacted significant reforms in the FFEL
Program. The major provisions of the 1998 Reauthorization Bill include the
following:
- All references to a "transition" to full implementation of the
Federal Direct Student Loan Program were deleted from the FFEL
Program statute.
- Guarantee agency reserve funds were restructured so that guarantee
agencies are provided with additional flexibility in choosing how to
spend the funds they receive.
- Additional recall of reserve funds by the Secretary of Education 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, minimum reserve levels are protected from recall.
- The administrative cost allowance was replaced by two 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, 2003)
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paid at the time a loan is guaranteed, and an account maintenance fee
of 12 basis points (10 basis points for fiscal years 2001-2003) paid
annually on outstanding guaranteed student loans.
- The percentage of collections on defaulted student loans a guarantee
agency is permitted to retain is reduced from 27% to 24% plus the
complement of the reinsurance percentage applicable at the time a
claim was paid to the lender of the student loan. This percentage
will be further reduced to 23% beginning on October 1, 2003.
- Federal reinsurance provided to guarantee agencies is reduced from
98% to 95% for student loans first disbursed on or after October 1,
1998.
- The delinquency period required for a loan to be declared in default
is increased from 180 days to 270 days for loans on which the first
day of delinquency occurs on or after the date of enactment of the
1998 Reauthorization Bill.
- Interest rates charged to borrowers on Stafford loans, and the yield
for Stafford loan holders established by the 1998 Amendments, were
made permanent.
- Consolidation loan interest rates were revised to equal the weighted
average of the loans consolidated rounded up to the nearest
one-eighth of 1%, capped at 8.25%. When the 91-day Treasury bill rate
plus 3.1% exceeds the borrower's interest rate, special allowance
payments are made to make up the difference.
- The lender-paid offset fee on consolidation loans of 1.05% is reduced
to .62% for loans made under applications received on or after
October 1, 1998 and on or before January 31, 1999.
- The consolidation loan interest rate calculation was revised to
reflect the rate of consolidation loans, and will be effective for
loans on which applications are received on or after October 1, 1998
and before July 1, 2003.
- Lenders are required to offer extended repayment schedules to new
borrowers after the enactment of the 1998 Reauthorization Bill who
accumulate after this date outstanding loans under the FFEL Program
totaling more than $30,000; under these extended schedules the
repayment period may extend up to 25 years subject to minimum
repayment amounts.
- The Secretary of Education is authorized to enter into six voluntary
flexible agreements with guarantee agencies under which various
statutory and regulatory provisions can be waived.
- Consolidation loan lending restrictions are revised to allow lenders
who do not hold one of the borrower's underlying FFELP loans to issue
a consolidation loan to a borrower whose underlying FFELP loans are
held by multiple holders.
- Inducement restrictions were revised to permit guarantee agencies and
lenders to provide assistance to schools comparable to that provided
to schools by the Secretary of Education under the Federal Direct
Student Loan Program.
- The Secretary of Education 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.
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- Discharge of FFELP loans and some 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 years prior to the
bankruptcy filing.
The new recall of reserves and reduced reinsurance for guarantee agencies
increase the risk that resources available to the guarantee agencies to meet
their guarantee obligations will be significantly reduced.
There can be no assurance that relevant federal laws, including the Higher
Education Act, will not be changed in a manner that may adversely affect the
receipt of funds by the guarantee agencies or by the issuer or the eligible
lender trustee with respect to financed FFELP loans.
This is only a summary of specific provisions of the Higher Education Act.
Reference is made to the text of the Higher Education Act for full and complete
statements of its provisions.
LOAN TERMS
Four types of loans are currently available under the FFEL Program:
- Stafford loans;
- Unsubsidized Stafford loans;
- PLUS loans; and
- Consolidation loans.
These loan types vary as to eligibility requirements, interest rates, repayment
periods, loan limits, eligibility for interest subsidies and special allowance
payments. Some of these loan types have had other names in the past. References
herein to the various loan types include, where appropriate, predecessors to
these loan types.
The primary loan under the FFEL Program is the Stafford loan. Students who are
not eligible for Stafford loans based on their economic circumstances may be
able to obtain unsubsidized Stafford loans. Parents of students may be able to
obtain PLUS loans. Consolidation loans are available to borrowers with existing
loans made under the FFEL Program and specific other federal programs to
consolidate repayment of these existing loans. For periods of enrollment
beginning prior to July 1, 1994, SLS Loans were available to students with costs
of education that were not met by other sources and that exceeded the Stafford
or unsubsidized Stafford loan limits.
Eligibility
General. A student is eligible for loans made under the FFEL Program only if he
or she:
- has been accepted for enrollment or is enrolled in good standing at
an eligible institution of higher education, which includes some
vocational schools;
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- is carrying or planning to carry at least one-half the normal
full-time workload for the course of study the student is pursuing as
determined by the institution, which, in the case of a loan to cover
the cost of a period of enrollment beginning on or after July 1, 1987,
must either lead to a recognized educational credential or be
necessary for enrollment in a course of study that leads to a
credential;
- has agreed to notify promptly the holder of the loan concerning any
change of address;
- if presently enrolled, is maintaining satisfactory progress in the
course of study he or she is pursuing;
- does not owe a refund on, and is not, except as specifically permitted
under the Higher Education Act, in default under, any loan or grant
made under the Higher Education Act;
- has filed with the eligible institution a statement of educational
purpose;
- meets the citizenship requirements; and
- except in the case of a graduate or professional student, has received
a preliminary determination of eligibility or ineligibility for a Pell
Grant.
Stafford Loans. Stafford loans generally are made only to student borrowers who
meet specific needs tests. The educational institution must provide the lender
with a statement evidencing a determination of need for a loan, and the amount
of the need, calculated by subtracting from the estimated cost of attendance the
sum of the expected family contribution with respect to the student plus the
estimated financial assistance available to the student. The amounts of the
expected family contribution, estimated available financial assistance, and
estimated costs of attendance are to be computed under standards set forth in
the Higher Education Act.
Unsubsidized Stafford Loans. A student borrower meeting the requirements set
forth under "-- General" above is eligible for an unsubsidized Stafford loan
without regard to need. Unsubsidized Stafford loans were not available before
October 1, 1992.
PLUS Loans. PLUS loans are made only to borrowers who are parents, legal
guardians and, under some circumstances, spouses of remarried parents of
dependent undergraduate students. For PLUS loans made on or after July 1, 1993,
the parent borrower must not have an adverse credit history, as determined under
criteria established by the Department of Education. Prior to the Higher
Education Amendments of 1986, the Higher Education Act did not distinguish
between PLUS loans and SLS loans. Student borrowers were eligible for PLUS
loans; however, parents of graduate and professional students were ineligible.
SLS Loans. Eligible borrowers for SLS loans were limited to:
(a) graduate or professional students;
(b) independent undergraduate students; and
(c) under some circumstances, dependent undergraduate students, if that
student's parents were unable to obtain a PLUS loan and were also
unable to provide the student's expected family contribution.
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Except as described in clause (c), eligibility was determined without regard to
need.
Consolidation Loans. To be eligible for a consolidation loan a borrower must:
- have outstanding indebtedness on student loans made under the FFEL
Program and/or other federal student loan programs; and
- be in repayment status or in a grace period, or be a defaulted
borrower who has made arrangements to repay the defaulted loan(s)
satisfactory to the holder of the defaulted loan(s).
A married couple, each of whom has outstanding loans under the FFEL Program, and
agrees to be jointly liable on a consolidation loan, for which the application
is received on or after January 1, 1993, may be treated as an individual for
purposes of obtaining a consolidation loan. For consolidation loans disbursed
prior to July 1, 1994, the borrower was required to have outstanding student
loan indebtedness of at least $7,500. Prior to the adoption of the Higher
Education Technical Amendments Act of 1993, PLUS loans could not be included in
the consolidation loan. For consolidation loans for which the applications were
received prior to January 1, 1993, the minimum student loan indebtedness was
$5,000 and the borrower could not be delinquent more than 90 days in the payment
of this indebtedness.
Interest Rates
The Higher Education Act establishes maximum interest rates for each of the
various types of loans. These rates vary not only among loan types, but also
within loan types depending on when the loan was made or when the borrower first
obtained a loan under the FFEL Program. The Higher Education Act allows lesser
rates of interest to be charged. Many lenders, including the depositor, have
offered repayment incentives or other programs that involve reduced interest
rates on specific loans made under the FFEL Program.
Stafford Loans. A new borrower is one who does not have an outstanding balance
on a previous loan made under the FFEL Program. For a Stafford loan made before
July 1, 1994, the applicable interest rate for a new borrower:
(1) is 7% for a loan covering a period of instruction beginning before
January 1, 1981;
(2) is 9% for a loan covering a period of instruction beginning on or
after January 1, 1981, but before September 13, 1983;
(3) is 8% for a loan covering a period of instruction beginning on or
after September 13, 1983, but before July 1, 1988;
(4) for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, is 8% for the period
from the disbursement of the loan to the date which is four years
after the loan enters repayment, and after is adjusted annually, and
for any 12-month period commencing on a July 1 is equal to the bond
equivalent rate of 91-day Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.25%, not to exceed 10%;
or
(5) for a loan made on or after October 1, 1992 is adjusted annually, and
for any 12-month period commencing on a July 1 is equal to the bond
equivalent rate of 91-day Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.1%, not to exceed 9%.
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A repeat borrower is one who does have an outstanding balance on a previous loan
made under the FFEL Program. For a Stafford loan made before July 1, 1994, the
applicable interest rate for a repeat borrower is:
(6) for a loan made prior to July 23, 1992, is the applicable interest
rate on the previous loan or, if the previous loan is not a Stafford
loan, 8%, or
(7) for a loan made on or after July 23, 1992, is adjusted annually, and
for any twelve month period commencing on a July 1, is equal to the
bond equivalent rate of 91-day Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.1% but not to exceed:
(a) 7% in the case of a Stafford loan made to a borrower who has a
loan described in clause (1) above;
(b) 8% in the case of:
(A) a Stafford loan made to a borrower who has a loan described
in clause (3) above;
(B) a Stafford loan which has not been in repayment for four
years and which was made to a borrower who has a loan
described in clause (4) above;
(C) a Stafford loan for which the first disbursement was made
prior to December 20, 1993 to a borrower whose previous
loans do not include a Stafford loan or an unsubsidized
Stafford loan;
(c) 9% in the case of:
(A) a Stafford loan made to a borrower who has a loan described
in clauses (2) or (5) above; or
(B) a Stafford loan for which the first disbursement was made on
or after December 20, 1993 to a borrower whose previous
loans do not include a Stafford loan or an unsubsidized
Stafford loan; and
(d) 10% in the case of a Stafford loan which has been in repayment
for four years or more and which was made to a borrower who has a
loan described in clause (4) above.
The interest rate on all Stafford loans made on or after July 1, 1994 but before
July 1, 1998, regardless of whether the borrower is a new borrower or a repeat
borrower, is the rate described in clause (7) above, but the rate shall not
exceed 8.25%. For any Stafford loan made on or after July 1, 1995, the interest
rate is further reduced prior to the time the loan enters repayment and during
any deferment periods. During these periods, the formula described in clause (7)
above is applied, except that 2.5% is substituted for 3.1%, and the rate shall
not exceed 8.25%.
For Stafford loans made on or after July 1, 1998 but before July 1, 2003, the
applicable interest rate shall be adjusted annually, and for any twelve month
period commencing on a July 1 shall be equal to the bond equivalent rate of
91-day Treasury bills auctioned at the final auction prior to the proceeding
June 1, plus (x) 1.7% prior to the time the loan enters repayment and during any
deferment periods, and (y) 2.3% during repayment, but not to exceed 8.25%.
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Unsubsidized Stafford Loans. Unsubsidized Stafford loans are subject to the same
interest rate provisions as Stafford loans.
PLUS Loans. The applicable interest rate on a PLUS loan:
(1) made on or after January 1, 1981, but before October 1, 1981, is 9%;
(2) made on or after October 1, 1981, but before November 1, 1982, is 14%;
(3) made on or after November 1, 1982, but before July 1, 1987, is 12%;
(4) made on or after July 1, 1987, but before October 1, 1992 shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week Treasury bills
auctioned at the final auction prior to the preceding June 1, plus
3.25%, not to exceed 12%;
(5) made on or after October 1, 1992, but before July 1, 1994, shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week Treasury bills
auctioned at the final auction prior to the preceding June 1, plus
3.1%, not to exceed 10%;
(6) made on or after July 1, 1994, but before July 1, 1998, is the same as
that described in clause (e) above, except that this rate shall not
exceed 9%; or
(7) made on or after July 1, 1998, but before July 1, 2003, shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 91-day Treasury bills
auctioned at the final auction prior to the proceeding June 1, plus
3.1%, not to exceed 9%.
If requested by the borrower, an eligible lender may consolidate SLS loans or
PLUS loans of the same borrower held by the tender under a single repayment
schedule. The repayment period for each included loan shall be based on the
commencement of repayment of the most recent loan. The consolidated loan shall
bear interest at a rate equal to the weighted average of the rates of the
included loans. This consolidation shall not be treated as the making of a new
loan. In addition, at the request of the borrower, a lender may refinance an
existing fixed rate SLS loan or PLUS loan. This includes an SLS or PLUS loan
held by a different lender who has refused so to refinance this loan at a
variable interest rate. If this happens, proceeds of the new loan are used to
discharge the original loan.
SLS Loans. The applicable interest rates on SLS loans made prior to October 1,
1992 are identical to the applicable interest rates on PLUS loans made at the
same time. For SLS loans made on or after October 1, 1992, the applicable
interest rate is the same as the applicable interest rate on PLUS loans, except
that the ceiling is 11% instead of 10%.
Consolidation Loans. The interest rate on a consolidation loan made prior to
July 1, 1994 is the weighted average of the rates on the loans retired, rounded
to the nearest whole percent, but not less than 9%. A consolidation loan made on
or after July 1, 1994 and before November 13, 1997, bears interest at a rate
equal to the weighted average of the interest rates on the loans retired,
rounded upward to the nearest whole percent, but with no minimum rate.
Consolidation loans made on or after November 13, 1997 and before
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October 1, 1998 bear interest at the annual variable rate for Stafford loans.
Consolidation loans for which applications are received on or after October 1,
1998 bear interest at a rate equal to the weighted average rate of the loans
consolidated rounded to the nearest one-eighth of 1%, but not to exceed 8.25%.
In addition, the portion, if any, of a consolidation loan that repaid a loan
made under Title VII, ss.ss.700-721 of the Public Health Services Act, as
amended, has a different variable interest rate. This portion is adjusted on
July 1 of each year, but is the sum of the average of the Treasury bill rates
auctioned for the quarter ending on the preceding June 30, plus 3.0%, without
any cap on the interest rate. For a discussion of required payments that reduce
the return on consolidation loans, see "-- Fees -- Rebate Fees on Consolidation
Loans."
Loan Limits
Every type of loan other than consolidation loans, is subject to limits as to
the maximum principal amount, both with respect to a given year and in the
aggregate. All of the loans are limited to the difference between the cost of
attendance and the other aid available to the student. Stafford loans are also
subject to limits based on the needs analysis as described in "-- Eligibility --
Stafford Loans." Additional limits are described below.
Stafford and Unsubsidized Stafford Loans. Stafford and Unsubsidized Stafford
loans are generally treated as one loan type for loan limit purposes. A student
who has not successfully completed the first year of a program of undergraduate
education may borrow up to $2,625 in an academic year. A student who has
successfully completed the first year, but who has not successfully completed
the second year may borrow up to $3,500 per academic year. An undergraduate
student who successfully completes the first and second year, but who has not
successfully completed the remainder of a program of undergraduate education,
may borrow up to $5,500 per academic year. For students enrolled in programs of
less than an academic year in length, the limits are generally reduced in
proportion to the amount by which these programs are less than one year in
length.
A graduate or professional student may borrow up to $8,500 in an academic year.
The maximum aggregate amount of Stafford and unsubsidized Stafford loans
(including that portion of a consolidation loan used to repay these loans) which
an undergraduate student may have outstanding is $23,000. The maximum aggregate
amount for a graduate and professional student, including loans for
undergraduate education, is $65,500. The Secretary of Education is authorized to
increase the limits applicable to graduate and professional students who are
pursuing programs which the Secretary of Education determines to be
exceptionally expensive.
At the time that SLS loans were eliminated, the loan limits for unsubsidized
Stafford loans to independent students, or dependent students whose parents
cannot borrow a PLUS loan, were increased by amounts equal to the prior SLS loan
limits.
Prior to the enactment of the Higher Education Amendments of 1992, an
undergraduate student who had not successfully completed the first and second
year of a program of undergraduate education could borrow Stafford loans in
amounts up to $2,625 in an academic year. An undergraduate student who had
successfully completed the first and second years, but who had not successfully
completed the remainder of a program of undergraduate education could borrow up
to $4,000 per academic year. The maximum for graduate and professional students
was $7,500 per academic year. The maximum aggregate amount of Stafford loans
which a borrower could have outstanding, including that portion of a
consolidation loan used to repay these
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loans, was $17,250. The maximum aggregate amount for a graduate or professional
student, including loans for undergraduate education, was $54,750. Prior to the
1986 changes, the annual limits were generally lower.
PLUS Loans. For PLUS loans made on or after July 1, 1993, the amounts of PLUS
loans are limited only by the student's unmet need. Prior to that time PLUS
loans were subject to limits similar to those to which SLS loans were then
subject (see "-- SLS Loans"), applied with respect to each student on behalf of
whom the parent borrowed.
SLS Loans. A student who had not successfully completed the first and second
year of a program of undergraduate education could borrow an SLS loan in an
amount of up to $4,000. A student who had successfully completed the first and
second years, but who had not successfully completed the remainder of a program
of undergraduate education could borrow up to $5,000 per year. Graduate and
professional students could borrow up to $10,000 per year. SLS Loans were
subject to an aggregate maximum of $23,000 for undergraduate students and
$73,000 for graduate and professional students. Prior to the 1992 changes, SLS
loans were available in amounts of $4,000 per academic year, up to a $20,000
aggregate maximum. Prior to the 1986 changes, a graduate or professional student
could borrow $3,000 of SLS Loans per academic year, up to a $15,000 maximum, and
an independent undergraduate student could borrow $2,500 of SLS loans per
academic year minus the amount of all other FFEL Program loans to that student
for that academic year, up to a maximum amount of all FFEL Program loans to that
student of $12,500. In 1989, the amount of SLS loans for students enrolled in
programs of less than an academic year in length were limited similarly to the
limits of Stafford loans.
Repayment
Loans, other than consolidation loans, made under the FFEL Program must provide
for repayment of principal in periodic installments over a period of not less
than five nor more than ten years. A consolidation loan must be repaid during a
period not more than 30 years, agreed to by the borrower and lender, subject to
maximum repayment periods which vary depending on the principal amount of the
borrower's outstanding student loans. For consolidation loans for which the
application was received prior to January 1, 1993, the repayment period could
not exceed 25 years. The repayment period commences:
(1) not more than twelve months after the borrower ceases to pursue at
least a half-time course of study with respect to Stafford loans for
which the applicable rate of interest is 7%;
(2) not more than six months after the borrower ceases to pursue at least
a half-time course of study with respect to other Stafford loans and
unsubsidized Stafford loans (the six month or twelve month periods are
the grace periods); and
(3) on the date of final disbursement of the loan in the case of SLS, PLUS
and consolidation loans, except that the borrower of an SLS loan who
also has a Stafford or unsubsidized Stafford loan may defer repayment
of the SLS loan to coincide with the commencement of repayment of the
Stafford or unsubsidized Stafford loan.
During periods in which repayment of principal is required, payments of
principal and interest must in general be made at a rate of not less than the
greater of $600 per year or the interest that accrues during the year, except
that a borrower and lender may agree at any time before or during the repayment
period, that repayment may be at a lesser rate. A borrower may agree, with
concurrence of the lender, to repay the loan
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in less than five years with the right subsequently to extend his minimum
repayment period to five years. Borrowers may accelerate, without penalty, the
repayment of all or any part of the loan.
In addition, since 1992, lenders of consolidation loans have been required to
establish graduated or income-sensitive repayment schedules and lenders of
Stafford and SLS loans have been required to offer borrowers the option of
repaying under graduated or income-sensitive repayment schedules. The depositor
may implement graduated repayment schedules and income-sensitive repayment
schedules. Use of income-sensitive repayment schedules may extend the ten-year
maximum term for up to five years. In addition, if the repayment schedule on a
loan that has been converted to a variable interest rate does not provide for
adjustments to the amount of the monthly installment payments, the ten-year
maximum term may be extended for up to three years.
No principal repayments need be made during some deferment periods prescribed by
the Higher Education Act. For loans to a borrower who first obtained a loan
which was disbursed before July 1, 1993, deferments are available:
(1) during a period not exceeding three years while the borrower is a
member of the armed forces, an officer in the Commissioned Corps of
the Public Health Service or, with respect to a borrower who first
obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, an active duty member
of the National Oceanic and Atmospheric Administration Corps;
(2) during a period not in excess of three years while the borrower is a
volunteer under the Peace Corps Act;
(3) during a period not in excess of three years while the borrower is a
full-time volunteer under the Domestic Volunteer Act of 1973;
(4) during a period not exceeding three years while the borrower is in
service, comparable to the service referred to in clauses (2) and (3),
as a full-time volunteer for an organization which is exempt from
taxation under Section 501(c)(3) of the code;
(5) during a period not exceeding two years while the borrower is serving
an internship, the successful completion of which is required to
receive professional recognition required to begin professional
practice or service, or a qualified internship or residency program;
(6) during a period not exceeding three years while the borrower is
temporarily totally disabled, as established by sworn affidavit of a
qualified physician, or while the borrower is unable to secure
employment by reason of the care required by a dependent who is so
disabled;
(7) during a period not to exceed 24 months while the borrower is seeking
and unable to find full-time employment;
(8) during any period that the borrower is pursuing a full-time course of
study at an eligible institution (or, with respect to a borrower who
first obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, is pursuing at least a
half-time course of study for which the borrower has obtained a loan
under the FFEL Program), or is pursuing a course of study in a
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graduate fellowship program or a rehabilitation training program for
disabled individuals approved by the Secretary of Education;
(9) during a period, not in excess of six months, while the borrower is on
parental leave; and
(10) only with respect to a borrower who first obtained a student loan
disbursed on or after July 1, 1987, or a student loan to cover the
cost of instruction for a period of enrollment beginning on or after
July 1, 1987;
(A) during a period not in excess of three years while the borrower
is a full-time teacher in a public or nonprofit private
elementary or secondary school in a "teacher shortage area" (as
prescribed by the Secretary of Education), and
(B) during a period not in excess of 12 months for mothers, with
preschool age children, who are entering or re-entering the work
force and who are compensated at a rate not exceeding $1 per hour
in excess of the federal minimum wage. For loans to a borrower
who first obtains a loan on or after July 1, 1993, deferments are
available:
(a) during any period that the borrower is pursuing at least a
half-time course of study at an eligible institution or a
course of study in a graduate fellowship program or
rehabilitation training program approved by the Secretary,
(b) during a period not exceeding three years while the borrower
is seeking and unable to find full-time employment, and
(c) during a period not in excess of three years for any reason
which the lender determines, under regulations under the
Higher Education Act, has caused or will cause the borrower
economic hardship. Economic hardship includes working full
time and earning an amount not in excess of the greater of
the minimum wage or the poverty line for a family of two.
Additional categories of economic hardship are based on the
relationship between a borrower's educational debt burden
and his or her income.
Prior to the 1992 changes, only the deferment periods described above in clauses
(6) and (7) (with respect to the parent borrower) and the deferment period
described in clause (8) (with respect to the parent borrower or a student on
whose behalf the parent borrowed) were available to PLUS loan borrowers, and
only the deferment periods described above in clauses (6), (7) and (8) were
available to consolidation loan borrowers. Prior to the 1986 changes, PLUS loan
borrowers were not entitled to deferment periods. Deferment periods extend the
ten-year maximum repayment term.
The Higher Education Act also provides for forbearance periods during which the
borrower, in case of temporary financial hardship, may defer any payments. A
borrower is entitled to forbearance for a period not to exceed three years while
the borrower's debt burden under Title IV of the Higher Education Act, which
includes the FFEL Program, equals or exceeds 20% of the borrower's gross income,
and also is entitled to forbearance while he or she is serving in a qualifying
medical or dental internship program or in a "national service position" under
the National and Community Service Trust Act of 1993.
In addition, mandatory administrative forbearances are provided when exceptional
circumstances such as a local or national emergency or military mobilization
exist; or when the geographical area in which the
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borrower or endorser resides has been designated a disaster area by the
President of the United States or Mexico, the Prime Minister of Canada, or by
the governor of a state. In other circumstances, forbearance is at the lender's
option. The forbearance also extends the ten year maximum term.
As described under the heading "-- Contracts with Guarantee Agencies -- Federal
Interest Subsidy Payments," the Secretary of Education makes interest payments
on behalf of the borrower of specific eligible loans while the borrower is in
school and during grace and deferment periods. Interest that accrues during
forbearance periods and, if the loan is not eligible for interest subsidy
payments, while the borrower is in school and during the grace and deferment
periods, may be paid monthly or quarterly or capitalized (added to the principal
balance) not more frequently than quarterly.
Disbursement
All loans, except consolidation loans, made under the FFEL Program generally
must be disbursed in two or more installments, none of which may exceed 50% of
the total principal amount of the loan.
Fees
Guarantee Fee. A guarantee agency is authorized to charge a premium, or
guarantee fee, of up to 1% of the principal amount of the loan, which must be
deducted proportionately from each installment payment of the proceeds of the
loan to the borrower. Guarantee fees may not currently be charged to borrowers
of consolidation loans. However, lenders may be charged an insurance fee to
cover the costs of increased or extended liability with respect to consolidation
loans. For loans made prior to July 1, 1994, the maximum guarantee fee was 3% of
the principal amount of the loan, but no guarantee fee was authorized to be
charged with respect to unsubsidized Stafford loans.
Origination Fee. An eligible lender is authorized to charge the borrower of a
Stafford or unsubsidized Stafford loan an origination fee in an amount not to
exceed 3% of the principal amount of the loan, and is required to charge the
borrower of a PLUS loan an origination fee in the amount of 3% of the principal
amount of the loan. These fees must be deducted proportionately from each
installment payment of the loan proceeds prior to payment to the borrower and
are not retained by the lender, but must be passed on to the Secretary of
Education. For loans made prior to July 1, 1994, the maximum authorized fee for
Stafford, PLUS and SLS loans was 5% and the required fee for unsubsidized
Stafford loans was 6.5% of the principal amount of the loan.
Lender Origination Fee. The lender of any loan under the FFEL Program made on or
after October 1, 1993 is required to pay to the Secretary of Education an
origination fee equal to 0.5% of the initial principal amount of that loan.
Rebate Fee on Consolidation Loans. The holder of any consolidation loan is
required to pay to the Secretary of Education a monthly fee at an annualized
rate of 1.05% (.62% for applications received between October 1, 1998 and
January 31, 1999) of the principal amount of, and accrued interest on, that
consolidation loan.
Loan Guarantees
Under the FFEL Program, guarantee agencies are required to guarantee the payment
of not less than 100% of the principal amount of loans made prior to October 1,
1993 and covered by their respective guarantee programs. For a description of
the requirements for loans to be covered by these guarantees, see "The
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Guarantee Agencies." For loans made on or after October 1, 1993, the minimum
percentage of the principal amount of loans which a guarantee agency must pay is
98% and the Department of Education has taken the position that a guarantee
agency may not pay more than 98% of the principal amount of and accrued interest
on that loan. The 1998 Reauthorization Bill further reduces the maximum
reinsurance rate to guarantee agencies from 98% to 95% for loans made on or
after October 1, 1998. Under some circumstances, guarantees may be assumed by
the Secretary of Education or another guarantee agency. See "-- Contracts with
Guarantee Agencies."
CONTRACTS WITH GUARANTEE AGENCIES
Under the FFEL Program, the Secretary of Education is authorized to enter into
guaranty and interest subsidy agreements with guarantee agencies. The FFEL
Program provides for reimbursements to guarantee agencies for default claims
paid by guarantee agencies, support payments to guarantee agencies for
administrative and other expenses, advances for a guarantee agency's reserve
funds, and interest subsidy payments and special allowance payments to the
holders of qualifying student loans made under the FFEL Program.
The Secretary of Education has specific oversight powers over guarantee
agencies. Guarantee agencies are required to maintain their reserves at levels
based on the amount of outstanding loans that they have guaranteed. If a
guarantee agency falls below the required level in two consecutive years, or its
claims rate exceeds 5% in any year, or if the Secretary of Education determines
that the guarantee agency's administrative or financial condition jeopardizes
its ability to meet its obligations, the Secretary of Education can require the
guarantee agency to submit and implement a plan by which it will correct the
problem(s). If a guarantee agency fails to timely submit an acceptable plan or
fails to improve its condition, or if the Secretary of Education determines that
the guarantee agency is in danger of financial collapse, the Secretary of
Education may terminate the guarantee agency's reimbursement contract. The
circumstances under which the Secretary of Education may terminate these
reimbursement contracts also includes a determination that this action is
necessary to protect the federal fiscal interest or to ensure continued
availability of student loans. See "-- Direct Loans."
The Secretary of Education is authorized to assume the guarantee obligations of
a guarantee agency. The Higher Education Act now provides that, if the Secretary
of Education terminates a guarantee agency's agreements under the FFEL Program,
the Secretary of Education shall assume responsibility for all functions of the
guarantee agency under its program. To that end, the Secretary of Education is
authorized to, among other options, transfer the guarantees to another guarantee
agency or assume the guarantees. It also provides that in the event the
Secretary of Education has determined that a guarantee agency is unable to meet
its guarantee obligations, holders of loans guaranteed by a guarantee agency may
submit claims directly to the Secretary of Education for payment, unless the
Secretary of Education has provided for the assumption of these guarantees by
another guarantee agency.
Federal Reimbursement
A guarantee agency's right to receive federal reimbursements for various
guarantee claims paid by a guarantee agency is governed by the Higher Education
Act and various contracts entered into between guarantee agencies and the
Secretary of Education. See "Description of the Guarantee Agencies -- Federal
Agreements." Under the Higher Education Act and the federal reimbursement
contracts, the Secretary of Education currently agrees to reimburse a guarantee
agency for the amounts expended by the guarantee agency in the discharge of its
guarantee obligation (i.e., the unpaid principal balance of and accrued interest
on loans guaranteed by the guarantee agency as a result of the default of the
borrower).
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With respect to loans made prior to October 1, 1993, the Secretary of Education
currently agrees to reimburse the guarantee agency for up to 100% of the amounts
so expended. For loans made on or after October 1, 1993, the Secretary of
Education currently agrees to reimburse the guarantee agency for a maximum of
98% of the amount expended with respect to guaranteed loans. The 1998
Reauthorization Bill further reduced the maximum reinsurance rate to guarantee
agencies from 98% to 95% for loans made on or after October 1, 1998. Depending
on the claims rate experience of a guarantee agency, 100%, 98% or 95%
reimbursement may be reduced as discussed in the formula described below.
The Secretary of Education also agrees to repay 100% of the unpaid principal
plus applicable accrued interest expended by a guarantee agency in discharging
its guarantee obligation as a result of the bankruptcy, death, or total and
permanent disability of a borrower, and in the case of a PLUS loan, the death of
the student on behalf of whom the loan was borrowed. In the instance of school
closures, reimbursements are not to be included in the calculations of the
guarantee agency's claims rate experience for the purpose of federal
reimbursement under the federal reimbursement contracts.
The formula for computing the percentage of federal reimbursement under the
federal reimbursement contracts is not accumulated over a period of years, but
is measured by the amount of federal reimbursement payments in any one federal
fiscal year as a percentage of the original principal amount of loans under the
FFEL Program guaranteed by the guarantee agency and in repayment at the end of
the preceding fiscal year. Under the formula, federal reimbursement payments to
a guarantee agency in any one fiscal year not exceeding 5% of the original
principal amount of loans in repayment at the end of the preceding fiscal year,
are to be paid by the Secretary of Education at 100% (or 98% for loans made on
or after October 1, 1993 or 95% for loans made on or after October 1, 1998).
Beginning at any time during any fiscal year that federal reimbursement payments
exceed 5%, and until they may exceed 9%, of the original principal amount of
loans in repayment at the end of the preceding fiscal year, then reimbursement
payments on claims submitted during that period are to be paid at 90% or 88% for
loans made on or after October 1, 1993, or 85% for loans made on or after
October 1, 1998. Beginning at any time during any fiscal year that federal
reimbursement payments exceed 9% of the original principal amount of loans in
repayment at the end of the preceding fiscal year, then these payments for the
balance of that fiscal year will be paid at 80%. This amount is 78% for loans
made on or after October 1, 1993 and 75% for loans made on or after October 1,
1998. The original principal amount of loans in repayment for purposes of
computing reimbursement payments to a guarantee agency means the original
principal amount of all loans guaranteed by the guarantee agency less:
(1) guarantee payments on these loans;
(2) the original principal amount of these loans that have been fully
repaid; and
(3) the original principal amount of these loans for which the first
principal installment payment has not become due or the first
installment need not be paid because of a deferment period.
Under present practice, after the Secretary of Education reimburses a guarantee
agency for a default claim paid on a guaranteed loan, the guarantee agency
continues to seek repayment from the borrower. The guarantee agency returns to
the Secretary of Education payments that it receives from a borrower after
deducting and retaining:
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(1) a percentage amount equal to the complement of the reimbursement
percentage in effect at the time the loan was reimbursed; and
(2) an amount equal to 24% (23% beginning October 1, 2003) or 18-1/2% in
the case of a payment from the proceeds of a consolidation loan of the
payments for administrative costs.
The Secretary of Education may require the assignment to the Secretary of
Education of defaulted guaranteed loans, in which event no further collections
activity need be undertaken by the guarantee agency, and no amount of any
recoveries shall be paid to the guarantee agency. Prior to the 1998 changes, the
percentage of collections which guarantee agencies could retain was 27%.
A guarantee agency may enter into an addendum to its interest subsidy agreement,
which addendum provides for the guarantee agency to refer to the Secretary of
Education specific defaulted guaranteed loans. The loans are then reported to
the IRS to offset any tax refunds which may be due any defaulted borrower. To
the extent that the guarantee agency has originally received less than 100%
reimbursement from the Secretary of Education with respect to a referred loan,
the guarantee agency will not recover any amounts subsequently collected by the
federal government which are attributable to that portion of the defaulted loan
for which the guarantee agency has not been reimbursed.
Rehabilitation of Defaulted Loans
Under Section 428F of the Higher Education Act, each guarantee agency must enter
into an agreement with the Secretary of Education under which the guarantee
agency must sell defaulted loans that are eligible for rehabilitation to an
eligible lender. The guarantee agency must repay the Secretary of Education an
amount equal to 81.5% of the then current principal balance of the loan,
multiplied by the reimbursement percentage in effect at the time the loan was
reimbursed. The amount of the repayment shall be deducted from the amount of
federal reimbursement payments for the fiscal year in which repayment occurs,
for purposes of determining the reimbursement rate for that fiscal year.
For a loan to be eligible for rehabilitation, the guarantee agency must have
received consecutive payments for 12 months of amounts owed on that loan. Once
rehabilitated, a loan is eligible for all the benefits under the Higher
Education Act for which it would have been eligible had no default occurred.
Eligibility for Federal Reimbursement
To be eligible for federal reimbursement payments, guaranteed loans must be made
by an eligible lender under the applicable guarantee agency's guarantee program,
which must meet requirements prescribed by the rules and regulations promulgated
under the Higher Education Act. These rules and regulations include borrower
eligibility, loan amount, disbursement, interest rate, repayment period and
guarantee fee provisions described herein and the other requirements set forth
in Section 428(b) of the Higher Education Act.
Under the Higher Education Act, a guaranteed loan must be delinquent for 180
days (or 270 days for loans on which the first day of delinquency occurs on or
after October 7, 1998) if it is repayable in monthly installments or 330 days if
it is payable in less frequent installments before a lender may obtain payment
on a guarantee from the guarantee agency. The guarantee agency must pay the
lender for the defaulted loan prior to submitting a claim to the Secretary of
Education for reimbursement. The guarantee agency must submit a reimbursement
claim to the Secretary of Education within 45 days after it has paid the
lender's default claim.
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A lender must have exercised reasonable care and diligence in making, servicing
and collecting the guaranteed loan for the loan to be eligible for guarantee
payments and reimbursement by the Secretary of Education.
Generally, these procedures require that:
(1) completed loan applications be processed;
(2) a determination of whether an applicant is an eligible borrower
attending an eligible institution under the Higher Education Act be
made;
(3) the borrower's responsibilities under the loan be explained to him or
her;
(4) the promissory note evidencing the loan be executed by the borrower;
and
(5) the loan proceeds be disbursed by the lender in a specified manner.
After the loan is made, the lender must establish repayment terms with the
borrower, properly administer deferments and forbearances and credit the
borrower for payments made. If a borrower becomes delinquent in repaying a loan,
a lender must perform specific collection procedures that vary depending on the
length of time a loan is delinquent.
Federal Interest Subsidy Payments
Interest subsidy payments are interest payments paid with respect to an eligible
loan during the period prior to the time that the loan enters repayment and
during grace and deferment periods. The Secretary of Education and the guarantee
agencies entered into the interest subsidy agreements as described in
"Description of the Guarantee Agencies -- Federal Agreements," whereby the
Secretary of Education agrees to pay interest subsidy payments to the holders of
eligible guaranteed loans for the benefit of students meeting specific
requirements, subject to the holders' compliance with all requirements of the
Higher Education Act. Only Stafford loans, and consolidation loans for which the
application was received on or after January 1, 1993, are eligible for interest
subsidy payments.
Consolidation loans made after August 10, 1993 are eligible for interest subsidy
payments only if all loans consolidated thereby are Stafford loans. However,
consolidation loans for which the application is received by an eligible lender
on or after November 13, 1997 and before October 1, 1998, are eligible for
interest subsidy payments on that portion of the consolidation loan that repays
Stafford loans or similar subsidized loans made under the direct loan program.
In addition, to be eligible for interest subsidy payments, guaranteed loans must
be made by an eligible lender under the applicable guarantee agency's guarantee
program, and must meet requirements prescribed by the rules and regulations
promulgated under the Higher Education Act, including the borrower eligibility,
loan amount, disbursement, interest rate, repayment period and guarantee fee
provisions described in this prospectus and the other requirements set forth in
Section 428(b) of the Higher Education Act.
The Secretary of Education makes interest subsidy payments quarterly on behalf
of the borrower to the holder of a guaranteed loan in a total amount equal to
the interest which accrues on the unpaid principal amount prior to the
commencement of the repayment period of the loan or during any deferment period.
A borrower may elect to forego interest subsidy payments, in which case the
borrower is required to make interest payments.
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Federal Administrative Expense Allowances
Prior to the adoption of the 1993 Amendments, each guarantee agency was entitled
to receive from the Secretary of Education an administrative cost allowance
equal to 1% of the total principal amount of the loans other than consolidation
loans guaranteed by the guarantee agency in any fiscal year, for the purposes of
administrative costs of pre-claims assistance for default prevention and
collection of defaulted guaranteed loans, administrative costs of promoting
commercial lender participation, administrative costs of monitoring the
enrollment and repayment status of students, and for other costs related to the
guarantee agency's guarantee program. The 1993 Amendments repealed entitlement,
effective October 1, 1993. The 1993 Amendments, however, authorized payments for
transition support to guarantee agencies, in connection with the transition to
direct lending. See "Direct Loans."
Budget legislation adopted since that time has provided for the payment to
guarantee agencies of an administrative expense allowance equal to 0.85% of the
agency's annual new guarantee volume, which has been extended through the fiscal
year ending September 30, 2002. After the fiscal year ending September 30, 1997,
these amounts are subject to decreasing aggregate limits.
Under the 1998 Reauthorization Bill, the administrative cost allowance was
replaced by two new payments:
(1) a student loan processing fee equal to 65 basis points (40 basis
points for loans made on or after October 1, 2003) paid at the time a
loan is guaranteed, and
(2) an account maintenance fee of 12 basis points (10 basis points for
fiscal years 2001-2003) paid annually on outstanding guaranteed
student loans.
Federal Advances
Under agreements entered into between the guarantee agencies and the Secretary
of Education under Sections 422 and 422(c) of the Higher Education Act, the
Secretary of Education was authorized to advance moneys from time to time to the
guarantee agencies for the purpose of establishing and strengthening the
guarantee agencies' reserves. Section 422(c) currently authorizes the Secretary
of Education to make advances to guarantee agencies in various circumstances, on
terms and conditions satisfactory to the Secretary of Education, including if
the Secretary of Education is seeking to terminate the guarantee agency's
reimbursement contract or assume the guarantee agency's functions, to assist the
guarantee agency in meeting its immediate cash needs or to ensure the
uninterrupted payment of claims.
FEDERAL SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for the payment by the Secretary of Education
of additional subsidies, called special allowance payments, to holders of
qualifying student loans. The amount of the special allowance payments, which
are made on a quarterly basis, is computed by reference to the average of the
bond equivalent rates of the 91-day Treasury bills auctioned during the
preceding quarter. This average is considered the Treasury bill rate. The
quarterly rate for special allowance payments for student loans made on or after
October 1, 1981, and generally before November 16, 1986, is computed by
subtracting the applicable interest rate on these loans from the Treasury bill
rate, adding 3.5% to the resulting per centum, and dividing the resulting per
centum by four. For loans disbursed on or after November 16, 1986, or loans to
cover the costs of instruction for periods of enrollment beginning on or after
November 16, 1986, 3.25% has been substituted for 3.5% in the above formula. For
loans disbursed on or after October 1, 1992, 3.1%
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has been substituted for 3.5% in that formula. For Stafford and unsubsidized
Stafford loans made on or after July 1, 1995, 2.5% has been substituted for 3.1%
in that formula prior to the time these loans enter repayment and during any
deferment periods. For Stafford and unsubsidized Stafford loans made on or after
July 1, 1998, the 1998 amendments to the Higher Education Act substitute 2.2%
for 3.1% in that formula prior to the time these loans enter repayment and
during any deferment periods, and substitute 2.8% for 3.1% in that formula while
these loans are in repayment.
For PLUS and SLS loans which bear interest at rates adjusted annually, special
allowance payments are made only in years during which the interest rate ceiling
on these loans operates to reduce the rate that would otherwise apply based on
the applicable formula. See "-- Loan Terms -- Interest Rates -- PLUS Loans" and
"-- SLS Loans." Special allowance payments are paid with respect to PLUS loans
made on or after July 1, 1994 only if the rate that would otherwise apply
exceeds 10%, although the interest rate ceiling on these loans is 9%. Special
allowance payments are made on consolidation loans whenever the bond equivalent
rate of 91-day Treasury bills plus 3.1% exceeds the borrower's interest rate.
The portion, if any, of a consolidation loan that repaid a loan made under Title
VII, ss.ss.700-721 of the Public Health Services Act, as amended, is ineligible
for special allowance payments.
The Higher Education Act provides that if special allowance payments or interest
subsidy payments have not been made within 30 days after the Secretary of
Education receives an accurate, timely and complete request therefor, the
special allowance payable to that holder shall be increased by an amount equal
to the daily interest accruing on the special allowance and interest subsidy
payments due the holder.
Special allowance payments and interest subsidy payments are reduced by the
amount which the lender is authorized or required to charge the borrower as an
origination fee, as described above under "-- Loan Terms -- Fees -- Origination
Fee." In addition, the amount of the lender origination fee described above
under "-- Loan Terms -- Fees -- Lender Origination Fees" is collected by
offset to special allowance payments and interest subsidy payments.
EDUCATION LOANS GENERALLY NOT SUBJECT TO DISCHARGE IN BANKRUPTCY
Under the United States Bankruptcy Code, educational loans are not generally
dischargeable. Title 11 of the United States Code at Section 523(a)(8) provides
as follows:
(a) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of
this title does not discharge an individual debtor from any debt;
(8) for an educational benefit overpayment or loan made, insured, or
guaranteed by a governmental unit or made under any program
funded in whole or in part by a governmental unit or a nonprofit
institution, or for an obligation to repay funds received as an
educational benefit, scholarship or stipend unless excepting the
debt from discharge under this paragraph will impose an undue
hardship on the debtor and the debtor's dependents.
DIRECT LOANS
The 1993 Amendments authorized a program of direct loans, to be originated by
schools with funds provided by the Secretary of Education. Under the Federal
Direct Student Loan Program, the Secretary of Education is directed to enter
into agreements with schools, or origination agents in lieu of schools, to
disburse loans
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with funds provided by the Secretary of Education. Participation in the program
by schools is voluntary. The goals set forth in the 1993 Amendments call for the
Federal Direct Student Loan Program to constitute 5% of the total volume of
loans made under the FFEL Program and the Federal Direct Student Loan Program
for academic year 1994-1995, 40% for academic year 1995-1996, 50% for academic
years 1996-1997 and 1997-1998 and 60% for academic year 1998-1999. No provision
is made for the size of the Federal Direct Student Loan Program after academic
year 1998-1999. Based on available information, participation by schools in the
Federal Direct Student Loan Program has not been sufficient to meet the goals
for the 1995-1996, 1996-1997 or 1998-1999 academic years.
The loan terms are generally the same under the Federal Direct Student Loan
Program as under the FFEL Program, though more flexible repayment provisions are
available under the Federal Direct Student Loan Program. At the discretion of
the Secretary of Education, students attending schools that participate in the
Federal Direct Student Loan Program, or their parents, may still be eligible for
participation in the FFEL Program, though no borrower could obtain loans under
both programs.
It is difficult to predict the impact of the Federal Direct Student Loan
Program. There is no way to accurately predict the number of schools that will
participate in future years, or, if the Secretary of Education authorizes
students attending participating schools to continue to be eligible for FFELP
loans, how many students will seek loans under the Federal Direct Student Loan
Program instead of the FFEL Program. In addition, it is impossible to predict
whether future legislation will eliminate, limit or expand the Federal Direct
Student Loan Program or the FFEL Program.
DESCRIPTION OF THE GUARANTEE AGENCIES
The financed student loans in a trust may be guaranteed by any one or more
guarantee agencies identified in the related prospectus supplement. The
following discussion relates to guarantee agencies under the FFEL Program. The
particular arrangements of a guarantor or escrow fund with respect to a private
loan program will be described in the prospectus supplement for that issuance,
as applicable.
A guarantee agency guarantees loans made to students or parents of students by
lending institutions such as banks, credit unions, savings and loan
associations, schools, pension funds and insurance companies. A guarantee agency
generally purchases defaulted student loans which it has guaranteed from its
cash and reserves, considered its guarantee fund. A lender may submit a default
claim to the guarantee agency after the student loan has been delinquent for at
least 180 days, or 270 days for loans made on or after October 7, 1998. However,
lenders are strongly encouraged not to file a claim until a loan is at least 300
days delinquent.
The default claim package must include all information and documentation
required under the FFEL Program regulations and the guarantee agency's policies
and procedures. Under the guarantee agencies' current procedures, assuming that
the default claim package complies with the guarantee agency's loan procedures
manual or regulations, the guarantee agency pays the lender for a default claim
within 90 days of the lender's filing the claim with the guarantee agency.
Generally, the lender is expected to be 300 days following the date a loan
becomes delinquent. The guarantee agency will pay the lender interest accrued on
the loan for up to 360 days after delinquency. The guarantee agency must file a
reimbursement claim with the Department of Education within 45 days after the
guarantee agency has paid the lender for the default claim.
In general, a guarantee agency's guarantee fund has been funded principally by
administrative cost allowances paid by the Secretary of Education, guarantee
fees paid by lenders, investment income on moneys
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in the guarantee fund, and a portion of the moneys collected from borrowers on
guaranteed loans that have been reimbursed by the Secretary of Education to
cover the guarantee agency's administrative expenses.
Various changes to the Higher Education Act have adversely affected the receipt
of revenues by the guarantee agencies and their ability to maintain their
guarantee funds at previous levels, and may adversely affect their ability to
meet their guarantee obligations. These changes include the various recalls of
reserves by the Department of Education, the reduction in reinsurance payments
from the Secretary of Education because of reduced reimbursement percentages;
the reduction in maximum permitted guarantee fees from 3% to 1% for loans made
on or after July 1, 1994; and the reduction in retention by a guarantee agency
of collections on defaulted loans from 30% to 23%. Additionally, the adequacy of
a guarantee agency's guarantee fund to meet its guarantee obligations with
respect to existing student loans depends, in significant part, on its ability
to collect revenues generated by new loan guarantees.
The Federal Direct Student Loan Program may adversely affect the volume of new
loan guarantees. Pending legislation and future legislation may make additional
changes to the Higher Education Act that would significantly affect the revenues
received by guarantee agencies and the structure of the guarantee agency
program. For a more complete description of provisions of the Higher Education
Act that relate to payments described in this paragraph or affect the funding of
a guarantee fund, see "Description of the FFEL Program."
The Higher Education Act gives the Secretary of Education various oversight
powers over guarantee agencies. These include requiring a guarantee agency to
maintain its guarantee fund at a required level and taking various actions
relating to a guarantee agency if its administrative and financial condition
jeopardizes its ability to meet its obligations. These actions include, among
others, providing advances to the guarantee agency, terminating the guarantee
agency's federal reimbursement contracts, assuming responsibility for all
functions of the guarantee agency, and transferring the guarantee agency's
guarantees to another guarantee agency or assuming these guarantees. The Higher
Education Act provides that a guarantee agency's guarantee fund shall be
considered to be the property of the United States to be used in the operation
of the FFEL Program or the Federal Direct Student Loan Program, and, under some
circumstances, the Secretary of Education may demand payment of amounts in the
guarantee fund.
Under the 1997 Budget Reconciliation Act (P.L. 105-33), the Secretary of
Education is required to demand payment on September 1, 2002 of a total of one
billion dollars from all the guarantee agencies participating in the FFEL
Program. The 1998 Reauthorization Bill mandates additional recall of reserve
funds by the Secretary of Education amounting to $85 million in fiscal year
2002, $82.5 million in fiscal year 2006, and $82.5 million in fiscal year 2007.
However, minimum reserve levels are protected from recall. The amounts to be
demanded of each guarantee agency shall be determined by formulas included in
the Higher Education Act. Each guarantee agency will be required to deposit
funds in a restricted account in installments, beginning in the federal fiscal
year ending September 30, 1998, to provide for the payment. The Secretary of
Education has made the determinations, and advised the guarantee agencies, of
the amounts required to be so transferred by the guarantee agencies. There can
be no assurance that relevant federal laws, including the Higher Education Act,
will not be further changed in a manner that may adversely affect the ability of
a guarantee agency to meet its guarantee obligations. See "Description of the
FFEL Program."
Under Section 432(o) of the Higher Education Act, if the Department of Education
has determined that a guarantee agency is unable to meet its insurance
obligations, the holders of loans guaranteed by this guarantee agency must
submit claims directly to the Department of Education, and the Department of
Education is required to pay the full guarantee payment due with respect these
loans under guarantee claims
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processing standards no more stringent than those applied by the guarantee
agency. See "Description of the FFEL Program."
There are no assurances as to the Secretary of Education's actions if a
guarantee agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a guarantee agency transfer
additional portions or all of its guarantee fund to the Secretary of Education.
FEDERAL AGREEMENTS
Each guarantee agency and the Secretary of Education have entered into federal
reimbursement contracts under Section 428(c) of the Higher Education Act. These
include, for older guarantee agencies, a supplemental contract under former
Section 428A of the Higher Education Act. The reimbursement contracts provide
for the guarantee agency to receive 75% to 100% reimbursement of insurance
payments that the guarantee agency makes to eligible lenders with respect to
loans guaranteed by the guarantee agency prior to the termination of the federal
reimbursement contracts or the expiration of the authority of the Higher
Education Act. The 1998 Reauthorization Bill reduced the reimbursement
percentages referred to above with respect to claims on most loans made on or
after October 1, 1998. See "-- Effect of Annual Claims Rate." The federal
reimbursement contracts provide for termination under some circumstances and
also provide for specific actions short of termination by the Secretary of
Education to protect the federal interest. See "Description of the FFEL Program
- -- Contracts with Guarantee Agencies -- Federal Reimbursement."
In addition to guarantee benefits, qualified student loans acquired under the
FFEL Program benefit from specific federal subsidies. Each guarantee agency and
the Secretary of Education have entered into an interest subsidy agreement under
Section 428(b) of the Higher Education Act. These entitle the holders of
eligible loans guaranteed by the guarantee agency to receive interest subsidy
payments from the Secretary of Education on behalf of some students while the
student is in school, during a six to twelve month grace period after the
student leaves school, and during some deferment periods, subject to the
holders' compliance with all requirements of the Higher Education Act. See
"Description of the FFEL Program -- Contracts with Guarantee Agencies -- Federal
Interest Subsidy Payments" for a more detailed description of the interest
subsidy payments.
United States Courts of Appeals have held that the federal government, through
subsequent legislation, has the right unilaterally to amend the contracts
between the Secretary of Education and the guarantee agencies described herein.
Amendments to the Higher Education Act in 1986, 1987, 1992, 1993, 1997 and 1998,
respectively:
(1) revoked some rights of guarantee agencies under contracts with the
Secretary of Education relating to the repayment of advances from the
Secretary of Education;
(2) authorized the Secretary of Education to withhold reimbursement
payments otherwise due to specific guarantee agencies until specified
amounts of these guarantee agencies' reserves had been eliminated;
(3) added new reserve level requirements for guarantee agencies and
authorized the Secretary of Education to terminate the federal
reimbursement contracts under circumstances that did not previously
warrant a termination; and
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(4) expanded the Secretary of Education's authority to terminate these
contracts and to seize guarantee agencies' reserves.
There can be no assurance that future legislation will not further adversely
affect the rights of the guarantee agencies, or holders of loans guaranteed by a
guarantee agency under these contracts.
There are no assurances as to the Secretary of Education's actions if a
guarantee agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a guarantee agency transfer
additional portions or all of its guarantee fund to the Secretary of Education.
Information relating to the particular guarantee agencies guaranteeing the
financed student loans will be set forth in the related prospectus supplement.
This information is included in the reports referred to in the related
prospectus supplement will not be verified by or independently confirmed by the
guarantors, the issuer, the depositor, the administrator, the master servicer,
the purchasers or their respective counsel, and will comprise all information
provided for each guarantee agency by the issuer.
EFFECT OF ANNUAL CLAIMS RATE
A guarantee agency's ability to meet its obligation to pay default claims on
financed student loans will depend on the adequacy of its guarantee fund and,
under the current federal reinsurance arrangement, the default experience of all
lenders under the guarantee agency's guarantee program. A high default
experience among lenders participating in a guarantee agency's guarantee program
may cause the guarantee agency's claims rate for its guarantee program to exceed
the 5% and 9% levels described below, and result in the Secretary of Education
reimbursing the guarantee agency at lower percentages of default claims payments
made by the guarantee agency.
In general, guarantee agencies are currently entitled to receive reimbursement
payments under the federal reimbursement contracts in amounts that vary
depending on the claims rate experience of the guarantee agency. The claims rate
is computed by dividing total default claims since the previous September 30 by
the total original principal amount of the guarantee agency's guaranteed loans
in repayment on September 30. On October 1 of each year the claims rate begins
at zero, regardless of the experience in preceding years. For loans made on or
after October 1, 1993, if the claims rate remains equal to or below 5% within a
given federal fiscal year (October 1 through September 30), the Secretary of
Education is obligated to provide 98% reimbursement; if and when the claims rate
exceeds 5% and until this time, if any, as it exceeds 9% during the fiscal year,
the reimbursement rate is at 88%. If and when the claims rate exceeds 9% during
the fiscal year, the reimbursement rate for the remainder of the fiscal year is
at 78%. For loans made on or after October 1, 1993, each guarantee agency is
entitled to at least 78% reimbursement from the Secretary of Education on
default claims that it purchases, regardless of its claims rate. The
reimbursement percentages for loans made on or after October 1, 1998 are reduced
from 98%, 88% and 78% to 95%, 85% and 75%, respectively. See "Description of the
FFEL Program."
THE PRIVATE LOAN PROGRAMS
To the extent described in the related prospectus supplement for a series, a
trust may include financed private loans issued under one or more private loan
programs. The private loan programs will be specifically identified and
described in the prospectus supplement for that series. The prospectus
supplement for a series may specify a maximum percentage of financed private
loans that may comprise part of the related trust.
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This summary identifies characteristics common to most private loan programs but
is qualified by the specific disclosure set forth in the related prospectus
supplement.
Private loans made under most private loan programs are based on the credit of
the borrower or his or her parents or co-borrowers. In general, applicants are
required to have a minimum annual income and a monthly debt burden, including
the financed student loan, of no greater than a specified percentage of their
monthly income. In determining whether a student or co-borrower is creditworthy,
a credit bureau report is obtained for each applicant, including the student.
The various private loan programs have different standards as to what
constitutes a satisfactory credit history.
Eligible post-secondary borrowers of a private loan often are required to be
engaged in a course of study at a qualifying educational institution, which may
include two-year colleges, four-year colleges and for-profit schools. Some
private loan programs are specifically designed for graduate or professional
students, or for students attending elementary or secondary private schools. The
institutions generally must be located in the United States or Canada. Often,
the borrower (or a co-applicant) must be a citizen or resident of the United
States. Some private loans may be a consolidation of existing private loans.
The amount that may be borrowed under a private loan program varies based on the
private loan program. Typically, borrowers must borrow at least a minimum amount
with respect to any academic year, and may not borrow more than a maximum amount
per academic year, or a maximum amount under the private loan program. However,
the amount of the private plan plus other financial aid received by a student,
normally may not exceed the cost of education, as determined by the school.
A guarantee fee or origination fee typically is deducted from the private loan
proceeds. Depending on the private loan program, all or a portion of this fee is
either paid to the agency that has established the private loan program and that
guarantees the repayment of all or a substantial portion of the private loan
under specified circumstances or deposited into an escrow fund to repay all or a
substantial portion of the private loan under specified circumstances. The
obligation to guarantee or the right to receive payment from an escrow fund is
typically dependent on the proper servicing of the private loan by the servicer
of the private loan.
The interest rate on a private loan varies based on the private loan program and
can either be fixed or variable. Floating rates may be based on the prime rate,
the Treasury bill rate index, or some other objective standard. Interest
typically accrues at a rate equal to the index plus a margin, but subject to a
maximum rate per annum, with the interest rate being adjusted periodically.
Repayment of a private loan usually is required to commence within 45 to 90 days
following the borrowing. However, some private loan programs permit a borrower
to defer the repayment of principal while the student is in school (often up to
a maximum number of years). In this event, principal repayments typically begin
promptly following graduation. Most private loan programs permit prepayment of
the private loan at any time without penalty. Borrowers typically may schedule
repayment over a 10 to 25-year period, subject to a minimum monthly payment
obligation.
TRANSFER AND SALE AGREEMENTS
On the closing date for any series of notes, the depositor and its eligible
lender trustee will transfer, without recourse, the financed student loans
described in the transfer and sale agreement and all collections received and to
be received for the period on or after the cut-off date to the trust.
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CONVEYANCE OF FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
Under the transfer and sale agreement the depositor will sell the financed
student loans to the trust. A court could decide that the financed student loans
were not sold to the trust and continue to be the property of the depositor. If
this happens, the transfer and sale agreement says that the transfer is a
conveyance by the depositor of a lien on and a security interest in the financed
student loans to the trust.
The depositor will make representations and warranties with respect to the
financed student loans to the trust, including, among other things, that:
(1) it and its eligible lender trustee are the sole owners and holders of
each financed student loan and have full right and authority to
transfer the loans free and clear of all liens, pledges or
encumbrances (except for the lien and security interest of the
indenture trustee) and to the best of the depositor's knowledge, no
counterclaim, offset, defense or right to rescission exists with
respect to any financed student loan, with notice, lapse of time, or
the occurrence or failure to occur of any act or event;
(2) the information provided by the depositor about the financed student
loans is true and correct in all material respects;
(3) to the best of the depositor's knowledge, each financed student loan
complies in all material respects with applicable federal and state
laws (including, without limitation, the Higher Education Act,
consumer credit, truth-in-lending, equal credit opportunity and
disclosure laws); and
(4) to the best of the depositor's knowledge, each financed student loan
complies in all material respects with:
(a) the FFEL Program or under any guarantee agreement with respect to
FFELP loans, and
(b) any related private loan program with respect to private loans.
REPURCHASE OF FINANCED STUDENT LOANS
If the Secretary of Education or a guarantee agency refuses to honor all or part
of a claim filed with respect to a financed student loan:
(1) because of something that occurred after the depositor took title to
that financed student loan but prior to the transfer to the trust, at
the request of the trust, the depositor is obligated to repurchase
that financed student loan, or
(2) because something that occurred prior to the date on which the
depositor took title to that financed student loan, the depositor is
obligated to repurchase that financed student loan, but only after the
depositor has had reasonable time to exercise its rights under the
applicable student loan purchase agreement to require the seller of
that financed student loan to repurchase it.
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In either case, the repurchase price will be the sum of:
(1) the same percentage of the then-outstanding principal
balance of that financed student loan as the depositor
originally paid;
(2) interest payable by the obligor accrued and unpaid with
respect to that financed student loan including the date of
repurchase;
(3) an amount equal to any special allowance payments or
interest subsidy payments, if applicable, in respect of that
financed student loan for the same period as the financed
student loan was held by or on behalf of the depositor to
which the depositor was not entitled due to ineligibility of
that financed student loan; and
(4) any attorneys' fees, legal expenses, court costs, servicing
fees or other expenses incurred by the trust or the
appropriate successors or assigns in connection with that
financed student loan and arising out of the reasons for the
repurchase.
The depositor is required to repurchase that financed student loan after
receiving notice form the co-owner trustee requesting repurchase by depositor
and setting forth the reason for the repurchase. Any financed student loan
returned to the depositor which has been endorsed to the co-owner trustee will
be endorsed by the trust's eligible lender trustee to the depositor's eligible
lender trustee on the form supplied by the trust's eligible lender trustee.
Under some circumstances, the depositor also has the right to repurchase, or
transfer a subsequent financed student loan in exchange for, a financed student
loan if it has a repurchase obligation as described above. The repurchase and
reimbursement obligations of the depositor will constitute, together with the
right to receive some amounts from credit enhancement, if any, the sole remedy
available to or on behalf of the trust, the holders of the notes for any uncured
breach. The depositor's repurchase and reimbursement obligations are contractual
obligations under the transfer and sale agreement that may be enforced against
the depositor, but the breach of which will not constitute an event of default
under the indenture.
SUBSEQUENT FINANCE PERIOD AND SUBSEQUENT FINANCED STUDENT LOANS
During a period from the closing date to a subsequent date identified in the
related prospectus supplement, the depositor may, at its option but subject to
the conditions set forth in the transfer and sale agreement, transfer to the
eligible lender trustee, subsequent financed student loans. The depositor may
also direct the eligible lender trustee and the indenture trustee to apply
consolidation prepayments on deposit in the collection account to pay the
purchase price for the subsequent financed student loans. Subsequent financed
student loans that may be transferred by the depositor include:
(1) consolidation loans, provided, however, that in no event
shall the aggregate amount of subsequent financed student
loans that are consolidation loans transferred into the
related trust exceed any maximum amount identified in the
prospectus supplement;
(2) loans that are serial (i.e., made to the same borrower under
the same loan program and guaranteed by the same guarantee
agency) to an existing financed student loan owned by the
related trust, if each subsequent financed student loan
entitles the holder to receive interest based on the same
interest rate index as the financed student loan to which it
is serial, and
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also in no event will the aggregate amount of
subsequent financed student loans that are serial loans
transferred into the related trust exceed any maximum amount
identified in the related prospectus supplement; and
(3) similar consolidation or serial loans under applicable
private loan programs.
During the subsequent finance period for any series, the depositor may choose
not to reimburse lost interest payments and special allowance payments or
depositing into the collection account the purchase amount of a financed student
loan which has become ineligible for lost interest payments or special allowance
payments. See "Transfer and Sale Agreements -- Conveyance of Financed Student
Loans; Representations and Warranties." The depositor may instead transfer to
the eligible lender trustee on behalf of the related trust, a subsequent
financed student loan which satisfies the following criteria (or other criteria
as may be set forth in the prospectus supplement for a series):
(1) the subsequent financed student loan was originated under
the same loan program as the financed student loan for which
it is being exchanged and entitles the holder to receive
interest based on the same interest rate index as the
financed student loan for which it is being exchanged;
(2) the subsequent financed student loan will not, at any level
of the interest rate index, have an interest rate that is
less than the financed student loan for which it is being
exchanged; and
(3) the average principal balance per borrower of the subsequent
financed student loans that are being transferred into the
related trust and the existing financed student loans for
which they are being exchanged is within 10% (plus or minus)
of the average principal balance per borrower of the
financed student loans being transferred to the depositor.
If the aggregate outstanding principal balance of the subsequent financed
student loans is less than that of the financed student loans for which they are
being exchanged, the depositor shall deposit the difference in the collection
account concurrently with the transfer. If the aggregate outstanding principal
of the subsequent financed student loans is greater than that of the financed
student loans for which they are being exchanged, the depositor shall be
entitled to the difference from amounts on deposit in the collection account.
The trust may not acquire subsequent financed student loans at any time that an
event of default under the indenture or an administrator default under the
administration agreement has occurred and is continuing.
AMENDMENT
Each transfer and sale agreement may be amended by the parties, with the consent
of the indenture trustee, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of a transfer and
sale agreement or of modifying in any manner the rights of holders; but no
amendment may:
(1) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments
with respect to the financed student loans or distributions
that are required to be made for the benefit of the holders;
or
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(2) reduce the percentage of the notes which are required to
consent to any amendment, without the consent of the holders
of all the outstanding notes affected.
SERVICING
MASTER SERVICER
Resources, in its capacity as the master servicer, will arrange for the
servicing of the financed student loans under a master servicing agreement
between the issuer and the master servicer. The following is a summary of the
servicing arrangements entered, or to be entered, into with the master servicer
and various approved servicers to arrange for the servicing of the financed
student loans.
Under the terms of the master servicing agreement between the master servicer
and the issuer, the master servicer has agreed to provide, arrange for and
maintain the continuous servicing and administration of the financed student
loans with one or more approved servicers. The master servicer has full
authority to do anything it deems reasonably necessary in providing for,
arranging and maintaining servicing relationships with servicers. The master
servicer is obligated to assure that adequate arrangements exist at all times to
provide for servicing of the financed student loans.
The master servicer and the issuer have entered or will enter into one or more
servicing agreements under which the related servicer will agree to service, and
perform all other related tasks with respect to, all or a portion of the
financed student loans.
The master servicer will not have any liability for any act, error or omission
on the part of any servicer under a servicing agreement but will have liability
for its own willful misfeasance, bad faith or negligence in the performance of
its duties under the master servicing agreement. The master servicer will not be
liable for servicing errors or interruptions as a result of year 2000 failures.
The occurrence of any of the following will constitute a default by the master
servicer:
(1) failure to observe or perform in any material respect any
covenants or agreements set forth in the master servicing
agreement, which materially affects the rights of holders
and which continues for 60 days after written notice of the
failure;
(2) judgment in bankruptcy, defaulting on debts, or making
creditor assignment; or
(3) appointing a custodian or similar official for the master
servicer or any substantial part of its property.
The master servicer will be entitled to receive a fee as compensation for its
services under the master servicing agreement. This fee is payable out of
available funds as part of the program operating expenses. The master servicing
agreement may be terminated by either party with at least 95 days' notice. This
summary of the master servicing agreement is not complete. We filed a copy of
the master servicing agreement as an exhibit to the registration statement of
which this prospectus is part. We suggest that you read the master servicing
agreement because it, not this summary, governs the relationship between the
issuer and the master servicer.
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As provided in the master servicing agreement, the master servicer and the
issuer have entered or will enter into servicing agreements with various
approved servicers to service the financed student loans. The servicers will
have actual possession of the notes evidencing, and other documents relating to,
the financed student loans.
Information relating to the initial servicers for a particular pool of financed
student loans will be set forth in the related prospectus supplement. The
information, which is particularly within each servicer's knowledge, will be
provided by the respective servicers. The information and information included
in the reports referred to in the prospectus supplement will not be verified by
or independently confirmed by the issuer, the depositor, the administrator, the
master servicer, the underwriters or each of their counsel, and will comprise
all information in respect of each servicer that the issuer obtains after a
reasonable request and inquiry.
SERVICING PROCEDURES
Under each servicing agreement, the related servicer will agree to service, and
perform all other related tasks with respect to, all or a portion of the
financed student loans. Each servicer is obligated to perform all services and
duties customary to the servicing of financed student loans, including all
collection practices, and to do so with reasonable care and in compliance with
all standards and procedures provided for in the Higher Education Act, the
guarantee agreements, private loan programs and all other applicable federal and
state laws.
The duties of the servicer include:
- collecting and depositing all payments with respect to the financed
student loans, including any guarantee payments, interest subsidy
payments and special allowance payments;
- responding to inquiries from borrowers on the financed student loans;
- investigating delinquencies; and
- sending out statements, payment coupons and tax reporting information
to borrowers.
In addition, the servicer will keep ongoing records with respect to these
financed student loans and collections on these loans and will furnish monthly
and annual statements to the related indenture trustee with respect to this
information, under the customary standards and as otherwise required in the
indenture.
A servicer's failure to properly service financed student loans or otherwise to
comply may result in the refusal of the United States Department of Education to
make reimbursement payments to a guarantee agency on these loans or in a
guarantee agency's refusal to honor its guarantee or make a guarantee payment on
these loans to the issuer and/or in the limitation, suspension or termination of
the servicer's eligibility to contract to service financed student loans.
SERVICER COVENANTS
In each servicing agreement, the related servicer covenants that:
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(1) it will duly satisfy or cause to be duly satisfied all obligations on
its part to be fulfilled under or in connection with the financed
student loans, maintain in effect all qualifications required to
service the financed student loans and, if applicable, comply in all
material respects with all requirements of law in connection with
servicing the financed student loans; and
(2) it will not permit any rescission or cancellation of a financed
student loan except as ordered by a court of competent jurisdiction or
other government authority or as otherwise consented to by the issuer.
Following the discovery by or notice to the servicer of a breach of any
obligations with respect to any financed student loan that results in the
failure of a guarantee agency to make a guarantee payment, the servicer is
obligated to purchase that financed student loan and reimburse the issuer for
specific payments, all on the terms of the applicable servicing agreement. The
servicer's purchase and reimbursement obligations are contractual obligations
under the servicing agreement that may be enforced against the servicer, but the
breach of contractual obligations will not constitute an event of default under
the notes.
SERVICING COMPENSATION
Each servicer will be paid a servicing fee for the servicing of the financed
student loans. The servicing fee is payable out of available funds as part of
the program operating expenses.
The servicing fee is intended to compensate the servicers 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 financed student loans, investigating
delinquencies, pursuing, filing and collecting any guarantee payments, including
litigation costs, accounting for collections and furnishing monthly and annual
statements to the administrator. The servicing fee also will reimburse the
servicers for taxes, accounting fees, outside auditor fees, data processing
costs and other costs incurred in connection with administering the financed
student loans.
The financed student loans will be serviced by servicers as may be selected by
the master servicer from time to time, subject to the approval of the rating
agencies, and servicers may be replaced or added from time to time by the master
servicer. Information regarding the initial servicers of student loans relating
to each series of notes may be found in the related prospectus supplement.
DESCRIPTION OF THE NOTES
The notes are payable solely from the assets of a trust. A separate trust will
be established for each issuance of notes under an indenture entered into in
connection with that issuance of notes. The notes of any series will be issued
under the terms of an indenture. Each indenture will be substantially in the
form filed as an exhibit to the registration statement of which this prospectus
is part. The following description is a summary of the material terms of the
notes as described in the indenture. It does not restate the entire indenture.
We urge you to read the indenture because it, not this description, defines your
right as holders.
It is expected that each series of the notes will initially be represented by
one or more notes registered in the name of the nominee of DTC. Notes generally
will be available for purchase in denominations of $1,000 and integral multiples
of $1,000 in book-entry form. The authorized denominations of each series of
notes in an issuance will be set forth in the related prospectus supplement. The
issuer has been informed by DTC
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that DTC's nominee will be Cede & Co. Cede & Co. is expected to be the holder of
record of the notes. Unless and until definitive notes are issued under the
limited circumstances described in this prospectus or in the accompanying
prospectus supplement, no holder will be entitled to receive a physical
certificate representing his note. All references in this prospectus or in the
accompanying prospectus supplement to actions by holders refer to actions taken
by DTC on instructions from its participating organizations and all references
to distributions, notices, reports and statements to holders refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the notes, for distribution to holders under DTC's
procedures. See "-- Book-entry Registration " and "-- Definitive Notes."
Each series of notes will evidence the interests specified in the related
prospectus supplement, which may:
(1) include the right to receive payments allocable only to
principal, only to interest or to any combination of
principal and interest;
(2) include the right to receive payments only of prepayments of
principal during the lives of the notes or during specified
periods;
(3) be subordinated in its right to receive distributions of
scheduled payments of principal, prepayments or principal,
interest or any combination to one or more other series of
notes and any exchange counterparties under any senior
exchange agreement, during the lives of the notes or during
specified periods or may be subordinated with respect to
some losses or delinquencies;
(4) include the right to receive payments only after the
occurrence of events specified in the prospectus supplement;
(5) include the right to receive payments under a schedule or
formula or on the basis of collections from designated
portions of the assets in the related trust;
(6) include, as to notes entitled to payments allocable to
interest, the right to receive interest at a fixed rate or
an adjustable rate;
(7) include the right to have interest accrue but not be paid
until the occurrence of a specified event or the passing of
time; and
(8) include, as to notes entitled to payments allocable to
interest, the right to payments allocable to interest only
after the occurrence of events specified in the related
prospectus supplement.
One or more series of notes of a trust may be subordinated to other series of
notes of that trust. Principal payments on any subordinate notes generally will
not begin until the related senior notes are paid. In addition, interest
payments on any distribution date on subordinate notes generally will be made
only after each related series of senior notes has received its interest
entitlement on that distribution date and after each senior exchange payment to
be made under a senior exchange agreement, if any, is made, and sometimes will
be made only after each related series of senior notes has received its
principal distribution amount on the distribution date. See "-- Payment of
Available Funds" and "Security for the Notes -- The Trust Assets." The specific
terms of any senior notes and subordinate notes in an issuance will be described
in the related prospectus supplement.
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PAYMENT OF AVAILABLE FUNDS
On each distribution date with respect to an issuance of notes, moneys in the
related collection account will be disbursed by the related indenture trustee
from available funds for each collection period as set forth in the related
prospectus supplement.
Available funds for each issuance of notes means, with respect to any collection
period, the excess of:
(A) the sum, without duplication, of the following amounts with
respect to any collection period:
(1) all collections received by the indenture trustee
on the financed student loans during the collection
period (including any guarantee payments (including
payments received from any guarantor or escrow fund
under any private loan program) received with
respect to the financed student loans);
(2) any payments, including without limitation interest
subsidy payments and special allowance payments,
received by the eligible lender trustee on the
financed student loans during the collection
period;
(3) all proceeds from any sales of financed student
loans during the collection period;
(4) any interest payments received by the indenture
trustee during the collection period with respect
to a financed student loan for which a realized
loss was previously allocated;
(5) the aggregate purchase amounts received for those
financed student loans purchased by the indenture
trustee during the related collection period;
(6) the aggregate amounts, if any, received from the
issuer or the indenture trustee as reimbursed of
non-guaranteed or uninsured interest amounts (which
shall not include, with respect to financed FFELP
loans, the portion of the interest amounts for
which the guarantee agency did not have an
obligation to make a guarantee payment), or lost
interest subsidy payments and special allowance
payments, with respect to the financed student
loans;
(7) counterparty exchange payments;
(8) advances received;
(9) investment earnings for the collection period; and
(10) any other sums identified in the related prospectus
supplement over (B) amounts received by the issuer
in connection with balance reconciliations required
by virtue of student loan consolidations for the
collection period;
(B) provided, however, that available funds will exclude:
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(1) all payments and proceeds of any financed student
loans the purchase amount of which has been
included in available funds for a prior collection
period, which payments and proceeds will be paid to
the issuer;
(2) amounts used to reimburse the depositor for
advances or any other amounts advanced by the
depositor on a voluntary basis with respect to
guarantee payments (including payments from any
guarantor or escrow fund under any private loan
program) or interest subsidy payments applied for
but not received as of the end of the collection
period immediately preceding the date the advance
is made;
(3) payments by a bond insurance company or other
surety, credit enhancer or guarantor who is
obligated to pay debt service on a particular
series of notes; and
(4) amounts which are paid to the issuer under the
indenture.
Prior to making payments to the note payment account established under the
indenture, the indenture trustee will, as described in the prospectus supplement
for a series, transfer from the collection account established under the
indenture to the expense account funds to pay the program expense requirement
calculated as of each distribution date. On each distribution date for a series
of notes (other than those relating to accrual notes during the related accrual
period), the indenture trustee will, subject to the amount of available funds,
transfer from the collection account to the note payment account the holders'
interest distribution amount for the series and any related issuer exchange
payment including an early termination payment as a result of a default by the
issuer, as described in the related prospectus supplement. For each distribution
date during the related accrual period relating to a series of accrual notes,
the related holders' interest distribution amount will be added to the principal
amount of the series of notes and any related issuer exchange payment including
an early termination payment as a result of a default by the issuer will be
transferred to the note payment account. On each distribution date when a
principal distribution is to be made on the notes, the indenture trustee will,
subject to the amount of available funds, transfer from the collection account
to the note payment account an amount equal to the appropriate holders'
principal distribution amount, as described in the related prospectus
supplement. The order and priority and timing for payment of interest, principal
distributions and issuer exchange payments as between each series of senior
notes and senior exchange agreements and each series of subordinate notes and
subordinate exchange agreements in an issuance will be described in the related
prospectus supplement for the issuance.
Following the payment of all required amounts due on the notes on any
distribution date (and deposit of any required amounts in any reserve fund), the
indenture trustee will, as provided in the prospectus supplement for a series,
transfer from the collection account to the note payment account, to the extent
of available funds, the parity percentage payments, if any, to be made on each
distribution date. If any available funds are available after the transfer, the
indenture trustee will, as provided in the prospectus supplement for a series,
transfer from the collection account to the note payment account, to the extent
of available funds any carryover interest.
Following the payment of all required amounts as described above, the indenture
trustee will, as provided in the prospectus supplement for a series, transfer
from the collection account to an exchange counterparty the amount, if any, owed
an exchange counterparty in respect of an early termination payment or damages
for early termination other than an early termination resulting from a default
by the issuer under any exchange agreement.
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On each applicable distribution date as described in the related prospectus
supplement, if and to the extent specified in the related prospectus supplement,
the indenture trustee will, after making all required transfers to the expense
account, note payment account, the reserve fund and to any exchange
counterparties as described above, transfer to the excess surplus account
established under the indenture any remaining available funds. Any amounts
withdrawn by the issuer from the excess surplus account will not be available to
make payments on the notes. See "The Indentures -- Funds and Accounts."
On each distribution date, the indenture trustee will pay to the holders of the
applicable series as of the related record date and any related exchange
counterparties all amounts transferred to the note payment account as set forth
above and in the related prospectus supplement.
However, if:
(a) the outstanding principal amount of all senior notes issued
under the indenture would exceed the sum of the related pool
balance plus the aggregate balance on deposit in the funds
and accounts under the indenture (exclusive of the balance
of the student loan portfolio fund) at the end of the
immediately preceding collection period less all
distributions to be made on the distribution date, or
(b) a payment event of default has occurred (but prior to the
acceleration of the maturity of the notes issued under the
indenture),
then, until the applicable conditions described in clauses (a) and (b) above no
longer exist, holders of subordinate notes issued under the indenture will not
be entitled to any payments of principal or interest and no subordinate issuer
exchange payments will be made. As long as any related senior notes are
outstanding, any deferral in the payment of principal or interest on the
subordinate notes or in the payment of subordinate issuer exchange payments
(except on the legal final maturity of a related series of subordinate notes)
will not constitute an event of default under the indenture.
INTEREST
Interest Accrual Period
Interest will accrue on the principal balance of each series of notes at a rate
(calculated as provided below or in the related prospectus supplement) equal to
the related series interest rate. The first interest period will begin on the
closing date on which the related series was issued under the related prospectus
supplement for periods consisting of:
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<PAGE> 105
<TABLE>
<CAPTION>
TYPE OF NOTE INTEREST ACCRUAL PERIOD
<S> <C>
LIBOR rate notes generally a one-month or three-month period beginning and
ending on the dates in the related prospectus supplement
auction rate notes the period set forth in the related prospectus supplement
fixed rate notes or notes accruing the period set forth in the related prospectus supplement
interest based on some other method
</TABLE>
Interest on each series of notes will be payable to the applicable holders on
the distribution dates described in the applicable prospectus supplement.
Generally, the series interest rate on each series of notes will equal the
lesser of:
(1) the interest rate and applicable margin, if any, or
(2) a cap specified in the related prospectus supplement; as
long as it will not exceed the net loan rate for the series,
if any, when it is required to be determined.
If on any interest determination date, an auction for a series of auction rate
notes is not held, then the series interest rate for this series of notes will
be the net loan rate or another rate under the applicable prospectus supplement.
The series interest rate on each series of notes bearing interest based on a
method other than LIBOR rate, Treasury bill rate index or auction rate will be
described in the related prospectus supplement.
For auction rate notes, the issuer may, from time to time, change the length of
one or more auction periods to conform with then current market practice or
accommodate other economic or financial factors that may affect the length of
the auction period or any series interest rate. An auction period adjustment
will not cause an auction period to be less than 7 days nor more than one year
and will not be allowed unless the conditions described in the auction
procedures in an appendix to the related prospectus supplement are satisfied. If
an auction period adjustment is made, the intervals between distribution dates
will be adjusted accordingly.
Payment of Interest
Payments of interest will be made on each applicable distribution date, as
specified in the accompanying prospectus supplement. Interest payments may
include interest accrued during one or more interest accrual periods. Interest
payments on the notes generally will be funded from available funds and advances
(and, when applicable, amounts on deposit in any reserve fund, capitalized
interest account or other account as described in a prospectus supplement)
remaining after the deposit of the program expense requirement in the expense
account, as specified in the related prospectus supplement. If provided in the
related prospectus supplement, if sufficient funds are not available to pay the
applicable series interest rate on a distribution date, this shortfall will be
paid from draws on the applicable forms of credit enhancement as described in
the related prospectus supplement. If this is the case, interest payments on
subordinate notes and subordinate issuer exchange payments may be deferred or
otherwise affected in some circumstances. As long as any related senior notes
are outstanding, any deferral in the payment of interest on the subordinate
notes (except on the legal final maturity of any subordinate notes) or in the
payment of subordinate issuer exchange payments will not constitute an event of
default under the related indenture.
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<PAGE> 106
Carryover Interest
If under a prospectus supplement, interest at the formula rate for any series of
notes for any interest accrual period exceeds the net loan rate, carryover
interest consisting of the excess interest, together with interest on the notes
at the applicable formula rate will be paid on subsequent distribution dates
only to the extent funds are available after other required payments on the
notes. Carryover interest will continue to be so payable although the principal
amount of the applicable series is paid until:
(1) no notes issued under the related indenture remain outstanding,
and
(2) the balances in the funds and accounts relating to the notes are
zero.
The ratings of the applicable series of notes do not address the likelihood of
payments of carryover interest. Any reference to interest in this prospectus or
the applicable prospectus supplement excludes carryover interest.
PRINCIPAL
All payments of principal of notes of a series will be made in an aggregate
amount determined as set forth in the related prospectus supplement and will be
paid at the times and will be allocated among the series of notes in an issuance
in the order and amounts, all as specified in the related prospectus supplement.
Principal will be paid to the holders of any series of notes pro rata within
each maturity of notes in that series, as described in the related prospectus
supplement.
Several series of notes may be issued by a trust under an indenture. Any
issuance of notes may contain one or more series of senior notes that will get
paid principal and interest before any series of subordinate notes or any
exchange counterparties under any subordinate exchange agreement. If this
happens, then the series of subordinate notes may receive limited or no payments
of principal until each related series of senior notes and other parties with a
higher payment priority have been paid as explained in the applicable prospectus
supplement.
The aggregate outstanding principal amount of each series of notes will be
payable in full on the distribution date identified in the related prospectus
supplement. The actual date on which the aggregate outstanding principal and
accrued interest of any series of notes are paid may be, and in some cases will
be expected to be, earlier than its legal final maturity, based on a variety of
factors, including those described under "Maturity and Prepayment
Considerations."
DETERMINATION OF LIBOR
Under the related prospectus supplement for a series of LIBOR rate notes, for
each interest accrual period after the initial interest accrual period, the
calculation agent will determine the applicable LIBOR rate for purposes of
calculating the series interest rate on the LIBOR rate notes for each given
interest accrual period on the date which is two London banking days preceding
the commencement of each interest accrual period. London banking day means a
business day on which dealings in deposits in United States dollars are
transacted in the London interbank market.
LIBOR means the rate equal to the rate at which U.S. dollar deposits having a
particular maturity are offered to prime banks in the London interbank market
which appear on Telerate Page 3750 as of approximately
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<PAGE> 107
11:00 a.m., Greenwich Mean Time, on the interest determination date. If the rate
does not appear on Telerate Page 3750, the rate for that day will be determined
on the basis of the Reuters Screen LIBOR Page. If at least two quotations
appear, LIBOR will be the arithmetic mean (rounded to the nearest .01%) of these
offered rates. If fewer than two quotations appear, LIBOR for the interest
accrual period will be determined at approximately 11:00 A.M., London time, on
the interest determination date. LIBOR will be based on the rate at which
deposits in a principal amount of not less than U.S. $1,000,000 in United States
dollars having a particular maturity are offered to prime banks in the London
interbank market by four major banks in the London interbank market selected by
the calculation agent. These rates will be representative for a single
transaction in the market at this time. The calculation agent will request the
principal London office of each representative bank to provide a quotation of
its rate. If at least two quotations are provided, LIBOR will be the arithmetic
mean (rounded to the nearest .01% of the offered rates). If fewer than two
quotations are provided, LIBOR for the interest accrual period will be the
arithmetic mean (rounded to the nearest .01%) of the rates quoted at
approximately 11:00 A.M., New York City time on the interest determination date
by three major banks in New York, New York selected by the calculation agent for
loans in United States dollars to leading European banks having a particular
maturity and in a principal amount equal to not less than U.S. $1,000,000, this
amount being representative for a single transaction in the market at this time.
If the banks selected are not quoting, LIBOR in effect for the applicable
interest accrual period will be LIBOR in effect for the previous interest
accrual period.
DETERMINATION OF THE TREASURY BILL RATE INDEX
Under the related prospectus supplement for a series of Treasury bill rate notes
for each interest accrual period after the initial interest accrual period, the
calculation again will determine the Treasury bill rate index for purposes of
calculating the series interest rate on each series of Treasury bill rate index
notes for each given interest accrual period on the related interest
determination date.
Treasury bill rate index 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 sold at the most recent 91-day Treasury bill auction prior to this date,
as reported by the U.S. Department of Treasury. If the results of the auctions
of 91-day Treasury bills cease to be reported as provided above, or that no
auction is held in a particular week, then the Treasury bill rate index in
effect as of the last publication or report will remain in effect until the
results of auctions of 91-day Treasury bills are reported or an auction is held,
as the case may be. The Treasury bill rate index will be subject to a lock-in
period.
DETERMINATION OF AUCTION RATE
Under the related prospectus supplement for a series of auction rate notes for
each interest accrual period after the initial interest accrual period, the
auction rate for each series of auction rate notes will be determined by the
auction agent under the auction procedures described under the heading "Auction
Procedures" in the related prospectus supplement on each interest determination
date for each interest accrual period.
If you are the holder of an auction rate note, the possible results of an
auction may be:
- you submit an order to hold your note at any rate, so you will
continue to hold the note and will be notified of the interest rate
after the auction; or
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<PAGE> 108
- you submit an order to hold your note at a specified interest rate,
so if the rate set by the auction is equal to or higher than the rate
you specified you will continue to hold your note at that rate and if
the rate is lower you will have sold your note in the auction; or
- you submit an order to sell your note and your note is sold at the
auction.
If there are ever insufficient buy orders and the auction is not successful,
holders may not be able to sell their notes in the auction and the interest rate
for the next auction period will be the lower of the net loan rate and the
maximum auction rate.
If you are not a current holder and wish to purchase notes in an auction, or are
a current holder and wish to purchase additional notes, the basic outcomes of an
auction are:
- you submit an order to buy at a specified rate and the interest rate
set in the auction is equal to or higher than the rate you specified,
so you will have purchased the note and the interest rate will be the
rate set by the auction; or
- you submit an order to buy at a specified rate and the interest rate
set in the auction is lower than the rate you specified, so your bid
order will be unsuccessful.
The outcomes described might vary slightly, as described under "Auction
Procedures," in the related prospectus supplement as when only part of an order
can be filled from available notes or if an auction is not successful.
Auction Procedures
Any issuance of notes may contain one or more series of auction rate notes. This
discussion summarizes some procedures that will be used in determining the
interest rates on the auction rate notes. If any auction rate notes are issued,
the related prospectus supplement will contain a more detailed description of
these procedures. Prospective investors in the auction rate notes should read
carefully the following summary, along with the more detailed description in the
related prospectus supplement.
The interest rate on each series of auction rate notes will be determined
periodically (generally, for periods ranging from seven days to one year) by
means of a dutch auction. In this dutch auction, investors and potential
investors submit orders through an eligible broker/dealer as to the principal
amount of auction rate notes the investors wish to buy, hold or sell at various
interest rates or at any rate. The broker/dealers submit their clients' orders
to the auction agent, who processes all orders submitted by all eligible
broker/dealers and determines the interest rate for the upcoming interest
period. The broker/dealers are notified by the auction agent of the interest
rate for the upcoming interest period and are provided with settlement
instructions relating to purchases and sales of auction rate notes. The
indenture trustee pays the auction agent fee from the program operating
expenses.
In the auction procedures, the following types of orders may be submitted:
(1) bid/hold orders - the minimum interest rate that a current
investor is willing to accept in order to continue to HOLD
some or all of its auction rate notes for the upcoming
interest period (which can also be an order to hold
regardless of the upcoming interest rate);
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<PAGE> 109
(2) sell orders - an order by a current investor to SELL a
specified principal amount of auction rate notes, regardless
of the upcoming interest rate; and
(3) potential bid orders - the minimum interest rate that a
potential investor (or a current investor wishing to
purchase additional auction rate notes) is willing to accept
in order to BUY a specified principal amount of auction rate
notes.
If an existing investor does not submit orders with respect to all its auction
rate notes of the applicable series, the investor will be deemed to have
submitted a hold order at the new interest rate for that portion of the auction
rate notes for which no order was received.
Example of Auction
In connection with each auction, auction rate notes will be purchased and sold
between investors and potential investors at a price equal to their then
outstanding principal balance (i.e., par) plus any accrued interest. The
following example helps illustrate how the above-described procedures are used
in determining the interest rate on the auction rate notes.
(a) Assumptions:
1. Denominations (units) = $50,000
2. Interest period = 28 Days
3. Principal amount outstanding = $25 million (500
units)
(b) Summary of All Orders Received For The Auction
<TABLE>
<CAPTION>
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
<S> <C> <C>
10 units at 2.90% 50 units Sell 20 units at 2.95%
30 units at 3.02% 50 units Sell 30 units at 3.00%
60 units at 3.05% 100 units Sell 50 units at 3.05%
100 units at 3.10% 50 units at 3.10%
100 units at 3.12% 50 units at 3.11%
50 units at 3.14%
100 units at 3.15%
</TABLE>
Total units under existing bid/hold orders and sell orders must always equal
issue size (in this case 500 units).
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<PAGE> 110
(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative
Number of Units Total (Units) % Number of Units Total (Units) %
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 50(W) 140 3.05% 11 50(L) 3.14%
6 60(W) 200 3.05% 12 100(L) 3.15%
</TABLE>
- ------------------------------
(W) Winning Order
(L) Losing Order
Order #10 is the order that clears the market of all available units. All
winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next interest accrual period. Multiple orders at the
winning rate are allocated units on a pro rata basis. In any case, the interest
rate will never exceed the lesser of the net loan rate or the maximum auction
rate.
The above example assumes that a successful auction has occurred (i.e., all sell
orders and all bid/hold orders below the new interest rate were fulfilled). In
some circumstances, there may be insufficient potential bid orders to purchase
all the auction rate notes of the applicable series offered for sale. In these
circumstances, the interest rate for the upcoming interest accrual period will
equal the lesser of the net loan rate and the maximum auction rate. Also, if all
the auction rate notes of the applicable series are subject to hold orders
(i.e., each holder of a series of auction rate notes wishes to continue holding
its auction rate notes, regardless of the interest rate) the interest rate for
the upcoming interest accrual period will equal the lesser of the net loan rate
and the rate at which all investors are willing to hold the series of auction
rate notes.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider, if
applicable, with respect to any issuance or series of notes will be set forth in
the related prospectus supplement. If specified in the applicable prospectus
supplement, credit enhancement for any series of notes may cover one or more
other series of notes, and may be exhausted for the benefit of a particular
series and afterwards be unavailable to the other series. More information
regarding any provider of credit enhancement, including financial information
when material, will be included in the related prospectus supplement.
Reserve Fund
A reserve fund may be created with respect to any series of notes, and on each
closing date the depositor may deposit cash or eligible investments in an
amount, if any, equal to or less than the specified reserve fund balance
identified in the related prospectus supplement. The issuer and the indenture
trustee may establish accounts in the reserve fund and subaccounts within these
accounts. The reserve fund may be added to on some distribution dates, as
explained in the related prospectus supplement, by deposit of any funds
necessary
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<PAGE> 111
to make the balance of the reserve fund equal to the specified reserve fund
balance from the amount of available funds remaining after making all required
distributions. Also, if amounts were transferred from the reserve fund to cover
a realized loss on a financed student loan, any subsequent payments of principal
received on or with respect to that financed student loan will be deposited into
the reserve fund or, if provided in the related prospectus supplement, applied
as an additional principal distribution. Amounts on deposit in the reserve fund
exceeding the specified reserve fund balance will be distributed as explained in
the related prospectus supplement.
A reserve fund is intended to enhance the likelihood of timely receipt by the
holders of the full amount of interest due them on each distribution date and
principal due them on the legal final maturity of the related notes or a date
when the related notes are to be redeemed in whole and to decrease the
likelihood that the holders will experience losses. In some circumstances,
however, a reserve fund could be depleted. Also, amounts otherwise required to
be deposited into a reserve fund may, with the consent of any provider of credit
enhancement for the related series of notes be applied as additional principal
distributions on the related series of notes. If the amount required to be
withdrawn from a reserve fund to cover shortfalls in the amount of available
funds exceeds the amount of cash in the reserve fund, a temporary shortfall in
the amount of principal and interest distributed to the holders could result.
This shortfall could increase the average life of the notes. Amounts on deposit
in a reserve fund other than amounts in excess of the related specified reserve
fund balance will not be available to cover any aggregate unpaid carryover
interest.
Subordination
The rights of the holders of a series of notes may be subordinated to the rights
of more senior holders and to exchange counterparties under any senior exchange
agreement, as described in this prospectus and the related prospectus
supplement. In some instances, the rights of the holders of a series of notes
also may be subordinated to the rights of holders of other subordinate notes,
and to exchange counterparties under any subordinate exchange agreement, as
described in this prospectus and the related prospectus supplement.
Surety Bonds
A surety bond with respect to one or more series of notes may be obtained by the
issuer in favor of the indenture trustee solely on behalf of the holders of the
related issuance. As provided below or in a prospectus supplement, a surety bond
may provide for coverage of timely payment of all interest and ultimate payment
of all principal due on the related series of notes; if that surety bonds will
not ensure payment of any carryover interest.
The amount required to be paid to the issuer of each surety bond will be
described in the applicable prospectus supplement.
Other Forms of Credit Enhancement
If specified in the related prospectus supplement, credit enhancement for any
issuance or series of notes may also include overcollateralization, letters of
credit, liquidity facilities, interest rate cap agreements, exchange agreements,
currency swap agreements, insurance policies, spread accounts, one or more
series of subordinate securities, derivative products or other forms of credit
enhancement including but not limited to third party guarantees. The credit
enhancement for any series of notes may be structured to provide protection
against delinquencies and/or losses on the financed student loans, against
changes in interest rates, or other risks, under the conditions specified in the
related prospectus supplement. Any form of credit
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<PAGE> 112
enhancement will have some limitations and exclusions from coverage, which will
be described in the related prospectus supplement.
BOOK-ENTRY REGISTRATION
The description which follows of the procedures and record keeping with respect
to beneficial ownership interests in a series of notes, payment of principal of
and interest on the notes to DTC participants, Cedel participants and Euroclear
participants or to purchasers of the notes, confirmation and transfer of
beneficial ownership interests in the notes, and other securities-related
transactions by and between DTC, Cedel, Euroclear, DTC participants, Cedel
participants, Euroclear participants and note owners, is based solely on
information furnished by DTC, Cedel and Euroclear and has not been independently
verified by the issuer, the depositor, the administrator, the master servicer or
the underwriters.
Holders may hold their certificates through DTC (in the United States) or Cedel
or Euroclear (in Europe) directly if the holders are participants of these
systems, or indirectly through organizations that are participants in these
systems.
DTC will hold the global notes. Cedel and Euroclear will hold omnibus positions
on behalf of the Cedel participants and the Euroclear participants,
respectively, through customers' securities accounts in Cedel's and Euroclear's
names on the books of their respective depositories which in turn will hold
these positions in customers' securities accounts in the depositories' names on
the books of DTC.
DTC is a limited purpose trust company organized under the New York Banking Law,
a banking organization within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a clearing corporation within the meaning of the
New York Uniform Commercial Code, and a clearing agency registered under the
provisions of Section 17A of the Exchange Act. DTC holds securities for its
participants and facilitates the clearance and settlement among DTC participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic book-entry changes in DTC participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
DTC participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other organizations. Indirect access to the DTC system
is also available to indirect participants such as securities brokers and
dealers, banks, and trust companies that clear through or maintain a custodial
relationship with a DTC participant, either directly or indirectly. The rules
applicable to DTC and its DTC participants are on file with the SEC.
DTC management is aware that some computer applications, systems, and the like
for processing dates that are dependent on calendar dates, including dates
before, on, and after January 1, 2000, may encounter year 2000 problems. DTC has
informed the industry, which consists of its participants and other members of
the financial community, that it has developed and is implementing a program so
that its computer systems, as they relate to DTC services such as the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
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 on
other parties, including but not limited to issuers and their agents, as well as
third party vendors from whom DTC licenses software and hardware, and third
party vendors on whom DTC relies for information or the provision of services,
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<PAGE> 113
including telecommunication and electrical utility service providers, among
others. DTC has informed its participants and other members of the financial
community that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (1) impress on them the importance
of these services being year 2000 compliant; and (2) 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 contingency plans as
it deems appropriate.
According to DTC, the information set forth in the preceding two paragraphs
about DTC has been provided to its participants and other members of the
financial community by DTC for informational purposes only and is not intended
to serve as a representation, warranty or contract modification of any kind.
Transfers between DTC participants will occur under DTC rules. Transfers between
Cedel participants and Euroclear participants will occur in the ordinary way
under their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel participants or
Euroclear participants, on the other, will be effected in DTC under DTC rules on
behalf of the relevant European international clearing system by its depository.
The cross-market transactions will, however, require delivery of instructions to
the relevant European international clearing system by the counterparty in this
system under its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
depository to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment under normal
procedures for same-day funds settlement applicable to DTC. Cedel participants
and Euroclear participants may not deliver instructions directly to the
depositories.
Because of time-zone differences, credits of securities in Cedel or Euroclear as
a result of a transaction with a DTC participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date. These credits or any transactions in these securities
settled during the processing will be reported to the relevant Cedel participant
or Euroclear participant on this business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel participant
or a Euroclear participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for the
notes, see Appendix A.
Day traders that use Cedel or Euroclear and that purchase the globally offered
new notes from DTC participants for delivery to Cedel participants or Euroclear
participants should note that these trades may fail on the sale side unless
affirmative actions are taken. Participants should consult with their clearing
system to confirm that adequate steps have been taken to assure settlement.
A buyer may purchase notes under the DTC system only by or through DTC
participants. DTC participants will receive a credit for the notes on DTC's
records. The ownership interest of each actual owner of a note is in turn to be
recorded on the DTC participants' and indirect participants' records. Note
owners will not receive written confirmation from DTC of their purchase, but
note owners are expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the DTC
participant or indirect participant through which the note owner entered into
the transaction. Transfers of ownership interests in the notes are to be
accomplished by entries made on the books of DTC participants
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<PAGE> 114
acting on behalf of note owners. Note owners will receive certificates
representing their ownership interest in notes, only if use of the book-entry
system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by DTC participants with
DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of notes
with DTC and their registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual owners of the notes;
DTC's records reflect only the identity of the DTC participants to whose
accounts these notes are credited, which may or may not be the note owners. The
DTC Participants will remain responsible for keeping account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC participants, by
DTC participants to indirect participants, and by DTC participants and indirect
participants to note owners will be governed by arrangements among them, subject
to any statutory or regulatory requirements as may be in effect from time to
time.
Neither DTC nor Cede & Co. will consent or vote with respect to the notes. Under
its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede & Co.'s consenting or voting
rights to those DTC participants to whose accounts the notes are credited on the
record date (identified in a listing attached to the proxy).
The indenture trustee will make principal and interest payments on the notes to
DTC. DTC's practice is to credit DTC participants' accounts on the applicable
distribution date under their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on the distribution
date. Payments by DTC participants to note owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in street name and will
be the responsibility of the DTC participant and not of DTC, the indenture
trustee or the issuer, subject to any statutory or regulatory requirements as
may be in effect from time to time. The indenture trustee is responsible for
payment of principal and interest to DTC. DTC is responsible for disbursement of
these payments to DTC participants. DTC participants and indirect participants
are responsible for disbursement of these payments to note owners.
DTC may discontinue providing its services as securities depository with respect
to the notes at any time by giving reasonable notice to the issuer or the
indenture trustee. Under these circumstances, if a successor securities
depository is not obtained, definitive notes are required to be printed and
delivered. The issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
definitive notes will be delivered to holders. See "Definitive Notes."
Cedel is incorporated under the laws of Luxembourg as a professional depository.
Cedel holds securities for its participating organizations 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 numerous 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 regulated
by the Luxembourg Monetary Institute. Cedel participants are recognized
financial institutions around the world, including initial purchasers,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations and may include the initial purchasers of any series of
new notes. Indirect access to Cedel is also available to others, such as banks,
brokers, dealers
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and trust companies that clear through or maintain a custodial relationship with
a Cedel participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants of
the Euroclear System 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 numerous currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office, under contract with Euroclear
Clearance System, and Societe Cooperative, a Belgian cooperative corporation.
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 Societe Cooperative. The Societe Cooperative Board
establishes policy for the Euroclear System. Euroclear participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the initial purchasers of
any series of notes. Indirect access to the Euroclear System is also available
to other firms that maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking corporation
which is a member bank of the Federal Reserve System. Thus, 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. The Terms and Conditions together
with the Operating Procedures govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fundable basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the Terms and Conditions and Operating
Procedures only on behalf of Euroclear participants and has no record of or
relationship with persons holding through Euroclear participants.
The Euroclear operator has advised as follows: Under Belgian law, investors that
are credited with securities on the records of the Euroclear operator have a
co-property right in the fungible pool of interests in securities on deposit
with the Euroclear operator equal to the amount of interests in securities
credited to their accounts. If the Euroclear operator becomes insolvent,
Euroclear participants would have a right under Belgian law to the return of the
amount and type of interests in securities credited to their accounts with the
Euroclear operator. If the Euroclear operator did not have a sufficient amount
of interests in securities on deposit of a particular type to cover the claims
of all Euroclear participants credited with these interests in securities on the
Euroclear operator's records, all Euroclear participants having an amount of
interests in securities of this type credited to their accounts with the
Euroclear operator would have the right under Belgian law to the return of their
pro-rata share of the amount of interests in securities actually on deposit.
Under Belgian law, the Euroclear operator is required to pass on the benefits of
ownership in any interests in securities on deposit with it (such as dividends,
voting rights and other entitlements) to any person credited with these
interests in securities on its records.
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Distributions with respect to notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel participants or Euroclear participants
under the relevant system's rules and procedures, to the extent received by its
depository. These distributions will be subject to tax reporting under relevant
United States tax laws and regulations. See "Federal Income Tax Consequences."
Cedel or the Euroclear operator, as the case may be, will take any other action
permitted to be taken by a holder under the Agreement on behalf of a Cedel
participant or Euroclear participant only under its relevant rules and
procedures and subject to its depository's ability to effect the actions on its
behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to these procedures to facilitate
transfers of notes among participants of DTC, Cedel and Euroclear, they are
under no obligation to perform or continue to perform these procedures and these
procedures may be discontinued at any time.
Neither the issuer, the underwriters nor the indenture trustee will have any
responsibility or obligation to participants, to indirect participants or to any
note owner with respect to:
(1) the accuracy of any records maintained by DTC, Cedel or Euroclear, any
participant or any indirect participant;
(2) the payment by DTC or any participant or any indirect participant of
any amount with respect to the principal and purchase price of, or
interest or carryover interest, if any, on the notes;
(3) any notice which is permitted or required to be given to note owners
under the indenture;
(4) the selection by DTC or any direct or indirect participant of any
person to receive payment in the event of a partial distribution of
principal of the new notes; or
(5) any consent given or other action taken by DTC as note owner.
In reading this prospectus, you should understand that while the notes are in
book-entry system, references in other sections of this prospectus to holders
includes the person for whom the participant acquires an interest in the notes,
but (1) owners of the notes must exercise all rights of ownership through DTC
and the book-entry system and (2) the issuer and the indenture trustee will give
notices that are to be given to holders only to DTC.
DEFINITIVE NOTES
If set forth in the accompanying prospectus supplement, notes of any series will
be issued in fully registered, certificated form to note owners or their
nominees rather than to DTC or its nominee, if:
(1) the issuer advises the indenture trustee for the series of notes in
writing that DTC is no longer willing or able to discharge its
responsibilities as depository for the series of notes, and the issuer
is unable to locate a qualified successor;
(2) the issuer, at its option, advises the indenture trustee for the
series of notes in writing that it elects to terminate the book-entry
system through DTC or successor securities depository; or
(3) after the occurrence of an event of default under an indenture,
holders representing not less than 50% of the outstanding principal
balance of the directing notes advise the indenture trustee and
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DTC through DTC participants in writing that the continuation of a
book-entry system through DTC (or a successor) is no longer in the
best interest of the holders, or as set forth in the prospectus
supplement.
On the occurrence of any of the events described in the immediately preceding
paragraph, the indenture trustee will cause DTC to notify all DTC participants
of the availability through DTC of definitive notes. On surrender by DTC of the
definitive certificate representing the notes and instructions for registration,
the indenture trustee will issue the notes as definitive notes, and afterwards
the indenture trustee will recognize the holders of the definitive notes as
holders under the indenture.
Distribution of principal of and interest on the notes will be made by the
indenture trustee directly to holders of definitive notes under the procedures
set forth in the related indenture. Interest payments and any principal payments
on each distribution date will be made to holders in whose names the definitive
notes were registered at the close of business on the related record date. The
final payment on any note (whether definitive notes or the notes registered in
the name of Cede & Co. representing the notes), will be made only on
presentation and surrender of the note at the office or agency specified in the
notice of final distribution to holders. The indenture trustee will provide the
notice to registered holders prior to the distribution date on which it expects
the final distributions to occur.
Definitive notes will be transferable and exchangeable at the offices of the
indenture trustee. No service charges will be imposed for any registration of
transfer or exchange.
LIST OF HOLDERS
By written request to the related indenture trustee, a holder may obtain the
list of all holders of notes issued under the related indenture as maintained by
the indenture trustee for the purpose of communicating with other holders
regarding their rights under the indenture or the notes. The indenture trustee
may elect not to give the requesting holder access to the list of holders if it
agrees to mail the desired communication or proxy, on behalf and at the expense
of the requesting holder, to all holders of notes issued under the related
indenture.
REPORTS TO HOLDERS
For each trust, on the dates as set forth in the related prospectus supplement,
the indenture trustee will provide to the rating agencies and applicable holders
of record as of the related record date, a statement setting forth at least the
following information regarding the notes with respect to the preceding
collection period or collection periods:
(1) if applicable for a series of notes, the principal factor for
each series of notes;
(2) the amount of the payment allocable to principal of each
series of notes;
(3) the amount of the payment allocable to interest on each series
of notes in the related issuance together with the interest
rates applicable (indicating, whether the interest rates are
based on the formula rate or on the net loan rate with respect
to each series of notes, and specifying what each interest
rate would have been if it had been calculated using the
alternate basis);
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(4) the amount of the payment, if any, allocable to any carryover
interest for one or more series of notes, together with the
outstanding amount, if any, after giving effect to any
distribution;
(5) the pool balance for the related trust as of the close of
business on the last day of the preceding collection period;
(6) the aggregate outstanding principal amount of each series of
notes as of the applicable distribution date after making
distributions allocated to principal on the applicable
distribution date;
(7) the estimated amount to be allocated to program operating
expenses on the upcoming distribution date;
(8) the amount of the aggregate realized losses, if any, for the
preceding collection period and the aggregate amount, if any,
received (stated separately for interest and principal) during
the collection period relating to financed student loans in
the related trust for which a realized loss was previously
allocated;
(9) the amount of the distribution attributable to amounts in any
reserve fund, acquisition fund, pre-funding account or other
account identified in the related prospectus supplement, the
amount of any other withdrawals from these funds or accounts
for the related distribution date, the balance of these funds
or accounts on the distribution date, after making changes in
these funds or accounts on the distribution date, the then
applicable parity percentage, and the amount of the
distribution, if any, attributable to parity percentage
payments;
(10) the aggregate amount, if any, paid for financed student loans
purchased from the related trust during the preceding
collection period;
(11) the following information as reported to the indenture trustee
by the issuer or servicer: the number and principal amount of
financed student loans, as of the end of the preceding
collection period, that are:
(a) 31 to 60 days delinquent,
(b) 61 to 90 days delinquent,
(c) 91 to 120 days delinquent,
(d) more than 120 days delinquent and
(e) for which claims have been filed with the appropriate
guarantee agency, guarantor or escrow fund and which
are awaiting payment; and
(12) any other information specified in the related prospectus
supplement.
Within the prescribed period of time for tax reporting purposes after the end of
each calendar year during the term of the indenture, the indenture trustee will
mail to each person who at any time during the calendar
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year was a holder and received any payment, a statement containing some
information for the purposes of the holder's preparation of federal income tax
returns. See "Federal Income Tax Consequences."
REDEMPTION
Each series of notes may be subject to optional or mandatory redemption and
optional and mandatory tender in whole or in part. Each prospectus supplement
will set forth various information with respect to the redemption provisions for
each series of notes.
SECURITY FOR THE NOTES
THE TRUST ASSETS
Each issuance of notes, together with all related exchange agreements and
carryover interest, if any, on these notes are secured by and payable solely
from the assets of the related trust. The property of each trust includes:
- all available funds derived from amounts in that trust;
- the balances of all funds and accounts established under the
related indenture, whether derived from proceeds of sale of the
notes, from available funds, or from any other source;
- all rights of the issuer and the related eligible lender trustee
in and to the financed student loans, the guarantee agreements
with respect to the financed student loans (including any
agreements with a guarantor or relating to an escrow fund under a
private loan program);
- any spread guaranty agreement;
- the eligible investments, any exchange agreement and any exchange
counterparty guarantee, the student loan purchase agreements, the
master servicing agreement and the servicing agreements with
respect to financed student loans, including all rights of the
issuer under the warranties of each seller, master servicer or
servicer, as the case may be; and
- any proceeds from the above.
Any subordinate notes in a trust will be secured on a basis junior and
subordinate to any senior notes in the trust.
To secure payment of principal, interest and carryover interest, if any, on an
issuance of notes and payment of any related issuer exchange payment, the issuer
and each eligible lender trustee in the related indenture, subject to the lien
of the indenture trustee and each eligible lender trustee, each grants a first
priority perfected security interest in, and pledges and assigns to the related
indenture trustee all of the issuer's and the eligible lender trustee's rights
in, the related trust for the equal and ratable benefit:
FIRST, of the holders of the senior notes issued under the indenture and
the exchange counterparties under any related senior exchange agreement
subject to the provisions of the indenture permitting their application
for the purposes and on the terms and conditions set forth in the
indenture, and
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SECOND, to the holders of any subordinate notes issued under the
indenture and the exchange counterparties under any related subordinate
exchange agreement.
Because the payment obligations of the issuer under any senior exchange
agreements would be on a parity with payment of the senior notes, an event of
default with respect to the senior exchange agreements could result in an event
of default causing the acceleration of the notes and other potentially adverse
effects on the payment of the notes.
Each indenture provides for the above-described pledge of and grant of a lien on
and security interest in the related trust; however, this pledge, lien or
security interest will only be effective to the extent that:
(1) the trust consists of assets as to which a pledge, lien or
security interest can be created or perfected under law by
either:
(a) the due filing of appropriate Uniform Commercial Code
financing statements, or
(b) the related indenture trustee's possession or constructive
possession of assets;
(2) either the filing or the possession is sufficient under law to
create and continue a pledge, lien or security interest which is
prior to all other pledges, liens or security interests; and
(3) either act of filing or act of possession, as applicable, has in
fact been taken by the related indenture trustee.
In order to create, perfect and maintain a security interest in the related
trust, the indenture trustee intends:
(1) to file appropriate duly executed financing statements (including
continuation statements) with respect to the applicable trust
among the appropriate records maintained by the appropriate state
and local filing officers under the applicable Uniform Commercial
Code;
(2) to possess or to constructively possess through bailees those
assets in the applicable trust as to which a pledge, lien or
security interest may be created and perfected by possession; and
(3) to take or cause to be taken any and all other action necessary
to create or perfect the pledge of, lien on or security interest
in the applicable trust.
EXCHANGE AGREEMENTS
Under an indenture, the issuer will have the right to enter into one or more
interest rate exchange agreements with one or more exchange counterparties. Any
exchange counterparty must have a rating of its long-term debt securities of at
least Aa1 (or its equivalent) from a rating agency. Payments by the issuer under
exchange agreements may be on a parity with any senior or subordinate notes
issued under the indenture. If the issuer enters into one of these agreements
with an exchange counterparty, the exchange counterparty will agree to pay the
related indenture trustee on each applicable distribution date a fixed or
variable exchange rate on a notional amount, which may be equal to, greater or
less than the principal amount of any series of notes issued under the
indenture. The issuer will agree to pay on each applicable distribution date to
the exchange counterparty, a fixed or variable exchange rate on the notional
amount. The issuer expects
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that any exchange agreement will provide that the payment obligations of the
issuer and an exchange counterparty to each other will be netted on the
distribution date and only one payment will be made by one party to the other.
Any payment from an exchange counterparty to the indenture trustee under the
exchange agreement will be deposited to the collection account.
When the exchange rate being paid by the exchange counterparty is greater than
the exchange rate being paid by the issuer, the indenture trustee's ability to
make principal and interest payments on the notes will be affected by the
exchange counterparty's ability to meet its net payment obligation to the
indenture trustee. In addition, under some circumstances, the failure by the
issuer to make an issuer exchange payment may constitute an event of default.
See "Risk Factors" in the applicable prospectus supplement and "The Indentures
- -- Events of Default" in this prospectus. Each indenture requires that, prior to
the date that the issuer enters into an exchange agreement, the issuer must
obtain written evidence from each rating agency rating any of the notes issued
under the indenture that the execution and delivery of the exchange agreement
will not adversely affect a rating agency's rating on the notes.
PROCEEDINGS AFFECTING ELIGIBLE LENDER TRUSTEE
The eligible lender trustee is a national banking association. The United States
Bankruptcy Code would not apply to the eligible lender trustee because a
national banking association cannot be a debtor under the United States
Bankruptcy Code. However, the FDIC may be appointed as receiver for a national
bank. Generally, to the extent that the indenture trustee has a valid and
perfected security interest in the financed student loans, this security
interest should be enforceable regardless of the insolvency of or the
appointment of a receiver for the eligible lender trustee.
THE INDENTURES
Each issuance of notes will be issued under a separate indenture entered into by
and among the issuer, one or more eligible lender trustees and the related
indenture trustee, as supplemented from time to time. Provisions applicable to,
including but not limited to, any event of default under any indenture are not
applicable to and will not constitute or cause an event of default under any
other indenture.
The following is a summary of material provisions of each indenture. It does not
restate the entire indenture. We urge you to read the indenture because it, not
this description, defines your rights as holders. We have filed a copy of the
form of indenture as an exhibit to the registration statement of which this
prospectus is part.
INDENTURE TRUSTEE
The indenture trustee for an issuance of notes will be the entity named in the
related prospectus supplement. On the closing date for an issuance of notes, the
issuer and the eligible lender trustee will pledge the financed student loans
and other moneys received from the net proceeds of the notes to the indenture
trustee under the related indenture. The indenture trustee may serve from time
to time as an trustee under indentures or eligible lender trust agreements with
the issuer or its affiliates relating to other issues of their securities. In
addition, the issuer, the depositor, the administrator or their affiliates may
maintain other banking relationships with any indenture trustee and its
affiliates
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ELIGIBLE LENDER TRUSTEE
The eligible lender trustee for be the entity or entities named in the
applicable prospectus supplement and will acquire and hold on behalf of the
issuer legal title to all financed FFELP loans (and, if so provided in the
related prospectus supplement, all financed private loans) acquired by the
related trust under one or more related eligible lender trust agreements. The
eligible lender trustee on behalf of the issuer will enter into a guarantee
agreement with each of the guarantee agencies with respect to the financed FFELP
loans. One or more additional eligible lender trustees may be added or
substituted for one or more of the initial eligible lender trustees from time to
time subject to some conditions described in the related Indenture. Each
eligible lender trustee qualifies, or prior to taking title to the financed
FFELP loans for which additional qualifications are necessary, will qualify, as
an eligible lender and owner of financed FFELP loans for all purposes under the
Higher Education Act and the guarantee agreements with respect to the financed
FFELP loans. Failure of the financed FFELP loans to be owned by an eligible
lender would result in the loss of guarantee payments, interest subsidy payments
and special allowance payments with respect to financed FFELP loans. See
"Description of the FFEL Program."
The issuer, the depositor, the administrator or their affiliates may maintain
other banking relationships with any eligible lender trustee and its affiliates.
FUNDS AND ACCOUNTS
Each indenture will establish several funds and accounts to be held by the
related indenture trustee for the benefit of the holders. Any funds and accounts
to be established with respect to a trust, including any reserve fund, will be
described in the related prospectus supplement. Each indenture will provide for
the balances of these funds and accounts to be applied as described in the
related prospectus supplement.
ACQUISITION FUND
An acquisition fund will be established for each trust. The issuer and the
indenture trustee may establish accounts within the acquisition fund and
subaccounts within these accounts. On the closing date for an issuance of notes,
there will be deposited into the acquisition fund the amount specified in the
related prospectus supplement. Moneys transferred to the acquisition fund shall
be used to finance the initial financed student loans as described in the
related prospectus supplement.
If a pre-funding account has been established with respect to a trust, on the
closing date, the indenture trustee will make deposits to the related
pre-funding account a portion of the proceeds of the notes as described in the
prospectus supplement. From the related closing date until a specified date set
forth in the related prospectus supplement, moneys in the pre-funding account
will be applied by the indenture trustee as described in the related prospectus
supplement for the financing by the issuer, directly or indirectly through the
eligible lender trustee, of student loans. The financed student loans may
include FFELP loans and/or private loans in the amounts as may be set forth in
the indenture and satisfying any conditions imposed by the rating agencies and
any provider of credit enhancement, if applicable. Any amounts remaining in the
pre-funding account at the end of this pre-funding period will be distributed to
the holders as an additional principal distribution.
The moneys to be applied from the acquisition fund or a pre-funding account for
the financing of student loans will be:
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- the full remaining unpaid principal amount of these student loans that
have been fully disbursed,
- PLUS the full remaining unpaid principal amount of these student loans
that have not been fully disbursed,
- PLUS the amount of accrued and unpaid interest on the student loans
payable by the borrowers,
- LESS a discount or plus a premium,
and when directed by the issuer:
- PLUS reasonable transfer fees payable to or on behalf of the sellers
with respect to the student loans under the applicable student loan
purchase agreements,
- PLUS any interest paid by the indenture trustee to a seller on the
amount of principal and accrued interest on the student loans being
financed, from the date of transfer of the student loans until the
date funds are actually paid to the seller at an interest rate not to
exceed the current yield on funds in the related expense account, in
any case not exceeding the amount permitted by law, and
- LESS any accrued but unpaid interest on the student loans.
At the request of the issuer, moneys in the acquisition fund or a pre-funding
account also may be applied for the financing, directly or indirectly through
the eligible lender trustee, of student loans from the indenture trustee under
another indenture of trust between the depositor or its affiliates and the
indenture trustee or from the depositor or its affiliates for student loans
financed by the depositor or its affiliates with funds not subject to an
indenture of trust, in either case at a price not in exceeding the full
remaining unpaid principal amount of the student loans, plus the amount of
accrued and unpaid interest on the student loans payable by the borrowers, plus
any unamortized premium and plus reasonable transfer fees not exceeding the
amount permitted by law. In addition to any other requirements set forth for the
use of proceeds from the acquisition fund or a pre-funding account, the issuer
may only finance student loans serviced by servicers and guaranteed by guarantee
agencies (including for this purpose any guarantor or escrow fund under a
private loan program) that have been approved by each rating agency at the time
of purchase.
On the date specified in the related prospectus supplement with respect to the
acquisition fund, or at the end of the pre-funding period with respect to the
pre-funding account, any portion of the balances of the acquisition fund or
pre-funding account which is not, or which the issuer at any time determines
cannot for any reason be, used to finance student loans shall, at the written
direction of the issuer, be transferred to the collection account and used to
pay principal.
STUDENT LOAN PORTFOLIO FUND
A student loan portfolio fund will be established for each trust. The issuer and
the indenture trustee may establish accounts within the student loan portfolio
fund and subaccounts within these accounts. All financed student loans in the
related trust shall be included in the balances of that indenture's student loan
portfolio fund, as described in the prospectus supplement. Financed student
loans also may be applied:
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- as provided in the applicable student loan purchase agreements with
respect to rejections and repurchases,
- as provided in the applicable servicing agreements,
- as provided for defeasance of the related indenture,
- as required to obtain the benefits of a guarantee in case of default
on the financed student loan, and
- in connection with the consolidation of the financed student loan by
the borrower.
The indenture trustee may permit the sale or exchange of financed student loans
selected by the issuer in the student loan portfolio fund subject to any
conditions imposed under the related indenture as set forth in the related
prospectus supplement.
COLLECTION FUND
The collection fund consists of specific accounts established for an issuance of
notes as described in the related prospectus supplement. To the extent necessary
or appropriate, the issuer and the indenture trustee may establish accounts
within the collection fund and subaccounts within these accounts. The issuer
will transfer, and will cause each seller and servicer under the applicable
student loan purchase agreement and servicing agreement to transfer, all
available funds received by it to the indenture trustee. The indenture trustee
will, on receipt of any available funds, immediately deposit and credit these
available funds to the collection fund as described in the related prospectus
supplement.
Some issuances of notes may permit the application of principal payments or
prepayments of financed student loans to be used for the financing of additional
financed student loans for a specified period of time before the payments are
distributed to the holders of the issuance.
Collection Account. A collection account will be established in the collection
fund. On each applicable distribution date for a series of notes, moneys in the
collection account will be disbursed by the indenture trustee from available
funds for each collection period as set forth in the related prospectus
supplement. The order and priority for moneys to be disbursed from the
collection account will be described in the related prospectus supplement.
Capitalized Interest Account. A capitalized interest account may be established
in the collection fund. On each applicable distribution date for a series of
notes, funds in the capitalized interest account will be used to pay interest if
there is a deficiency in the collection account prior to depleting the reserve
fund. Any funds remaining in the capitalized interest account after a date
specified in the related prospectus supplement will be deposited into the
collection account.
Note Payment Account. A note payment account will be established in the
collection fund. On each applicable distribution date for a series of notes,
following the transfers to the note payment account from the collection account,
the indenture trustee will distribute to the related holders as of the related
record date and exchange counterparties, if any, the amounts transferred to the
note payment account, together with any amounts transferred from any reserve
fund and any advances, all as described in the related prospectus supplement.
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Expense Account. An expense account will be established in the collection fund.
Funds will be deposited into the expense account as described in the related
prospectus supplement. Funds in the expense account will be applied to pay
program operating expenses and costs of issuance, as described in the indenture.
Excess Surplus Account. An excess surplus account will be established in the
collection fund. If and to the extent provided in the related prospectus
supplement for a series of notes, on some distribution dates, any available
funds remaining after all required distributions are made on the distribution
date will be deposited to the credit of the excess surplus account. Amounts on
deposit in the excess surplus account may be withdrawn by the issuer at any time
on written request to the indenture trustee to be used for any lawful purpose;
provided that after the withdrawal the parity percentage is at a specified level
as set forth in the related prospectus supplement. Any available funds
distributed to the issuer from the excess surplus account will not be available
to make payments on the notes. Until withdrawal by the issuer, amounts on
deposit in the excess surplus account, if provided in the related prospectus
supplement, will be available for transfer by the indenture trustee to the
reserve fund, if any, if, and to the extent that, a deficiency in the reserve
fund remains after transfers from the collection account. The issuer may also
direct in writing that the indenture trustee transfer amounts on deposit in the
excess surplus account as described in the related prospectus supplement.
ADVANCES
If the issuer or the eligible lender trustee on behalf of the issuer has applied
for a guarantee payment from a guarantee agency (including for this purpose a
payment from a guarantor or escrow fund under a private loan program) or an
interest subsidy payment or a special allowance payment from the Department of
Education, and the issuer or the eligible lender trustee, as applicable, has not
received the related payment prior to the end of the collection period
immediately preceding the distribution date on which the amount would be
required to be distributed as a payment of interest, the depositor may, no later
than the third business day before the distribution date, deposit into the note
payment account an amount up to the amount of these payments applied for but not
received. The advances are recoverable by the issuer, first, from the source for
which the advance was made and second, from payments received from the financed
student loans. Funds used to reimburse the depositor for prior advances are
excluded from available funds and, accordingly, repayment of advances have
priority over all other payments under the related indenture. Neither the issuer
nor the depositor will have any obligation, legal or otherwise, to make any
advance, and a determination by the issuer or the depositor to make an advance
will not create any obligation of the issuer or the depositor, legal or
otherwise, to make any future advances.
INVESTMENT
Pending application of moneys in the funds and accounts under an indenture, the
moneys will be invested in eligible investments. Eligible investments include
the following:
(1) Direct obligations of (including obligations issued or held in book
entry form on the books of) the Department of the Treasury of the
United States of America;
(2) Obligations of any of the following federal agencies which obligations
represent the full faith and credit of the United States of America,
including:
- Export-Import Bank
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- Farm Credit System Financial Assistance Corporation
- Rural Economic Community Development Administration
(formerly the Farmers Home Administration)
- General Services Administration
- U.S. Maritime Administration
- Small Business Administration
- Government National Mortgage Association (GNMA)
- U.S. Department of Housing & Urban Development (PHA's)
- Federal Housing Administration;
(3) Senior debt obligations rated "AAA" or "Aaa" by each rating
agency issued by the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation, and senior debt
obligations of other federal government-sponsored agencies
approved by each rating agency;
(4) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptance with domestic commercial banks which have a
rating of their short term certificates of deposit on the date of
purchase of "A-1", "F-1" or "P-1" by each rating agency and
maturing no more than 360 days after the date of purchase
(ratings on holding companies are not considered as the rating on
the bank);
(5) Commercial paper which is rated at the time of purchase in the
single highest classification, "A-1", "F-1" or "P-1" by each
rating agency and which matures not more than 270 days after the
date of purchase;
(6) Investments in a money market fund rated in the highest
applicable rating category by (1) a nationally recognized rating
service acceptable to each rating agency, or (2) each rating
agency;
(7) Pre-refunded municipal obligations defined as follows: Any bonds
or other obligations of any state of the United States of America
or of any agency, instrumentality or local governmental unit of
any state which are not callable at the option of the obligor
prior to maturity or as to which irrevocable instructions have
been given by the obligor to call on the date specified in the
notice; and
(a) which are rated, based on an irrevocable escrow account or
fund, in the highest rating category of each rating agency,
or
(b) (i) which are fully secured as to principal and interest and
redemption premium, if any, by an escrow consisting only of
cash or obligations described in paragraph (a) above, which
escrow may be applied only to the payment of the principal
of and interest and
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redemption premium, if any, on the bonds or other
obligations on the maturity date or dates or the specified
redemption date or dates under irrevocable instructions, as
appropriate, and
(ii) which escrow is sufficient, as verified by a nationally
recognized independent certified public accountant, to pay
principal of and interest and redemption premium, if any, on
the bonds or other obligations described in this paragraph
on the maturity date or dates specified in the irrevocable
instructions referred to above, as appropriate;
(8) Investment agreements approved in writing by each rating
agency and supported by appropriate opinions of counsel for
the investment agreement provider; and
(9) Other forms of investments (including repurchase agreements)
approved in writing by each rating agency.
Moneys are required to be invested in eligible investments with respect to which
payments of principal and interest are scheduled or otherwise payable not later
than the date on which it is estimated that these moneys will be required by the
related indenture trustee for the purposes intended. Except as otherwise
provided in an indenture, any earnings on or income from these eligible
investments will be treated as collections of interest on the related financed
student loans and will be deposited in the collection account.
COVENANTS OF THE ISSUER
The issuer covenants under each indenture that:
- it will require the depositor to administer the depositor's
program of financing student loans under the indenture under
the Higher Education Act, to the extent applicable;
- it will maintain or cause to be maintained proper books of
record and account and will permit those to be inspected by
the indenture trustee and by holders of more than 10% of the
aggregate principal amount of the notes issued under the
indenture, as provided in the indenture;
- it will diligently cause to be collected all principal and
interest payments on each financed student loan and any
grants, subsidies, donations, guarantee payments (including
for this purpose payments from any guarantor or escrow fund
under a private loan program), interest subsidy payments and
special allowance payments with respect to each financed
student loan;
- it will diligently cause to be taken all reasonable steps to
enforce all financed student loans, the master servicing
agreement, the servicing agreements and the student loan
purchase agreements; and
- it will not create, or permit the creation of, any pledge,
lien, charge or encumbrance on the trust except as provided
in or permitted by the indenture.
The issuer also covenants that it will file with the related indenture trustee a
projection of program operating expenses for each calendar year within the
limits provided in the indenture and that it will not, in any calendar quarter,
exceed those projected for the calendar quarter except on some conditions
described in the
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related indenture. If the issuer fails to file a report for any calendar year,
the report filed for the preceding calendar year will apply.
EVENTS OF DEFAULT
Under an indenture, the following constitute an event of default:
(1) Failure in the due and punctual payment of:
(a) principal or interest on any note issued under the indenture when
due, either at legal final maturity or on redemption or
otherwise, excluding:
- any shortfall on a distribution date other than the legal final
maturity of any series of notes if available funds are
insufficient to pay the related principal distribution amount on
this date,
- for so long as any senior notes are outstanding under the
indenture, any shortfall on a distribution date other than the
legal final maturity of any series of subordinate notes if
available funds are insufficient to pay the holders' interest
distribution amount of the series of subordinate notes on this
date, and
- for so long as any senior notes are outstanding under the
indenture, any deferral in the payment of interest on the
subordinate notes on a distribution date other than the legal
final maturity of any series of subordinate notes; or
(b) any issuer exchange payment when due, excluding:
- payment in respect of an early termination of the exchange
agreement,
- for so long as any senior notes are outstanding under the
indenture, any shortfall on a distribution date other than the
legal final maturity of any series of subordinate notes if
available funds are insufficient to pay any subordinate issuer
exchange payments relating to the series of subordinate notes on
this date, and
- for so long as any senior notes are outstanding under the
indenture, any deferral in the payment of subordinate issuer
exchange payments;
(2) Failure by the issuer in the observance and performance of any
covenants or agreements made in the indenture and the continuation of
failure for a period of 30 days after written notice is given to the
issuer from the indenture trustee or from the holders of at least a
majority of the aggregate principal amount of the outstanding notes;
(3) Some events of bankruptcy, insolvency, receivership or liquidation
with respect to the issuer; and
(4) The entry of a final judgment against the issuer if judgment will not
be discharged within 60 days from the entry, or if an appeal will not
be taken therefrom, or from the order or decree on which the judgment
was granted or entered in the manner as to conclusively set
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aside the execution under the judgment or order or the enforcement, if
the judgment constitutes or could result in:
(a) a lien or charge on the available funds or the trust equal or
superior to the lien granted under the indenture for the benefit
of the holders of the senior notes,
(b) if no senior notes are outstanding under the indenture, a lien or
charge on the available funds or the trust equal or superior to
the lien granted under the indenture for the benefit of the
holders of the subordinate notes, or
(c) which materially and adversely affects the ownership, control or
operation of the program.
Acceleration of the Notes
If an event of default described in clause (1) above occurs and is continuing,
the indenture trustee may, and on written direction by the holders of at least a
majority of the aggregate principal amount of the outstanding directing notes,
the indenture trustee must declare all outstanding notes to be immediately due
and payable, by written notice to the issuer.
If an event of default described in clause (2) above occurs and is continuing,
the indenture trustee may, and on written direction by all of the holders of
directing notes, the indenture trustee must declare all outstanding notes to be
immediately due and payable, by written notice to the issuer.
If an event of default described in clause (3) above occurs and is continuing,
all outstanding notes will become immediately due and payable without notice or
any action by the indenture trustee and a declaration of acceleration will be
deemed to have been made.
If an event of default described in clause (4) above occurs and is continuing,
the indenture trustee may, and on written direction by the holders of at least a
majority of the aggregate principal amount of the outstanding directing notes,
the indenture trustee must declare all outstanding notes to be immediately due
and payable, by written notice to the issuer.
If, after this declaration, but before any judgment or decree for the payment of
moneys due will have been obtained or entered unless the same has been
discharged:
(1) all defaults under the indenture (other than the payment of principal
and interest due and payable solely by reason of the declaration) will
be cured to the satisfaction of the indenture trustee or provision
deemed by the indenture trustee to be adequate will be made; and
(2) the following amounts will either be paid by or for the account of the
issuer or provision satisfactory to the indenture trustee will be made
for the payment:
(a) all overdue installments of interest on:
- the senior notes if senior notes are outstanding, or
- the subordinate notes if no senior notes are outstanding,
and
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(b) the reasonable and proper charges, expenses and liabilities of
the indenture trustee, any exchange counterparty and the holders
and their respective agents and attorneys, and all other sums
then payable by the issuer under the indenture (except the
principal of and interest accrued since the next preceding
distribution date on the notes due and payable solely by virtue
of this declaration);
then, the holders of at least a majority of the aggregate principal amount of
the outstanding directing notes, by written notice to the issuer and to the
indenture trustee, may rescind the declaration and annul an event of default,
or, if the indenture trustee has acted with respect to the notes without a
direction from the holders of at least a majority in aggregate principal amount
of the outstanding directing notes and has not received written direction to the
contrary by the holders of at least a majority in aggregate principal amount of
the outstanding directing notes, then the indenture trustee may annul a
declaration and any default by written notice to the issuer. No rescission and
annulment will extend to or affect any subsequent event of default or impair or
exhaust any right or power with respect to the outstanding directing notes.
On any declaration of acceleration of the notes, the indenture trustee will give
notice of the declaration and its consequences to the holders and to any related
exchange counterparty as described in the indenture. Interest and carryover
interest will cease to accrue on these notes from and after the date set forth
in the notice (which will be not more than five days from the date of a
declaration).
Prior to a declaration accelerating the maturity of the notes as provided above,
the holders of at least two-thirds in aggregate principal amount of the
outstanding directing notes and each exchange counterparty that is not in
default or their attorneys-in-fact duly authorized may on behalf of the holders
of all notes issued under the indenture and each exchange counterparty waive any
past failure under the indenture and its consequences with respect to the notes,
except a failure in payment of the principal of or interest on any of the notes.
Application of Moneys
If (A) an event of default has occurred and is continuing, and (B) at any time
the moneys held by the indenture trustee is insufficient for the payment of
principal and interest then due on the notes or for the payment of any issuer
exchange payment, then these moneys and all available funds received or
collected by the indenture trustee from the trust or otherwise for the benefit
or for the account of holders or an exchange counterparty (other than moneys
held for the payment or redemption of particular notes, which shall be applied
solely to the payment of principal and interest to holders other than the
issuer, the depositor, the administrator or their affiliates) will be applied
first to the payment of the reasonable and proper fees and expenses of the
indenture trustee and other expenses as are necessary in the judgment of the
indenture trustee to prevent loss of available funds and to protect the
interests of the holders and/or each exchange counterparty, and as follows:
(1) If the principal of all of the notes issued under the indenture has
not become or been declared due and payable:
FIRST, to the payment of all installments of interest then due on
the senior notes, with interest on overdue principal at the rates
borne by the senior notes, and to all senior issuer exchange payments
then due, in the order that the installments and/or senior issuer
exchange payments will have become due, and, if the amounts available
are not sufficient to pay all installments
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and senior issuer exchange payments coming due on the same date, then
these payments to be made ratably to the parties entitled to these
payments without discrimination or preference;
SECOND, to the payment of the unpaid holders' principal distribution
amount and/or principal due and unpaid on the senior notes at the time
of the payment, these payments to be made ratably to the parties
entitled to these payments without discrimination or preference;
THIRD, to the payment of all installments of interest then due on the
subordinate notes, with interest on overdue principal at the rates
borne by the subordinate notes, and to all subordinate issuer exchange
payments then due, in the order that the installments and/or
subordinate issuer exchange payments will have become due, and, if the
amounts available are not sufficient to pay all installments of
interest and subordinate issuer exchange payments coming due on the
same date, then these payments to be made ratably to the parties
entitled to these payments without discrimination or preference; and
FOURTH, to the payment of the unpaid holders' principal distribution
amount and/or principal due and unpaid on the subordinate notes at the
time of the payment, these payments to be made ratably to the parties
entitled to these payments without discrimination or preference.
Payment of carryover interest will be paid only in accordance with the
priority of payments as described in the related prospectus
supplement, following First through Fourth. See "The Indenture --
Collection Fund" in the related prospectus supplement.
(2) If the principal of all of the notes issued under the indenture has
become or has been declared due and payable:
FIRST, to the payment of all principal and interest then due and
unpaid on the senior notes and all senior issuer exchange payments
then due, these payments to be made ratably to the parties entitled to
these payments without discrimination or preference;
SECOND, to the payment of all principal and interest then due and
unpaid on the subordinate notes and all subordinate issuer exchange
payments then due, these payments to be made ratably to the parties
entitled to these payments without discrimination or preference;
THIRD, to the payment of all carryover interest due and unpaid on the
senior notes, these payments to be made ratably to the parties
entitled to these payments without discrimination or preference; and
FOURTH, to the payment of all carryover interest due and unpaid on the
subordinate notes, these payments to be made ratably to the parties
entitled to these payments without discrimination or preference.
Remedies on Default
Whenever moneys are to be applied as above, regardless of whether other
authorized remedies have been pursued, the indenture trustee may sell, with or
without entry, all or part of the trust and all right, title, interest, claim
and demand to the assets of the applicable trust and the right of redemption
these assets, at
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any place or places, and at the time or times and notice and terms as may be
required by law. On a sale, the indenture trustee may make and deliver to the
purchaser or purchasers a good and sufficient assignment or conveyance for the
same, which sale shall be a perpetual bar both at law and in equity against the
issuer and all parties claiming these properties. No purchaser at any sale shall
be bound to see to the application of the purchase money or to inquire as to the
authorization, necessity, expediency or regularity of any sale. The issuer and
the eligible lender trustee, if so requested by the indenture trustee, shall
ratify and confirm any sale or sales by executing and delivering to the
indenture trustee or to the purchaser or purchasers all instruments as may be
necessary, or in the judgment of the indenture trustee and/or the eligible
lender trustee, proper for the purpose which may be designated in a request. The
indenture trustee shall not sell or permit the sale or assignment of any
financed student loan or any interest in any financed student loan as a part of
the trust to any party who is not an eligible lender under the Higher Education
Act.
If an event of default has occurred and is continuing, then the indenture
trustee, either in its own name, as trustee of an express trust, as
attorney-in-fact for the related holders and/or each exchange counterparty or in
any one or more of the capacities by its agents and attorneys, is entitled and
empowered:
- to institute proceedings at law or in equity for the collection of all
sums due in connection with the notes and any issuer exchange payment
and
- to protect and enforce its rights and the rights of the holders and/or
each exchange counterparty under the indenture, whether for any
specific performance of any covenant contained in the indenture, in
aid of the execution of any power therein granted, for an accounting
as trustee of any express trust, or in the enforcement or any legal or
equitable right as the indenture trustee, being advised by counsel,
deems most effectual to enforce any of its rights or to perform any of
its duties.
The indenture trustee is entitled and empowered either in its own name, as a
trustee of an express trust, or as attorney-in-fact for the holders and each
exchange counterparty, or in any one or more capacity, to file proof of debt,
claim, petition or other document as may be necessary or advisable in order to
have the claims of the indenture trustee, the holders and any related exchange
counterparty allowed in any equity, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization or other similar proceedings.
An indenture trustee, at the written request of holders of at least a majority
in aggregate principal amount of the outstanding directing notes and when
furnished with reasonable security and indemnity, will take steps and institute
suits, actions or proceedings for the protection and enforcement of the rights
of any exchange counterparty or the holders, as the case may be, to collect any
amount due and owing from the issuer or by injunction or other appropriate
proceeding in law or in equity to obtain other appropriate relief.
No holder or exchange counterparty, if any, will have the right to institute any
proceeding with respect to the indenture unless:
(1) the holder or exchange counterparty previously shall have given to the
indenture trustee written notice of a continuing event of default;
(2) with respect to any exchange counterparty, the exchange counterparty
is not in default of its obligations under its exchange agreement, all
obligations of all of the parties to the agreement have not been
satisfied, and the agreement has not been terminated;
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(3) the holders of not less than a majority in aggregate principal amount
of the outstanding directing notes have requested in writing that the
indenture trustee institute proceeding in its own name as indenture
trustee;
(4) the holders have offered the indenture trustee reasonable indemnity;
(5) the indenture trustee has for a period of 30 days after notice failed
to institute a proceeding; and
(6) no direction inconsistent with the written request has been given to
the indenture trustee during a 30-day period by the holders of a
majority in aggregate principal amount of the outstanding directing
notes.
Remedies Not Exclusive
The remedies conferred on or reserved to the indenture trustee, the noteholders
or any exchange counterparty in the indenture are not intended to be exclusive
of any other remedy, but each and every remedy will be cumulative and will be in
addition to every other remedy given under the indenture or existing at law or
in equity or by statute on or after the date of adoption of the indenture.
AMENDMENT AND SUPPLEMENTAL INDENTURES
Without Consent of Holders. The issuer, the eligible lender trustee and the
indenture trustee, and, except with respect to item (14) below, with written
confirmation from each rating agency then rating the notes that execution of the
proposed supplemental indenture will not adversely affect the rating of any
rating agency on the notes, from time to time and at any time without the
consent or concurrence of any holder, may execute a supplemental indenture for
any one or more of the following purposes:
(1) To make any changes or corrections in the indenture as are required
for the purpose of curing or correcting any ambiguity or defective or
inconsistent provision or omission or mistake or manifest error
contained in the indenture or to insert in the indenture provisions
clarifying matters or questions arising under the indenture as are
necessary or desirable;
(2) To add additional covenants and agreements of the issuer for the
purpose of further securing the payment of the notes;
(3) To surrender any right, power or privilege reserved to or conferred on
the issuer by the terms of the indenture,
(4) To confirm as further assurance any lien, pledge, security interest,
assignment or charge, or the subjection to any lien, pledge, security
interest, assignment or charge, created or to be created by the
provisions of the indenture;
(5) To grant to or confer on the holders any additional rights, remedies,
powers, authority or security that lawfully may be granted to or
conferred on them, or to grant to or to confer on the indenture
trustee for the benefit of the holders or any exchange counterparty
any additional rights, duties, remedies, powers or authority;
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(6) To make amendments to the indenture as are required to permit
the issuer fully to comply with the Higher Education Act or as
required in order for the indenture, as amended by
supplemental indenture, not to be contrary to the terms of the
Higher Education Act;
(7) To make amendments to the indenture as may be necessary or
convenient to provide for issuance of the notes in coupon form
or issuance and registration of the notes in book-entry form
and to provide for other related provisions of the notes:
(8) To modify, amend or supplement the indenture or any supplement
to the indenture in this manner as to permit the qualification
of the indenture under the Trust Indenture Act of 1939 or any
similar federal statute hereafter in effect, and, if the
issuer and the indenture trustee so determine, to add to the
indenture or any supplement to indenture, other terms,
conditions and provisions as may be permitted by said Trust
Indenture Act of 1939 or similar federal statute, and which
will not materially adversely affect the interests of the
holders of the notes;
(9) To authorize the establishment of agreements providing for the
pledge of specific funds to other indentures, and for the
pledge of specific funds under other indentures to the
indenture;
(10) To permit any changes or modifications of the indenture
required by (a) a rating agency to maintain the outstanding
rating on the notes or (b) by the issuer of (A) a policy of
bond insurance or (B) any similar financial guaranty insuring
the payment of the principal of and interest on any notes to
obtain an internal rating of at least investment grade or as a
condition of the issuance of insurance or guaranty;
(11) To make the terms and provisions of the indenture, including
the lien and security interest granted therein, applicable to
an interest rate exchange agreement;
(12) To make amendments to the indenture as may be necessary to
permit the issuer to make loans under the Higher Education
Act;
(13) To provide for the issuance of credit enhancement, including,
but not limited to, a policy or policies of bond insurance
with respect to the notes;
(14) To add any additional eligible lender trustee or replace any
existing eligible lender trustee; and
(15) To make any other amendment which, in the judgment of the
indenture trustee, is not to the material prejudice of the
indenture trustee, the holders or any exchange counterparty.
The issuer, each eligible lender trustee and the indenture trustee, from time to
time and at any time without the consent or concurrence of any holder may
execute a supplemental indenture, if the issuer determines that the provisions
of a supplemental indenture are necessary or desirable to maximize available
funds.
With Consent of Holders and Exchange Counterparties. The issuer, each eligible
lender trustee and the indenture trustee from time to time and at any time may
execute a supplemental indenture, with the prior written consent of the holders
of not less than a majority in aggregate principal amount of the outstanding
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directing notes under the indenture (or, with respect to any change affecting
only specific series of notes, the holders of a majority in aggregate principal
amount of the outstanding notes of this series) for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the indenture, or modifying or amending the rights and obligations of the
issuer, or modifying or amending in any manner the rights of an exchange
counterparty or the holders of outstanding notes; provided, however, that,
without the specific consent of the holder of each note which would be affected
thereby, no supplemental indenture amending or supplementing the provisions of
the indenture may:
(1) change the legal final maturity for the payment of the
principal of any note or any date for the payment of interest
on the notes, or reduce the principal amount of any note or,
except on an interest determination date, the interest rate on
the notes;
(2) reduce the aforesaid proportion of notes the holders of which
are required to consent to any supplemental indenture amending
or supplementing the provisions of the indenture;
(3) except as shall otherwise be provided in the indenture, give
to any note any preference over any other note secured
thereby; or
(4) except as shall otherwise be provided in the indenture,
authorize the creation of any pledge of the assets of the
trust prior, superior or equal to, or deprive the holders or
any exchange counterparty of, the pledge, lien, security
interest and assignment created in the indenture for the
payment of the notes or any issuer exchange payment.
DEFEASANCE
The obligations of the issuer under the indenture and the liens, pledges,
security interests, charges, trusts, assignments, covenants and agreements of
the issuer and each eligible lender trustee therein made or provided for, will
be fully discharged and satisfied as to (a) any note issued under the indenture,
when either of items (1) or (2) below shall have occurred; (b) any program
operating expenses, when item (3) shall have occurred; (c) any related interest
rate exchange agreement, when item (4) shall have occurred; (d) carryover
interest, when item (5) below shall have occurred, and the note, program
operating expense, interest rate exchange agreement, or carryover interest will
no longer be deemed to be outstanding thereunder (provided, however, that the
indenture will not be deemed to be defeased until all of the following have
occurred):
(1) when the note has been canceled;
(2) as to any note not canceled, when payment of the principal of
this note, plus interest on the principal to the due date of
the note (whether the due date is by reason of maturity or on
redemption, or otherwise), either:
(a) has been made or caused to be made under the terms of
the note; or
(b) has been provided for by an irrevocable deposit with
the indenture trustee or the authenticating agent,
which is irrevocably appropriated and set aside
exclusively for this payment, and which is derived from
a source which is not a transfer of property voidable
under Sections 544 or 547 of the United States
Bankruptcy Code, should the issuer be a debtor under
this code, (accompanied by an opinion of counsel
experienced in bankruptcy matters to that effect) of,
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- moneys sufficient to make this payment, and/or
- eligible investments (which for this purpose shall
include only those obligations which are described
in item (a) of the definition of eligible
investments and which are not subject to call for
redemption prior to maturity), maturing as to
principal and interest in these amounts and at
times as will insure the availability of sufficient
moneys to make this payment, the sufficiency of
said moneys or eligible investments to be verified
in writing by a firm of independent certified
public accountants;
(3) all program operating expenses then owed by the issuer,
including related necessary and proper fees, compensation and
expenses of the indenture trustee, each eligible tender
trustee and the authenticating agent when they have been paid
or the payment of program operating expenses provided for to
the satisfaction of the indenture trustee;
(4) in the case of payment of any issuer exchange payment and the
applicable interest rate exchange agreement, when payment of
all issuer exchange payments due and payable to each exchange
counterparty under its respective interest rate exchange
agreement has been made or duly provided for to the
satisfaction of each exchange counterparty and each interest
rate exchange agreement has been terminated; and
(5) in the case of payment of any amount of carryover interest,
when the first of the following occurs:
(a) payment of all carryover interest that has accrued and
remains unpaid has been made or duly provided for to
the satisfaction of the indenture trustee, or
(b) all amounts held in the related funds and accounts
under the indenture which are available under the
provisions of the indenture to pay carryover interest
have been paid out, and no further amounts, or assets
the proceeds of which could be used to pay carryover
interest, are so available under the indenture to make
payment of carryover interest.
NONPRESENTMENT
The issuer will have no liability for payment if a holder does not present any
note for payment when the principal of the note becomes due, whether at maturity
or at the date fixed for the redemption of the note, or otherwise, if the
indenture trustee holds on the due date moneys and/or eligible investments, in
trust sufficient and available to pay the principal of the note, together with
all interest due on the principal to the due date of the note (including any
carryover interest), or to the date fixed for redemption of the note, as the
case may be. Afterwards, the indenture trustee is obligated to hold moneys
and/or eligible investments in trust for the benefit of the holder of the note
but is not liable to the holder of that note for interest. The holder of the
note will be restricted exclusively to the moneys and/or eligible investments,
for any claim of whatever nature on its part on or with respect to that note,
including any claim for the payment of the note. If any moneys and/or eligible
investments held by the indenture trustee are unclaimed by the holders of these
notes 4 years after the principal of the respective notes with respect to which
moneys and/or eligible investments have been so set aside, has become due and
payable (whether at maturity or on redemption or otherwise), moneys and/or
eligible investments will be paid to the issuer free from the trusts created by
the
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indenture, and all liabilities of the indenture trustee with respect to moneys
and/or eligible investments will cease. If this happens, the holders will be
deemed to be general unsecured creditors of the issuer for the amounts so paid
to the issuer (without interest), subject to any applicable statute of
limitation.
REMOVAL OF THE INDENTURE TRUSTEE; RESIGNATION; SUCCESSORS
The indenture trustee may be removed at any time with or without cause by the
written direction or on affirmative vote of the holders of a majority in
aggregate principal amount of the outstanding directing notes under the
indenture or their attorneys-in-fact duly authorized.
In case at any time any of the following occurs:
(1) the indenture trustee has or shall fail to comply with
specific obligations imposed on it under the Trust Indenture
Act of 1939 with respect to notes of any series after written
request therefor by the issuer or any holder of the series who
has been a bona fide holder of a note of this series for at
least 6 months;
(2) the indenture trustee ceases to be eligible under the
provisions of the indenture and fails to resign after written
request therefor has been given to the indenture trustee by
the issuer or by any holder; or
(3) the indenture trustee becomes incapable of acting, or is
adjudged a bankrupt or insolvent or a receiver of the
indenture trustee or of its property is appointed, or any
public officer takes charge or control of the indenture
trustee or of its property or affairs for the purpose of
reorganization, conservation or liquidation;
then, the issuer may remove the indenture trustee by an instrument in writing,
or, subject to specific provisions of the Trust Indenture Act of 1939, any
holder may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the indenture trustee. The
court may, after notice, if any, as it may deem proper and prescribe and as may
be required by law, remove the indenture trustee.
The indenture trustee may resign by giving not less than 60 days' written notice
to the issuer.
A successor trustee may be appointed by the holders of not less than a majority
in aggregate principal amount of the outstanding directing notes under the
indenture by an instrument or concurrent instruments in writing signed by the
holders or their attorneys-in-fact duly authorized. If at any time there is a
vacancy in the office of the indenture trustee, the issuer, by an instrument in
writing, will appoint a successor to fill the vacancy until a new indenture
trustee is appointed by the holders as described above. Any successor trustee
must meet the qualifications set forth in the indenture.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary that constitutes the opinion of Thompson Hine &
Flory LLP as to all material federal income tax consequences of the purchase,
ownership and disposition of the notes. Thompson Hine & Flory LLP is of the
opinion that the descriptions of the law and legal conclusions contained in this
summary are correct in all material respects and the discussions hereunder
fairly summarize the federal income tax considerations that are material to the
holders. The discussion is based on the provisions of the
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Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, and the judicial and administrative rulings and decisions now in
effect, all of which are subject to change or possible differing
interpretations. However, the Internal Revenue Service may disagree with some
aspects of the discussion below. The statutory provisions, regulations, and
interpretations on which this discussion is based are subject to change, and a
change in one or more of them could apply retroactively. No ruling on any of the
tax matters discussed below will be sought from the Internal Revenue Service.
THE DISCUSSION DOES NOT DEAL WITH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY AFFECT PARTICULAR INVESTORS IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES, NOR
WITH SPECIFIC CATEGORIES OF INVESTORS SUBJECT TO SPECIAL TREATMENT UNDER THE
FEDERAL INCOME TAX LAWS. FOR EXAMPLE, IT DOES NOT DISCUSS THE TAX TREATMENT OF
HOLDERS THAT ARE INSURANCE COMPANIES, REGULATED INVESTMENT COMPANIES OR DEALERS
IN SECURITIES. THIS DISCUSSION FOCUSES PRIMARILY ON INVESTORS WHO WILL HOLD
NOTES AS CAPITAL ASSETS (GENERALLY HELD FOR INVESTMENT) WITHIN THE MEANING OF
SECTION 1221 OF THE INTERNAL REVENUE CODE, BUT MUCH OF THE DISCUSSION IS
APPLICABLE TO OTHER INVESTORS AS WELL. THE DISCUSSION DOES NOT ADDRESS THE
ANTICIPATED STATE INCOME TAX CONSEQUENCES TO INVESTORS OF OWNING AND DISPOSING
OF THE NOTES. CONSEQUENTLY, WE ENCOURAGE POTENTIAL PURCHASERS OF NOTES TO
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE OR LOCAL TAX
CONSEQUENCES TO THEM OF THE PURCHASE, HOLDING, AND DISPOSITION OF THE NOTES.
PAYMENTS RECEIVED ON NOTES
Payments received by holders on the notes will be accorded the same tax
treatment under the Internal Revenue Code as payments received on other taxable
debt instruments. Except as described below for notes issued with original issue
discount, acquired with market discount, or issued or acquired at a premium,
interest paid or accrued on a note will be treated as ordinary income to the
holder and a principal payment on a note will be treated as a return of capital.
Interest paid to holders who report their income on the cash receipts and
disbursements method should be taxable to them when received. Interest earned by
holders who report their income on the accrual method will be taxable when
accrued, regardless of when it is actually received. The indenture trustee will
report annually to the Internal Revenue Service and to holders of record with
respect to interest paid or accrued, and original issue discount and market
discount, if any, accrued, on the notes.
SUBORDINATION
One or more series of notes may be subordinated to one or more other series of
notes issued under the same indenture.
THIS SUBORDINATION WILL NOT AFFECT THE FEDERAL INCOME TAX TREATMENT OF EITHER
THE SUBORDINATED OR THE SENIOR NOTES. WE ENCOURAGE EMPLOYEE BENEFIT PLANS
SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, TO
CONSULT THEIR TAX ADVISORS BEFORE PURCHASING ANY SUBORDINATED NOTE. SEE "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS AND "SUMMARY OF TERMS-ERISA CONSIDERATIONS"
IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the assumptions and representations of the depositor and the trust
described in the following sentence, in the opinion of Thompson Hine & Flory
LLP, the notes will be characterized as debt for federal income tax purposes.
The assumptions and representations upon which the above opinion is based are:
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(1) the pertinent provisions of the Internal Revenue Code, the
Treasury Regulations promulgated thereunder, and the judicial
and administrative rulings and decisions now in effect will
remain in effect and will not otherwise be amended, revised,
reversed, or overruled;
(2) the eligible lender trust agreement, the indenture, the notes,
and the servicing agreements are executed and delivered in
substantially the form as attached as exhibits to this
prospectus;
(3) there are no changes to the terms of the notes; and
(4) the depositor, the trust, and the holders treat the notes as
indebtedness of the depositor for federal income tax purposes.
This opinion will not be binding on the courts or the Internal Revenue Service.
The depositor, the trust and the holders, by accepting the notes have agreed to
treat the notes as indebtedness of the depositor for federal income tax
purposes. Both the depositor and the trust intend to treat this transaction as a
financing reflecting the notes as indebtedness for tax and financial accounting
purposes.
Tax Consequences If Notes Are Characterized As Equity
Contrary to the opinion of Thompson Hine & Flory LLP, the Internal Revenue
Service might assert that the notes do not represent debt for federal income tax
purposes, but rather the notes should be treated as equity interests in the
trust. Even if the Internal Revenue Service were to assert successfully that the
notes should not be characterized as debt for federal income tax purposes, in
the opinion of Thompson Hine & Flory LLP based on the representation of both the
trust and the depositor, described in the following sentence, although the trust
might be treated as a publicly traded partnership, it would not be taxable as a
corporation. Both the trust and the depositor have represented that for 1999 and
for any subsequent taxable year 90% or more of the gross income of the
depositor, and the trust if treated as a separate entity, will be interest
income attributable to loans acquired by either the depositor or the trust and
not attributable to loans originated by either the depositor or the trust.
If the notes were treated as equity interests in a publicly traded partnership,
some holders could suffer adverse tax consequences. For example, income to
tax-exempt entities (including pension funds) would be "unrelated business
taxable income," income to foreign holders would be subject to U.S. tax and U.S.
tax return filing and withholding requirements, and individual holders might be
subject to some limitations on their ability to deduct their share of trust
expenses. Furthermore, this characterization could subject holders to state and
local taxation in jurisdictions in which they are not currently subject to tax.
CHARACTERIZATION OF THE TRUST
In the opinion of Thompson Hine & Flory LLP, for federal income tax purposes,
the trust established under each indenture will not be treated as an entity
separate from the depositor and thus will not be classified as a separate entity
that is an association (or a publicly traded partnership) taxable as a
corporation. However, the Internal Revenue Service might assert that the trust
is a separate entity from the depositor for federal income tax purposes. If for
federal income tax purposes the trust were instead treated as an entity separate
from the depositor, the trust might be treated as a partnership among the
related holders, and, possibly, the depositor as well. In the opinion of
Thompson Hine & Flory LLP, based on the representation of both the
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trust and the depositor described in "-- Tax Consequences If Notes Are
Characterized As Equity," the resulting partnership would not be subject to
federal income tax as a publicly traded partnership taxable as a corporation.
Rather, each holder would be taxed individually on their respective distributive
shares of the partnership's income, gain, loss, deductions and credits. This
opinion will not be binding on the courts or the Internal Revenue Service. The
amount and timing of items of income and deduction of the holders may differ if
the notes were held to constitute partnership interests, rather than
indebtedness.
The Internal Revenue Service, however, might assert that one or more of the
activities of the trust constitutes a financial business so that the qualifying
income tests are not met. If qualifying income tests are not met, the trust
would constitute a publicly traded partnership taxable as a corporation. If it
were determined that the transaction results in the trust being classified as a
corporation or a publicly traded partnership treated as an association taxable
as a corporation, the trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the financed student loans and
other assets, which would reduce the amounts available for payment to the
related holders. Cash payments to these holders would be treated as dividends
for tax purposes to the extent of the publicly traded partnership's or
corporation's earnings and profits.
ORIGINAL ISSUE DISCOUNT
Notes issued at a price less than their stated principal amount (i.e., discount
notes), notes on which interest is accrued and is compounded and added to the
principal balance of the notes periodically (i.e., accretion notes), and other
series of notes will be issued with "original issue discount" within the meaning
of Section 1273(a) of the Internal Revenue Code. Original issue discount will
equal the difference between the "stated redemption price at maturity" of the
note (generally, its principal amount) and its issue price. Original issue
discount is treated as ordinary interest income, and holders of notes with
original issue discount must include the amount of original issue discount in
income on an accrual basis in advance of the receipt of the cash to which it
relates.
The amount of original issue discount required to be included in a holder's
income in any taxable year will be computed under Section 1272(a)(6) of the
Internal Revenue Code, which provides rules for the accrual of original issue
discount for debt instruments, such as the notes, that are subject to prepayment
by reason of prepayments of underlying debt obligations. No regulatory guidance
currently exists under Section 1272(a)(6) of the Internal Revenue Code.
Accordingly, until the U.S. Treasury Department issues guidance to the contrary,
the issuer or other person responsible for computing the amount of original
issue discount to be reported to a holder each taxable year (i.e., the tax
administrator), except as otherwise provided in this prospectus, expects to base
its computations on Section 1272(a)(6) of the Internal Revenue Code and final
Treasury Regulations governing the accrual of original issue discount on debt
instruments (i.e., the OID Regulations). The amount and rate of accrual of
original issue discount on a note will be calculated by the tax administrator
based on:
- a single constant yield to maturity, and
- the prepayment rate of the financed student loans and the
reinvestment rate on amounts held pending distribution that
were assumed in pricing the note (i.e., the pricing prepayment
assumptions).
Investors should be aware, however, that the OID Regulations do not address
directly the treatment of instruments that are subject to Section 1272(a)(6) of
the Internal Revenue Code, and, accordingly, there can
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be no assurance that this methodology, which is described below, represents the
correct manner of calculating original issue discount on the notes. The tax
administrator intends to account for income on notes that provide for one or
more contingent payments as described in "-- Variable Rate Notes."
Computation of Original Issue Discount
The amount of original issue discount on a note equals the excess, if any, of
the note's "stated redemption price at maturity" over its "issue price." Under
the OID Regulations, a debt instrument's stated redemption price at maturity is
the sum of all payments provided by the instrument other than "qualified stated
interest," i.e., deemed principal payments. Qualified stated interest, in
general, is stated interest that is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually at (1) a single
fixed rate or (2) a variable rate that meets specific requirements set out in
the OID Regulations. See "-- Variable Rate Notes." Thus, in the case of any note
providing for this stated interest other than an accretion note, the stated
redemption price at maturity generally will equal the total amount of all deemed
principal payments due on that note. Because an accretion note generally does
not require unconditional payments of interest at least annually, the stated
redemption price at maturity this note will equal the aggregate of all payments
due, whether designated as principal, accrued interest, or current interest. The
issue price of a series of notes generally will equal the initial price at which
the series is sold to the public.
De Minimis Rule
Under a de minimis rule, a note will be considered to have no original issue
discount if the amount of original issue discount is less than 0.25% of the
note's stated redemption price at maturity multiplied by the weighted average
maturity of the note. No Treasury Regulations have been issued with respect to
computing the weighted average maturity of instruments like a note. The tax
administrator will compute the weighted average maturity of a note as equaling
the sum of the amounts obtained by multiplying the number of complete years from
the note's issue date until the payment is made by a fraction, the numerator of
which is the amount of each deemed principal payment, and the denominator of
which is the note's stated redemption price at maturity. A holder will include
de minimis original issue discount in income on a pro rata basis as stated
principal payments on the note are received or, if earlier, on disposition of
the note, unless the holder makes the election described below in "All Original
Issue Discount Election."
Teaser Notes
Notes of a series may bear interest under terms that provide for a teaser rate
period, interest holiday, or other period during which the rate of interest
payable on the notes is lower than the rate payable during the remainder of the
life of the notes (i.e., teaser notes). The OID Regulations provide a more
expansive test under which a teaser note may be considered to have a de minimis
amount of original issue discount even though the amount of the original issue
discount on the note would be more than de minimis as determined under the
regular test. The expanded test applies to a teaser note only if the stated
interest on the note would be qualified stated interest but for the fact that
during one or more accrual periods its interest rate is below the rate
applicable for the remainder of its term. Under the expanded test, the amount of
original issue discount on a teaser note that is measured against the de minimis
amount of original issue discount allowable on the note is the greater of (1)
the excess of the stated principal amount of the note over its issue price and
(2) the amount of additional stated interest that would be necessary to be
payable on the note in order for all stated interest.
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Computation of Daily Portions of Original Issue Discount
The holder of a note must include in gross income the sum, for all days during
his taxable year on which he holds the note, of the "daily portions" of the
original issue discount on the note. The daily portions of original issue
discount with respect to a note will be determined by allocating to each day in
any accrual period the note's ratable portion of the excess, if any, of:
(1) the sum of (a) the present value of all payments under the
note yet to be received as of the close of this period and (b)
the amount of any deemed principal payments received on the
note during this period, over
(2) the note's "adjusted issue price" at the beginning of this
period.
The present value of payments yet to be received on a note will be computed by
using the pricing prepayment assumptions and the note's original yield to
maturity (adjusted to take into account the length of the particular accrual
period), and taking into account deemed principal payments actually received on
the note prior to the close of the accrual period. The adjusted issue price of a
note at the beginning of the first accrual period is its issue price.
The adjusted issue price at the beginning of each subsequent period is the
adjusted issue price of the note at the beginning of the preceding period
increased by the amount of original issue discount allocable to that period and
decreased by the amount of any deemed principal payments received during that
period. Thus, an increased (or decreased) rate of prepayments received with
respect to a note will be accompanied by a correspondingly increased (or
decreased) rate of recognition of original issue discount by the holder of the
note.
The yield to maturity of a note will be calculated based on
(1) the pricing prepayment assumptions; and
(2) any contingencies not already taken into account under the
pricing prepayment assumptions that, considering all the facts
and circumstances as of the issue date, are significantly more
likely than not to occur.
Contingencies, such as the exercise of "mandatory redemptions," that are taken
into account by the parties in pricing the note typically will be subsumed in
the pricing prepayment assumptions and thus will be reflected in the note's
yield to maturity.
Optional Redemption
The notes of a series may be subject to optional redemption by the issuer before
their legal final maturities. Under the OID Regulations, the issuer will be
presumed to exercise its option to redeem for purposes of computing the accrual
of original issue discount if, and only if, by using the optional redemption
date as the maturity date and the optional redemption price as the stated
redemption price at maturity, the yield to maturity of the notes is lower than
it would be if the notes were not redeemed early. If the issuer is presumed to
exercise its option to redeem the notes, original issue discount on these notes
will be calculated as if the redemption date were the maturity date and the
optional redemption price were the stated redemption price at maturity. In cases
in which all of the notes of a particular series are issued at par or at a
discount, the
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issuer will not be presumed to exercise its option to redeem the notes because a
redemption by the issuer would not lower the yield to maturity of the notes.
If, however, some notes of a particular series are issued at a premium, the
issuer may be able to lower the yield to maturity of the notes by exercising its
redemption option. In determining whether the issuer will be presumed to
exercise its option to redeem notes when one or more series of the notes are
issued at a premium, the tax administrator will take into account all series of
notes that are subject to the optional redemption to the extent that they are
expected to remain outstanding as of the optional redemption date, based on the
pricing prepayment assumptions. If, determined on a combined weighted average
basis, the notes of the series were issued at a premium, the tax administrator
will presume that the issuer will exercise its option. However, the OID
Regulations are unclear as to how the redemption presumption rules should apply
to instruments such as the notes, and there can be no assurance that the
Internal Revenue Service will agree with the tax administrator's position.
All Original Issue Discount Election
The OID Regulations provide that a holder may make an election to include in
gross income all stated interest, acquisition discount, original issue discount,
de minimis original issue discount, market discount (see "-- Market Discount"),
de minimis market discount that accrues on the note, and unstated interest (as
reduced by any amortizable premium, "-- Amortizable Premium") under the constant
yield method used to account for original issue discount. To make this election,
the holder of the note must attach a statement to its timely filed federal
income tax return for the taxable year in which the holder acquired the note.
The statement must identify the instruments to which the election applies. An
election is irrevocable unless the holder obtains the consent of the Internal
Revenue Service.
If an election is made for a debt instrument with market discount, the holder is
deemed to have made an election to include in income currently the market
discount on all of the holder's other debt instruments with market discount. See
"-- Market Discount." In addition, if an election is made for a debt instrument
with amortizable premium, the holder is deemed to have made an election to
amortize the premium on all of the holder's other debt instruments with
amortizable premium under the constant yield method. See "-- Amortizable
Premium." Holders should be aware that the law is unclear as to whether an
election is effective for a note that is subject to the contingent payment
rules. See "-- Variable Rate Notes."
Subsequent Holder
A note having original issue discount may be acquired in a transaction
subsequent to its issuance for more than its adjusted issue price. If the
subsequent holder's adjusted basis in a note, immediately after its acquisition,
exceeds the sum of all deemed principal payments to be received on the note
after the acquisition date, the note will no longer have original issue
discount, and the holder may be entitled to reduce the amount of interest income
recognized on the note by the amount of amortizable premium. See "-- Amortizable
Premium."
If the subsequent holder's adjusted basis in the note immediately after the
acquisition exceeds the adjusted issue price of the note, but is less than or
equal to the sum of the deemed principal payments to be received under the note
after the acquisition date, the amount of original issue discount on the note
will be reduced by a fraction, the numerator of which is the excess of the
note's adjusted basis immediately after its acquisition over the adjusted issue
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price of the note and the denominator of which is the excess of the sum of all
deemed principal payments to be received on the note after the acquisition date
over the adjusted issue price of the note. Alternately, the subsequent purchaser
of a note having original issue discount may make the election described above
in "-- All Original Issue Discount Election" with respect to the note.
Original Issue Discount On Teaser Notes For The First Distribution Period
If the interval period between the issue date of a note that pays interest at
the series interest rate on a current basis and the first distribution date
contains more days than the number of days of stated interest that are payable
on the first distribution date, the effective interest rate received by the
holder during the interval period will be less than the note's stated interest
rate making the note a teaser note. If the amount of original issue discount on
the note measured under the expanded de minimis test (see "-- Teaser Notes")
exceeds the de minimis amount of original issue discount allowable on the note,
the amount by which the stated interest on the note exceeds the interest that
would be payable on the note at the effective rate of interest for the interval
period would be treated as part of the note's stated redemption price at
maturity. Accordingly, the holder of a teaser note may be required to recognize
ordinary income arising from original issue discount attributable to the
interval period in addition to any qualified stated interest that accrues in
that period.
Original Issue Discount On Rate Bubble Notes For The Distribution Period
Similarly, if the interval period is shorter than the number of days between
subsequent distribution dates, the effective rate of interest payable on a note
during the interval period will be higher than the stated rate of interest if a
holder receives interest on the first distribution date based on a full accrual
period. Unless the "pre-issuance accrued interest rule" described below applies,
the note would be issued with original issue discount unless the amount of
original issue discount is de minimis. The amount of original issue discount on
a rate bubble note attributable to the interval period would be the amount by
which the interest payment due on the first distribution date exceeds the amount
that would have been payable had the effective rate for that period been equal
to the stated interest rate. However, under the pre-issuance accrued interest
rule, if:
(1) a portion of the initial purchase price of a rate bubble note
is allocable to interest that has accrued under the terms of
the note prior to its issue date (i.e., pre-issuance accrued
interest); and
(2) the note provides for a payment of stated interest on the
first payment date within one year of the issue date that
equals or exceeds the amount of the pre-issuance accrued
interest, the note's issue price may be computed by
subtracting from the issue price the amount of pre-issuance
accrued interest.
If the holder opts to apply the pre-issuance accrued interest rule, the portion
of the interest received on the first distribution date equal to the
pre-issuance accrued interest would be treated as a return of the interest and
would not be treated as a payment on the note. Thus, where the pre-issuance
accrued interest rule applies, a rate bubble note will not have original issue
discount attributable to the interval period, provided that the increased
effective interest rate for that period is attributable solely to pre-issuance
accrued interest, as typically will be the case.
The tax administrator intends to apply the pre-issuance accrued interest rule to
each rate bubble note for which it is available if the note's stated interest
otherwise would be qualified stated interest. If, however, the interval period
of a rate bubble note is longer than subsequent distribution periods, the
application of the pre-issuance accrued interest rule typically will not prevent
disqualification of the note's stated interest because its effective interest
rate during the interval period typically will be less than its stated interest
rate.
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A note with a long interval period typically will be a teaser note, as discussed
above. The pre-issuance accrued interest rule will not apply to any amount paid
at issuance for a teaser note that is normally allocable to interest accrued
under the terms of the note before its issue date. All amounts paid for a teaser
note at issuance, regardless of how designated, will be included in the issue
price of the note for federal income tax accounting purposes.
IN VIEW OF THE COMPLEXITIES AND CURRENT UNCERTAINTIES AS TO THE MANNER OF
INCLUSION IN INCOME OF ORIGINAL ISSUE DISCOUNT ON THE NOTES, WE ENCOURAGE
POTENTIAL INVESTORS TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
APPROPRIATE AMOUNT AND METHOD OF INCLUSION IN INCOME OF ORIGINAL ISSUE DISCOUNT
ON THE NOTES FOR FEDERAL INCOME TAX PURPOSES.
VARIABLE RATE NOTES
A note may pay interest at a variable rate, i.e., a variable rate note. A
variable rate note that qualifies as a "variable rate debt instrument" as that
term is defined in the OID Regulations will be governed by the rules applicable
to variable rate debt instruments in the OID Regulations, which are described
below. A variable rate note qualifies as a variable rate debt instrument under
the OID Regulations if:
(1) the note is not issued at a premium to its noncontingent
principal amount in excess of the lesser of:
(a) .015 multiplied by the product of the noncontingent
principal amount and the weighted average maturity of
the note, or
(b) 15 percent of the noncontingent principal amount;
(2) stated interest on the note compounds or is payable
unconditionally at least annually at:
(a) one or more qualified floating rates,
(b) a single fixed rate and one or more qualified floating
rates,
(c) a single "objective rate," or
(d) a single fixed rate and a single objective rate that is
a "qualified inverse floating rate," and
(3) the qualified floating rate or the objective rate in effect
during an accrual period is set at a current value of that
rate (i.e., the value of the rate on any day occurring during
the interval that begins three months prior to the first day
on which that value is in effect under the note and ends one
year following that day).
If the variable rate note provides for any contingent payments (which do not
include qualified stated interest), the tax administrator intends to account for
the income earned on the note as described below.
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Qualified Floating Rate
Under the OID Regulations, a rate is a qualified floating rate if variations in
the value of the rate reasonably can be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the debt
instrument is denominated. A qualified floating rate may measure contemporaneous
variations in borrowing costs for the issuer of the debt instrument or for
depositors in general. A multiple of a qualified floating rate is considered a
qualified floating rate only if the rate is equal to either (a) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. If a note provides for two or more qualified floating
rates that reasonably can be expected to have approximately the same values
throughout the term of the note, the qualified floating rates together will
constitute a single qualified floating rate. Two or more qualified floating
rates conclusively will be presumed to have approximately the same values
throughout the term of a note, if the values of all the rates on the issue date
of the note are within 25 basis points of each other.
A variable rate will be considered a qualified floating rate if it is subject to
a restriction or restrictions on the maximum stated interest rate (i.e., a cap),
a restriction or restrictions on the minimum stated interest rate (i.e., a
floor), a restriction or restrictions on the amount of increase or decrease in
the stated interest rate (i.e., a governor), or other similar restriction only
if:
(1) the cap, floor, or governor is fixed throughout the term of
the related note; or
(2) the cap, floor, governor, or similar restriction is not
reasonably expected, as of the issue date, to cause the yield
on the note to be significantly less or significantly more
than the expected yield on the note determined without such
cap, floor, governor, or similar restriction, as the case may
be.
Objective Rate
Under the OID Regulations, an objective rate is a rate (other than a qualified
floating rate) that:
(1) is determined using a single fixed formula;
(2) is based on objective financial or economic information; and
(3) is not based on information that either is within the control
of the issuer (or a related party) or is unique to the
circumstances of the issuer (or related party), including
dividends, profits, or the value of the issuer's (or related
party's) stock.
That definition would include a rate that is based on changes in a general
inflation index. In addition, a rate would not fail to be an objective rate
merely because it is based on the credit quality of the issuer.
Fixed Rate Followed By A Variable Rate
Under the OID Regulations if interest on a variable rate note is stated at a
fixed rate for an initial period of less than one year followed by a variable
rate that is either a qualified floating rate or an objective rate for a
subsequent period, and the value of the variable rate on the issue date is
intended to approximate the fixed rate, the fixed rate and the variable rate
together constitute a single qualified floating rate or objective rate.
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A fixed rate and a variable rate conclusively will be presumed to approximate an
initial fixed rate if the value of the variable rate on the issue date does not
differ from the value of the fixed rate by more than 25 basis points.
Single Rate Variable Rate Debt Instrument Note
Under the OID Regulations, all interest payable on a variable rate note that
qualifies as a variable rate debt instrument and provides for stated interest
unconditionally payable in cash or property at least annually at a single
qualified floating rate or a single objective rate (i.e., a single rate variable
rate debt instrument note), is treated as qualified stated interest. The amount
and accrual of OID on a single rate variable rate debt instrument note is
determined, in general, by converting the note into a hypothetical fixed rate
note and applying the rules applicable to fixed rate notes described under "--
Original Issue Discount" to the hypothetical fixed rate note. Qualified stated
interest or original issue discount allocable to an accrual period with respect
to a single rate variable rate debt instrument note also must be increased (or
decreased) if the interest actually accrued or paid during the accrual period
exceeds (or is less than) the interest assumed to be accrued or paid during the
accrual period under the related hypothetical fixed rate note.
Multiple Rate Variable Rate Debt Instrument Note
Except as provided below, the amount and accrual of original issue discount on a
variable rate note that qualifies as a variable rate debt instrument but is not
a single rate variable rate debt instrument note (i.e., a multiple rate variable
rate debt instrument note), is determined by converting the note into a
hypothetical equivalent fixed rate note that has terms that are identical to
those provided under the multiple rate variable rate debt instrument note,
except that the hypothetical equivalent fixed rate note will provide for fixed
rate substitutes in lieu of the qualified floating rates or objective rates
provided for under the multiple rate variable rate debt instrument note. A
multiple rate variable rate debt instrument note that provides for a qualified
floating rate or rates or a qualified inverse floating rate is converted to a
hypothetical equivalent fixed rate note by assuming that each qualified floating
rate or the qualified inverse floating rate will remain at its value as of the
issue date. A multiple rate variable rate debt instrument note that provides for
an objective rate or rates is converted to a hypothetical equivalent fixed rate
note by assuming that each objective rate will equal a fixed rate that reflects
the yield that reasonably is expected for the multiple rate variable rate debt
instrument note. Qualified stated interest or original issue discount allocable
to an accrual period with respect to a multiple rate variable rate debt
instrument note must be increased (or decreased) if the interest actually
accrued or paid during the accrual period exceeds (or is less than) the interest
assumed to be accrued or paid during the accrual period under the hypothetical
equivalent fixed rate note.
Under the OID Regulations, the amount and accrual of original issue discount on
a multiple rate variable rate debt instrument note that provides for stated
interest at either one or more qualified floating rates or at a qualified
inverse floating rate and in addition provides for stated interest at a single
fixed rate (other than an initial fixed rate that is intended to approximate the
subsequent variable rate) is determined using the method described above for all
other multiple rate variable rate debt instrument notes except that prior to its
conversion to a hypothetical equivalent fixed rate note, the multiple rate
variable rate debt instrument note is treated as if it provided for a qualified
floating rate (or a qualified inverse floating rate), rather than the fixed
rate. The qualified floating rate (or qualified inverse floating rate) replacing
the fixed rate must be a rate so that the fair market value of the multiple rate
variable rate debt instrument note as of its issue date would be approximately
the same as the fair market value of an otherwise identical debt instrument that
provides for the qualified floating rate (or qualified inverse floating rate),
rather than the fixed rate.
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Inverse Floater Notes
Notes of a series may provide for the payment of interest at a rate determined
as the difference between two interest rate parameters, one of which is a
variable rate and the other of which is a fixed rate or a different variable
rate (i.e., inverse floater notes). The inverse floater notes are expected to
bear interest at objective rates. Consequently, if the interest rates of the
notes meet the test for qualified stated interest, the income on the notes will
be accounted for under the rules applicable to variable rate debt instruments
described above.
Contingent Payment Obligations
The OID Regulations contain rules that address the federal income tax treatment
of debt obligations with one or more contingent payments (i.e., contingent
payment obligations). Under the contingent payment rules of the OID Regulations,
any variable rate debt instrument that is not a variable rate debt instrument is
classified as a contingent payment obligation. However, the contingent payment
rules of the OID Regulations, by their terms, do not apply to debt instruments
that are subject to Section 1272(a)(6) of the Internal Revenue Code.
In the absence of further guidance, the tax administrator will account for notes
that are contingent payment obligations under Section 1272(a)(6) of the Internal
Revenue Code. Income will be accrued on the notes based on a constant yield that
is derived from a projected payment schedule as of the closing date. The
projected payment schedule will take into account the pricing payment
assumptions and the interest payments that are expected to be made based on the
value of any relevant indices on the issue date. To the extent that actual
payments differ from projected payments for a particular taxable year,
appropriate adjustments to interest income and expense accruals will be made for
that year.
The method described in the paragraph for accounting for notes that are
contingent payment obligations is consistent with Section 1272(a)(6) of the
Internal Revenue Code and the legislative history of that provision. Because of
the uncertainty with respect to the treatment of the notes under the OID
Regulations, however, there can be no assurance that the Internal Revenue
Service will not assert successfully that a method less favorable to holders
will apply.
IN VIEW OF THE COMPLEXITIES AND THE CURRENT UNCERTAINTIES AS TO INCOME
INCLUSIONS WITH RESPECT TO NOTES THAT ARE CONTINGENT PAYMENT OBLIGATIONS, IT IS
SUGGESTED THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS TO DETERMINE
THE APPROPRIATE AMOUNT AND METHOD OF INCOME INCLUSION ON THE NOTES FOR FEDERAL
INCOME TAX PURPOSES.
ANTI-ABUSE RULE
The U.S. Treasury Department issued Treasury Regulations containing an
anti-abuse rule because it was concerned that taxpayers might be able to
structure debt instruments or transactions, or to apply the bright-line or
mechanical rules of the OID Regulations in a way that produces unreasonable tax
results. Those regulations provide that if a principal purpose in structuring a
debt instrument or engaging in a transaction is to achieve a result that is
unreasonable in light of the purposes of the applicable statutes, the Internal
Revenue Service can apply or depart from the OID Regulations as necessary or
appropriate to achieve a reasonable result. A result is not considered
unreasonable under Treasury Regulations, however, in the absence of a
substantial effect on the present value of a taxpayer's tax liability.
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MARKET DISCOUNT
A subsequent purchaser of a note at a discount from its outstanding principal
amount (or, in the case of a note having original issue discount, its "adjusted
issue price") will acquire the note with market discount. The purchaser
generally will be required to recognize the market discount (in addition to any
original issue discount remaining with respect to the note) as ordinary income.
A person who purchases a note at a price lower than the note's outstanding
principal amount but higher than its adjusted issue price does not acquire the
note with market discount, but will be required to report original issue
discount, appropriately adjusted to reflect the excess of the price paid over
the adjusted issue price. See "-- Original Issue Discount."
A note will not be considered to have market discount if the amount of the
market discount is de minimis (i.e., less than the product of (1) 0.25% of the
remaining principal amount (or, in the case of a note having original issue
discount, the adjusted issue price of the note), multiplied by (2) the weighted
average maturity of the note (determined as for original issue discount)
remaining after the date of purchase). Regardless of whether the subsequent
purchaser of a note with more than a de minimis amount of market discount is a
cash-basis or accrual-basis taxpayer, market discount generally will be taken
into income as principal payments (including, in the case of a note having
original issue discount, any deemed principal payments) are received, equal to
the lesser of:
- the amount of the principal payment received; or
- the amount of the market discount that has "accrued", but that
has not yet been included in income.
Elections
The purchaser of a note with market discount may make a special election, which
applies to all market discount instruments held or acquired by the purchaser in
the taxable year of election or afterwards, to recognize market discount
currently on an uncapped accrual basis. In addition, the purchaser may make the
election described in "-- All Original Issue Discount Election," with respect to
a note purchased with market discount.
Until the U.S. Treasury Department promulgates applicable Treasury Regulations,
the purchaser of a note with market discount may elect to accrue the market
discount either:
(1) on the basis of a constant interest rate;
(2) in the case of a note issued with original issue discount, in
the ratio of stated interest payable in the relevant period to
the total stated interest remaining to be paid from the
beginning of this period; or
(3) in the case of a note issued with original issue discount, in
the ratio of original issue discount accrued for the relevant
period to the total remaining original discount at the
beginning of this period.
Regardless of which computation method is elected, the pricing prepayment
assumptions must be used to calculate the accrual of market discount.
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Sale or Exchange of a Note With Market Discount
A holder who has acquired any note with market discount generally will be
required to treat a portion of any gain on a sale or exchange of the note as
ordinary income to the extent of the market discount accrued to the date of
disposition under one of the above three methods, less any accrued market
discount previously reported as ordinary income as partial principal payments
were received. Moreover, the holder generally must defer interest deductions
attributable to any indebtedness incurred or continued to purchase or carry the
note to the extent they exceed income on the note. Any deferred interest
expense, in general, is allowed as a deduction not later than the year in which
the related market discount income is recognized. If a holder makes the election
to recognize market discount currently on an uncapped accrual basis or the
election described above in "-- All Original Issue Discount Election," the
interest deferral rule will not apply.
Under the contingent payment regulations, a secondary market purchaser of a
contingent payment obligation at a discount generally would continue to accrue
interest and determine adjustments on the note based on the original projected
payment schedule devised by the issuer of the note. The holder of a note would
be required, however, to allocate the difference between the adjusted issue
price of the note and its basis in the note as positive adjustments to the
accruals or projected payments on the note over the remaining term of the note
in a manner that is reasonable (e.g., based on a constant yield to maturity).
Treasury Regulations implementing the market discount rules have not yet been
issued, and uncertainty exists with respect to many aspects of those rules. For
example, the treatment of a note subject to redemption at the option of the
issuer that is acquired at a market discount is unclear. It appears likely,
however, that the market discount rules applicable in this case would be similar
to the rules pertaining to original issue discount. Due to the substantial lack
of regulatory guidance with respect to the market discount rules, it is unclear
how those rules will affect any secondary market that develops for a given
series of notes. Therefore, it is suggested that prospective investors consult
their own tax advisors regarding the application of the market discount rules to
the notes.
Clinton Administration Revenue Proposals
In February 1999, the Clinton administration issued revenue proposals including
one that would require taxpayers that use an accrual method of accounting to
include market discount in income as it accrues. The taxpayer's yield for
purposes of determining and accruing market discount would be limited to the
greater of:
- the original yield-to-maturity of the debt instrument plus 5
percentage points or
- the applicable federal rate at the time the taxpayer acquired
the debt instrument plus 5 percentage points.
This proposal would be effective for debt instruments acquired on or after the
date of enactment.
AMORTIZABLE PREMIUM
A subsequent purchaser of a note who purchases the note at a premium over the
total of its deemed principal payments may elect to amortize the premium under a
constant yield method that reflects compounding based on the interval between
payments on the notes. Treasury Regulations were issued on December 30, 1997
concerning the treatment of bond premium. Under these Treasury Regulations, bond
premium may be
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amortized to offset interest income only as a holder takes the qualified stated
interest into account under the holder's regular accounting method. Moreover,
the Treasury Regulations generally provide that in the case of notes subject to
optional redemption, the holder is deemed to exercise or not exercise the option
in the manner that maximizes the holder's yield on the note while the issuer
generally is deemed to exercise or not exercise the option in the manner that
minimizes the holder's yield on the note. However, the issuer is deemed to
exercise or not exercise a call option or a combination of call options in the
manner that maximizes the holder's yield on the note. The Treasury Regulations
are effective for notes acquired on or after March 2, 1998. However, if a holder
elects to amortize bond premium for the taxable year containing March 2, 1998,
or any subsequent taxable year, the Treasury Regulations would apply to all of
the holder's notes held on or after the first day of that taxable year.
Under the contingent payment regulations, a secondary market purchaser of a
contingent payment obligation at a premium generally would continue to accrue
interest and determine adjustments on the note based on the original projected
payment schedule devised by the issuer of the note. The holder of the note would
allocate the difference between its basis in the note and the adjusted issue
price of the note as negative adjustments to the accruals or projected payments
on the note over the remaining term of the note in a manner that is reasonable
(e.g., based on a constant yield to maturity).
GAIN OR LOSS ON DISPOSITION
If a note is sold, the holder will recognize gain or loss equal to the
difference between the amount realized on the sale and his adjusted basis in the
note. The adjusted basis of a note will equal the cost of the note to the
holder, increased by any original issue discount or market discount previously
includable in the holder's gross income with respect to the note and reduced by
the portion of the basis of the note allocable to payments on the note (other
than qualified stated interest) previously received by the holder and by any
amortized premium. Similarly, a holder who receives a scheduled or prepaid
principal payment with respect to a note will recognize gain or loss equal to
the difference between the amount of the payment and the allocable portion of
his adjusted basis in the note. Except to the extent that the market discount
rules apply and except as provided below, any gain or loss on the sale or other
disposition of a note generally will be capital gain or loss. This gain or loss
will be long-term gain or loss if the note is held as a capital asset for the
applicable long term holding period.
Special Rules for Banks, Thrifts, and Similar Institutions
If the holder of a note is a bank, thrift, or similar institution described in
Section 582 of the Internal Revenue Code, any gain or loss on the sale or
exchange of the note will be treated as ordinary income or loss. In addition, a
portion of any gain from the sale of a note that might otherwise be capital gain
may be treated as ordinary income to the extent that the note is held as part of
a "conversion transaction" within the meaning of Section 1258 of the Internal
Revenue Code. A conversion transaction generally is one in which the taxpayer
has taken two or more positions in notes or similar property that reduce or
eliminate market risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment in the
transaction. The amount of gain realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable federal rate" (which rate is computed and published
monthly by the Internal Revenue Service) at the time the taxpayer entered into
the conversion transaction, subject to appropriate reduction for prior inclusion
of interest and other ordinary income from the transaction.
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Federal Income Tax Rates
The highest marginal individual income tax bracket is 39.6%. The alternative
minimum tax rate for individuals is 26% with respect to alternative minimum tax
income up to $175,000 and 28% with respect to alternative minimum tax income
over $175,000. The recently enacted Internal Revenue Service Restructuring and
Reform Act of 1998 established the highest marginal federal tax rate on net
capital gains for individuals with respect to assets held for more than one year
at 20%. The highest marginal corporate tax rate is 35% for corporate taxable
income over $10 million, and the marginal tax rate on corporate net capital
gains is 35%, although the distinction between capital gains and ordinary income
remains relevant for other purposes.
Generally, the deductibility of capital losses for individuals for a taxable
year is limited to the amount of capital gains for the taxable year plus $3,000.
The deductibility of capital losses for corporations for a taxable year is
limited to the amount of capital gains for the taxable year.
BACKUP WITHHOLDING, FOREIGN HOLDERS, AND OTHER TAX MATTERS
Backup Withholding
A note may, under some circumstances, be subject to "backup withholding" at the
rate of 31% with respect to "reportable payments," which include interest
payments and principal payments to the extent of accrued original issue discount
as well as distributions of proceeds from a sale of notes. This withholding
generally applies if the holder of a note:
- fails to furnish the indenture trustee with its taxpayer
identification number;
- furnishes the indenture trustee or the issuer an incorrect
taxpayer identification number;
- fails to report properly interest, dividends or other
"reportable payments" as defined in the Internal Revenue Code;
or
- under some circumstances, fails to provide the indenture
trustee or the issuer or the holder's securities broker with a
certified statement, signed under penalty of perjury, that the
taxpayer identification number is its correct number and that
the holder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to some payments made
to holders, including payments to specific exempt recipients (such as exempt
organizations) and to specific nonresident alien individuals, foreign
corporations, foreign partnerships, or specific foreign estates and trusts
complying with requisite certification procedures. Holders should consult their
tax advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
The indenture trustee will report to the holders and to the Internal Revenue
Service each calendar year the amount of any "reportable payments" during the
year and the amount of tax withheld, if any, with respect to payments on the
notes within a reasonable time after the end of each calendar year.
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Foreign Holders
Under the Internal Revenue Code, interest and original issue discount income
(including accrued interest or original issue discount recognized on sale or
exchange) paid or accrued with respect to notes held by holders who are
nonresident alien individuals, foreign corporations, foreign partnerships or
specific foreign estates and trusts or holders holding on behalf of foreign
persons generally will be treated as "portfolio interest" and therefore will not
be subject to any United States tax provided that:
- the interest is not effectively connected with a trade or
business in the United States of the holder and
- the issuer (or other person who would otherwise be required to
withhold tax from these payments) is provided with an
appropriate statement that the beneficial owner of a note is a
foreign person.
Interest (including original issue discount) paid on notes to holders who are
foreign persons will not be subject to withholding if the interest is
effectively connected with a United States business conducted by the holder. The
interest (including original issue discount) will, however, be subject to the
regular United States income tax.
New Withholding Tax Regulations
In 1997, Treasury Regulations were issued which alter the rules described above
in some respects. These Treasury Regulations will be effective with respect to
payments made after December 31, 2000, regardless of the issue date of the
instrument with respect to which these payments are made. It is suggested that
prospective investors consult their tax advisors concerning the requirements
imposed by these Treasury Regulations and their effect on the holding of the
notes.
Due to the complexity of the federal income tax rules applicable to holders and
the considerable uncertainty that exists with respect to many aspects of those
rules, it is suggested that potential investors consult their own tax advisors
regarding the tax treatment of the acquisition, ownership, and disposition of
the notes.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal Income
Tax Consequences," potential investors should consider the state income tax
consequences of the acquisition, ownership, and disposition of the notes. State
income tax law may differ substantially from the corresponding federal law, and
this discussion does not describe any aspect of the income tax laws of any
state. We strongly encourage you to consult your own tax advisors with respect
to the various state tax consequences of an investment in the notes.
USE OF PROCEEDS
The proceeds of the sale of a series of notes, net of underwriters' discount,
will be transferred to the indenture trustee for deposit to the credit of the
funds and accounts established under the Indenture, a portion of which will be
used to acquire financed student loans from the depositor. The order of
application of the net proceeds and the amounts to be deposited in each account
will be set forth in the related prospectus supplement. See "Use of Proceeds"
in the related prospectus supplement.
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ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and other retirement plans and
arrangements that are subject to the Employee Retirement Income Security Act of
1974, as amended or corresponding provisions of the Internal Revenue Code,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds in which these plans, accounts, annuities or
arrangements are invested, persons acting on behalf of a plan, or persons using
the assets of a plan, should review carefully with their legal advisors whether
the purchase or holding of a series of notes could either give rise to a
transaction that is prohibited under ERISA or the Internal Revenue Code or cause
the assets of the trust to be treated as plan assets for purposes of regulations
of the Department of Labor set forth in 29 C.F.R. 2510.3-101. You should be
aware that, although exceptions from the application of the prohibited
transaction rules and the plan asset regulations exist, there can be no
assurance that any exception will apply with respect to the acquisition of a
note.
The acquisition or holding of the notes by or on behalf of a plan could be
considered to give rise to a prohibited transaction if the parties to the
issuance transaction, or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to the plan. One or more
exemptions may be available with respect to prohibited transaction rules of
ERISA and might apply in connection with the initial purchase, holding and
resale of the notes, depending in part on the type of plan fiduciary making the
decision to acquire notes and the circumstances under which decision is made.
Those exemptions include, but are not limited to:
- Prohibited Transaction Class Exemption (PTCE) 95-60, regarding
investments by insurance company general accounts;
- PTCE 91-38, regarding investments by bank collective investment funds;
- PTCE 90-1, regarding investments by insurance company pooled separate
accounts; or
- PTCE 84-14, regarding transactions negotiated by qualified
professional asset managers.
Before purchasing notes, a plan subject to the fiduciary responsibility
provisions of ERISA or described in Section 4975(e)(1) (and not exempt under
Section 4975(g)) of the Internal Revenue Code should consult with its counsel to
determine whether the conditions of any exemption would be met. You should be
aware that even if the conditions specified in one or more exemptions are met,
the scope of the relief provided by an exemption might not cover all acts that
might be construed as prohibited transactions.
WHERE YOU CAN FIND MORE INFORMATION
The depositor has filed with the SEC a registration statement (together with all
amendments and exhibits) under the Securities Act of 1933, as amended, with
respect to the notes offered. This prospectus and the accompanying prospectus
supplement, which form part of the registration statement, do not contain all
the information contained in the registration statement. For further
information, we refer you to the registration statement which you can inspect
and copy at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington D.C. 20549; and at the SEC's regional offices at Seven
World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part may
be obtained from the Public Reference Branch of the SEC, 450 Fifth Street,
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N.W., Washington, D.C. 20549 on the payment of some fees prescribed by the SEC.
You may obtain information on the operation of the SEC's public reference
facilities by calling the SEC at 1-800-SEC-0330. In addition, the registration
statement may be accessed electronically through the SEC's Electronic Data
Gathering, Analysis and Retrieval system at the SEC's site on the World Wide Web
located at http://www.sec.gov.
REPORTS TO HOLDERS
Unless definitive notes are issued for any series of notes, periodic unaudited
reports as described in the related prospectus supplement containing information
concerning the financed student loans in the related trust will be prepared by
the issuer and sent only to Cede & Co., as nominee of DTC and registered holder
of the notes but will not be sent to any beneficial holder of the notes. These
reports will not constitute financial statements prepared under generally
accepted accounting principles. See "Description of the Notes -- Book-entry
Registration and -- Reports to Holders." The master servicer will file with the
SEC the periodic reports as are required under the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC under the Securities
Exchange Act of 1934. The issuer intends to suspend the filing of these reports
under the Securities Exchange Act of 1934, as amended, when and if the filing of
these reports is no longer statutorily required.
INCORPORATION OF DOCUMENTS BY REFERENCE
All reports and other documents filed by or for the issuer, under Sections
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 any series of notes shall be deemed to be incorporated by reference
into this prospectus and the accompanying prospectus supplement and to be a part
hereof. Any statement contained in this prospectus or in a document incorporated
or deemed to be incorporated by reference in this prospectus shall be deemed to
be modified or superseded for purposes of this prospectus and the accompanying
prospectus supplement to the extent that a statement contained in this
prospectus or the accompanying prospectus supplement or in any subsequently
filed document that also is or is deemed to be incorporated by reference
modifies or supersedes this statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus and the accompanying prospectus supplement.
The issuer will provide without charge to each person to whom a copy of this
prospectus and the accompanying prospectus supplement are delivered, on the
written or oral request of any person, a copy of any or all of the documents
incorporated by reference, except the exhibits to these documents (unless the
exhibits are specifically incorporated by reference in these documents). Written
requests for these copies should be directed to Perry D. Moore, Senior Vice
President & Chief Financial Officer, Student Loan Funding Resources, Inc., One
West Fourth Street, Suite 200, Cincinnati, Ohio 45202 or "[email protected]"
on the internet. Telephone requests for these copies should be directed to (513)
352-0222.
PLAN OF DISTRIBUTION
Each issuance of notes will be offered in one or more series through one or more
underwriters or underwriting syndicates. The prospectus supplement for each
issuance of notes will set forth the terms of the offering of each series in the
issuance, including the name or names of the underwriters and either the initial
public offering price, the discounts and commissions to the underwriters and any
discounts or
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concessions allowed or reallowed to dealers, or the method by which the price at
which the underwriters will sell the notes will be determined.
The notes may be acquired by underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of any underwriters will be subject to
conditions precedent, and the underwriters will be obligated to purchase all of
a series of notes described in the related prospectus supplement, if any are
purchased. If notes of a series are offered other than through underwriters, the
related prospectus supplement will contain information regarding the nature of
the offering and any agreements to be entered into between the seller and
purchasers of notes of the series.
The time of delivery for the notes of a series in respect of which this
prospectus is delivered will be set forth in the related prospectus supplement.
RATING
It is a condition to the issuance and sale of each series of notes that they
each be rated by at least one nationally recognized statistical rating
organization in one of its four highest applicable rating categories. A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
agency. See "Rating" in the accompanying prospectus supplement.
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APPENDIX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in some limited circumstances, the Notes will be available only
in book-entry form (the "Global Securities"). Investors in the Global Securities
may hold the Global Securities through The Depository Trust Company ("DTC") or,
if applicable, Cedel or Euroclear. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement 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 under their
nominal rules and operating procedures and under conventional eurobond practice.
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.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding Securities will be effected on a delivery-against-payment
basis through the respective depositories of Cedel and Euroclear and as
participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S.
withholding taxes, provided that holders meet the 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 depositories,
which in turn will hold these positions in accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. 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.
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SECONDARY MARKET TRADING
Since the purchase 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 using the procedures applicable to U.S. corporate
debt issues in same-day funds.
Trading between Cedel and/or Euroclear participants. Secondary market
trading between Cedel participants and/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 participant at least one
business day prior to settlement. Cedel or Euroclear 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. Payment will then
be made by the respective depository to 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
under its usual procedures, to the Cedel participant's or Euroclear
participant's account. The Global 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 system 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 exiting 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, participants can elect not to preposition funds and allow that credit
line to be drawn on 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 the overdraft charges although this
result will depend on each 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
A-2
<PAGE> 159
date. Thus, to the DTC participant 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 and Euroclear participants may
employ their customary procedures for transactions in which Global Securities
are to be transferred by the respective clearing system, through the respective
depository, to a DTC participant. The seller will send instructions to Cedel or
Euroclear through a participant at least one business day prior to settlement.
In this case, Cedel or Euroclear will instruct the respective depository to
deliver the 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 date to and excluding the settlement date. 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 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 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
charges 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 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) under the clearing system's customary
procedures;
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.
A-3
<PAGE> 160
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN OTHER
INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. THIS DOCUMENT DOES NOT CONSTITUTE AN
OFFER TO SELL ANY SECURITIES OTHER THAN THE NOTES NOR AN OFFER OF THESE NOTES TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH THE OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THE PROSPECTUS AND PROSPECTUS SUPPLEMENT AT ANY TIME
DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS ..................... S-1
RISK FACTORS ......................... S-7
THE ISSUER ........................... S-16
THE DEPOSITOR ........................ S-17
USE OF PROCEEDS ...................... S-20
THE FINANCED STUDENT LOANS ........... S-20
MATURITY AND PREPAYMENT
CONSIDERATIONS .................... S-26
THE SERVICERS ........................ S-29
THE GUARANTEE AGENCIES ............... S-33
EXCHANGE AGREEMENTS .................. S-37
DESCRIPTION OF THE NOTES ............. S-37
REDEMPTION ........................... S-42
THE INDENTURE ........................ S-43
UNDERWRITING ......................... S-50
LEGAL MATTERS ........................ S-51
RATING ............................... S-51
APPENDIX A -- GLOSSARY OF PRINCIPAL
DEFINITIONS ....................... A-1
PROSPECTUS
FORMATION OF THE TRUSTS .............. 1
THE DEPOSITOR ........................ 3
THE FINANCED STUDENT LOAN POOL ....... 5
MATURITY AND PREPAYMENT CONSIDERATIONS 7
DESCRIPTION OF THE FFEL PROGRAM ...... 8
DESCRIPTION OF THE GUARANTEE AGENCIES 28
THE PRIVATE LOAN PROGRAMS ............ 31
TRANSFER AND SALE AGREEMENTS ......... 32
SERVICING ............................ 36
DESCRIPTION OF THE NOTES ............. 38
REDEMPTION ........................... 57
SECURITY FOR THE NOTES ............... 57
THE INDENTURES ....................... 59
FEDERAL INCOME
TAX CONSEQUENCES ..................... 75
STATE TAX CONSIDERATIONS ............. 91
USE OF PROCEEDS ...................... 91
ERISA CONSIDERATIONS ................. 92
WHERE YOU CAN FIND MORE INFORMATION .. 93
REPORTS TO HOLDERS ................... 93
INCORPORATION OF DOCUMENTS BY
REFERENCE ........................ 93
PLAN OF DISTRIBUTION ................. 93
RATING ............................... 94
APPENDIX A -- GLOBAL CLEARANCE,
SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES ......... A-1
$----------
STUDENT LOAN FUNDING 1999-A/B TRUST
STUDENT LOAN
ASSET-BACKED NOTES
SERIES 1999A-1
SENIOR LIBOR RATE NOTES
SERIES 1999A-2
SENIOR LIBOR RATE NOTES
SERIES 1999B-1
SUBORDINATE LIBOR RATE NOTES
--------------
PROSPECTUS
--------------
SALOMON SMITH BARNEY
FIFTH THIRD SECURITIES, INC.
BANC OF AMERICA
SECURITIES LLC
PNC CAPITAL MARKETS, INC.
_______________, 1999
<PAGE> 161
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
of $1,250,000,000 of the Student Loan Asset Backed Notes being registered under
this Registration Statement, other than underwriting discounts and commission:
SEC Registration .............................$ 347,500
Printing and Engraving ....................... 400,000*
Legal Fees and Expenses ...................... 1,500,000*
Accounting Fees and Expenses ................. 50,000*
Trustee Fees and Expenses .................... 50,000*
Blue Sky Fees and Expenses ................... 25,000*
Rating Agency Fees ........................... 400,000*
Miscellaneous ................................ 227,500*
TOTAL ...............................$3,000,000
* Estimates
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Limited Liability Company Agreement ("LLC Agreement")
implements the provisions of the Delaware Limited Liability Company Act
("DLLCA"), which provide for the limitation of liability of the Registrant's
Members, Manager and members of its Management Committee ("Management Committee
Members") in some circumstances, which may include liabilities under the
Securities Act of 1933. The Registrant's LLC Agreement limits the liability of
its Members, Manager and members of its Management Committee to the fullest
extent permitted under the DLLCA.
The Registrant's LLC Agreement provides for the mandatory indemnification,
to the fullest extent permitted under the DLLCA and to the extent of the
Registrant's assets, of each of the Registrant's present and former Management
Committee Members against any liabilities, including liabilities under the
Securities Act of 1933, incurred by reason of the fact that person is or was a
Management Committee Member of the Registrant, except where liability arises out
of a breach by the Management Committee Member of the Registrant's LLC Agreement
or out of any acts or omissions by the Management Committee Member of that
constitute fraud, willful misconduct or breach of fiduciary duty to the
Registrant. The Registrant's LLC Agreement also provides for the mandatory
indemnification, to the fullest extent permitted under the DLLCA, of each of the
Registrant's present and former Managers against any liabilities, including
liabilities under the Securities Act of 1933, incurred by reason of the fact
that person is or was a Manager of the Registrant. The Registrant's LLC
Agreement provides for the discretionary indemnification to the same extent as
the Manager of any other officer or agent of the Registrant.
The Registrant has entered into an agreement with respect to its two
independent Management Committee Members in which the Registrant has agreed that
the Management Committee Members or any
II-1
<PAGE> 162
of their affiliates shall not be liable to any party, except in the cases of bad
faith or negligence, in connection with any transaction of the Registrant.
Furthermore, under the agreement, the Registrant has agreed to indemnify and
hold harmless the Management Committee Members and their affiliates for any
liabilities, including liabilities under the Securities Act of 1933, incurred in
good faith and without negligence in connection with any of the transaction of
the Registrant.
Reference is made to the Underwriting Agreement filed as an exhibit hereto
for provisions relating to the indemnification of Management Committee Members,
the Manager and other officers and controlling persons of the Registrant against
some liabilities, including liabilities under the Securities Act of 1933, as
amended.
Student Loan Funding Resources, Inc. carries an insurance policy providing
liability insurance for any liability that its directors or officers or the
Members, Management Committee Members, Managers or officers of the Registrant
may incur in their capacities.
ITEM 16. EXHIBITS.
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
1.1 Form of Underwriting Agreement
3.1 Certificate of Formation of Registrant+
3.2 Limited Liability Company Agreement of Registrant+
3.3 Form of Trust Agreement among the Registrant, the Eligible Lender
Trustee and the Owner Trustee+
4.1 Form of Indenture among the Trust, the Eligible Lender Trustee and the
Indenture Trustee
4.2 Form of Terms Supplement to Indenture among the Trust, the Eligible
Lender Trustee and the Indenture Trustee
5.1 Opinion of Thompson Hine & Flory LLP+
8.1 Opinion of Thompson Hine & Flory LLP with respect to tax matters+
10.1 Administration Agreement between the Administrator and the Trust+
10.2 Form of Eligible Lender Trust Agreement between the Trust and the
Eligible Lender Trustee+
10.3 Form of Transfer and Sale Agreement among the Depositor, the
Depositor's eligible lender trustee, the Trust and the Eligible Lender
Trustee
10.4 Form of Master Servicing Agreement between the Master Servicer and the
Trust+
10.5 Guarantee Agreement between the Eligible Lender Trustee and California
Student Aid Commission+
10.6 Guarantee Agreement between the Eligible Lender Trustee and Florida
Department of Education, Office of Student Financial Assistance+
10.7 Guarantee Agreement between the Eligible Lender Trustee and Georgia
Higher Education Assistance Corporation+
10.8 Guarantee Agreement between the Eligible Lender Trustee and Great
Lakes Higher Education Guaranty Corporation+
10.9 Guarantee Agreement between the Eligible Lender Trustee and Kentucky
Higher Education Assistance Authority+
10.10 Guarantee Agreement between the Eligible Lender Trustee and Nebraska
Student Loan Program, Inc.+
10.11 Guarantee Agreement between the Eligible Lender Trustee and
Pennsylvania Higher Education Assistance Agency+
10.12 Guarantee Agreement between the Eligible Lender Trustee and United
Student Aid Funds, Inc.+
II-2
<PAGE> 163
23.1 Consent of Thompson Hine & Flory LLP is contained in their opinions
filed as Exhibits 5.1 and 8.1+
24.1 Power of Attorney (contained on the signature page hereof)
25.1 T-1 Statement of Eligibility of Firstar Bank, National Association
under the Trust Indenture Act of 1939+
99.1 Form of Report to be filed as Form 8-K in Connection with Periodic
Reports to holders
99.2 Form of Auction Procedures
- --------------------
+ Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or
the most recent post-effective amendment) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change of the information in
the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in the
post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant under Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are included by reference in
the Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of these securities at that time
shall be deemed to be the initial bona fide offering;
(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) The undersigned Registrant undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report under Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report under Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the
II-3
<PAGE> 164
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of these securities
at that time shall be deemed to be the initial bona fide offering.
(c) The undersigned Registrant undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act under the rules and
regulations prescribed by the Securities and Exchange Commission under Section
305(b)(2) of the Act.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to these provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, the indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. If a claim for indemnification against the
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by the
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether the indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
the issue.
II-4
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements (including, without limitation, the security rating requirement at
time of sale) for filing on Form S-3 and has duly caused this Amendment No. 2 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cincinnati, State of Ohio on July 28, 1999.
STUDENT LOAN FUNDING RIVERFRONT LLC
(Registrant)
By: /s/ Perry D. Moore
------------------------------------------
Perry D. Moore, Vice President and Manager
II-5
<PAGE> 166
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
H. Shaut and Perry D. Moore, as that person's true and lawful attorneys-in-fact
and agents, each acting alone, with full powers of substitution and
resubstitution, for the person and in the person's name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Michael H. Shaut Management Committee member, July 28, 1999
- -------------------------------- President
Michael H. Shaut (Principal Executive Officer)
/s/ Perry D. Moore Management Committee member and July 28, 1999
- ----------------------------------- Senior Vice President and Manager
Perry D. Moore (Principal Financial Officer
and Principal Accounting Officer)
/s/ Daniel R. Bley Management Committee member July 28, 1999
- -----------------------------------
Daniel R. Bley
/s/ Kathryn A. Widdoes Management Committee member July 28, 1999
- -----------------------------------
Kathryn A. Widdoes
/s/ Sandra K. Zimmerman Management Committee member July 28, 1999
- -----------------------------------
Sandra K. Zimmerman
</TABLE>
II-6
<PAGE> 167
EXHIBIT INDEX
1.1 Form of Underwriting Agreement
3.1 Certificate of Formation of Registrant+
3.2 Limited Liability Company Agreement of Registrant+
3.3 Form of Trust Agreement among the Registrant, the Eligible Lender
Trustee and the Owner Trustee+
4.1 Form of Indenture among the Trust, the Eligible Lender Trustee and the
Indenture Trustee
4.2 Form of Terms Supplement to Indenture among the Trust, the Eligible
Lender Trustee and the Indenture Trustee
5.1 Opinion of Thompson Hine & Flory LLP
8.1 Opinion of Thompson Hine & Flory LLP with respect to tax matters+
10.1 Administration Agreement between the Administrator and the Trust+
10.2 Form of Eligible Lender Trust Agreement between the Trust and the
Eligible Lender Trustee+
10.3 Form of Transfer and Sale Agreement among the Depositor, the
Depositor's eligible lender trustee, the Trust and the Eligible Lender
Trustee
10.4 Form of Master Servicing Agreement between the Master Servicer and the
Trust+
10.5 Guarantee Agreement between the Eligible Lender Trustee and
California Student Aid Commission+
10.6 Guarantee Agreement between the Eligible Lender Trustee and Florida
Department of Education, Office of Student Financial Assistance+
10.7 Guarantee Agreement between the Eligible Lender Trustee and Georgia
Higher Education Assistance Corporation+
10.8 Guarantee Agreement between the Eligible Lender Trustee and Great
Lakes Higher Education Guaranty Corporation+
10.9 Guarantee Agreement between the Eligible Lender Trustee and Kentucky
Higher Education Assistance Authority+
10.10 Guarantee Agreement between the Eligible Lender Trustee and Nebraska
Student Loan Program, Inc.+
10.11 Guarantee Agreement between the Eligible Lender Trustee and
Pennsylvania Higher Education Assistance Agency+
10.12 Guarantee Agreement between the Eligible Lender Trustee and United
Student Aid Funds, Inc.+
23.1 Consent of Thompson Hine & Flory LLP is contained in their opinions
filed as Exhibits 5.1 and 8.1+
24.1 Power of Attorney (contained on the signature page hereof)
25.1 T-1 Statement of Eligibility of Firstar Bank, National Association
under the Trust Indenture Act of 1939+
99.1 Form of Report to be filed as Form 8-K in Connection with Periodic
Reports to holders
99.2 Form of Auction Procedures
- --------------------
+ Previously filed.
II-7
<PAGE> 1
EXHIBIT 1.1
STUDENT LOAN FUNDING 1999-A/B TRUST
$____________ STUDENT LOAN ASSET-BACKED NOTES
UNDERWRITING AGREEMENT
----------------------
_______________, 1999
SALOMON SMITH BARNEY INC.
As Representative of the
several Underwriters named herein
388 Greenwich Street, 32nd Floor
New York, New York 10013
Ladies and Gentlemen:
Student Loan Funding Resources, Inc., an Ohio corporation, as master
servicer of the Financed Student Loans (as defined below) ("Resources"), and as
administrator of the business activities of the Depositor (as defined below),
has caused the Depositor to form a trust known as the Student Loan Funding
1999-A/B Trust (the "Trust") under the laws of the State of Delaware to which
the Depositor will transfer the Financed Student Loans (as defined below), and
Resources and the Depositor propose to cause the Trust to sell to the
underwriters named in Schedule I hereto (collectively, the "Underwriters" and
each individually an "Underwriter"), for whom you (the "Representative") are
acting as representative, pursuant to the terms of this Underwriting Agreement,
Student Loan Asset-Backed Notes in the following series and initial principal
amounts: $_______________ Series 1999A-1 Senior LIBOR Rate Notes (the Series
1999A-1 Notes"), $________ Series 1999A-2 Senior LIBOR Rate Notes (the "Series
1999A-2 Notes" and together with the Series 1999A-1 Notes, the "Series 1999A
Notes") and $_____________ Series 1999B-1 Subordinate LIBOR Rate Notes (the
"Series 1999B-1 Notes" and together with the Series 1999A Notes, the "Notes").
Firstar Bank, National Association, a national banking association formed under
the laws of the United States, acts as eligible lender trustee (the "Depositor
ELT") on behalf of Student Loan Funding Riverfront LLC, a Delaware limited
liability company (the "Depositor") and on behalf of the Trust (the "Trust
ELT"). The Trust has been formed pursuant to a Trust Agreement, dated as
_________________, 1999 (the "Trust Agreement") by and among the Depositor,
First Union Trust Company, National Association, a national banking association
formed under the laws of the United States, as Owner Trustee, and Firstar Bank,
National Association, as Trust ELT and Co-owner Trustee. On or before the
Closing Date, the Financed Student Loans will have been acquired by the
Depositor from a variety of sources, including one or more affiliates of the
Depositor and third parties. On the Closing Date, the Financed Student Loans
will have been transferred to the Trust ELT by the Depositor. The Notes will be
issued under an Indenture of Trust
<PAGE> 2
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 2
dated as of __________________, 1999, as supplemented from time to time, and the
related Terms Supplement dated as of ________, 1999 (collectively, the
"Indenture") among the Co-owner Trustee, the Trust ELT and Firstar Bank,
National Association, a national banking association formed under the laws of
the United States, as indenture trustee (the "Indenture Trustee"). Upon
issuance, the Notes will be secured by, among other things, Financed Student
Loans pledged to the Indenture Trustee and described in the Prospectus (as
defined in Section 3 below). This Agreement, the Transfer and Sale Agreement
dated as of _________________, 1999 (the "Transfer and Sale Agreement") among
the Depositor, the Depositor ELT, the Trust, the Co-Owner Trustee and the Trust
ELT; the Master Servicing Agreement dated as of ________________, 1999 (the
"Master Servicing Agreement") between the Co-owner Trustee on behalf of the
Trust and the Master Servicer, the Indenture and the Trust Agreement shall
collectively hereinafter be referred to as the "Basic Documents." Capitalized
terms used herein without definition shall have the meanings ascribed to them in
the Indenture.
1. PURCHASE, SALE AND DELIVERY OF THE NOTES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
Resources and the Depositor jointly and severally agree to cause the Trust to
sell to the Underwriters, and the Underwriters agree, severally and not jointly,
to purchase from the Trust: the Series 1999A-1 Notes, at a purchase price of
_______% of the principal amount of the Series 1999A-1 Notes; the Series 1999A-2
Notes, at a purchase price of _______% of the principal amount of the Series
1999A-2 Notes; and the Series 1999B-1 Notes at a purchase price of _______% of
the principal amount of the Series 1999B-1 Notes, the respective principal
amounts of each Series of Notes set forth opposite the names of the Underwriters
in Schedule I hereto. The Notes will bear interest at the rates as set forth in
Schedule I.
(b) No later than 12:00 noon, Cincinnati time, on _________, 1999, or
at such other time or on such earlier or later date as shall have been mutually
agreed upon by the Depositor and the Representative, the Depositor shall
deliver, or cause to be delivered the Notes to the Indenture Trustee to be held
in its custody pursuant to a FAST delivery arrangement with and on behalf of The
Depository Trust Company ("DTC") which Notes shall be in form satisfactory to
the Representative duly executed by the Depositor, and shall deliver a specimen
copy of each executed and authenticated Note to the Representative together with
the other documents hereinafter mentioned; and the Representative shall accept
such delivery for the respective accounts of the Underwriters and the
Underwriters shall pay the purchase price of the Notes as set forth in Schedule
I by wire transfer in clearinghouse funds to the Indenture Trustee for the
account of the Depositor. Such payment and delivery is herein called the
"Closing," and the date of the Closing is herein called the "Closing Date." The
Notes (one Note for each series in the respective principal amount thereof
unless otherwise required by the rules and regulations of DTC) shall be made
available to the Representative for checking and delivery to the Indenture
Trustee not less than 24 hours prior to the Closing at a place designated by the
Representative. The Notes may be typewritten and shall be registered in the name
of Cede & Co. The Depositor and the Co-Owner
<PAGE> 3
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 3
Trustee on behalf of the Trust will file with DTC a DTC Letter of
Representation, together with any rider and/or supplement thereto, required by
DTC to permit the Notes to be held in the custody of the Indenture Trustee
pursuant to a FAST delivery arrangement.
2. OFFERING BY THE UNDERWRITERS.
(a) It is understood that, after the Registration Statement becomes
effective, the Underwriters propose to offer the Notes for sale to the public
(which may include selected dealers) as set forth in the Prospectus. The
Underwriters agree not to offer or sell the Notes in any state or jurisdiction
where registration, qualification or any filing to effect any exemption is
required under such state's or jurisdiction's securities or Blue Sky laws,
except where, with the consent of the Depositor (which may be withheld in the
Depositor's sole discretion), such registration, qualification or filing has
been completed. The Underwriters agree that all offers and sales of the Notes
will be made in accordance with applicable federal and state securities laws and
regulations. To the extent the Underwriters engage in overallotment, stabilizing
transactions, syndicate covering transactions and penalty bids, the Underwriters
agree that such activities shall be in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(b) Each Underwriter severally represents and agrees that (i) it has
not offered or sold and will not offer or sell any Notes to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purpose of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to the
Notes in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on, and will only issue or pass on, in the United Kingdom any
document received by it in connection with the issue of the Notes to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or to a person to whom such
document may otherwise lawfully be issued, distributed or passed on.
3. REPRESENTATIONS AND WARRANTIES OF RESOURCES AND THE DEPOSITOR.
Resources and the Depositor represent and warrant to and agree with the
Underwriters that:
(a) A registration statement on Form S-3 (No. 333-64283), including a
prospectus and such amendments thereto as may have been required to the date
hereof, relating to the Notes and the offering thereof from time to time in
accordance with Rule 415 under the Securities Act of 1933, as amended (the
"Act") has been filed with the Securities and Exchange Commission (the "SEC")
and such registration statement, as amended, has become effective under the Act;
such registration statement, as amended, including all information (if any)
deemed to be a part of such registration statement as of the Effective Time (as
defined below), and including the exhibits thereto and any material incorporated
by reference therein, and the prospectus and prospectus supplement relating to
<PAGE> 4
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 4
the sale of the Notes offered thereby constituting a part thereof, as amended or
supplemented including any prospectus filed under Rule 424(b) under the Act, are
respectively referred to herein as the "Registration Statement" and the
"Prospectus"; and the conditions to the use of a registration statement on Form
S-3 under the Act, as set forth in the General Instructions to Form S-3, and the
conditions of Rule 415 under the Act have been satisfied with respect to the
Registration Statement. For purposes of this Agreement, "Effective Time" means
(x) if the Depositor has advised the Representative that it does not propose to
amend the Registration Statement, the date and time as of which the Registration
Statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the SEC, or (y) if the Depositor has advised the Representative that it proposes
to file an amendment or post-effective amendment to the Registration Statement,
the date and time as of which the Registration Statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared effective
by the SEC. "Effective Date" means the date of the Effective Time.
(b) On the Effective Date and on the date of this Agreement, the
Registration Statement and the Prospectus, conformed and conform in all material
respects to the requirements of the Act, the rules and regulations of the SEC
(the "Rules and Regulations") and the Trust Indenture Act of 1939, as amended,
and the rules and regulations thereunder (the "Trust Indenture Act"), and in the
case of the Registration Statement, did not and does not include 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 and,
in the case of the Prospectus, did not and does not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing does not apply to
statements in or omissions from the Registration Statement or the Prospectus
based upon written information furnished to the Depositor by any Underwriter
specifically for use therein.
4. REPRESENTATIONS AND WARRANTIES OF RESOURCES. Resources represents
and warrants to and agrees with the Underwriters that:
(a) The SEC has not issued and, to the best knowledge of Resources, is
not threatening to issue any order preventing or suspending the use of the
Registration Statement.
(b) This Agreement has been duly authorized, executed and delivered by
Resources. The execution, delivery and performance of this Agreement and the
issuance and sale of the Notes and compliance with the terms and provisions
hereof will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, the organizational documents or
by-laws of Resources or any agreement or instrument to which Resources is a
party or by which Resources is bound or to which any of the properties of
Resources is subject which could reasonably be expected to have a material
adverse effect on the transactions contemplated herein.
<PAGE> 5
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 5
(c) Resources is duly organized and validly existing as an Ohio
corporation 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, except for such power and authority the absence of which
would not have a material adverse effect on Resources or its ability to
consummate the transactions contemplated hereby.
(d) There are no legal or governmental proceedings pending or, to the
knowledge of Resources, threatened, against Resources, or to which Resources or
any of its properties is subject, of a character required to be disclosed in the
Prospectus that are not disclosed in the Prospectus.
(e) 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 Resources in connection with the execution and delivery by Resources of
this Agreement and the performance by Resources of the transactions expressly
contemplated by this Agreement, have been duly obtained, effected or given and
are in full force and effect, except such as may be required by the blue sky
laws of any jurisdiction in connection with the sale and distribution of the
Notes for which no representation is being given.
(f) Resources has all requisite corporate power and authority to
execute and deliver this Agreement and carry out its terms.
(g) Resources is not required to register as an "investment company"
under the Investment Company Act of 1940, as amended (the "1940 Act") by reason
of the issuance of the Notes.
(h) The representations and warranties made by Resources in the Master
Servicing Agreement will be true and correct in all material respects on and as
of the Closing Date.
(i) Other than as contemplated by this Agreement or as disclosed in the
Prospectus, there is no broker, finder or other party that is entitled to
receive from Resources or any of its subsidiaries any brokerage or finder's fee
or other fee or commission as a result of any of the transactions contemplated
by this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The Depositor
represents and warrants to and agrees with the Underwriters that:
(a) The SEC has not issued and, to the best knowledge of the Depositor,
is not threatening to issue any order preventing or suspending the use of the
Registration Statement.
(b) This Agreement has been duly authorized, executed and delivered by
the Depositor. The execution, delivery and performance of this Agreement and the
issuance and sale of the Notes and compliance with the terms and provisions
hereof will not result in a breach or violation of any
<PAGE> 6
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 6
of the terms and provisions of, or constitute a default under, the
organizational documents or the operating agreement of the Depositor or any
agreement or instrument to which the Depositor is a party or by which the
Depositor is bound or to which any of the properties of the Depositor is subject
which could reasonably be expected to have a material adverse effect on the
transactions contemplated herein.
(c) The Depositor is duly organized and validly existing as a Delaware
limited liability company 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, except for such power and authority the absence of which
would not have a material adverse effect on the Depositor or its ability to
consummate the transactions contemplated hereby.
(d) There are no legal or governmental proceedings pending or, to the
knowledge of the Depositor, threatened, against the Depositor, or to which the
Depositor or any of its properties is subject, of a character required to be
disclosed in the Prospectus that are not disclosed in the Prospectus.
(e) 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 Depositor in connection with the execution and delivery by the
Depositor of this Agreement and the performance by the Depositor of the
transactions expressly contemplated by this Agreement, have been duly obtained,
effected or given and are in full force and effect, except such as may be
required by the blue sky laws of any jurisdiction in connection with the sale
and distribution of the Notes for which no representation is being given.
(f) The Depositor has all requisite power and authority to execute and
deliver this Agreement and carry out its terms.
(g) The Depositor is not required to register as an "investment
company" under the Investment Company Act of 1940, as amended (the "1940 Act")
by reason of the issuance of the Notes.
(h) The representations and warranties made by the Depositor in the
Transfer and Sale Agreement will be true and correct in all material respects on
and as of the Closing Date.
(i) Other than as contemplated by this Agreement or as disclosed in the
Prospectus, there is no broker, finder or other party that is entitled to
receive from the Depositor or any of its subsidiaries any brokerage or finder's
fee or other fee or commission as a result of any of the transactions
contemplated by this Agreement.
<PAGE> 7
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 7
6. AGREEMENTS OF RESOURCES AND THE DEPOSITOR. Resources and the
Depositor each agree with the Underwriters as follows:
(a) Immediately following the execution of this Agreement, the
Depositor will pursuant to Rule 424(b) prepare and file a prospectus supplement,
properly completed, with the SEC. The Depositor will advise the Representative
promptly of any such filing. The Depositor will advise the Representative
promptly of any proposal to amend or supplement the Registration Statement or
the Prospectus and will not effect such amendment or supplement without the
consent of the Representative prior to the Closing Date, and thereafter will not
effect any such amendment or supplement relating to or affecting the Notes to
which the Representative reasonably objects; provided, however, except for the
Current Report on Form 8-K described in Section 6(m), no consent of the
Representative shall be required in connection with any filing made pursuant to
the Exchange Act and the rules and regulations promulgated thereunder; the
Depositor will also advise the Representative promptly of any request by the SEC
for any amendment of or supplement to the Registration Statement or the
Prospectus or for any additional information; and the Depositor will also advise
the Representative promptly of the effectiveness of the Registration Statement
and of any amendment or supplement to the Registration Statement or the
Prospectus and of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the institution or known threat
of any proceeding for that purpose and the Depositor will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
the lifting of any issued stop order.
(b) If, at any time when the Prospectus relating to the Notes is
required to be delivered under the Act, any event occurs as a result of which
such Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
Depositor promptly will prepare and file with the SEC, an amendment or
supplement to such Prospectus that will correct such statement or omission or an
amendment that will effect such compliance.
(c) The Depositor will immediately inform the Representative (i) of the
receipt by Resources, the Depositor or the Trust of any communication from the
SEC or any state securities authority concerning the offering or sale of the
Notes and (ii) of the commencement of any lawsuit or proceeding to which
Resources, the Depositor or the Trust is a party relating to the offering or
sale of the Notes; provided, however, with respect to the Trust, the Trust has
so informed the Depositor to the extent the Depositor did not receive such
communication provided in clause (i) or is not a party to the lawsuit or
proceeding as provided in clause (ii) and did not receive notice of such
lawsuit, and with respect to Resources, Resources has so informed the Depositor
to the extent the Depositor did not receive such communication provided in
clause (i) or is not a party to the lawsuit or proceeding as provided in clause
(ii) and did not receive notice of such lawsuit.
<PAGE> 8
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 8
(d) The Depositor will furnish to the Underwriters, without charge,
copies of the Registration Statement (including all documents and exhibits
thereto or incorporated by reference therein), the Prospectus, and all
amendments and supplements to such documents relating to the Notes, in each case
in such quantities as the Underwriters may reasonably request.
(e) No amendment or supplement relating to or affecting the Notes will
be made to the Registration Statement or Prospectus unless the Representative
shall have previously been advised thereof and the Representative shall not have
reasonably objected thereto after being so advised; provided, however, after the
Closing Date, excluded from this provision shall be filings made pursuant to the
Exchange Act.
(f) Resources and the Depositor will cooperate with the Representative
and with its counsel in connection with the qualification of, or procurement of
exemptions with respect to, the Notes for offering and sale by the Underwriters
and by dealers under the securities or Blue Sky laws of such jurisdictions as
any Underwriter may designate and to which the Depositor shall consent (which
consent may be withheld in the Depositor's sole discretion) and, in such
jurisdictions, will file or cause the Trust to file such consents to service of
process or other documents necessary or appropriate in order to effect such
qualification or exemptions; provided that in no event shall Resources, the
Depositor or the Trust be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Notes, in any jurisdiction where it is not now so
subject.
(g) Subject to Section 2, Resources, the Depositor and the Trust
consent to the use, in accordance with the securities or Blue Sky laws of such
jurisdictions in which the Notes are offered by the Underwriters and by dealers,
of the Prospectus furnished by the Depositor.
(h) To the extent, if any, that the rating or ratings provided with
respect to the Notes by the rating agency or agencies that initially rate a
series of Notes is conditional upon the furnishing of documents or the taking of
any other actions by Resources, the Depositor or the Trust, the Depositor shall
cause to be furnished such documents and such other reasonable actions to be
taken.
(i) For two years from the Closing Date, the Depositor will furnish to
the Representative (i) as soon as available, a copy of each document relating to
the Trust or the Notes required to be filed with the SEC pursuant to the
Exchange Act or any order of the SEC thereunder, and (ii) such other information
concerning Resources, the Depositor or the Trust as the Representative may
reasonably request from time to time insofar as such information reasonably
relates to the Registration Statement or the transactions contemplated by the
Basic Documents.
(j) If this Agreement shall terminate or shall be terminated after
execution and delivery pursuant to any provisions hereof (otherwise than by
notice given by an Underwriter terminating this Agreement pursuant to Section 11
or Section 12 hereof) or if this Agreement shall be
<PAGE> 9
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 9
terminated by the Representative because of any failure or refusal on the part
of Resources or the Depositor to comply with the terms or fulfill any of the
conditions of this Agreement, Resources agrees to reimburse the Underwriters for
all out-of-pocket expenses (including reasonable fees and expenses of their
counsel) reasonably incurred in connection herewith. In no event shall
Resources, the Depositor or the Trust be liable to the Underwriters for loss of
anticipated profits from the transactions contemplated by this Agreement.
(k) The net proceeds from the sale of the Notes hereunder will be
applied substantially in accordance with the description set forth in the
Prospectus.
(l) Except as stated in this Agreement and in the Prospectus, neither
Resources nor the Depositor has taken, nor will it take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Notes to facilitate the
sale or resale of the Notes; it being understood and agreed that no such action
by any Underwriter shall be deemed an action of Resources or the Depositor.
(m) Provided that the Depositor received the Computational Materials
(as defined in Section 10 below) within the time frame set forth in Section 10,
the Depositor will cause such Computational Materials to be filed with the SEC
on a Current Report on Form 8-K (the "Current Report") not later than the second
Business Day following the receipt of each Computational Materials.
(n) For the period beginning on the date of this Agreement and ending
90 days after the Closing Date, Resources, the Depositor and any trust
originated, directly or indirectly, by Resources or the Depositor will not,
without the prior written consent of the Representative, offer to sell or sell
notes (other than the Notes) collateralized by, or certificates evidencing an
ownership interest in, student loans.
7. INDEMNIFICATION AND CONTRIBUTION. (a) Resources and the Depositor
agree to jointly and severally indemnify and hold harmless each Underwriter and
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, the
Prospectus, or in any amendment or supplement thereto, or the preliminary
prospectus supplement dated _______________, 1999 (the "Preliminary
Prospectus"), or arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in conformity with
the information relating to the Underwriter furnished in writing to the
Depositor by or on behalf of any Underwriter through the Representative
expressly for use in connection therewith; PROVIDED, HOWEVER, that the
<PAGE> 10
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 10
foregoing indemnity with respect to the Prospectus or the Preliminary Prospectus
shall not inure to the benefit of any Underwriter (or any person controlling
such Underwriter) from whom the person asserting any such loss, claim, damage or
liability purchased Notes, if such person did not receive a copy of the
Prospectus (as then amended or supplemented) at or prior to the written
confirmation of the sale of such Notes to such person and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability. The foregoing indemnity agreement shall be in
addition to any liability which Resources or the Depositor may otherwise have.
(b) If any action, suit or proceeding shall be brought against
an Underwriter or any person controlling an Underwriter in respect of which
indemnity may be sought against Resources or the Depositor, such Underwriter or
such controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all reasonable fees and expenses. Such Underwriter or
any such controlling person shall have the right to employ separate counsel in
any such action, suit or proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
Underwriter or such controlling person unless (i) the indemnifying parties have
agreed in writing to pay such fees and expenses, (ii) the indemnifying parties
have failed to assume the defense and employ counsel within a reasonable period
of time, or (iii) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying parties and the Underwriter or such
controlling person shall have been advised by its counsel that representation of
such indemnified party and any indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of the Underwriter or such controlling person). It is
understood, however, that the indemnifying parties shall, in connection with any
one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for the Underwriter and controlling persons not having
actual or potential differing interests with the Underwriter or among
themselves, which firm shall be designated in writing by the Underwriter, and
that all such fees and expenses shall be reimbursed on a monthly basis as
provided in paragraph (a) hereof. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless the Underwriter and
any such controlling person from and against any loss, claim, damage, liability
or expense by reason of such settlement or judgment to the extent provided in
paragraph (a).
<PAGE> 11
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 11
(c) Each Underwriter agrees severally but not jointly to
indemnify and hold harmless Resources and the Depositor and their respective
directors and officers, and any person who controls Resources or the Depositor
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the indemnity from Resources and the Depositor to such
Underwriter set forth in paragraph (a) hereof, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through the Representative expressly for use in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus. If any action, suit or proceeding shall
be brought against Resources or the Depositor, any of their directors or
officers, or any such controlling person based on the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus and in respect of which indemnity may be sought against
an Underwriter pursuant to this paragraph (c), such Underwriter shall have the
rights and duties given to Resources and the Depositor by paragraph (b) above
(except that if Resources or the Depositor shall have assumed the defense
thereof no Underwriter shall be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense, except as
otherwise provided in paragraph (b) above), and Resources, the Depositor, their
respective directors and officers, and any such controlling person shall have
the rights and duties given to such Underwriter by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by
Resources and the Depositor on the one hand and the applicable Underwriter on
the other hand from the offering of the Notes, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of Resources and the
Depositor on the one hand and such Underwriter on the other in connection with
the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by Resources and the Depositor on the one hand
and such Underwriter on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Notes (before deducting
expenses) received by Resources and the Depositor bear to the total underwriting
discounts and commissions received by such Underwriter. The relative fault of
Resources and the Depositor on the one hand and such Underwriter on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by Resources
or the Depositor on the one hand or by such Underwriter on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
<PAGE> 12
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 12
(e) Resources, the Depositor and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Notes hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of Resources and the Depositor set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of an Underwriter, Resources, the
Depositor or any person controlling any of them or their respective directors or
officers, (ii) acceptance of any Notes and payment therefor hereunder, and (iii)
any termination of this Agreement. A successor to any Underwriter, Resources,
the Depositor or any person controlling any of them or their respective
directors or officers, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
8. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase the Notes hereunder are subject to the following
conditions:
(a) All actions required to be taken and all filings required to be
made by Resources and the Depositor under the Act prior to the sale of the Notes
shall have been duly taken or made. At and prior to the Closing Date, no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to the
knowledge of Resources, the Depositor or the Underwriters, shall be threatened
by the SEC.
(b) Since the respective dates as of which information is given in the
Registration Statement (or any amendment or supplement thereto), except as may
otherwise be stated therein or contemplated thereby, there shall not have
occurred (i) any change, or any development involving a prospective change, in
or affecting the condition (financial or other), business, properties, net
worth, or results of operations of Resources and the Depositor not contemplated
by the Registration Statement, which in the opinion of the Representative, would
materially adversely affect the market for the Notes, or (ii) any event or
development which makes any statement made in the Registration
<PAGE> 13
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 13
Statement or Prospectus untrue in any material respect or which, in the opinion
of Resources and the Depositor and their counsel or the Underwriters and their
counsel, requires the filing of any amendment to or change in the Registration
Statement or Prospectus in order to state a material fact required by any law to
be stated therein or necessary in order to make the statements therein not
misleading, if amending or supplementing the Registration Statement or
Prospectus to reflect such event or development would, in the opinion of the
Representative, materially adversely affect the market for the Notes.
(c) The Representative shall have received on the Closing Date an
opinion of Richards, Layton & Finger, P.A., special Delaware counsel for the
Trust, dated the Closing Date and addressed to the Underwriters, in form and
scope reasonably satisfactory to the Representative and its counsel and
substantially in the form of Exhibit A hereto.
(d) The Representative shall have received on the Closing Date the
opinions of Calfee, Halter & Griswold LLP, special counsel for Resources and the
Depositor, dated the Closing Date and addressed to the Underwriters, in form and
scope reasonably satisfactory to the Representative and its counsel and
substantially in the form of Exhibits B-1 and B-2 hereto.
(e) The Representative shall have received on the Closing Date an
opinion of Thompson, Hine & Flory LLP, counsel for Resources and the Depositor,
dated the Closing Date and addressed to the Underwriters, in form and scope
reasonably satisfactory to the Representative and its counsel and substantially
in the form of Exhibits C-1 and C-2 hereto.
(f) The Representative shall have received on the Closing Date an
opinion of the ______________. counsel for the Co-Owner Trustee, the Depositor
ELT, the Trust ELT and the Indenture Trustee, dated the Closing Date and
addressed to the Underwriters, in form and scope reasonably satisfactory to the
Representative and its counsel and substantially in the form of Exhibit D
hereto.
(g) The Representative shall have received on the Closing Date an
opinion of _________, counsel for the Owner Trustee, dated the Closing Date and
addressed to the Underwriters, in form and scope satisfactory to the
Representative and its counsel and substantially in the form of Exhibit E
hereto.
(h) The Representative shall have received on the Closing Date the
opinion of Squire, Sanders & Dempsey L.L.P., special counsel for the
Underwriters, dated the Closing Date, and addressed to the Underwriters, in form
and scope satisfactory to the Representative and substantially in the form of
Exhibit F hereto.
(i) The Representative shall have received on the Closing Date the
opinion of ___________, counsel for Resources and the Depositor, dated the
Closing Date and addressed to
<PAGE> 14
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 14
the Underwriters, in form and scope reasonably satisfactory to the
Representative and its counsel and substantially in the form of Exhibit G.
(j) The Representative shall have received on the Closing Date the
opinion of ______________, counsel for Resources and the Depositor, dated the
Closing Date and addressed to the Underwriters, in form and scope reasonably
satisfactory to the Representative and its counsel and substantially in the form
of Exhibit H hereto.
(k) The Representative shall have received on the Closing Date the
opinion of _______________, counsel for Resources and the Depositor, dated the
Closing Date and addressed to the Underwriters, in form and scope reasonably
satisfactory to the Representative and its counsel and substantially in the form
of Exhibit I hereto.
(l) The Representative shall have received on the Closing Date the
opinion of ____________, counsel for Resources and the Depositor, dated the
Closing Date and addressed to the Underwriters, in form and scope reasonably
satisfactory to the Representative and its counsel and substantially in the form
of Exhibit J hereto.
(m) The Representative shall have received on the Closing Date the
opinions of _______________________________ and ________________________,
respectively, dated the Closing Date and addressed to the Underwriters, in form
and scope reasonably satisfactory to the Representative and its counsel and
substantially in the forms of Exhibits K-1 and K-2 respectively, hereto.
(n) The Representative shall have received a letter dated the date of
delivery thereof (which shall be on or prior to the date of this Agreement) from
Arthur Andersen LLP, and in form and substance reasonably satisfactory to the
Representative, to the effect that they have carried out certain specified
procedures, not constituting an audit, with respect to certain information
regarding the Financed Student Loans and setting forth the results of such
specified procedures.
(o) All the representations and warranties of the Resources contained
in this Agreement and the Basic Documents shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date and the Representative shall have
received a certificate, dated the Closing Date and signed by an executive
officer of Resources, to the effect set forth in this Section 8(o) and in
Section 8(q) hereof.
(p) All the representations and warranties of the Depositor contained
in this Agreement the Basic Documents shall be true and correct in all material
respects on and as of the date hereof and on and as of the Closing Date as if
made on and as of the Closing Date and the Representative shall have received a
certificate, dated the Closing Date and signed by an executive officer of the
Depositor, to the effect set forth in this Section 8(p) and in Section 8(r)
hereof.
<PAGE> 15
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 15
(q) Resources shall not have failed at or prior to the Closing Date to
have performed or complied in any material respect with any of its agreements
herein contained and required to be performed or complied with by it hereunder
at or prior to the Closing Date.
(r) The Depositor shall not have failed at or prior to the Closing Date
to have performed or complied in any material respect with any of its agreements
herein contained and required to be performed or complied with by it hereunder
at or prior to the Closing Date.
(s) The Representative shall have received by instrument dated the
Closing Date (at the option of the Representative), in lieu of or in addition to
the opinions referred to in clauses (c) through (m) of this Section (8), the
right to rely on opinions provided by such counsel and all other counsel under
the terms of the Basic Documents to Moody's Investors Service, Inc. ("Moody's")
[Standard & Poor's Corporation (S&P),] and Fitch IBCA, Inc. ("Fitch").
(t) Moody's[, S&P] and Fitch shall have rated the Series 1999A-1 Notes
and Series 1999A-2 "Aaa"[,"AAA"] and "AAA", respectively, and the Series
1999B-1 Notes at least "A2"[,"A"] and "A", respectively, and there shall not
have been any announcement by Moody's or Fitch that (i) it is downgrading any of
its ratings assigned to any Series of Notes or (ii) it is reviewing its ratings
assigned to any Series of Notes with a view to possible downgrading, or with
negative implications, or direction not determined.
(u) Resources shall have furnished or caused to be furnished to the
Representative an executed copy or certified copy of an executed copy of each of
the Basic Documents, each Guarantee Agreement, each Subservicing Agreement and
such further certificates and documents as the Representative shall have
reasonably requested.
(v) The Representative shall have received evidence satisfactory to it
that, on or before the Closing Date, UCC-1 financing statements have been or are
being filed in the office of the Secretary of State of the State of Ohio,
reflecting the transfer of the interest of [insert names of sellers of student
loans and their respective eligible lender trustees] in Financed Student Loans
to the Depositor ELT and reflecting the transfer by the Depositor ELT of the
interest of the Depositor in the Financed Student Loans to the Trust ELT and the
proceeds thereof to the Trust and in the offices of the Secretaries of State of
the States of [Ohio and Delaware] reflecting the grant of the security interest
by the Trust in the Financed Student Loans and the proceeds thereof to the
Indenture Trustee.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Representative and counsel for the Representative.
9. EXPENSES. Resources agrees to pay or to otherwise cause the payment
of the following costs and expenses and all other costs and expenses incident to
the performance by it and the Trust
<PAGE> 16
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 16
of their respective obligations hereunder: (i) the preparation, printing or
reproduction of the Registration Statement, each Prospectus and each amendment
or supplement to any of them, this Agreement and each other Basic Document; (ii)
the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Prospectus and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Notes; (iii) the preparation, printing, authentication, issuance
and delivery of definitive certificates for the Notes; (iv) the printing (or
reproduction) and delivery of this Agreement, the Blue Sky Memorandum and all
other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Notes; (v) qualification of the Indenture
under the Trust Indenture Act; (vi) the qualification of the Notes for offer and
sale under the securities or Blue Sky laws of such states as Resources and the
Representative may agree (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of any Blue Sky Memorandum prepared in
connection with such qualification); (vii) the fees and disbursements of (A)
Resource's counsel and the Depositor's counsel, (B) the Representative's
counsel, (C) the Indenture Trustee and its counsel, (D) the Depositor ELT and
its counsel, (E) the Trust ELT and its counsel (F) The Depository Trust Company
in connection with the book-entry registration of the Notes, (G) Arthur Andersen
LLP, accountants for Resources and the Depositor and issuer of the letters
described in Section 8(n), and (H ) Richards, Layton & Finger, P.A., Special
Delaware Counsel to the Trust in connection with the preparation of the opinion
referred to in Section 8(c), and (viii) the fees charged by Moody's[, S&P] and
Fitch for rating the Notes.
10. COMPUTATIONAL MATERIALS. Not later than 4:00 p.m. New York City
time, on the date on which Computational Materials (as defined below) are first
used by an Underwriter, said Underwriter shall deliver to the Depositor
electronically a complete copy of all materials, if any, provided by such
Underwriter to prospective investors in such Notes which constitute
"Computational Materials" within the meaning of the no-action letter dated May
20, 1994 issued by the Division of Corporation Finance of the SEC to Kidder,
Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and Kidder
Structured Asset Corporation, the no-action letter dated May 27, 1994 issued by
the Division of Corporation Finance of the SEC to the Public Securities
Association and the no-action letter of February 17, 1995 issued by the SEC to
the Public Securities Association (collectively, the "Kidder/PSA Letters") and
the filing of which is a condition of the relief granted in such letters (such
materials being the "Computational Materials").
Each Underwriter severally and not jointly represents and warrants to
and agrees with the Depositor, as of the date hereof and as of the Closing Date,
that the Computational Materials furnished to the Depositor by such Underwriter
pursuant to this Section 10 constitute (either in original, aggregated or
consolidated form) all of the materials furnished to prospective investors in
the Notes by such Underwriter prior to the time of delivery thereof to the
Depositor that are required to be filed with the SEC with respect to the Notes
in accordance with the Kidder/PSA Letters and such Computational Materials
comply with the requirements of the Kidder/PSA Letters.
<PAGE> 17
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 17
Notwithstanding the foregoing, such Underwriter makes no representation
or warranty with respect to statements in any Computational Materials relating
to the Financed Student Loans which were furnished by or on behalf of Resources
or the Depositor to such Underwriter.
11. DEFAULT BY ONE OF THE UNDERWRITERS. If any of the Underwriters
shall fail at the Closing Date to purchase the Notes which it is obligated to
purchase hereunder (the "Defaulted Notes") and the principal amount of the
Defaulted Notes does not exceed 10% of the total principal amount of the Notes
set forth on the first page hereof, the Representative may make arrangements
satisfactory to the Depositor for the purchase of such Defaulted Notes by other
persons, including the remaining Underwriter or Underwriters (the
"Non-Defaulting Underwriters"), but if no such arrangements are made within one
(1) Business Day thereafter, the Non-Defaulting Underwriters shall be obligated
severally, in proportion to their respective total commitments hereunder, to
purchase the Notes which such defaulting Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters so default and the aggregate
principal amount of the Notes with respect to which such default or defaults
occur is more than 10% of the total principal amount of the Notes set forth on
the first page hereof and arrangements satisfactory to the Representative and
the Depositor for the purchase of such Notes by other persons are not made
within two (2) Business Days after such default, then this Agreement shall
terminate without liability on the part of the Non-Defaulting Underwriters.
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Non-Defaulting Underwriters or the Depositor shall
have the right to postpone the Closing Date for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective
upon the execution and delivery hereof by all the parties hereto. Until such
time as this Agreement shall have become effective, it may be terminated by
Resources or the Depositor, by notifying the Representative, or by the
Representative, by notifying Resources and the Depositor.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in the absolute discretion of the Representative, without liability
on the part of any Underwriter, by notice to Resources and the Depositor, if
prior to the Closing Date, (i) trading in securities generally on the New York
Stock Exchange shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been declared
by either
<PAGE> 18
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 18
Federal or New York state authorities, (iii) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in the reasonable judgment of the Representative, impracticable or
inadvisable to commence or continue the offering of the Notes on the terms set
forth in the Prospectus, or to enforce contracts for the resale of the Notes by
the Underwriters, (iv) legislation shall be enacted by the Congress of the
United States or a decision by a court of the United States or the Tax Court of
the United States shall be rendered, or an officially published ruling,
regulation, proposed regulation or official statement by or on behalf of the
Treasury Department of the United States, the Internal Revenue Service or any
other governmental agency shall be made, with respect to federal taxation upon
revenues or other income of the general character expected to be pledged under
the Indenture or upon interest received on securities of the general character
of the Notes, or which would have the effect of changing, directly or
indirectly, the federal income tax consequences of interest on securities of the
general character of the Notes in the hands of the holders thereof, which in the
opinion of counsel to the Representative materially affects the market price of
the Notes, or (v) legislation shall be enacted by the States of Delaware or
Ohio, or a decision by a court of competent jurisdiction of the States of
Delaware or Ohio or any administrative tribunal of the States of Delaware or
Ohio or other governmental agency or department thereof shall be rendered with
respect to taxation by the States of Delaware or Ohio or any of their political
subdivisions upon revenues or other income of the general character expected to
be pledged under the Indenture, or upon interest received on securities of the
general character of the Notes, or which would have the effect of changing,
directly or indirectly, the tax consequences under the States of Delaware or
Ohio tax law of interest on securities of the general character of the Notes in
the hands of the holders thereof, which in the opinion of counsel to the
Representative materially affects the market price of the Notes. Notice of such
termination may be given to Resources and the Depositor, by telegram, telecopy
or telephone and shall be subsequently confirmed by letter.
14. INFORMATION FURNISHED BY THE UNDERWRITER. The statements set forth
under the subsection "Weighted Average Life of the Notes" under the heading
"Maturity and Prepayment Considerations" and under the heading "Underwriting" in
the Prospectus Supplement dated ______________, 1999 and the computational
material contained in the Form 8-K filed with the SEC on ___________________,
1999 relating to the Notes constitute the only information furnished by or on
behalf of the Underwriters as such information is referred to in Sections 3(b)
and 7 hereof, and each Underwriter confirms that such statements relating to
such Underwriter are correct and the Representative confirms that the
information in the table titled "Weighted Average Life of the Notes at the
Constant Prepayment Rates" under the heading "Maturity and Prepayment
Considerations" and the computational material contained in the Form 8-K filed
with the SEC on ________________________, 1999 relating to the Notes is correct;
provided that with respect to the information contained in the table titled
"Weighted Average Life of the Notes at the Constant Prepayment Rates" under the
heading "Maturity and Prepayment Considerations" and the computational material
contained in the Form 8-K filed with the SEC on ___________________, 1999
relating to the Notes each Underwriter has assumed that the underlying financial
information
<PAGE> 19
To the Parties Identified On Schedule 1 Hereto
________________, 1999
Page 19
regarding the Financed Student Loans as furnished by or on behalf of Resources
or the Depositor to such Underwriter is accurate and each Underwriter makes no
representation, warranty or confirmation with respect to such underlying
financial information regarding the Financed Student Loans. Anything to the
contrary notwithstanding in this Agreement, Resources and the Depositor agree
that the information in the table titled "Weighted Average Life of the Notes at
the Constant Prepayment Rates" under the heading "Maturity and Prepayment
Considerations" and the computational material contained in the Form 8-K filed
with the SEC on ___________________, 1999 relating to the Notes is not included
in the indemnification of each Underwriter contained in Section 7(c) hereof.
15. REPRESENTATION OF UNDERWRITERS. The Representative shall act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representative will be binding upon all the
Underwriters.
16. MISCELLANEOUS. Except as otherwise provided in Sections 6, 12 and
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to Resources or the Depositor, to Student
Loan Resources, Inc., One West Fourth Street, Suite 210, Cincinnati, Ohio 45202,
Attention: Senior Vice President and Chief Financial Officer, facsimile (513)
763-4340, (ii) if to the Trust, to the Eligible Lender Trustee, at the Corporate
Trust Office of the Eligible Lender Trustee and (iii) if to the Representative,
to Salomon Brothers Inc, 388 Greenwich Street, 32nd Floor, New York, NY 10013,
Attention: Debt Organization Group, facsimile (212) 816-0598.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Trust, the Depositor and Resources, their respective
directors, officers, trustees and controlling persons referred to in Section 7
hereof and their respective successors and assigns, to the extent provided
herein, and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Notes in its status as such purchaser.
17. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York without giving effect to
the choice of laws or conflict of laws principles thereof.
18. COUNTERPARTS. This Agreement may be signed in various counterparts
which together constitute one and the same instrument. If signed in
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof or thereof shall have been executed and delivered on behalf
of each party hereto.
<PAGE> 20
Please confirm that the foregoing correctly sets forth the agreement
among Resources, the Depositor, the Trust and the Underwriters.
Very truly yours,
STUDENT LOAN RESOURCES, INC.
By:________________________________
Name:
Title:
STUDENT LOAN FUNDING RIVERFRONT LLC
By:________________________________
Name:
Title
STUDENT LOAN FUNDING 1999-A/B TRUST
By: FIRSTAR BANK, NATIONAL ASSOCIATION
not in its individual capacity but
solely as Eligible Lender Trustee
on behalf of the Trust,
By:____________________________
Name:
Title:
Confirmed as of the date
first above mentioned.
SALOMON SMITH BARNEY INC.
By:________________________
Name:
Title:
Acting on behalf of itself
and as Representative of
the several Underwriters named herein.
<PAGE> 21
SCHEDULE I
Underwriters
------------
<TABLE>
<CAPTION>
Principal Balance
-----------------------------------------------------------------
Salomon FifthThird Banc of PNC Capital
Series of Notes Barney Smith Securities, America Markets,
Inc. Inc. Securities LLC Inc. Total
------------ ----------- -------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Series 1999A-1 ....... $ $ $ $ $
Notes
Series 1999A-2 ....... $ $ $ $ $
Notes.
Series 1999B-1 ....... $ $ $ $ $
Notes. ------------ ----------- -------------- ----------- -----
Total ................ $ $ $ $ $
= = = = =
</TABLE>
Interest Rate
During each Interest Accrual Period, the Series 1999A-1 Notes and the Series
1999A-2 Notes will bear interest at One-Month LIBOR plus ________% and
________%, respectively, subject to certain limitations described in the
Prospectus. During each Interest Accrual Period, the Series 1999B-1 Notes will
____ interest at Three Month LIBOR, plus ____%, subject to certain limitations
described in the Prospectus.
<PAGE> 1
================================================================================
EXHIBIT 4.1
INDENTURE OF TRUST,
Dated as of ________ 1, 1999,
By and Among
STUDENT LOAN FUNDING 1999-A/B TRUST,
a Delaware common law trust,
FIRSTAR BANK, NATIONAL ASSOCIATION,
Not in its individual capacity, but solely as co-owner eligible lender trustee
for the benefit Student Loan Funding 1999-A/B Trust
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Relating to the
STUDENT LOAN ASSET-BACKED NOTES,
SERIES 1999A AND SERIES 1999B
OF
STUDENT LOAN FUNDING 1999-A/B TRUST
================================================================================
<PAGE> 2
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
(THE "TRUST INDENTURE ACT") AND THE
INDENTURE OF TRUST, DATED AS OF ________ 1, 1999
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
----------- -----------------
<S> <C>
Section.310 (a)(1)...............................................................7.1(b)
(a)(2)...............................................................7.1(b)
(a)(3)..................................................................7.2
(a)(4)..................................................................N/A
(a)(5)...............................................................7.1(b)
(b)..................................................................7.1(d)
(c).....................................................................N/A
Section.311 (a)....................................................................7.17
(b)....................................................................7.17
(c).....................................................................N/A
Section.312 (a)....................................................................6.15
(b)....................................................................7.18
(c)....................................................................7.18
Section.313 (a)....................................................................7.10
(b)....................................................................7.10
(c)....................................................................7.10
(d)....................................................................7.10
Section.314 (a).....................................................................6.7
(b)....................................................................12.8
(c)..................................................................1.3(a)
(c)(1)...............................................................1.3(a)
(c)(2)...............................................................1.3(a)
(c)(3)...............................................................1.3(a)
(d)...............................................................1.3(c)(e)
(e)..................................................................1.3(a)
(f)..................................................................1.3(k)
Section.315 (a)...............................................................7.1(a)(i)
(b).....................................................................8.8
(c)..............................................................7.1(a)(ii)
(d).............................................................7.1(a)(iii)
(e)....................................................................6.16
Section.316 (a)(1)(A)...............................................................8.4
(a)(1)(B)...............................................................8.7
(a)(2)..................................................................N/A
(a)(computations).......................................................8.9
(b).....................................................................8.5
(c).....................................................................N/A
Section.317 (a)(1)..................................................................8.4
(a)(2)..................................................................8.4
(b).....................................................................N/A
Section.318 (a)....................................................................12.9
</TABLE>
- ------------
NOTE: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture. Attention should also be
directed to Section 318(c) of the Trust Indenture Act (the
provisions of which are intended to apply to this Indenture,
regardless of whether this Indenture is qualified thereunder),
which provides that the provisions of Section 310 to and
including Section 317 are a part of and govern every qualified
indenture whether or not physically contained therein.
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREAMBLE...............................................................................................1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 Definitions................................................................................4
SECTION 1.2 Use of Certain Terms......................................................................18
SECTION 1.3 Compliance Certificates and Opinions......................................................18
SECTION 1.4 Incorporation by Reference of Trust Indenture Act.........................................21
ARTICLE II
AUTHORIZATION, TERMS AND PROVISIONS OF NOTES
SECTION 2.1 Authorization of Notes; Terms of Notes in General; Notes to Constitute
Limited Obligations...........22
SECTION 2.2 Execution of Notes; Validity of Signatures.................................................22
SECTION 2.3 Transfer of Notes; Exchange of Notes.......................................................23
SECTION 2.4 Books of Registry..........................................................................24
SECTION 2.5 Mutilated, Lost, Stolen or Destroyed Notes.................................................24
SECTION 2.6 Disposition and Destruction of Notes.......................................................25
SECTION 2.7 Forms of Notes and Instructions for Payment................................................25
SECTION 2.8 Temporary Notes............................................................................26
ARTICLE III
[RESERVED]
ARTICLE IV
REDEMPTION OF THE NOTES
SECTION 4.1 Redemption of Notes in General.............................................................28
ARTICLE V
DISPOSITION OF PROCEEDS
ESTABLISHMENT OF FUNDS AND ACCOUNTS
APPLICATION OF AVAILABLE FUNDS
SECTION 5.1 Disposition of Proceeds of the Notes.......................................................29
SECTION 5.2 Reserve Fund...............................................................................29
SECTION 5.3 Acquisition Fund...........................................................................30
SECTION 5.3.1 Financing of Student Loans.............................................................30
SECTION 5.3.2 Investment of Acquisition Fund; Transfer of Proceeds in Acquisition Fund...............32
SECTION 5.3.3 Capitalized Interest Account...........................................................32
SECTION 5.4 Student Loan Portfolio Fund; Sale of Student Loans.........................................32
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.5 Collection Fund............................................................................35
SECTION 5.5.1 Collection Account.....................................................................35
SECTION 5.5.2 Note Payment Account...................................................................35
SECTION 5.5.3 [Reserved.]............................................................................36
SECTION 5.5.4 Expense Account........................................................................36
SECTION 5.5.5 Excess Surplus Account.................................................................37
SECTION 5.5.6 Investment of Collection Fund. ........................................................37
SECTION 5.6 Pledge. ...................................................................................37
SECTION 5.7 Investments. ..............................................................................39
SECTION 5.8 Exchange Agreements; Counterparty Exchange Payments; Issuer
Exchange Payments..........................................................................42
SECTION 5.9 Termination................................................................................43
ARTICLE VI
COVENANTS TO SECURE NOTES
SECTION 6.1 Administration of the Program..............................................................44
SECTION 6.2 Contracts of Guarantee.....................................................................44
SECTION 6.3 Acquisition, Collection and Assignment of Student Loans; Compliance
with Law...................................................................................44
SECTION 6.4 Enforcement of Financed Student Loans......................................................45
SECTION 6.5 Enforcement of Master Servicing Agreement and Servicing Agreements;
Removal of Servicer........................................................................45
SECTION 6.6 Enforcement of Purchase Agreements.........................................................46
SECTION 6.7 Books of Account; Annual Audit.............................................................46
SECTION 6.8 Punctual Payment of Notes..................................................................47
SECTION 6.9 Further Assurances.........................................................................47
SECTION 6.10 Protection of Security....................................................................47
SECTION 6.11 No Encumbrances...........................................................................48
SECTION 6.12 Compliance with Indenture.................................................................48
SECTION 6.13 Limitation on Program Operating Expenses..................................................48
SECTION 6.14 Notice of Additional Guarantee Agencies or Servicers......................................49
SECTION 6.15 Issuer to Furnish Indenture Trustee Names and Addresses of Holders........................49
SECTION 6.16 Undertaking for Costs.....................................................................49
ARTICLE VII
CONCERNING THE INDENTURE TRUSTEE
SECTION 7.1 Appointment of, Acceptance by, and Duties of Indenture Trustee;
Qualification; Resignation; Removal; Successor.............................................50
SECTION 7.2 Appointment of Co-Indenture Trustee........................................................53
SECTION 7.3 Certain Rights and Obligations of the Indenture Trustee....................................54
SECTION 7.4 Evidence of Compliance with Conditions Precedent; Examination of
Evidence; Evidence of Rights of Holders....................................................56
SECTION 7.5 Proofs of Claims and Other Papers and Documents............................................57
SECTION 7.6 Dealing with the Issuer....................................................................57
SECTION 7.7 Fees and Reimbursement of Indenture Trustee................................................58
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
SECTION 7.8 Fees and Reimbursements of Each Eligible Lender Trustee....................................58
SECTION 7.9 Covenants of Indenture Trustee Pursuant to Higher Education Act. ..........................59
SECTION 7.10 Statements and Reports by Indenture Trustee of Funds and Accounts and
Other Matters.............................................................................59
SECTION 7.11 Additional Authenticating Agent...........................................................61
SECTION 7.12 Notice to Rating Agencies.................................................................61
SECTION 7.13 Indenture Trustee Not Liable for Acts of the Issuer; No Representations
by Indenture Trustee......................................................................61
SECTION 7.14 Indenture Trustee Not Responsible for Calculation Agent...................................62
SECTION 7.15 Indemnification of the Indenture Trustee and each Eligible Lender
Trustee...................................................................................62
SECTION 7.16 Intervention by the Indenture Trustee.....................................................62
SECTION 7.17 Preferential Collection of Claims Against Issuer..........................................63
SECTION 7.18 Preservation of Information; Communication to Holders.....................................63
SECTION 7.19 Survival of Certain Provisions of the Indenture...........................................63
ARTICLE VIII
DEFAULTS AND REMEDIES
SECTION 8.1 Events of Default..........................................................................64
SECTION 8.2 Inspection of Books and Records............................................................67
SECTION 8.3 Application of Moneys......................................................................67
SECTION 8.4 Suits at Law or in Equity; Direction of Action by Holders..................................70
SECTION 8.5 Suits by Individual Holders or an Exchange Counterparty....................................71
SECTION 8.6 Remedies Not Exclusive.....................................................................72
SECTION 8.7 Waivers of Default.........................................................................72
SECTION 8.8 Notice of Events of Default................................................................73
SECTION 8.9 Computations...............................................................................73
SECTION 8.10 Article Subject to Certain Provisions.....................................................73
ARTICLE IX
AMENDING AND SUPPLEMENTING OF INDENTURE
SECTION 9.1 Amending and Supplementing of Indenture Without Consent of Holders.........................74
SECTION 9.2 Amendment of Indenture with Consent of Holders and Exchange
Counterparties.............................................................................75
SECTION 9.3 Effectiveness of Supplemental Indenture....................................................76
SECTION 9.4 Supplemental Indenture Affecting Indenture Trustee.........................................76
SECTION 9.5 Supplemental Indentures Affecting Certain Requirements of the Higher
Education Act..............................................................................76
ARTICLE X
DEFEASANCE; MONEYS HELD FOR PAYMENT OF DEFEASED NOTES
SECTION 10.1 Trust Irrevocable.........................................................................77
SECTION 10.2 Discharge of Liens and Pledges; Notes No Longer Outstanding and
Deemed to Be Paid.........................................................................77
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 10.3 Notes Not Presented for Payment When Due; Moneys Held for the Notes
after Due Date Thereof....................................................................79
ARTICLE XI
MEETINGS OF HOLDERS
SECTION 11.1 Purposes of Meetings......................................................................81
SECTION 11.2 Call of Meetings; Place of Meetings.......................................................81
SECTION 11.3 Meetings; Regulations of the Indenture Trustee............................................82
SECTION 11.4 Voting; Speaking at Meeting; Record of Meeting............................................82
SECTION 11.5 Miscellaneous.............................................................................83
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Benefits of Indenture Limited to Issuer, Eligible Lender Trustees,
Indenture Trustee, Exchange Counterparty and Holders......................................84
SECTION 12.2 Effect of Legal Holidays..................................................................84
SECTION 12.3 Partial Invalidity........................................................................84
SECTION 12.4 Notices...................................................................................84
SECTION 12.5 Law and Place of Enforcement of Indenture.................................................85
SECTION 12.6 No Recourse Against Directors, Officers or Employees of the Issuer........................85
SECTION 12.7 Cross-Indemnification.....................................................................85
SECTION 12.8 Suspension of Mail........................................................................86
SECTION 12.9 Opinion as to Trust Estate................................................................86
SECTION 12.10 Conflict with Trust Indenture Act........................................................86
SECTION 12.11 Effect of Article and Section Headings and Table of Contents.............................87
SECTION 12.12 Execution of Counterparts. ..............................................................87
SCHEDULE I SCHEDULE OF APPROVED GUARANTEE AGENCIES
SCHEDULE II SCHEDULE OF APPROVED SERVICERS AND SERVICING AGREEMENTS
EXHIBIT A STUDENT LOAN ACQUISITION CERTIFICATE
EXHIBIT B UPDATING STUDENT LOAN ACQUISITION CERTIFICATE
</TABLE>
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<PAGE> 7
THIS INDENTURE OF TRUST, dated as of ________ 1, 1999, as
hereafter amended or supplemented by Supplemental Indentures (the "Base
Indenture"), by and among STUDENT LOAN FUNDING 1999-A/B TRUST, a common law (as
opposed to statutory) trust created under the laws of the State of Delaware (the
"Issuer"), by FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association
duly organized and existing under the laws of the United States, having its
principal corporate trust office in Cincinnati, Ohio, not in its individual
capacity, but solely as co-owner trustee of the Issuer (the "Co-Owner Trustee"),
FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association duly
organized and existing under the laws of the United states, having its principal
corporate trust offices in Cincinnati, Ohio, not in its individual capacity, but
solely as the eligible lender trustee on behalf of the Issuer (the "Initial
Co-Owner Eligible Lender Trustee") and FIRSTAR BANK, NATIONAL ASSOCIATION, a
national banking association duly organized and existing under the laws of the
United States, having its principal corporate trust office in Cincinnati, Ohio
and being qualified to accept and administer the trusts hereby created (the
"Indenture Trustee"), with the capitalized words and terms used in the recitals
and granting clauses of this Indenture as defined words and terms and not
otherwise defined therein are being used as defined in Section 1.1 hereof
(References to the name "Student Loan Funding 1999-A/B Trust" or to the terms
"Issuer" or "Delaware Trust" in this Indenture, including the Schedules and
Exhibits attached hereto and made a part hereof, shall mean the Co-Owner
Trustee, not in its individual capacity, but solely as Co-Owner Trustee of the
Issuer on behalf of the Issuer);
WITNESSETH:
WHEREAS, the Issuer is authorized by the applicable provisions
of the laws of the United States and the State of Delaware and by the Trust
Agreement, dated as of _________ 1, 1999 (the "Trust Agreement"), among Student
Loan Funding Riverfront LLC (the "Depositor"), Firstar Bank, National
Association, not in its individual capacity, but solely as the eligible lender
trustee on behalf of the Depositor (the "Depositor Eligible Lender Trustee"),
the Delaware Trustee (as defined therein), the Co-Owner Trustee and the Initial
Co-Owner Eligible Lender Trustee, to acquire directly, or indirectly through an
Eligible Lender Trustee, student loan notes incurred under the Higher Education
Act, and to finance and refinance the acquisition directly, or indirectly
through an Eligible Lender Trustee, of such student loan notes by the issuance
of notes and other evidences of indebtedness of the Issuer;
WHEREAS, the Issuer has determined to provide under this Base
Indenture and the Terms Supplement (collectively, the "Indenture") for the
issuance in Series of (i) its Student Loan Asset-Backed Senior Notes, Series
1999A (the "Series 1999A Notes" or the "Senior Notes") and (ii) its Student Loan
Asset-Backed Subordinate Notes, Series 1999B (the "Series 1999B Notes" or the
"Subordinate Notes" and collectively with the Series 1999A Notes, the "Notes");
WHEREAS, pursuant to the Transfer and Sale Agreement, the
Depositor and the Depositor Eligible Lender Trustee have sold, transferred and
assigned all of the Transferred Assets to the Issuer and the Initial Co-Owner
Eligible Lender Trustee;
WHEREAS, the Issuer, the Initial Eligible Lender Trustee and
the Indenture Trustee desire to execute and deliver this Indenture in order to
confirm and declare the terms and
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<PAGE> 8
conditions upon which the Notes will be secured and to secure payment of the
principal thereof and interest and any Carryover Interest thereon; and
NOW THEREFORE, THIS INDENTURE OF TRUST WITNESSETH:
That (a)(i) in order to secure (A) the payment of the fees and
expenses of the Indenture Trustee hereunder in accordance with the provisions of
this Indenture and (B) the payment of the fees and expenses of each Eligible
Lender Trustee hereunder in accordance with the provisions of this Indenture;
and (ii) in order to secure (A) the payment of the principal of and interest and
any Carryover Interest on, the Senior Notes according to their respective tenor,
purport and effect and (B) the payment of any Senior Issuer Exchange Payment and
the performance and observance of all covenants and conditions contained in any
Senior Exchange Agreement; and (iii) in order to secure (A) the payment of the
principal of and interest and any Carryover Interest on the Subordinate Notes
according to their respective tenor, purport and effect and (B) the payment of
any Subordinate Issuer Exchange Payment and the performance and observance of
all covenants and conditions contained in any Subordinate Exchange Agreement;
and (iv) in order to secure the performance and observance of all the covenants
and conditions contained in this Indenture, in the Notes and in any Exchange
Agreement; (b) for and in consideration of (i) the mutual covenants contained in
this Indenture, (ii) the acceptance by the Indenture Trustee of the trusts
hereby created, and (iii) the execution and delivery of any Exchange Agreement
by the Issuer and an Exchange Counterparty, and the acknowledgment thereof by
the Indenture Trustee; (c) each of the Issuer and the Initial Co-Owner Eligible
Lender Trustee has executed and delivered this Indenture and by these presents
does hereby convey, transfer, assign, pledge, and grant a valid and binding lien
on and a security interest in, unto the Indenture Trustee, its successor or
successors and its or their assigns forever, (i) for the benefit of the
Indenture Trustee and each Eligible Lender Trustee with respect to their
respective fees and expenses, all rights, title and interest of the Issuer and
the Initial Co-Owner Eligible Lender Trustee in and to the Trust Estate, whether
now owned or hereafter acquired, and all other rights hereinafter granted for
the further securing of the fees and expenses of the Indenture Trustee, each
Eligible Lender Trustee; (ii) for the equal and ratable benefit (except as
otherwise provided in Section 8.3 hereof) of the Holders of the Senior Notes,
all rights, title and interest of the Issuer and the Initial Co-Owner Eligible
Lender Trustee in and to the Trust Estate, whether now owned or hereafter
acquired, and all other rights hereinafter granted for the further securing of
the Senior Notes; and (iii) for the equal and ratable benefit (except as
otherwise provided in Section 8.3 hereof) of a Senior Exchange Counterparty, if
any, on a parity with Holders of the Senior Notes, all rights, title and
interest of the Issuer and the Initial Co-Owner Eligible Lender Trustee in and
to the Trust Estate, whether now owned or hereafter acquired, and all other
rights hereinafter granted for the further securing of any Senior Exchange
Agreement; and (iv) for the equal and ratable benefit (except as otherwise
provided in Section 8.3 hereof) of the Holders of the Subordinate Notes,
subordinate, however, to (A) that of the Holders of the Senior Notes and (B)
that of a Senior Exchange Counterparty, all rights, title and interest of the
Issuer and the Initial Co-Owner Eligible Lender Trustee in and to the Trust
Estate, whether now owned or hereafter acquired, and all other rights
hereinafter granted for the further securing of the Subordinate Notes; and (v)
for the equal and ratable benefit (except as otherwise provided in Section 8.3
hereof) of any Exchange Counterparty in addition to each Senior Exchange
Counterparty, if any, whether on a parity with or subordinate to the Holders of
the Senior Notes and any Senior Exchange Counterparty, all rights, title and
interest of the Issuer and the Initial Co-Owner Eligible Lender Trustee in and
to the Trust Estate, whether now owned or hereafter
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<PAGE> 9
acquired, and all other rights hereinafter granted for the further securing of
the Exchange Agreement of such Exchange Counterparty;
TO HAVE AND TO HOLD the same unto the Indenture Trustee and
its successor or successors and its or their assigns forever;
IN TRUST, NEVERTHELESS, upon the terms and trusts herein set
forth, to secure the payment of the principal of the Notes and the interest and
any Carryover Interest thereon, and to secure the payment of any Issuer Exchange
Payment, and to secure also the observance and performance of all the terms,
provisions, covenants and conditions of this Indenture, and for the equal and
ratable (except as otherwise provided in this Indenture) benefit and security of
all and singular the Holders and any Exchange Counterparty, without preference,
priority or distinction as to lien or otherwise, of any one of such Notes over
any other of such Notes or over any Issuer Exchange Payment or as among
principal and interest and Carryover Interest, or of any one Exchange Agreement
over any other Exchange Agreement or over any Notes, except as otherwise
provided in this Indenture; and it is hereby mutually covenanted and agreed that
the terms and conditions upon which any Exchange Agreement is to be executed,
delivered and accepted by the Issuer and the Exchange Counterparty and
acknowledged by the Indenture Trustee are as set forth in such Exchange
Agreement, and it is hereby further mutually covenanted and agreed that the
terms and conditions upon which such Notes are executed, authenticated, issued,
delivered, secured and accepted by all Persons who shall from time to time be or
become the Holders thereof and upon which any Exchange Agreement is to be
secured, and the trusts and conditions upon which the Trust Estate is to be held
and disbursed, are as set forth in this Indenture:
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<PAGE> 10
ARTICLE I
Definitions and Other Provisions of General Application
-------------------------------------------------------
SECTION 1.1 Definitions.
------------
Unless the context shall clearly indicate some other meaning
or may otherwise require, the terms defined in this Section 1.1 shall, for all
purposes of this Indenture and of any indenture or other instrument amendatory
hereof or supplemental hereto, have the meanings herein specified:
"ACCOUNT" shall mean any of the accounts established by this
Indenture.
The terms "ACQUIRE," "ACQUIRING," or "ACQUISITION" when used
in connection with the acquisition or making, respectively, of Student Loans by
the Issuer or the Indenture Trustee shall mean and specifically include the
acquisition directly, or indirectly through an Eligible Lender Trustee, of such
Student Loans.
"ACQUISITION FUND" shall mean the Fund established by Section
5.3 hereof.
"ADMINISTRATION AGREEMENT" shall mean the administration
agreement, between the Issuer and the Administrator providing for, among other
things, the administration of this Indenture on behalf of the Issuer.
"ADMINISTRATOR" shall mean the administrator, and its
successors or assigns, appointed by the Issuer in the Administration Agreement
to provide for, among other things, the administration of this Indenture on
behalf of the Issuer, such administrator on the Date of Issuance being Student
Loan Funding Resources, Inc., an Ohio for-profit corporation.
"ADVANCES" shall mean deposits to the Trust Estate made by the
Depositor to the Note Payment Account hereunder with respect to anticipated
future collections on the Financed Student Loans.
"ADVERSELY AFFECT" shall mean, when used with respect to any
rating on a Series of Notes, to cause the reduction or withdrawal of such
rating.
"AUTHENTICATING AGENT" shall mean any bank, trust company or
other financial institution appointed by the Issuer as authenticating agent for
the Indenture Trustee hereunder and as depositary under the Authenticating Agent
Agreement, or any successor or successors thereto appointed pursuant to Section
7.11 hereof or pursuant to an Authenticating Agent Agreement, as the case may
be, with respect to such functions collectively or separately provided, however,
that if no Authenticating Agent has been appointed under this Indenture,
provisions relating to the Authenticating Agent shall be read as applying to the
Indenture Trustee.
"AUTHENTICATING AGENT AGREEMENT" shall mean an Authenticating
Agent Agreement among the Issuer, the Indenture Trustee and the Authenticating
Agent, as depositary, or any similar agreement hereafter entered into by the
Issuer with respect to a Series of Notes, in
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<PAGE> 11
each case as originally executed and as from time to time amended or
supplemented in accordance with the terms thereof and with this Indenture.
"AUTHORIZED DENOMINATIONS" shall have the meaning given such
term in the Terms Supplement.
"AUTHORIZED OFFICER" when used with reference to the Issuer
shall mean any vice president, trust officer or other officer of the Co-Owner
Trustee authorized to sign the document or take the action in question.
"AVAILABLE FUNDS" shall mean, with respect to any Collection
Period, the excess of (a) the sum, without duplication, of the following amounts
with respect to such Collection Period: (i) all collections received by the
Indenture Trustee on the Financed Student Loans (including any Guarantee
Payments received with respect to the Financed Student Loans) during such
Collection Period; (ii) any payments, including, without limitation, Interest
Subsidy Payments and Special Allowance Payments, received by each Eligible
Lender Trustee during such Collection Period with respect to Financed Student
Loans; (iii) all proceeds from any sales of Financed Student Loans during such
Collection Period; (iv) any payments of or with respect to interest received by
the Indenture Trustee during such Collection Period with respect to a Financed
Student Loan for which a Realized Loss was previously allocated; (v) the
aggregate Purchase Amounts received for those Financed Student Loans purchased
by the Indenture Trustee during the related Collection Period; (vi) the
aggregate amounts, if any, received from the Issuer or the Indenture Trustee as
reimbursement of non-guaranteed or uninsured interest amounts (which shall not
include, with respect to Financed Student Loans, the portion of such interest
amounts for which the Guarantee Agency did not have an obligation to make a
Guarantee Payment), or lost Interest Subsidy Payments and Special Allowance
Payments, with respect to the Financed Student Loans; (vii) Counterparty
Exchange Payments, (viii) Advances received and (ix) Investment Earnings for
such Collection Period over (b) amounts received by the Issuer in connection
with balance reconciliations required by virtue of Student Loan consolidations
for such Collection Period; provided, however, that Available Funds shall
exclude (1) all payments and proceeds of any Financed Student Loans the Purchase
Amount of which has been included in Available Funds for a prior Collection
Period, which payments and proceeds shall be paid to the Issuer, (2) amounts
used to reimburse the Depositor for Advances or any other amounts advanced by
the Depositor on a voluntary basis with respect to Guarantee Payments or
Interest Subsidy Payments applied for but not received as of the end of the
Collection Period immediately preceding the date such Advance is made, and (3)
amounts which are paid to the Issuer pursuant to the Indenture.
"BASE INDENTURE" shall mean this Indenture of Trust, dated as
of ________ 1, 1999, exclusive of the Terms Supplement but as from time to time
amended or supplemented by Supplemental Indentures.
"BOOK-ENTRY SYSTEM" shall have the meaning given such term in
the Terms Supplement.
"BUSINESS DAY" shall mean any day on which the Indenture
Trustee and the Authenticating Agent, if any, at their respective addresses set
forth in or for purposes of this
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<PAGE> 12
Indenture, are open for commercial banking business and on which the New York
Stock Exchange is open.
"CALCULATION AGENT" shall have the meaning given such term in
the Terms Supplement.
"CALCULATION AGENT AGREEMENT" shall have the meaning given
such term in the Terms Supplement.
"CAPITALIZED INTEREST ACCOUNT" shall mean the Account so
designated and established in the Acquisition Fund by Section 5.3.3 hereof.
"CARRYOVER INTEREST" shall mean the difference between the
interest that would have accrued on a Series of Notes at the Formula Rate during
a Collection Period and the interest accrued at the Net Loan Rate during such
Collection Period, together with interest thereon at the Formula Rate from the
Distribution Date on which such Carryover Interest is due until paid, but in no
event greater than the maximum rate permitted by law.
"CASH FLOW STATEMENT" shall mean a report or reports prepared
by or at the direction of the Issuer with respect to the period covered by the
Cash Flow Statement, which period shall extend from the date of the Cash Flow
Statement to the latest maturity of the Notes then Outstanding, showing, (i) all
Available Funds expected to be received during such period, (ii) the application
of all such Available Funds in accordance with this Indenture, (iii) the
resulting periodic balances and Parity Percentages, and (iv) that under all
assumptions and scenarios used for the cash flows accompanying such Cash Flow
Statement, (a) anticipated Available Funds will be at least sufficient to pay
the principal of and interest on the Notes when due and all other amounts
payable under this Indenture when due and (b) a Parity Percentage of at least
101% will be maintained at all times, including, without limitation, on each
Distribution Date.
"CERTIFICATE", "DIRECTION", "INSTRUCTION", "ORDER", "REQUEST"
or "REQUISITION" of the Issuer, as the case may be, shall mean, respectively, a
certificate, direction, instruction, order, request or requisition which shall,
unless otherwise specifically provided herein, be in writing and which is signed
in the name of the Issuer by an Authorized Officer.
"COLLECTION ACCOUNT" shall mean the Account so designated and
established in the Collection Fund by Section 5.5 hereof.
"COLLECTION FUND" shall mean the Fund established by Section
5.5 hereof.
"COLLECTION PERIOD" shall have the meaning given such term in
the Terms Supplement.
"COMMISSION" shall mean the Securities and Exchange
Commission, as from time to time constituted, created under the Securities
Exchange Act of 1934, as amended, or, if at any time after the execution of this
Indenture such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body performing such duties at
such time.
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<PAGE> 13
"CONSOLIDATION LOANS" shall mean Student Loans governed by
Section 428C of the Higher Education Act which are Financed by the Issuer, but
excluding any such loans which are made by a Seller and purchased by the Issuer.
"CONTRACT OF GUARANTEE" shall mean a contract between a
Guarantee Agency and a Lender providing for, or a certificate or other evidence
of, the Guarantee of Student Loans.
"CO-OWNER TRUSTEE" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely as co-owner trustee of
the Delaware Trust.
"COSTS OF ISSUANCE" shall mean all items of expense allocable
to establishment of the Program and the authorization, issuance, sale and
delivery of the related Notes, or any obligations of the Issuer the proceeds of
which are used in whole or in any part directly, or indirectly through an
Eligible Lender Trustee, to acquire Financed Student Loans under this Indenture,
including without limitation costs of planning and feasibility studies, costs of
obtaining governmental registrations, qualifications and regulatory rulings and
approvals, costs of financial advisory, legal, accounting and management
services and services of other consultants and professionals and related
charges, fees and disbursements, costs of preparation and reproduction of
documents, costs of preparation and printing of any offering document relating
to the Notes, advertising and printing costs, filing and recording fees, any
initial fees and charges of the Indenture Trustee, each Eligible Lender Trustee,
the Calculation Agent, any auction agent, any broker-dealer, any market agent
and any Authenticating Agent, Rating Agency fees, costs of preparation,
execution, transportation and safekeeping of the Notes, and any other costs,
charges or fees in connection with the issuance of the Notes [or the
establishment of the Issuer].
"COUNTERPARTY EXCHANGE PAYMENT" shall mean a payment due to
the Issuer from an Exchange Counterparty pursuant to the applicable Exchange
Agreement.
"CUT-OFF DATE" shall mean _________________, the date on or
after which principal and interest payments on the Financed Student Loans are to
be included in the Trust Estate.
"DATE OF ISSUANCE" shall mean with respect to a Series of
Notes, the date of the initial issuance and delivery of such Series of Notes as
set forth in the definition thereof in the Terms Supplement related to such
Series of Notes.
The term "DAY" shall mean any calendar day, whether or not a
Business Day.
"DELAWARE TRUST" shall mean the common law (as opposed to
statutory) trust created under the laws of the State of Delaware by the Trust
Agreement, dated as of __________, 1999, among the Depositor, the Co-Owner
Trustee, the Initial Co-Owner Eligible Lender Trustee and the Delaware Trustee
(as defined therein), and designated "Student Loan Funding 1999-A/B Trust";
provided that references to the name "Student Loan Funding 1999-A/B Trust" or to
the term "Delaware Trust" in this Indenture, including the Schedules and
Exhibits attached hereto and made a part hereof, shall mean the Co-Owner
Trustee, not in its individual capacity, but solely as Co-Owner Trustee on
behalf of the Issuer.
"DEPARTMENT OF EDUCATION" shall mean the U.S. Department of
Education.
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<PAGE> 14
"DEPOSITOR" shall mean Student Loan Funding Riverfront LLC, a
Delaware limited liability company.
"DEPOSITOR ELIGIBLE LENDER TRUSTEE" shall mean Firstar Bank,
National Association, not in its individual capacity, but solely as the eligible
lender trustee on behalf of the Depositor.
"DEPOSITORY" shall have the meaning given such term in the
Terms Supplement.
"DIRECTING NOTES" shall mean, so long as any Series of Senior
Notes are Outstanding the Senior Notes, and thereafter, the Subordinate Notes.
The phrase "DIRECTLY OR INDIRECTLY" shall mean, with respect
to the making, acquisition or Financing of Student Loans, the making,
acquisition or Financing of Student Loans by the Issuer or by an Eligible Lender
Trustee on behalf of the Issuer, respectively.
"DISTRIBUTION DATE" shall have the meaning given such term in
the Terms Supplement.
"ELIGIBLE INVESTMENTS" shall have the meaning set forth in
Section 5.7 hereof.
"ELIGIBLE LENDER TRUST AGREEMENT" shall mean, collectively,
(i) the Eligible Lender Trust Agreement dated as of _________, 1999 by and
between the Issuer and the Initial Co-Owner Eligible Lender Trustee, as from
time to time amended or supplemented and (ii) any other eligible lender trust
agreement between the Issuer and an eligible lender trustee holding legal title
to any Financed Student Loans, in each case as originally executed and as from
time to time amended or supplemented.
"ELIGIBLE LENDER TRUSTEE" shall mean (i) the Initial Co-Owner
Eligible Lender Trustee and/or (ii) any other eligible lender trustee under its
respective Eligible Lender Trust Agreement.
"EVENT OF DEFAULT" shall have the meaning set forth in Section
8.1 hereof.
"EXCESS SURPLUS ACCOUNT" shall mean the Account so designated
and established in the Collection Fund by Section 5.5 hereof.
"EXCHANGE AGREEMENT" shall mean an interest rate exchange
agreement between the Issuer and an Exchange Counterparty, as originally
executed and as amended or supplemented, or other interest rate hedge agreement
between the Issuer and an Exchange Counterparty, as originally executed and as
amended or supplemented, which agreement shall be designated as a Senior
Exchange Agreement or a Subordinate Exchange Agreement.
"EXCHANGE COUNTERPARTY" shall mean any Person with whom the
Issuer shall, from time to time, enter into an Exchange Agreement.
"EXCHANGE COUNTERPARTY GUARANTEE" shall mean a guarantee in
favor of the Issuer given in connection with the execution and delivery of an
Exchange Agreement hereunder,
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<PAGE> 15
which guarantee shall be designated a Senior Exchange Counterparty Guarantee or
Subordinate Exchange Counterparty Guarantee consistent with the Exchange
Agreement to which it relates.
"EXPECTED INTEREST COLLECTIONS" shall mean, with respect to
any Collection Period, the sum of (i) the amount of interest accrued, net of
amounts required to be paid to the Department of Education or to be repaid to
Guarantee Agencies, with respect to the Financed Student Loans in the Trust
Estate for such Collection Period (whether or not such interest is actually
paid), (ii) all Interest Subsidy Payments and Special Allowance Payments
pursuant to claims submitted for such Collection Period (whether or not actually
received), net of amounts required to be paid to the Department of Education,
with respect to Financed Student Loans in the Trust Estate, to the extent not
included in (i) above, (iii) plus or minus the net of any Counterparty Exchange
Payments less any Issuer Exchange Payments to be made on the related
Distribution Date, and (iv) Investment Earnings on the amounts on deposit
allocable to the Trust Estate with respect to such Collection Period prior to
the related Distribution Date.
"EXPENSE ACCOUNT" shall mean the Account so designated and
established in the Collection Fund by Section 5.5 hereof.
"FFEL PROGRAM" shall mean the Federal Family Education Loan
Program established by the Higher Education Act pursuant to which loans are made
to borrowers pursuant to certain guidelines, and the repayment of such loans is
guaranteed by a Guarantee Agency, and any predecessor or successor program.
"FFELP LOANS" shall mean Student Loans made under the FFEL
Program.
"FINANCED" in the case of Student Loans shall refer to Student
Loans made or acquired directly, or indirectly through an Eligible Lender
Trustee, with the proceeds of the Notes or moneys in the Acquisition Fund or the
Collection Account, or upon the exchange of Student Loans pursuant to Section
5.4 hereof, and included in the Student Loan Portfolio Fund, including, without
limitation, all Student Loans identified on the books of the Issuer by a
designation of Lender Identification Number _______ and any one or more of the
following: Client Code ____ and ____; Bond ID _____; Subportfolio Number ______;
Branch Number _____; Branch Number __; and Bond ID ___; and to "Finance" or
"Financing" in the case of Loans shall mean to make or acquire or the making or
acquisition of, respectively, directly, or indirectly through an Eligible Lender
Trustee, Student Loans with such moneys or upon any such exchange or transfer.
"FINANCED STUDENT LOANS" shall mean Student Loans which are
Financed and are evidenced solely by promissory notes and applications related
thereto.
"FISCAL YEAR" shall mean the fiscal year of the Issuer, which
is, as of the date of execution and delivery of this Indenture, each
twelve-month period commencing on July 1 and ending on the next succeeding June
30.
"FITCH" shall mean Fitch IBCA, Inc., and its successors and
assigns.
"FORMULA RATE" shall have the meaning given such term in the
Terms Supplement.
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<PAGE> 16
"FUND" shall mean any of the Funds established by this
Indenture.
"GUARANTEE" or "GUARANTEED" shall mean, with respect to a
Student Loan, the guarantee, by a Guarantee Agency which has entered into a
federal reimbursement agreement and a supplemental federal reimbursement
agreement with the Secretary of Education, of at least ninety-eight percent
(98%), or such lower percentage as may be approved by the Rating Agencies then
rating the Outstanding Notes, of the principal of and accrued interest on such
Student Loan thereafter, and the coverage of such Student Loan by a federal
reimbursement agreement and a supplemental federal reimbursement agreement
providing, among other things, for reimbursement to a Guarantee Agency for
losses incurred by it on defaulted Student Loans guaranteed by such Guarantee
Agency at up to the maximum amount of the principal thereof and accrued interest
thereon provided for in the Higher Education Act.
"GUARANTEE PAYMENT" shall mean any payment made by a Guarantee
Agency pursuant to a Contract of Guarantee in respect of a Financed Student
Loan.
"GUARANTEE AGENCIES" shall mean the agencies set forth on
Schedule I hereto and any other agency, and the successors and assigns of each,
whether a governmental body or private corporation or other entity, approved by
the Rating Agencies then rating the Outstanding Notes and providing a Guarantee
acceptable to the Issuer; provided, however, that no agency set forth on
Schedule I shall be qualified as a Guarantee Agency of a Financed Student Loan
unless an Eligible Lender Trustee or the Issuer, as applicable, and such agency
shall have entered into a guarantee agreement with respect thereto.
"HIGHER EDUCATION ACT" shall mean Title IV, Part B of the
Higher Education Act of 1965, as amended, or any successor federal act, and all
regulations, directives and guidelines promulgated thereunder from time to time.
"HOLDERS" or "Noteholders" shall mean, collectively, the
registered owners of the Notes or the duly authorized attorneys-in-fact,
representatives or assignees of such persons..
"INDENTURE" shall mean this Indenture of Trust, dated as of
________ 1, 1999, as supplemented by the Terms Supplement and as from time to
time amended or supplemented by Supplemental Indentures.
"INDENTURE TRUSTEE" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely as trustee under this
Indenture, and any successor or successors thereto which may at any time be
appointed or substituted in its place pursuant to this Indenture.
"INITIAL CO-OWNER ELIGIBLE LENDER TRUSTEE" shall mean Firstar
Bank, National Association, not in its individual capacity, but solely as
eligible lender trustee under the Eligible Lender Trust Agreement.
"INITIAL DISTRIBUTION DATE" shall mean, as to each Series of
Notes, the date set forth in the definition thereof in the Terms Supplement for
such Series of Notes.
"INITIAL INTEREST DETERMINATION DATE" shall mean, as to each
Series of Notes, the date set forth in the definition thereof in the Terms
Supplement for such Series of Notes.
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"INITIAL POOL BALANCE" shall mean the Pool Balance of the
Financed Student Loans as of the Cut-off Date.
"INITIAL PURCHASERS" shall mean __________________________.
"INSIDER" shall mean an entity referred to or described in
Section 101(31) of the United States Bankruptcy Code (assuming for this purpose
that the Issuer or any Affiliate of the Issuer, as applicable, is a debtor) and
any limited partner or limited liability company member thereof.
"INTEREST DETERMINATION DATE" shall mean with respect to each
Series of Notes, (i) the Initial Interest Determination Date and thereafter (ii)
the day set forth in the Terms Supplement related to such Series of Notes;
provided, however, that if such day is not a Business Day, then the next
succeeding Business Day.
"INTEREST SUBSIDY PAYMENTS" shall mean the interest subsidy
payments in respect of eligible Student Loans paid by the Secretary of Education
pursuant to Section 428 of the Higher Education Act during the period prior to
the time that such Student Loan enters repayment or during grace or deferment
periods, or similar subsidies authorized from time to time by federal law or
regulation.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the regulations promulgated thereunder.
"INVESTMENT EARNINGS" means, with respect to any Distribution
Date, the investment earnings (net of losses and investment expenses) on amounts
on deposit in the Funds and Accounts hereunder to be deposited into the
Collection Fund on or prior to such Distribution Date.
"ISSUER" shall mean the Delaware Trust; provided that
references to the name "Student Loan Funding 1999-A/B Trust" or to the term
"Issuer" in this Indenture, including the Schedules and Exhibits attached hereto
and made a part hereof, shall mean the Co-Owner Trustee, not in its individual
capacity, but solely as Co-Owner Trustee on behalf of the Issuer.
"ISSUER EXCHANGE PAYMENT" shall mean a payment due to an
Exchange Counterparty from the Issuer pursuant to the applicable Exchange
Agreement (excluding, however, payments to an Exchange Counterparty in respect
of any early termination date, as defined in the applicable Exchange Agreement).
"LEGAL FINAL MATURITY" shall mean with respect to a Series of
Notes, the date set forth in the definition thereof in the Terms Supplement
related to such Series of Notes.
"LENDER" shall mean any "eligible lender" as defined in the
Higher Education Act and qualified to participate as a seller of Student Loans
to the Issuer.
The terms "MAKE" or "MAKING" when used in connection with the
making of Student Loans by the Issuer shall mean and specifically include the
making, directly or indirectly through an Eligible Lender Trustee, of such
Student Loans.
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"MASTER SERVICER" shall mean initially Student Loan Funding
Resources, Inc., an Ohio corporation.
"MASTER SERVICING AGREEMENT" shall mean the Master Servicing
Agreement, dated as of ________ 1, 1999, by and between the Issuer and Master
Servicer, pursuant to which the Master Servicer covenants and agrees to provide
for the servicing of the Financed Student Loans by the Servicers.
The term "MATERIALLY," as used in Article VI hereof, shall
mean any effect which will result in a Holder not being fully and timely paid
principal of and interest on such Holder's Notes.
"MONTHLY DISTRIBUTION DATE" shall have the meaning given such
term in the Terms Supplement.
"MOODY'S" shall mean Moody's Investors Service, Inc., a
Delaware corporation, and its successors and assigns.
"NET LOAN RATE" shall have the meaning given such term in the
Terms Supplement.
"NOTEHOLDER" or "HOLDER OF A NOTE" shall mean any person who
shall be the registered owner of any Note or the duly authorized
attorney-in-fact, representative or assignee of such person.
"NOTE PURCHASE AGREEMENT" shall mean the note purchase
agreement among the Issuer and the Initial Purchasers of the Notes.
"NOTES" shall mean the Senior Notes and the Subordinate Notes.
"OFFICER'S CERTIFICATE" shall mean a document signed by an
Authorized Officer of the Issuer either attesting to or acknowledging the
circumstances, representations or other matters therein stated or set forth or
directing that an action be taken by the person to whom such document is
addressed.
"OUTSTANDING" when used with respect to Notes shall refer to
any Notes executed, authenticated, issued and delivered under this Indenture
other than Notes for the transfer or exchange of or in lieu of which other Notes
shall have been authenticated and delivered by the Indenture Trustee pursuant to
this Indenture and other than Notes which at the time are deemed not to be
Outstanding under this Indenture by reason of the operation and effect of
Section 10.2 hereof or the limitation of Section 8.3 hereof.
"PARITY PERCENTAGE" shall mean, as of any Distribution Date or
other date, the fraction expressed as a percentage, the numerator of which is
the sum, without duplication, of (i) the Pool Balance plus accrued interest
thereon due from borrowers, accrued interest which is expected to be
capitalized, and accrued Interest Subsidy Payments and Special Allowance
Payments, if any, as of the end of the preceding Collection Period, and (ii) all
amounts on deposit (including any accrued interest thereon) in the Acquisition
Fund, the Collection Fund and the Reserve Fund, if any, as of the end of such
Collection Period (adjusted for payments made on
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such Distribution Date) and the denominator of which is the sum of (a) the
Outstanding principal amount of the Notes (after payment thereon on such
Distribution Date) and accrued interest thereon and (b) accrued and unpaid
Program Operating Expenses.
"PARITY PERCENTAGE LIMITATION" shall have the meaning given
such term in the Terms Supplement.
"PARITY PERCENTAGE PAYMENT" shall have the meaning given such
term in the Terms Supplement.
"PERSON" or words importing persons shall mean firms,
associations, partnerships, limited liability companies, joint ventures,
societies, estates, trusts, corporations, public or governmental bodies, other
legal entities and natural persons.
"POOL BALANCE" shall mean as of the end of a Collection
Period, an amount equal to the aggregate principal balance of the Financed
Student Loans (including accrued interest thereon capitalized through such date)
as of the end of such Collection Period, after giving effect to the following,
without duplication: (i) all payments in respect of principal received by the
Indenture Trustee during such Collection Period from or on behalf of borrowers
and Guarantee Agencies and, with respect to certain payments on certain Financed
Student Loans, the Secretary of Education and (ii) the principal portion of all
Purchase Amounts received by the Indenture Trustee for such Collection Period.
"PRINCIPAL DISTRIBUTION AMOUNT" shall mean the principal
amount of a Series of Notes calculated to be distributed on a Distribution Date.
"PRINCIPAL FACTOR" shall have the meaning given such term in
the Terms Supplement.
"PROGRAM" shall mean the Issuer's or the Depositor's program
of making or Financing Student Loans pursuant to this Indenture.
"PROGRAM EXPENSE REQUIREMENT" shall mean, as of any date of
calculation, such amount as may then be necessary to be accumulated in the
Expense Account for payment, in accordance with Section 5.5.4 hereof, of Program
Operating Expenses due or to become due during the month beginning on the first
day of the next succeeding calendar month as provided in Section 6.13 hereof.
"PROGRAM OPERATING EXPENSES" shall mean, with respect to the
Notes, all items of expense allocable to the operation of the Program, including
(i) fees and expenses of and any other amounts payable to the Indenture Trustee
and the Authenticating Agent, if any, and any fees charged by a Depository; (ii)
the fees and expenses of and any other amounts payable to the Calculation Agent,
any auction agent, broker-dealers, any market agent or other agent in connection
with the Notes under their respective agreements; (iii) fees and expenses of and
any other amounts payable to the Servicers, each Eligible Lender Trustee and any
bank providing lock-box or similar services in connection with Financed Student
Loans and Servicing Development Fees; and (iv) the fees and expenses incurred by
or on behalf of the Issuer, including, but not limited to the fees and expenses
of the Master Servicer under the Master
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Servicing Agreement and the Administrator under the Administration Agreement, in
the administration of the Program under the Higher Education Act.
The term "PURCHASE" when used in connection with the purchase
of Student Loans by the Issuer shall mean and specifically include the purchase
directly, or indirectly through an Eligible Lender Trustee, of such Student
Loans.
"PURCHASE AGREEMENTS" shall mean the Student Loan Purchase
Agreements with Sellers, for purposes of the Program (in whole or in part), in
each case as from time to time amended or supplemented in accordance with the
terms thereof and with this Indenture, and in each case only to the extent that
each such Purchase Agreement covers Financed Student Loans.
"PURCHASE AMOUNT" shall mean, as of the end of any Collection
Period, the principal amount of a Financed Student Loan (including any interest
required to be capitalized through such date), together with accrued but unpaid
interest thereon.
"RATING AGENCY" shall mean Moody's and Fitch, as long as they
maintain a rating on the Outstanding Notes, and the successor of either or, if
both no longer exist and have no successors, then any other rating agency then
rating the Outstanding Notes.
"REALIZED LOSS" shall mean, for each Financed Student Loan
submitted to a Guarantee Agency for a Guarantee Payment, the excess, if any, of
(i) the unpaid principal balance of such Financed Student Loan on the date it
was first submitted to a Guarantee Agency for a Guarantee Payment over (ii) all
amounts received on or with respect to principal on such Financed Student Loan
up through the earlier to occur of (A) the date a related Guarantee Payment is
made or (B) the last day of the Collection Period occurring 12 months after the
date the claim for such Guarantee Payment is first denied.
"RECORD DATE" shall have the meaning given such term in the
Terms Supplement.
"REGISTRAR" shall mean the Indenture Trustee, unless and until
a separate Person performing the functions of a registrar is appointed hereunder
pursuant to a Supplemental Indenture.
"RESERVE FUND" shall mean the Fund established by Section 5.2
hereof.
"SECRETARY OF EDUCATION" shall mean the Secretary of
Education, Department of Education of the United States, or any other officer,
board, body, commission or agency succeeding to the functions thereof under the
Higher Education Act.
"SECURITIES ACT" shall mean the United States Securities Act
of 1933, as amended.
"SELLER" shall mean a Lender or other party from which
Depositor purchased or the Issuer is purchasing or has purchased or agreed to
purchase Student Loans pursuant to a Purchase Agreement with such Lender or
other party.
"SENIOR EXCHANGE AGREEMENT" shall mean an Exchange Agreement
on a parity with a Series of Senior Notes and designated a Senior Exchange
Agreement under this Indenture.
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"SENIOR EXCHANGE COUNTERPARTY" shall mean the Exchange
Counterparty under a Senior Exchange Agreement.
"SENIOR EXCHANGE COUNTERPARTY GUARANTEE" shall mean an
Exchange Counterparty Guarantee applicable to a Senior Exchange Agreement.
"SENIOR ISSUER EXCHANGE PAYMENT" shall mean an Issuer Exchange
Payment under a Senior Exchange Agreement.
"SENIOR NOTES" shall mean, collectively, all Series of the
Series 1999A Notes.
"SENIOR PARITY PERCENTAGE" shall mean, as of any Distribution
Date or other date, the fraction expressed as a percentage, the numerator of
which is the sum, without duplication, of (i) the Pool Balance plus accrued
interest thereon due from borrowers, accrued interest which is expected to be
capitalized, and accrued Interest Subsidy Payments and Special Allowance
Payments, if any, as of the end of the preceding Collection Period and (ii) all
amounts allocable to the Notes on deposit (including any accrued interest
thereon) in the Acquisition Fund, the Collection Fund and the Reserve Fund, if
any, as of the end of such Collection Period (adjusted for payments made on such
Distribution Date) and the denominator of which is the sum of (a) the
Outstanding principal amount of all Senior Notes (after payment thereon on such
Distribution Date), and accrued and unpaid interest thereon, and (b) all accrued
and unpaid Program Operating Expenses.
"SERIES" shall mean a series of Notes to which all the same
terms and conditions apply and which can be identified by its own alpha-numeric
designation (e.g. "A-1") and which is so designated in the Terms Supplement.
"SERIES INTEREST RATE" shall mean as of a given date with
respect to a Series of Notes the rate of interest per annum at which interest
accrues on such Series of Notes on such date.
"SERIES 1999A NOTES" shall mean, collectively, all Series of
Notes designated in the Terms Supplement as "Series 1999A".
"SERIES 1999B NOTES" shall mean, collectively, all Series of
Notes designated in the Terms Supplement as "Series 1999B".
"SERVICERS" shall mean the organizations set forth on Schedule
II hereto for purposes of the Program providing for the administration,
servicing and collection of Financed Student Loans, as such Schedule II may be
amended and supplemented from time to time with the written approval of each
Rating Agency then rating any Outstanding Notes.
"SERVICING AGREEMENTS" shall mean the Servicing Agreements set
forth on Schedule II hereto with respect to each Servicer therein, in each case
as originally executed and as amended or supplemented from time to time in
accordance with the terms thereof and with this Indenture, but only to the
extent that any such agreement relates to the servicing of Financed Student
Loans.
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"SERVICING DEVELOPMENT FEES" shall mean costs, fees and
expenses relating to the development of electronic data information or systems
in connection with the servicing of Financed Student Loans, the establishment of
a servicing center for the servicing of Financed Student Loans, or reserves for
current or future servicing fees for Financed Student Loans; provided, however,
that Servicing Development Fees are payable only with the consent of the Rating
Agencies then rating any Outstanding Notes, such consent to be evidenced by
written confirmation from each Rating Agency that the payment of such Fees will
not adversely affect the rating of such Rating Agency on the Outstanding Notes.
"SPECIAL ALLOWANCE PAYMENTS" shall mean special allowance
payments authorized to be made by the Secretary of Education pursuant to Section
438(b) of the Higher Education Act with respect to a Student Loan, or similar
allowances authorized from time to time by Federal law or regulation.
"SPECIFIED RESERVE FUND BALANCE" shall mean on any
Distribution Date a balance in the Reserve Fund equal to the greater of (i) 1.5%
of the principal balance of the Outstanding Notes on such Distribution Date
after giving effect to payments on such Distribution Date or (ii) $1,500,000,
but not in excess of the principal balance of the Outstanding Notes.
"STATE" shall mean the State of Ohio.
"STUDENT LOAN PORTFOLIO FUND" shall mean the Fund established
by Section 5.4 hereof.
"STUDENT LOANS" shall mean FFELP Loans (i) which were or will
be originated in the United States or its territories or possessions under and
in accordance with the FFEL Program to or on behalf of a student who has
graduated or is expected to graduate from an accredited institution of higher
education within the meaning of the Higher Education Act, (ii) Guaranteed, (iii)
bearing interest at the maximum interest rate permitted under the Higher
Education Act, or such lesser rate of interest per annum as is approved by the
Rating Agencies after delivery of a Cash Flow Statement including Student Loans
at such lower rate, with respect to the Student Loan in question at the time
such Student Loan was made, (iv) either (a) eligible for Interest Subsidy
Payments or for such other similar payments at the time provided for under said
Act, or (b) governed by Sections 428A or 428B or 428C or 428H of the Higher
Education Act, and (v) eligible for Special Allowance Payments or for such other
similar payments at the time provided for under said Act.
"SUBORDINATE EXCHANGE AGREEMENT" shall mean an Exchange
Agreement which is on a parity with a Series of Subordinate Notes and designated
a Subordinate Exchange Agreement under this Indenture.
"SUBORDINATE EXCHANGE COUNTERPARTY" shall mean the Exchange
Counterparty under a Subordinate Exchange Agreement.
"SUBORDINATE EXCHANGE COUNTERPARTY GUARANTEE" shall mean an
Exchange Counterparty Guarantee applicable to a Subordinate Exchange Agreement.
"SUBORDINATE ISSUER EXCHANGE PAYMENT" shall mean an Issuer
Exchange Payment under a Subordinate Exchange Agreement.
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"SUBORDINATE NOTES" shall mean, collectively, all Series of
the Series 1999B Notes.
"SUPPLEMENTAL INDENTURE" shall mean any supplement to or
amendment of this Indenture (other than the Terms Supplement) entered into among
the Issuer, each Eligible Lender Trustee and the Indenture Trustee pursuant to
and in accordance with the provisions of Article IX hereof.
"TERMS SUPPLEMENT" shall mean the indenture supplemental to
this Base Indenture, dated as of even date with this Base Indenture, among the
Issuer, the Initial Co-Owner Eligible Lender Trustee and the Indenture Trustee,
setting forth the terms and conditions of each Series of Notes to be issued
hereunder.
"TRANSFER AND SALE AGREEMENT" shall mean the Transfer and Sale
Agreement, dated as of __________, 1999, by and among the Depositor, the
Depositor Eligible Lender Trustee, the Issuer and the Initial Co-Owner Eligible
Lender Trustee.
"TRANSFERRED ASSETS" shall mean all rights of the Depositor
and the Depositor Eligible Lender Trustee in and to the Financed Student Loans,
the Contracts of Guarantee with respect thereto, the Purchase Agreements and the
Servicing Agreements with respect to the Financed Student Loans serviced
thereunder, including all rights of the Depositor under the warranties of each
Seller, Master Servicer or Servicer, as the case may be thereunder.
"TRUST ESTATE" shall mean: (i) all Available Funds, the
balances of all Accounts and Funds, whether derived from proceeds of the sale of
Notes, from Available Funds or from any other source and all rights of the
Issuer and each Eligible Lender Trustee therein and all investment property,
security entitlements and securities accounts (all as defined under the Uniform
Commercial Code as adopted in the State) comprised of the Accounts and Funds and
the balances thereof, including, without limitation, the following Accounts and
Funds maintained with Firstar Bank, National Association, Cincinnati, Ohio:
Account No. __________________ _______________________________________, (ii) all
rights of the Issuer and each Eligible Lender Trustee in and to the Financed
Student Loans, the Contracts of Guarantee with respect thereto, the Eligible
Investments, any Exchange Agreement and any Exchange Counterparty Guarantee, the
Purchase Agreements, the Master Servicing Agreement and the Servicing Agreements
with respect to Financed Student Loans serviced thereunder, including all rights
of the Issuer under the warranties of each Seller, Master Servicer or Servicer,
as the case may be, thereunder, and (iii) any proceeds of the foregoing.
"TRUST INDENTURE ACT" shall mean the Trust Indenture Act of
1939, as amended, and any reference herein to the Trust Indenture Act or a
particular provision thereof shall mean such Act or provision, as the case may
be, as amended or replaced from time to time or as supplemented from time to
time by rules or regulations adopted by the Commission under or in furtherance
of the purposes of such Act or provision, as the case may be.
"VALUE OF ELIGIBLE INVESTMENTS" shall have the following
meaning:
the value of Eligible Investments shall be calculated at the
end of each month as follows:
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(a) as to Eligible Investments the bid and asked prices of
which are published on a regular basis in THE WALL STREET JOURNAL (or, if not
there, then THE NEW YORK TIMES): the average of the bid and asked prices for
such investments so published on or most recently prior to such time of
determination, plus accrued interest, if any;
(b) as to Eligible Investments the bid and asked prices of
which are not published on a regular basis in THE WALL STREET JOURNAL or THE NEW
YORK TIMES: the average bid price at such time of determination for such
investments by any two nationally recognized government securities dealers
(selected by the Indenture Trustee in its absolute discretion) at the time
making a market in such investments or the bid price published by a nationally
recognized pricing service, plus accrued interest, if any;
(c) as to certificates of deposit and bankers acceptances: the
face amount thereof, plus accrued interest, if any; and
(d) as to any investment not specified above: the value
thereof established by prior agreement between the Issuer, the Indenture Trustee
and the Rating Agencies then rating any Outstanding Notes.
SECTION 1.2 Use of Certain Terms.
---------------------
Unless the context clearly indicates otherwise, or may
otherwise require, in this Indenture (i) the term "person" includes a firm,
partnership, trust, association, limited liability company, corporation (public
or private), public body, public agency and a natural person, and shall also
include an executor, administrator Indenture Trustee, receiver or other
representative; (ii) the terms "herein", "hereunder", "hereby", "hereto",
"hereof" and any similar terms, refer to this Indenture as a whole and not to
any particular section or subdivision hereof; and (iii) references to specific
provisions of the Ohio Revised Code, the Higher Education Act, the Internal
Revenue Code or any other public law or statute are to such provisions as they
may be amended from time to time. The definitions set forth in Section 1.1
hereof shall include both the singular and the plural, and any pronoun used
herein shall include both the singular and the plural and shall include all
genders.
SECTION 1.3 Compliance Certificates and Opinions.
-------------------------------------
(a) Except as otherwise specifically provided in this
Indenture, upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture, including,
without limitation, any action relating to authentication and delivery of any
Notes, the release or the release and substitution of property subject to the
lien and security interest of this Indenture or the satisfaction and discharge
of this Indenture, the Issuer shall furnish (i) a Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an opinion of counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) if required by the Trust Indenture Act, a certificate
from a firm of independent certified public accountants meeting the applicable
requirements of this Section 1.3, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished. Every certificate or opinion with
respect to compliance with a
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condition or covenant provided for in this Indenture shall include: (i) a
statement that each signatory of such certificate or opinion has read or has
caused to be read such covenant or condition and the definitions herein relating
thereto; (ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (iii) a statement that, in the opinion of each
such signatory, such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (iv) a statement
as to whether, in the opinion of each such signatory, such condition or covenant
has been complied with.
(b) Prior to the deposit of any property or securities with
the Indenture Trustee that is to be made the basis for the release of any
property subject to the lien created by this Indenture, the Issuer shall, in
addition to any obligation imposed in Section 1.3(a) or elsewhere in this
Indenture, furnish to the Indenture Trustee (1) a Certificate certifying or
stating the opinion of each person signing such Certificate as to the fair value
(within 90 days of such deposit) to the Issuer of the property or securities to
be so deposited, (2) an opinion of counsel either stating that, in the opinion
of such counsel, such action has been taken with respect to the recording and
filing of this Indenture and any other requisite documents, and with respect to
the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in favor of the Indenture Trustee, for the benefit of the Indenture
Trustee, created by this Indenture in the property or securities to be so
deposited, and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective, and (3) evidence that each of the Rating Agencies
then rating any Outstanding Notes have confirmed that such action will not
result in a reduction, qualification or withdrawal of the then-current rating of
any of the Notes.
(c) Whenever the Issuer is required to furnish to the
Indenture Trustee a Certificate certifying or stating the opinion of any signer
thereof as to the matters described in paragraph (b) above, the Issuer shall
also furnish to the Indenture Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the property to be so deposited and
of all other such property made the basis of any such withdrawal or release
since the commencement of the then-current fiscal year of the Issuer, as set
forth in the certificates delivered pursuant to paragraph (b) above and this
paragraph (c), is ten percent (10%) or more of the Outstanding principal amount
of the Notes, but such a certificate need not be furnished with respect to any
property so deposited, if the fair value thereof set forth in the related
Certificate is less than $25,000 or less than one percent (1%) of the
Outstanding principal amount of the Notes.
(d) Other than with respect to any release described in clause
(1) or (2) of paragraph (f) below, whenever any property or securities are to be
released from the lien created by the Indenture, the Issuer shall also furnish
to the Indenture Trustee a Certificate certifying or stating the opinion of each
person signing such Certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating that
in the opinion of such person the proposed release will not impair the security
created by this Indenture in contravention of the provisions hereof.
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(e) Whenever the Issuer is required to furnish to the
Indenture Trustee a Certificate certifying or stating the opinion of any signer
thereof as to the matters described in paragraph (d) above, the Issuer shall
also furnish to the Indenture Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the property or securities or of all
other property or securities (other than property described in clauses (1) and
(2) of paragraph (f) below) released from the lien created by this Indenture
since the commencement of the then-current fiscal year of the Issuer, as set
forth in the certificates delivered pursuant to paragraph (d) above and this
paragraph (e), equals ten percent (10%) or more of the Outstanding principal
amount of the Notes, but such a certificate need not be furnished with respect
to any release of property or securities, if the fair value thereof set forth in
the related Certificate is less than $25,000 or less than one percent (1%) of
the Outstanding principal amount of the Notes.
(f) Notwithstanding any other provision of this Section 1.3,
the Issuer may, without compliance with the other provisions of this Section
1.3, (1) collect, liquidate, sell or otherwise dispose of Financed Student Loans
as and to the extent permitted or required by this Indenture, including, without
limitation, Section 5.4 and Section 8.3 hereof, and any Servicing Agreement, and
(2) make cash payments out of the Funds and Accounts as and to the extent
permitted or required by the Indenture.
(g) 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.
(h) Any certificate or opinion of an Authorized Officer 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 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 officer of any Servicer or the Issuer, stating
that the information with respect to such factual matters is in the possession
of such Servicer or the Issuer, 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.
(i) 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.
(j) 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 granting 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
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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 VII hereof.
(k) Nothing in this Section 1.3 shall be construed either as
requiring the inclusion in this Indenture of provisions that the Issuer shall
furnish to the Indenture Trustee any other evidence of compliance with the
conditions and covenants provided for in this Indenture than the evidence
specified in this Section 1.3, or as preventing the inclusion of such provisions
in this Indenture, if the parties hereto agree.
SECTION 1.4 Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture. The following terms used in the Trust Indenture Act shall have
the following meanings insofar as such terms are incorporated into this
Indenture pursuant to this Section 1.4.
"COMMISSION" shall mean the Commission.
"INDENTURE SECURITIES" shall mean the Notes issued and
Outstanding under this Indenture.
"INDENTURE SECURITY HOLDER" shall mean a Holder.
"INDENTURE TO BE QUALIFIED" shall mean this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" shall mean the
Indenture Trustee.
"OBLIGOR" on the indenture securities shall mean the Issuer
and any other obligor on the indenture securities.
All other terms from the Trust Indenture Act used in this
Indenture that are defined by the Trust Indenture Act, defined by reference in
the Trust Indenture Act to another statute or defined by Commission rule shall
have the meaning assigned to them by such definition in the Trust Indenture Act.
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ARTICLE II
Authorization, Terms and Provisions of Notes
--------------------------------------------
SECTION 2.1 Authorization of Notes; Terms of Notes in General;
--------------------------------------------------
Notes to Constitute Limited Obligations.
- ----------------------------------------
Subject to the other terms and conditions set forth in this
Base Indenture or in the Terms Supplement, each Series of Notes issued hereunder
shall be authorized by, shall have the terms set forth in and shall be subject
to the further conditions, if any, of the Terms Supplement which shall be
executed and delivered in connection with the issuance of such Series of Notes.
A Series of Notes may be issued under and secured by this Base
Indenture and a Terms Supplement relating thereto, subject to the conditions
hereinafter provided, for the purpose of (i) making or acquiring Student Loans
and (ii) making deposits to certain of the Funds and Accounts hereunder.
Such Series of Notes shall be executed and authenticated
substantially in the form and manner provided in this Base Indenture with such
changes as may be necessary or appropriate to conform to the provisions of the
Terms Supplement and shall be deposited with the Indenture Trustee for
authentication, but before such Series of Notes shall be authenticated and
delivered by the Indenture Trustee, there shall be filed with the Indenture
Trustee the following:
(a) a certified copy of the resolution of the board of
directors of the Issuer authorizing the issuance of such Series of Notes; and
(b) a fully executed counterpart of the Terms Supplement.
When the documents described above in this Section shall
have been filed with the Indenture Trustee and when such Series of Notes shall
have been executed and authenticated as required by this Base Indenture, the
Indenture Trustee shall deliver such Series of Notes at one time to or upon the
order of the Initial Purchasers, but only upon payment to the Indenture Trustee
of the purchase price of such Series of Notes and the satisfaction of all other
conditions of the Initial Purchasers set forth in the Note Purchase Agreement.
The proceeds of all such Series of Notes issued under the
Indenture shall be paid to the Indenture Trustee for deposit to the credit of
the Funds and Accounts as set forth in the Terms Supplement.
Each Series of Notes shall be limited obligations of the
Issuer payable solely from and secured under this Indenture solely by the Trust
Estate as provided in this Indenture. Each Note shall contain a statement to
that effect.
SECTION 2.2 Execution of Notes; Validity of Signatures.
-------------------------------------------
Each Note and the Indenture Trustee's certificate of
authentication shall be in substantially the form set forth in Exhibits B, C or
D, as applicable, to the Terms Supplement and may have such letters, numbers or
other marks of identification and such legends of
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<PAGE> 29
endorsements placed thereon as may, consistent herewith, be determined by the
Authorized Officers executing such Notes, as evidenced by their execution of
such Notes. Each such Note shall be executed on behalf of the Issuer by manual
or facsimile signatures of any two Authorized Officers of the Issuer. Each Note
shall be authenticated by the manual signature of an authorized signature of the
Indenture Trustee or the Authenticating Agent.
In case any person who shall have executed, authenticated or
registered any of the Notes, whether manually or by facsimile, shall die or
cease to be the person authorized to execute, authenticate or register the Notes
before the Notes so executed, authenticated or registered by such person shall
have been actually issued and delivered, such Notes shall be valid nevertheless,
and may be issued with the same effect as though the person who had so executed,
authenticated or registered such Notes had not died or ceased to be such
authorized person.
Only such of the Notes as shall bear thereon a certificate of
authentication as described above, manually executed by an authorized signature
of the Indenture Trustee or the Authenticating Agent, shall be valid or
obligatory for any purpose or entitled to the benefits of this Indenture, and
such certificate of authentication shall be conclusive evidence that the Notes
so authenticated have been duly executed, authenticated, delivered and issued
hereunder and are entitled to the benefits of this Indenture.
SECTION 2.3 Transfer of Notes; Exchange of Notes.
-------------------------------------
Except when Notes are held in a Book-Entry System and subject
to the provisions of this Section 2.3 and Section 2.05 of the Terms Supplement,
any Note may be transferred upon the books of registry maintained pursuant to
Section 2.4 hereof, by the person in whose name it is registered, in person or
by its duly authorized attorney, upon surrender of such Note to the Indenture
Trustee or the Authenticating Agent for cancellation, accompanied by a written
instrument of transfer in the form set forth in Exhibits B, C or D, as
applicable, to the Terms Supplement, as applicable, duly executed by the
registered owner in person or by its duly authorized attorney, with signatures
guaranteed, in a manner satisfactory to the Indenture Trustee or the
Authenticating Agent.
Whenever any Note shall be surrendered for transfer, the
Issuer shall execute and the Indenture Trustee or the Authenticating Agent shall
authenticate and deliver, at the principal corporate trust office of the
Indenture Trustee or at the office of the Authenticating Agent (or send by first
class mail to the new Holder or Holders), registered in the name or names of the
transferee or transferees, a new duly executed Note or (to the extent of
Authorized Denominations) two or more new duly executed Notes of the same date,
Series (if applicable) and aggregate principal amount as the Note being
surrendered.
Except when Notes are held in a Book-Entry System, to the
extent of Authorized Denominations, any Note or Notes may be surrendered and
exchanged at the principal corporate trust office of the Indenture Trustee or at
the office of the Authenticating Agent for a Note or Notes of the same date and
Series (if applicable) and of like aggregate principal amount. The Issuer shall
execute and the Indenture Trustee or the Authenticating Agent shall authenticate
and deliver the Notes issued upon such exchange and shall deliver the same at
the principal corporate trust office of the Indenture Trustee or at the office
of the Authenticating Agent (or send the same by first class mail to the Holder
thereof).
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All exchanges and transfers of Notes pursuant to this Section
2.3 shall be made without expense to the Holder of such Notes, except that the
Indenture Trustee or the Authenticating Agent shall require the payment by the
Holder of any Note requesting such transfer or exchange of any tax, fee or other
governmental charge required to be paid with respect to such transfer or
exchange.
All Notes surrendered pursuant to this Section shall be
canceled.
No exchanges or transfers of any Note shall be required to be
made if such Note has been selected for redemption, nor during the seven (7)
days next preceding the date of selection of Notes for redemption.
SECTION 2.4 Books of Registry.
------------------
At all times while any Note remains Outstanding, the Indenture
Trustee shall keep or cause to be kept books of registry for the registration
and transfer of Notes at its principal corporate trust office. Upon presentation
of any Notes to the Indenture Trustee at the principal corporate trust office of
the Indenture Trustee or at the office of the Authenticating Agent, the
Indenture Trustee shall transfer, or the Authenticating Agent shall cause the
Indenture Trustee to transfer, as the case may be, under such reasonable
regulations as the Indenture Trustee may prescribe, such Notes on such books of
registry as hereinabove set forth. Such books of registry shall at all
reasonable times be open for inspection by the Issuer or its duly authorized
agents or representatives.
The Issuer, the Indenture Trustee and the Authenticating Agent
may treat the registered owner of any Note as the absolute owner of such Note
for the purpose of receiving payment of the principal of and interest on such
Note and for all other purposes whatsoever and the Issuer, the Indenture Trustee
and the Authenticating Agent shall not be affected by any notice to the
contrary.
SECTION 2.5 Mutilated, Lost, Stolen or Destroyed Notes.
-------------------------------------------
In case any Note shall at any time become mutilated in whole
or in part, or is destroyed, lost or stolen, the Issuer shall cause to be
executed and delivered at the principal corporate trust office of the Indenture
Trustee or at the office of the Authenticating Agent (or send by first class
mail to the Holder thereof at the Holder's request, risk and expense), a new
Note of the same date, Series (if applicable) and principal amount and of like
tenor and effect as the Note so mutilated, destroyed, lost or stolen, in
exchange and substitution for and upon the surrender for cancellation of such
mutilated Note, or in lieu of or in substitution for such destroyed, lost or
stolen Note. In any such event the applicant for the issuance of a substitute
Note shall file with the Indenture Trustee or the Authenticating Agent evidence
or proof satisfactory to the Indenture Trustee or the Authenticating Agent, as
the case may be, of the mutilation, destruction, loss or theft of the original
Note, and proof of ownership thereof, shall furnish the Issuer, the Indenture
Trustee and the Authenticating Agent with security and indemnity satisfactory to
the Issuer and the Indenture Trustee, and shall comply with such other
reasonable rules as the Issuer or the Indenture Trustee may prescribe. Any
duplicate Note issued under the provisions of this Section 2.5 in exchange and
substitution for any mutilated Note or in substitution for any allegedly
destroyed, lost or stolen Note, shall be entitled to the identical
24
<PAGE> 31
benefits under this Indenture as was the original Note in lieu of which such
duplicate Note is issued, and shall be entitled to equal and proportionate
benefits with all the other Notes of the same Series issued hereunder. Neither
the Issuer nor the Indenture Trustee shall be required to treat both the
original Note and any duplicate Note as being Outstanding for the purpose of
determining the principal amount of Notes Outstanding hereunder, but both the
original and duplicate Note shall be treated as one and the same.
Notwithstanding the foregoing provisions of this Section 2.5
as to the issuance of duplicate or replacement Notes, if any such mutilated,
destroyed, lost or stolen Note has matured, at the option of the Issuer or the
Indenture Trustee, payment of the amount due thereon may be made without the
issuance of any duplicate or replacement Note upon receipt of like evidence,
indemnity, security and expenses and the surrender for cancellation of any such
mutilated Note and upon such other conditions as the Issuer or the Indenture
Trustee may prescribe.
All mutilated Notes surrendered to the Indenture Trustee or
the Authenticating Agent in substitution for new Notes pursuant to this Section
2.5 shall be canceled by the Indenture Trustee or the Authenticating Agent. The
Authenticating Agent shall deliver any such canceled Notes to the Indenture
Trustee.
All expenses incurred by the Issuer or the Indenture Trustee
or the Authenticating Agent for providing of any duplicate or replacement Note
shall be paid by the registered owner thereof.
SECTION 2.6 Disposition and Destruction of Notes.
-------------------------------------
All Notes surrendered to the Indenture Trustee or the
Authenticating Agent for payment, or surrendered to the Indenture Trustee for
transfer or exchange in accordance with Section 2.3 hereof or for substitution
in accordance with Section 2.5 hereof, shall be canceled by the Indenture
Trustee or the Authenticating Agent upon such payment, transfer, exchange or
substitution, as the case may be.
Whenever in this Indenture provision is made for the
cancellation of any Notes, the canceled Notes shall be delivered by the
Indenture Trustee to the Issuer or as it may direct. Upon the written request of
the Issuer, the Indenture Trustee may, however, in lieu of such cancellation and
delivery, destroy such Notes to the extent permitted by law. If any Notes are
destroyed by the Indenture Trustee, the Issuer may require that such destruction
be done in the presence of its representative. If the Indenture Trustee shall
destroy any Notes, it shall deliver a certificate of such destruction to the
Issuer.
SECTION 2.7 Forms of Notes and Instructions for Payment.
--------------------------------------------
The form of each Note and the certificate of authentication
and form of assignment for transfer to be endorsed thereon shall be in
substantially the form set forth in Exhibits B, C or D to the Terms Supplement,
with necessary or appropriate variations, omissions or insertions, as permitted
or required by this Indenture. Any instructions to the Indenture Trustee for
payment of interest on the Notes shall be in substantially the form of Exhibit E
to the Terms Supplement, with necessary or appropriate variations, omissions or
insertions, as permitted or required by this Indenture.
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SECTION 2.8 Temporary Notes.
----------------
Until definitive Notes are prepared, the Issuer may execute
and deliver, in lieu of definitive Notes, but subject to the same provisions,
limitations and conditions as the definitive Notes, except as to the
denominations thereof and as to exchangeability, one or more temporary Notes,
substantially of the tenor of the definitive Notes in lieu of which such
temporary Notes are issued, in Authorized Denominations, and with such
omissions, insertions and variations as may be appropriate to temporary Notes.
Until so exchanged, the temporary Notes shall in all respects be entitled to the
same benefits and security as definitive Notes issued pursuant to this
Indenture. All temporary Notes surrendered in exchange for definitive Notes
shall be forthwith canceled by the Indenture Trustee.
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ARTICLE III
[Reserved]
27
<PAGE> 34
ARTICLE IV
Redemption of the Notes
-----------------------
SECTION 4.1 Redemption of Notes in General.
-------------------------------
The Notes shall be subject to redemption prior to their Legal
Final Maturity only upon the terms and conditions, including without limitation
prior written notice of such redemption to the Holders of the Notes, and at the
redemption price or prices, as are set forth in the Terms Supplement.
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ARTICLE V
Disposition of Proceeds;
------------------------
Establishment of Funds and Accounts;
------------------------------------
Application of Available Funds
------------------------------
SECTION 5.1 Disposition of Proceeds of the Notes.
-------------------------------------
All proceeds of the issuance and sale of the Notes hereunder
shall be deposited with the Indenture Trustee on the Date of Issuance, and the
Indenture Trustee shall apply such proceeds in accordance with the terms and
provisions of Article IV of the Terms Supplement.
SECTION 5.2 Reserve Fund.
-------------
There is established hereunder a Fund, held by the Indenture
Trustee and designated the "Reserve Fund". The moneys in the Reserve Fund shall
be invested in Eligible Investments as provided in Section 5.7 hereof. Any
income or earnings on such moneys shall be credited to the Collection Account in
the Collection Fund.
To the extent necessary or appropriate, the Issuer and the
Indenture Trustee may establish Accounts within the Reserve Fund and subaccounts
within such Accounts established under this Section.
At any time the balance of the Reserve Fund is below its
Specified Reserve Fund Balance, the Indenture Trustee shall restore the Reserve
Fund to its Specified Reserve Fund Balance by transfers on the next Monthly
Distribution Date from the following Accounts in the following order of
priority:
FIRST, from the Collection Account after making all prior distributions
on such Monthly Distribution Date therefrom pursuant to Section
5.5.1 hereof and Article IV of the Terms Supplement; and
SECOND, from the Excess Surplus Account.
If the full amount required to restore the Reserve Fund to its
Specified Reserve Fund Balance is not available in the Collection Account or
Excess Surplus Account on the next succeeding Monthly Distribution Date, the
Indenture Trustee shall continue to transfer funds in such order of priority
from the Collection Account as they become available and in accordance with the
instructions for transfers from such Account pursuant to Section 5.5.1 hereof
and Article IV of the Terms Supplement and from the Excess Surplus Account until
the deficiency in the Reserve Fund has been eliminated. If the Indenture Trustee
transferred amounts from the Reserve Fund to cover a Realized Loss on a Financed
Student Loan, the Indenture Trustee shall deposit any subsequent payments of
principal received on or with respect to such Financed Student Loan into the
Reserve Fund.
On each Monthly Distribution Date, the Indenture Trustee shall
transfer any excess in the Reserve Fund over the Specified Reserve Fund Balance
to the Collection Account. After the transfer of any such excess balance, the
Reserve Fund shall be used solely for the following purposes in the following
order of priority:
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FIRST, to make up any deficiency in the Expense Account immediately
following the transfer of moneys into such Account pursuant to
Section 5.5.1 hereof;
SECOND, to increase the amount in the Note Payment Account, following the
transfer of moneys into such Account pursuant to Section 5.5.1
hereof and Article IV of the Terms Supplement, to the amount
required to pay interest on the Notes and any related Issuer
Exchange Payment pursuant to Section 5.5.2 hereof (other than (i)
Carryover Interest or (ii) interest on the Series 1999B Notes or
any Subordinate Issuer Exchange Payment when the payment of such
interest or Subordinate Issuer Exchange Payment is deferred
pursuant to Section 5.5.1 hereof and Article IV of the Terms
Supplement) on any Distribution Date or on any other date on
which interest is due upon redemption or payment of the Notes or
on any other date on which any related Issuer Exchange Payment is
due and payable (other than any Subordinate Issuer Exchange
Payment when the payment of such Subordinate Issuer Exchange
Payment is deferred pursuant to Section 5.5.1 hereof and Article
IV of the Terms Supplement), by transfer and deposit by the
Indenture Trustee to the credit of the Note Payment Account on
any such date; and
THIRD, to provide for payment of the principal of any Series of Notes at
their Legal Final Maturity thereof or for the payment of the
principal of such Series of Notes being redeemed in whole
pursuant to the Terms Supplement by transfer and deposit by the
Indenture Trustee to the credit of the Note Payment Account on
the Legal Final Maturity of such Series of Notes or the date of
any such redemption, as the case may be.
SECTION 5.3 Acquisition Fund.
-----------------
There is established hereunder a Fund, held by the Indenture
Trustee and designated the "Acquisition Fund".
To the extent necessary or appropriate, the Issuer and the
Indenture Trustee may establish Accounts within the Acquisition Fund and
subaccounts within such Accounts established under this Section.
The Indenture Trustee shall deposit to the credit of the
Acquisition Fund the amount required by the Terms Supplement.
The Acquisition Fund and the Accounts therein (other than the
Capitalized Interest Account therein) shall be applied by the Indenture Trustee
for the Financing directly, or indirectly through an Eligible Lender Trustee, of
Student Loans from Sellers. The Financing directly, or indirectly through an
Eligible Lender Trustee, of Student Loans from Sellers, from the Issuer and/or
from the indenture trustee under other financing documents to which the Issuer
is a party with moneys representing amounts deposited in the Acquisition Fund
(or any Accounts therein) shall be governed by the provisions of Section 5.3.1
below.
SECTION 5.3.1 Financing of Student Loans.
---------------------------
The moneys representing amounts deposited to the Acquisition
Fund (or any Accounts therein) pursuant to the Terms Supplement to be applied
for the Financing directly, or
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indirectly through an Eligible Lender Trustee, of Student Loans shall be (i) in
the case of Student Loans that have been fully disbursed, the full remaining
unpaid principal amount of such Student Loans or (ii) in the case of Student
Loans that have not been fully disbursed, the unpaid principal amount of such
Student Loans that has been disbursed to the borrower prior to its Financing
hereunder, plus, in each case, the amount of accrued and unpaid interest on such
Student Loans payable by the borrowers in respect thereof, less a discount or
plus a premium, and, when directed by the Issuer, less any accrued but unpaid
interest on such Student Loans, and plus reasonable transfer fees payable to or
on behalf of the Sellers with respect to such Student Loans pursuant to the
applicable Purchase Agreements, and plus any interest paid by the Indenture
Trustee to a Seller at the direction of the Issuer on the amount of principal
and accrued interest on such Student Loans being Financed, directly or
indirectly, from the date of transfer of such Student Loans until the date funds
are actually paid to such Seller at a rate of interest not to exceed the current
yield on funds in the Expense Account, in any case not exceeding the amount
permitted by law. Such moneys shall be paid to such Sellers upon receipt by the
Indenture Trustee of a Student Loan Acquisition Certificate of the Issuer, in
the form of Exhibit A hereto, together with all documents and certificates
required thereby, if any, with respect to such Student Loans. Within ten (10)
Business Days after the disbursement of moneys from the Acquisition Fund (or any
Account therein), the Issuer shall deliver to the Indenture Trustee an Updating
Student Loan Acquisition Certificate in the form of Exhibit B hereto. Any amount
refunded by the Seller in a loan purchase transaction shall be deposited by the
Indenture Trustee in the Collection Account.
Upon request by the Issuer, the Acquisition Fund may also be
applied by the Indenture Trustee for the acquisition directly, or indirectly
through an Eligible Lender Trustee, of Student Loans from the indenture trustee
under another indenture of trust between the Depositor or its affiliates and
such indenture trustee or from the Issuer, the Depositor or its affiliates for
Student Loans financed by the Issuer, the Depositor or its affiliates with funds
not subject to an indenture of trust, in either case at a price not in excess of
the full remaining unpaid principal amount of such Student Loans, plus the
amount of accrued and unpaid interest on such Student Loans payable by the
obligors in respect thereof, plus any unamortized premium and plus reasonable
transfer fees not exceeding the amount permitted by law, which price shall be
payable upon receipt of Student Loan Acquisition and Updating Student Loan
Acquisition Certificates of the Issuer as set forth above, and otherwise as
provided in said other indenture of trust.
In addition to the amount paid to a Seller, another indenture
trustee, the Depositor or the Issuer from the Acquisition Fund (or any Account
therein) with respect to the purchase of a Student Loan that has not been fully
disbursed, the Indenture Trustee shall pay from the Acquisition Fund (or any
Account therein) from which the purchase price of the partially disbursed
Student Loan was paid, to or for the benefit of the borrower of such Student
Loan that is acquired, directly or indirectly, by check mailed by first-class
mail, postage prepaid, or by electronic funds transfer to such borrower or such
borrower's eligible institution, disbursement agent or other Person (including
the Depositor or the Issuer) (as specified in a written certificate of an
Authorized Officer in the form acceptable to the Indenture Trustee (a
"Disbursement Certificate") at the address and on the date set forth in such
Disbursement Certificate the amount certified to it in such Disbursement
Certificate. In each such Disbursement Certificate the Issuer shall further
certify that the amount to be disbursed pursuant to such Disbursement
Certificate represents an amount which, together with any other amounts
previously disbursed by the Seller, the Issuer, the Depositor, other indenture
trustee and/or the Indenture Trustee in connection with
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<PAGE> 38
such Student Loan, does not exceed the maximum amount available to or for the
benefit of such obligor from such Student Loan, including all fees payable to
the Guarantee Agency and the Secretary of Education.
The Student Loans Financed as aforesaid shall be included in
the balances of the Student Loan Portfolio Fund until they shall have been paid
in full or sold, exchanged or otherwise disposed of by the Indenture Trustee in
accordance with Section 5.4 hereof.
SECTION 5.3.2 Investment of Acquisition Fund; Transfer of
---------------------------------------------------------
Proceeds in Acquisition Fund.
- -----------------------------
Pending application of moneys in the Acquisition Fund (or any
Account therein) to the foregoing purposes, such moneys shall be invested in
Eligible Investments as provided in Section 5.7 hereof.
Any portion of the moneys in the Acquisition Fund which is
not, or which the Issuer at any time determines cannot for any reason be, used
to Finance Student Loans prior to the date specified in the Terms Supplement
shall, at the written direction of the Issuer and subject to any requirements
set forth in the Terms Supplement, be transferred by the Indenture Trustee to
the Collection Account for the payment of the principal of and interest on the
Notes as provided in the Terms Supplement.
SECTION 5.3.3 CAPITALIZED INTEREST ACCOUNT. There is
established hereunder an Account in the Acquisition Fund designated the
"Capitalized Interest Account." The Indenture Trustee shall deposit to the
credit of Capitalized Interest Account of the Acquisition Fund the amount
required by the Terms Supplement. To provide for the payment of interest on any
Distribution Date or other date on which interest on the Notes is due, the
Indenture Trustee shall transfer from the Capitalized Interest Account, after
any transfer pursuant to Sections 4.02(ii) and (iii) of the Terms Supplement but
prior to any transfer pursuant to Section 5.2 hereof, on the Business Day
immediately preceding each Distribution Date and any other date on which
interest is due on the Notes, to the extent of moneys available in the
Capitalized Interest Account, an amount up to but not exceeding the amount
needed to increase the amount in the Note Payment Account of the Collection Fund
to the amount of the related Noteholders' Interest Distribution Amount on such
Distribution Date or other date on which interest on the Notes is due. The
Indenture Trustee shall continue to make such transfers until the date on which
all moneys in the Capitalized Interest Account have been transferred from such
Account; provided, that, after ____________, 1999, the Trustee shall also
transfer from time to time any portion or all of the Balance of the Capitalized
Interest Account to the balance of the Acquisition Fund as directed by the
Issuer.
SECTION 5.4 Student Loan Portfolio Fund; Sale of Student
--------------------------------------------------------
Loans.
- ------
There is established hereunder a Fund, held by the Indenture
Trustee and designated the "Student Loan Portfolio Fund."
To the extent necessary or appropriate, the Issuer and the
Indenture Trustee may establish Accounts within the Student Loan Portfolio Fund
and subaccounts within such Accounts established under this Section.
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All Financed Student Loans (including, without limitation, any
Student Loans transferred to the Indenture Trustee for deposit under this
Indenture by the indenture trustee under any other indenture of trust between
the Issuer and such indenture trustee) shall be included in the balances of the
Student Loan Portfolio Fund. All principal of, interest on and Special Allowance
Payments or other Available Funds in respect of, the Financed Student Loans
shall be deposited upon receipt to the credit of the Collection Account in the
Collection Fund as provided in Section 5.5 hereof.
Financed Student Loans included in the balances of the Student
Loan Portfolio Fund may be removed therefrom and sold or exchanged by the
Indenture Trustee only in accordance with this Section 5.4 and with Section 8.3
hereof. Nothing in this Indenture shall be deemed to preclude the Servicers from
maintaining possession of the notes evidencing, and other documentation relating
to, Financed Student Loans on behalf of the Indenture Trustee in accordance with
the Servicing Agreements, provided the same is consistent with the creation and
maintenance of the first lien and security interest created by the granting
clause hereof and Section 5.6 hereof and does not impair the perfection of such
security interest.
The Indenture Trustee may (a) at any time and from time to
time deliver Student Loans to the Sellers thereof as and to the extent provided
for in the applicable Purchase Agreements (or pursuant to the Transfer and Sale
Agreement to the Depositor or other purchaser on behalf of the Depositor under
the applicable Purchase Agreements) with respect to rejections and repurchases
of such Student Loans against payment to the Indenture Trustee by the Seller,
the Depositor or such other purchaser of moneys at least equal to the repurchase
price thereof together with all other amounts payable by the Sellers thereof
under such Purchase Agreements in connection with such rejections or repurchases
or (b) deliver all or any part of the Financed Student Loans against moneys at
least sufficient to defease pursuant to Article X hereof all (but not less than
all) of the Outstanding Notes (provided that such moneys are applied by the
Indenture Trustee immediately after receipt thereof to such defeasance in
accordance with Section 10.2 hereof), or (c) following a default on any Financed
Student Loan, remove such Student Loan from the Student Loan Portfolio Fund and
tender it to the Guarantee Agency or the Secretary of Education to the extent
required to collect the benefits of any related Contract of Guarantee in
connection with such default.
The Indenture Trustee may, at any time and from time to time
in accordance with the provisions of the applicable Servicing Agreement, deliver
Financed Student Loans to the Servicer thereof for purchase by such Servicer as
and to the extent required under such Servicing Agreement against payment to the
Indenture Trustee of moneys equal to the purchase price thereof, together with
all other amounts payable by such Servicer thereof, under such Servicing
Agreement.
The Indenture Trustee shall permit the sale of Financed
Student Loans in the Student Loan Portfolio Fund selected by the Issuer only (a)
to avoid an Event of Default or, if an Event of Default has occurred, as may be
required or appropriate pursuant to the provisions of Section 8.3 hereof, (b) in
an exchange of Financed Student Loans pursuant to the provisions of this Section
5.4, (c) in connection with the mandatory auction of such Financed Student Loans
pursuant to Article IV of the Terms Supplement, or (d) in connection with an
optional purchase of the Financed Student Loans pursuant to Article IV of the
Terms Supplement. In addition, the Indenture Trustee shall permit the sale of
Financed Student Loans and the removal thereof from
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the Student Loan Portfolio Fund in connection with the consolidation of such
Student Loans by the student borrower with another Lender.
Other than in connection with any sale of Financed Student
Loan pursuant to Article III of the Terms Supplement or pursuant to item (b) of
the third preceding paragraph, any Financed Student Loan that is sold pursuant
to this Section 5.4 shall be sold at a price not less than the aggregate unpaid
principal amount thereof plus the amount of accrued and unpaid interest thereon
payable by the student obligors thereof plus late charges, if any, and
unamortized premium thereon determined in accordance with the Issuer's
established accounting policies. The proceeds of the sale of a Financed Student
Loan shall be deposited to the credit of the Collection Account in the
Collection Fund.
The Issuer may, at any time and from time to time, instruct
the Indenture Trustee to exchange Financed Student Loans for other Student Loans
having an aggregate principal amount no less than the aggregate principal amount
of the Financed Student Loans being exchanged, bearing the same or higher rates
of interest, being eligible, after exchange, for the same Special Allowance
Payments, and having the same status, whether interim, grace or payout
(provided, however, that as a result of such exchange the average principal
amount of all of the Student Loans included in Trust Estate shall not be
decreased, the average maturity of all such Student Loans shall not be increased
and no Student Loan shall be Financed which is not at the time authorized under
this Indenture) pursuant to a Certificate, in which the Issuer shall certify
that such exchange will not materially adversely affect the sufficiency of
Available Funds to meet the obligations of the Issuer under this Indenture,
including, without limitation, the payment of principal of and interest on the
Notes. The conditions relating to the acquisition directly, or indirectly
through an Eligible Lender Trustee, of Student Loans and the form of certificate
required to be received by the Indenture Trustee as set forth in Section 5.3
hereof shall apply to any such exchange to the extent the same may reasonably be
made applicable. All Student Loans acquired directly, or indirectly through an
Eligible Lender Trustee, by the Indenture Trustee as a result of any such
exchange shall be included in the balances of the Student Loan Portfolio Fund.
The aggregate principal balance of Financed Student Loans
bearing interest at a fixed rate must always equal or exceed the Outstanding
principal balance of the Subordinate Notes unless each Rating Agency then rating
the Outstanding Notes confirms that any failure to meet the foregoing will not
adversely affect the existing ratings of each such Rating Agency on the
Outstanding Notes. In order to comply with the requirements of this paragraph,
the Issuer may exchange Financed Student Loans not bearing interest at a fixed
rate for other Student Loans bearing interest at a fixed rate; provided,
however, that the Issuer certifies that such exchange will not materially
adversely affect the sufficiency of Available Funds to meet the obligations of
the Issuer under the Indenture.
Any sale, exchange or other disposition pursuant to this
Section 5.4 of Financed Student Loans made under the Higher Education Act shall
be only to or with one or more eligible lenders under the Higher Education Act
so long as the Higher Education Act requires the owner or holder of Student
Loans to be an eligible lender.
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SECTION 5.5 Collection Fund.
----------------
There is established hereunder a Fund, held by the Indenture
Trustee and designated the "Collection Fund", and established therein (a) the
"Collection Account", (b) the "Note Payment Account", (c) the "Expense Account"
and (d) the "Excess Surplus Account".
To the extent necessary or appropriate, the Issuer and the
Indenture Trustee may establish additional Accounts hereunder, and subaccounts
within any such Accounts established in the Collection Fund under this Section.
The Indenture Trustee shall deposit to the credit of (a) the
Collection Account and (b) the Expense Account in the Collection Fund the
amounts required by the Terms Supplement.
SECTION 5.5.1 Collection Account.
-------------------
There shall be deposited to the Collection Account all amounts
received, whether as principal, interest, Interest Subsidy Payments, Special
Allowance Payments, Guarantee payments, tuition refunds, repurchase payments
paid by Sellers pursuant to the Purchase Agreements or otherwise, in respect of
all Financed Student Loans, interest on all such Financed Student Loans payable
by the borrowers in respect thereof accrued prior to the date of acquisition
thereof by the Indenture Trustee and included in the purchase price thereof paid
by the Indenture Trustee to the Sellers thereof; amounts received as earnings on
or income from Eligible Investments included in the balances of the Funds and
Accounts to the extent provided in Section 5.7 hereof; any Counterparty Exchange
Payments; and proceeds of any sale of Financed Student Loans pursuant to Section
5.4 hereof to the extent required by such Section.
The Issuer shall, and shall cause each Seller and Servicer, in
accordance with the applicable Purchase Agreement or Servicing Agreement, as the
case may be, to transfer all Available Funds received by it to the Indenture
Trustee, and the Indenture Trustee shall, upon receipt of any such Available
Funds, immediately deposit and credit such Available Funds to the Collection
Account.
Payment of rebate fees in respect of Consolidation Loans and
any other amount owed by the Issuer with respect to Financed Student Loans to
the Secretary of Education, any Guarantee Agency, any Servicer or the Indenture
Trustee shall be made by the Indenture Trustee from funds available in the
Collection Account.
On each Distribution Date, the Indenture Trustee shall
transfer from the Collection Account the amounts and in the priority set forth
in Article IV of the Terms Supplement.
SECTION 5.5.2 Note Payment Account.
---------------------
On each applicable Distribution Date, following the transfers
to the Note Payment Account set forth in the Terms Supplement, the Indenture
Trustee shall distribute to the Noteholders as of the Record Date and Exchange
Counterparties, if any, the amounts transferred to the Note Payment Account,
together with (i) any amounts received from the Capitalized Interest Account in
the Student Loan Acquisition Fund as provided in Section 5.3.3 hereof, (ii) any
amounts therein transferred from the Reserve Fund and (iii) any Advances.
Notwithstanding
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anything herein or in the Terms Supplement to the contrary, if on any
Distribution Date there are insufficient funds transferred to the Note Payment
Account for payment of any Series 1999A Noteholders' Interest Distribution
Amount, the Indenture Trustee is directed to, and shall apply any funds already
then on deposit in the Note Payment Account for payment of any Series 1999B
Noteholders' Interest Distribution Amount to the payment of such Series 1999A
Noteholders' Interest Distribution Amount.
If the Issuer or an Eligible Lender Trustee on behalf of the
Issuer has applied for a Guarantee Payment from a Guarantee Agency or an
Interest Subsidy Payment or a Special Allowance Payment from the Department of
Education, and the Issuer or such Eligible Lender Trustee, as applicable, has
not received the related payment prior to the end of the Collection Period
immediately preceding the Distribution Date on which such amount would be
required to be distributed as a payment of interest, the Depositor may, no later
than the third Business Day before such Distribution Date, deposit into the Note
Payment Account an amount up to the amount of such payments applied for but not
received (such deposits by the Depositor are referred to herein as "Advances").
Such Advances are recoverable by the Issuer, (i) first, from moneys in the Fund
or Account which such Advance temporarily replaced and (ii) second, from
payments received generally on or with respect to the Financed Student Loans
immediately upon their availability and prior to the use of such moneys for any
of the other purposes permitted under this Indenture. The Depositor shall have
no obligation, legal or otherwise, to make any Advance, and a determination by
the Depositor to make an Advance shall not create any obligation of the
Depositor, legal or otherwise, to make any future Advances.
SECTION 5.5.3 [Reserved.].
------------
SECTION 5.5.4 Expense Account.
----------------
On the Date of Issuance, the Indenture Trustee shall deposit
to the credit of the Expense Account the amount, if any, set forth in the Terms
Supplement. Thereafter, the Indenture Trustee shall transfer amounts to the
Expense Account from the Collection Account funds in accordance with the
provisions of Section 5.5.1 hereof and Article IV of the Terms Supplement and,
if necessary, from the Reserve Fund in accordance with the provisions of Section
5.2 hereof.
The Indenture Trustee shall apply the funds in the Expense
Account to pay Program Operating Expenses and Costs of Issuance. In addition,
the Indenture Trustee may pay expenses relating to the Notes from time to time
from Available Funds on deposit in the Collection Account by transferring the
amount necessary to pay such expenses from the Collection Account to the Expense
Account.
The Indenture Trustee shall pay Program Operating Expenses and
Costs of Issuance from moneys in the Expense Account upon receipt of written
orders or requisitions signed by an Authorized Officer, which shall direct the
payment to designated payees in designated amounts for stated services and
certify that such payment is a proper charge against the Expense Account and is
then due and owing for services rendered or expenses incurred, and in the case
of payments to the Administrator shall certify that such amounts constitute
related Program Operating Expenses described in clause (iv) and clause (v) of
the definition thereof in
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Section 1.1 hereof and do not exceed the amount of such Program Operating
Expenses permitted to be paid pursuant to Section 6.13 hereof.
SECTION 5.5.5 Excess Surplus Account.
-----------------------
On each Distribution Date, as provided in the Terms
Supplement, any Available Funds remaining after all required distributions are
made on such Distribution Date shall be deposited to the credit of the Excess
Surplus Account in accordance with the provisions of Section 5.5.1 hereof and
Article IV of the Terms Supplement. Amounts on deposit in the Excess Surplus
Account may be withdrawn by the Issuer at any time upon written request of the
Issuer to the Indenture Trustee; provided that after such withdrawal the Parity
Percentage shall be at least the Parity Percentage Limitation. Such request
shall be signed by an Authorized Officer. Any Available Funds withdrawn by the
Issuer from the Excess Surplus Account shall not thereafter be available to the
Indenture Trustee to make payments on the Notes. Until withdrawn by the Issuer,
amounts on deposit in the Excess Surplus Account shall be available for transfer
by the Indenture Trustee to the Reserve Fund if, and to the extent that, a
deficiency in the Reserve Fund remains after the transfers from the Collection
Account pursuant to Sections 5.2 and 5.5.1 hereof and Article IV of the Terms
Supplement. In the event of such a deficiency, the Indenture Trustee shall make
such a transfer in an amount up to the amount necessary to eliminate such
deficiency. The Issuer may, at any time, direct in writing that the Indenture
Trustee transfer amounts on deposit in the Excess Surplus Account to the
Collection Account or the Reserve Fund.
SECTION 5.5.6 Investment of Collection Fund.
------------------------------
Moneys in the Collection Fund, or any Account thereof, pending
their application as authorized herein, shall be invested by the Indenture
Trustee in Eligible Investments as provided in Section 5.7 hereof.
SECTION 5.6 Pledge.
-------
The Notes of each Series, including the principal thereof and
interest and any Carryover Interest thereon, and any Issuer Exchange Payments
shall be payable solely from and secured hereunder solely by (i) the Trust
Estate as provided in this Indenture and (ii) any other assets pledged to secure
such Series of Notes under a Supplemental Indenture; PROVIDED, HOWEVER, the
Exchange Counterparty in the Exchange Agreement and the Indenture Trustee, on
behalf of the Exchange Counterparty, herein or in any Supplemental Indenture
executed in connection with the Exchange Agreement, shall waive any and all
rights which the Exchange Counterparty may have to receive any amounts realized
by the Indenture Trustee from foreclosure upon the Trust Estate consisting of
its Exchange Agreement and its Exchange Counterparty Guarantee, if any.
The Notes of a Series, including the principal thereof and
interest and any Carryover Interest thereon shall be secured hereunder by the
pledge of the Trust Estate granted hereby, by the lien thereon and security
interest therein, and by the assignment to the Indenture Trustee of all right,
title and interest of the Issuer and each Eligible Lender Trustee in the Trust
Estate, without priority by reason of number, date, purpose, or otherwise,
except as otherwise expressly provided in this Indenture and in the Notes.
Senior Issuer Exchange Payments shall be
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secured hereunder by the pledge of the Trust Estate granted hereby, by the lien
thereon and security interest therein on an equal priority with the payment of
interest on Senior Notes, and by the assignment to the Indenture Trustee for the
benefit of the Senior Exchange Counterparty of all rights, title and interest of
the Issuer and each Eligible Lender Trustee in the Trust Estate. Subordinate
Issuer Exchange Payments shall be secured hereunder by the pledge of the Trust
Estate granted hereby, by the lien thereon and security interest therein on an
equal priority with the payment of interest on Subordinate Notes, and by the
assignment to the Indenture Trustee for the benefit of the Subordinate Exchange
Counterparty of all rights, title and interest of the Issuer and each Eligible
Lender Trustee in the Trust Estate. Each pledge, lien, security interest and
assignment hereunder shall be valid and binding and shall, except as otherwise
expressly provided herein, constitute a lien of equal priority and charge on the
Trust Estate from time to time held hereunder for the benefit of the Holders of
the Notes of such Series and any Exchange Counterparty (subject to the
provisions of this Indenture permitting the application of the Trust Estate for
the purposes and on the terms and conditions hereof, including, without
limitation, (i) the prior rights of the Indenture Trustee to any realization
from the Indenture Trustee's lien on and security interest in the Trust Estate,
for the payment of the Indenture Trustee's and each Eligible Lender Trustee's
fees and expenses hereunder and (ii) solely with respect to the Holders of any
Subordinate Notes and any Subordinate Exchange Counterparty, the prior rights of
the Holders of the Senior Notes and of any Senior Exchange Counterparty, to any
realization from the Indenture Trustee's lien on and security interest in the
Trust Estate to the full extent provided by law, prior to all other indebtedness
payable from or secured by the Trust Estate which may hereafter be created or
incurred).
Pursuant to this Indenture each of the Issuer and each
Eligible Lender Trustee has granted to the Indenture Trustee a lien on and
security interest in the Trust Estate. Regardless of the time or order of
attachment, or the time, order or manner of perfection, or the time or order of
filing of financing statements, each of the Holders of Notes of a Series by
their purchase thereof, an Exchange Counterparty by execution and delivery of
its Exchange Agreement, the Indenture Trustee, on behalf of itself and the
Holders of such Series and each Eligible Lender Trustee by their respective
execution of this Indenture and any Exchange Agreement, each agrees that each
shall have the following relative priority with respect to the lien on and
security interest in and rights related to the Trust Estate:
(i) The Indenture Trustee shall have a first and prior right
to any realization from the Indenture Trustee's lien on and security interest in
the Trust Estate, as security for the payment of the fees and expenses of the
Indenture Trustee and each Eligible Lender Trustee, and any rights that the
Holders of the Notes of such Series or an Exchange Counterparty may have to any
realization from the Indenture Trustee's lien on or security interest in the
Trust Estate with respect to the Issuer's obligations under this Indenture with
respect to (A) the Notes of each Series and (B) any Exchange Agreement shall be
subordinate to such first and prior right; and
(ii) The Holders of Senior Notes and any Senior Exchange
Counterparty shall have a second right to any realization from the Indenture
Trustee's lien on and security interest in the Trust Estate, as security for the
payment and performance of the Issuer's obligations under this Indenture with
respect to (A) such Senior Notes and (B) any Senior Exchange Agreement in the
manner provided in this Indenture.
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(iii) The Holders of Subordinate Notes and any Subordinate
Exchange Counterparty shall have a third right to any realization from the
Indenture Trustee's lien on and security interest in the Trust Estate, as
security for the payment and performance of the Issuer's obligations under this
Indenture with respect to (A) the Subordinate Notes and (B) any Subordinate
Exchange Counterparty in the manner provided in this Indenture.
Subject to the priorities established in this Section 5.6, a
Holder, an Exchange Counterparty, an Eligible Lender Trustee or the Indenture
Trustee shall not contest, or join in any contest of, the validity, perfection,
priority or enforceability of the lien or security interest in or right with
respect to the Trust Estate granted or provided for herein.
The covenants and agreements herein set forth to be performed
by or on behalf of the Issuer shall be for the equal and proportionate benefit,
security and protection of all Holders of the Notes of each Series and any
Exchange Counterparty, without preference, priority or distinction as to payment
or security or otherwise of any of the Notes of such Series over any of the
other Notes or over any related Issuer Exchange Payment or any Issuer Exchange
Payment over any of the Notes or over any other Issuer Exchange Payment for any
reason or cause whatsoever, except as expressly provided in this Indenture or
the Notes of such Series, and, except as otherwise herein or therein
specifically provided, all Notes of such Series and any Issuer Exchange Payment
shall be secured equally and ratably hereunder without discrimination or
preference whatsoever.
No Holder of a Note of a Series shall be required to see that
the moneys derived from such Series of Notes are applied to the purpose or
purposes for which the Series of Notes was issued. The validity of any Note of a
Series shall neither be dependent upon nor affected by the validity or
regularity of any proceedings or contracts relating to the Program nor the use
and application of the proceeds of the Notes of such Series.
Nothing in this Section 5.6 or in this Indenture shall prevent
or be construed to prevent any Supplemental Indenture from pledging or otherwise
providing, or the Issuer from providing, in addition to the security given or
intended to be given by this Indenture, additional security for the benefit of
any Series of Notes or any portion thereof or for the benefit of any Issuer
Exchange Payment.
The pledges of, liens on and security interests in, and
assignments to the Indenture Trustee of the Trust Estate made hereby include any
contract or any evidence of indebtedness or other rights of the Issuer to
receive any of the same, whether now existing or hereafter coming into
existence, and whether now or hereafter acquired, and the proceeds thereof, with
respect to any of the Trust Estate, including, without limitation, all rights of
the Issuer or the Eligible Lender Trustees in and under all Financed Student
Loans, all Contracts of Guarantee guaranteeing Financed Student Loans, any
Exchange Agreement, any Exchange Counterparty Guarantee, all Purchase Agreements
(including all rights of the Issuer to the warranties of each Seller
thereunder), the Master Servicing Agreement and the Servicing Agreements
(including all rights of the Issuer to the warranties of each Servicer
thereunder).
SECTION 5.7 Investments.
------------
The term "Eligible Investments" shall mean any of the
following:
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(a) direct obligations of (including obligations issued or
held in book entry form on the books of) the Department of the Treasury of the
United States of America;
(b) obligations of any of the following federal agencies,
which obligations represent the full faith and credit of the United States of
America:
(1) Export-Import Bank,
(2) Farm Credit System Financial Assistance Issuer,
(3) Rural Economic Community Development Administration
(formerly the Farmers Home Administration),
(4) General Services Administration,
(5) U.S. Maritime Administration,
(6) Small Business Administration,
(7) Government National Mortgage Association (GNMA),
(8) U.S. Department of Housing & Urban Development (PHAs),
and
(9) Federal Housing Administration;
(c) senior debt obligations rated "AAA" or "Aaa" by each
Rating Agency issued by the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, and senior debt obligations of other federal
government-sponsored agencies approved by each Rating Agency;
(d) U.S. dollar denominated deposit accounts, federal funds
and banker's acceptances with domestic commercial banks which have a rating on
their short-term certificates of deposit on the date of purchase of "A-1", "F-1"
or "P-1" by each Rating Agency and maturing no more than 360 days after the date
of purchase (ratings on holding companies are not considered as the rating on
the bank);
(e) commercial paper which is rated at the time of purchase in
the single highest classification, (i.e., "A-1", "F-1" or "P-1") by each Rating
Agency and which matures not more than 270 days after the date of purchase;
(f) investments in a money market fund rated in the highest
applicable rating category by (i) a nationally recognized rating service
acceptable to each Rating Agency or (ii) each Rating Agency;
(g) Pre-refunded Municipal Obligations defined as follows: Any
bonds or other obligations of any state of the United States of America or of
any agency, instrumentality or local governmental unit of any such state which
are not callable at the option of the obligor prior to maturity or as to which
irrevocable instructions have been given by the obligor to call on the date
specified in the notice; and
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(1) which are rated, based on an irrevocable escrow
account or fund (the "escrow"), in the highest rating category of each Rating
Agency; or
(2) which are fully secured as to principal and interest
and redemption premium, if any, by an escrow consisting only of cash or
obligations described in item (a) above, which escrow may be applied only to the
payment of such principal of and interest and redemption premium, if any, on
such bonds or other obligations on the maturity date or dates thereof or the
specified redemption date or dates pursuant to such irrevocable instructions, as
appropriate, and (B) which escrow is sufficient, as verified by a nationally
recognized independent certified public accountant, to pay principal of and
interest and redemption premium, if any, on the bonds or other obligations
described in this paragraph on the maturity date or dates specified in the
irrevocable instructions referred to above, as appropriate;
(h) investment agreements approved in writing by each Rating
Agency and supported by appropriate opinions of counsel for the investment
agreement provider; and
(i) other forms of investments (including repurchase
agreements) approved in writing by each Rating Agency.
Moneys held by the Indenture Trustee for the credit of any
Fund or Account shall be invested by the Indenture Trustee to the fullest extent
practicable and reasonable, in accordance with the provisions hereof, in
Eligible Investments, as directed in writing by the Issuer, and in the absence
of any such directions, in Eligible Investments selected by the Indenture
Trustee with due regard for the fiduciary responsibility of the Indenture
Trustee to maximize investment income and to protect the interests of the
Holders. All Eligible Investments shall be acquired subject to the limitations
on maturities hereinafter in this Section 5.7 set forth and to any additional
limitations or requirements, consistent with the foregoing provisions of this
paragraph, as may be established by Request of the Issuer. Moneys shall be
invested in Eligible Investments with respect to which payments of principal and
interest are scheduled or otherwise payable not later than the date on which it
is estimated that such moneys will be required by the Indenture Trustee for the
purposes intended. Eligible Investments purchased under a repurchase agreement
may be deemed to mature on the date or dates on which the Indenture Trustee may
deliver such Eligible Investments for repurchase under such agreement. Eligible
Investments which may be tendered for payment of the full principal amount
thereof plus accrued interest thereon prior to the maturity thereof may be
deemed to mature on the date or dates on which they may be so tendered. Eligible
Investments acquired as an investment of moneys in any Fund or Account shall be
credited to such Fund or Account. Unless otherwise provided herein, any earnings
on or income from Eligible Investments shall be credited to the Collection
Account in the Collection Fund, as provided in Section 5.5.6 hereof, except that
an amount of interest received with respect to any Eligible Investment on the
first payment of interest after purchase equal to the amount of accrued
interest, if any, paid as part of the purchase price of such Eligible Investment
shall be credited to the Account or Fund from which such accrued interest was
paid.
Investments in any and all Funds and Accounts may be
commingled in a separate fund or funds established by the Indenture Trustee for
purposes of making, holding and disposing of investments, notwithstanding
provisions herein for transfer to or holding in or to the credit of particular
Funds and Accounts amounts received or held by the Indenture Trustee
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hereunder, provided that the Indenture Trustee shall at all times account for
such investments strictly in accordance with the Funds and Accounts to which
they are credited and otherwise as provided in this Indenture. The Indenture
Trustee may act as principal or agent in the acquisition or disposing of any
Eligible Investment. The Indenture Trustee may sell at the best price
obtainable, or present for redemption, any Eligible Investment so purchased
whenever it shall be necessary to provide moneys to meet any required payment,
transfer, withdrawal or disbursement from the Fund or Account to which such
Eligible Investment is credited, and the Indenture Trustee shall not be liable
or responsible for any loss resulting from the acquisition or disposition of
such Eligible Investment in accordance herewith.
SECTION 5.8 Exchange Agreements; Counterparty Exchange
------------------------------------------
Payments; Issuer Exchange Payments.
- -----------------------------------
The Issuer hereby authorizes and directs the Indenture Trustee
to acknowledge and agree to any Exchange Agreement hereafter entered into by the
Issuer and an Exchange Counterparty under which (a) the Issuer may be required
to make, from time to time, Issuer Exchange Payments and (b) the Indenture
Trustee may receive, from time to time, Counterparty Exchange Payments for the
account of the Issuer. The Issuer shall not execute and deliver any Exchange
Agreement unless at the time of entering into such Exchange Agreement (i) except
in the case of any Exchange Agreement executed in connection with the execution
and delivery of this Indenture, the Issuer and the Indenture Trustee enter into
a Supplemental Indenture in connection with the execution and delivery of the
Exchange Agreement, and (ii) the Issuer obtains written evidence from each
Rating Agency then rating any Outstanding Notes that the execution and delivery
of the Exchange Agreement will not adversely affect such Rating Agency's rating
on such Notes; provided, however, that in any event the long-term debt
securities of any Exchange Counterparty must be rated at least Aa1 (or its
equivalent) from a Rating Agency. In connection with the execution of any
Exchange Agreement simultaneously with the execution and delivery of this
Indenture, the Indenture Trustee, on behalf of the Exchange Counterparty, hereby
waives any and all rights which the Exchange Counterparty may have to receive
any amounts realized by the Indenture Trustee from foreclosure upon the Trust
Estate consisting of its Exchange Agreement and its Exchange Counterparty
Guarantee, if any. In connection with the execution of any Exchange Agreement,
the Indenture Trustee, on behalf of the Exchange Counterparty, shall waive in
the Supplemental Indenture executed in connection with the Exchange Agreement
any and all rights which the Exchange Counterparty may have to receive any
amounts realized by the Indenture Trustee from foreclosure upon the Trust Estate
consisting of its Exchange Agreement and its Exchange Counterparty Guarantee, if
any.
No later than the Business Day immediately preceding each date
on which a Counterparty Exchange Payment or Issuer Exchange Payment is due
pursuant to the applicable Exchange Agreement through and including the
termination date of an Exchange Agreement, the Issuer shall give written notice
to the Indenture Trustee stating either (a) the amount of any Counterparty
Exchange Payment due to be received by the Indenture Trustee for the account of
the Issuer no later than each such date or (b) the amount of any Issuer Exchange
Payment to be paid to the Exchange Counterparty on each such date. If the
Indenture Trustee fails to receive such written notification from the Issuer by
the end of such Business Day, it shall immediately notify the Issuer of such
fact in writing.
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On any Business Day on which a Counterparty Exchange Payment
is due pursuant to the applicable Exchange Agreement in accordance with the
written notification received from the Issuer, the Indenture Trustee shall
deposit all moneys received representing such Counterparty Exchange Payment in
the Collection Account to be applied in accordance with the provisions of
Section 5.5.1 hereof and Article IV of the Terms Supplement. The Indenture
Trustee shall notify the Issuer on such Business Day, if (a) the amount received
from the Exchange Counterparty is not equal to the amount specified in the
written notification of the Issuer, (b) no amount is received from the Exchange
Counterparty or (c) the amount received is not received in freely transferable
funds.
On any date with respect to which an Issuer Exchange Payment
is due in accordance with the written notification received from the Issuer or,
with respect to a payment in respect of an early termination date, from the
Exchange Counterparty, the Indenture Trustee shall make payment to the Exchange
Counterparty of the amount of the Issuer Exchange Payment specified in such
written notification of the Issuer or the Exchange Counterparty, as the case may
be, due on such date from moneys in the Note Payment Account by the deposit or
wire transfer of freely transferable funds to the credit of the account of the
Exchange Counterparty specified in such written notification of the Issuer or
the Exchange Counterparty, as the case may be.
Nothing in this Indenture shall prohibit, or be construed as
prohibiting, an Issuer Exchange Payment or Counterparty Exchange Payment from
being made on a date other than a Distribution Date.
SECTION 5.9 Termination.
------------
When no Notes remain Outstanding and all amounts due or to
become due hereunder have been paid in full or provided for to the satisfaction
of the Indenture Trustee, the Indenture Trustee shall transfer to the Issuer or
to any person designated by the Issuer, including, without limitation, to an
Eligible Lender Trustee or its duly appointed successor, upon the written
request of the Issuer, all balances of all Funds and Accounts established
hereby, except that Financed Student Loans included in the balances of the
Student Loan Portfolio Fund shall not be transferred to the Issuer unless, at
the time of such transfer, the Issuer is an eligible lender under the Higher
Education Act or the Higher Education Act permits transfer of such Student Loans
to a person other than an eligible lender and except that the Indenture Trustee
shall retain and hold in the Expense Account in the Collection Fund an amount
estimated by the Indenture Trustee to be necessary to reimburse the Secretary of
Education for any excess payments by the Secretary of Education to the Indenture
Trustee in respect of the Financed Student Loans.
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ARTICLE VI
Covenants to Secure Notes
-------------------------
The covenants and agreements of the Issuer, each Eligible
Lender Trustee and the Indenture Trustee contained in Article VI of the
Indenture shall be applicable to, and shall be made with respect to, any
Exchange Counterparty, and the Issuer, each Eligible Lender Trustee and the
Indenture Trustee hereby make such covenants and agreements with any such
Exchange Counterparty. The Issuer, each Eligible Lender Trustee and the
Indenture Trustee shall have the same responsibilities and obligations under
this Article VI with respect to any Exchange Counterparty as each has with
respect to the Holders, except for such responsibilities and obligations which,
of necessity, apply only to the Holders of Notes.
The Issuer, each Eligible Lender Trustee and the Indenture
Trustee, as the case may be, hereby covenant and agree with the purchasers and
Holders of the Notes as follows:
SECTION 6.1 Administration of the Program.
------------------------------
The Issuer shall require the Administrator to administer,
operate and perform all acts and things required to administer, operate and
maintain the Program in strict compliance with the law, including, without
limitation, the Higher Education Act, in such manner as to insure that the
Program and the Financed Student Loans will benefit, to the optimum extent, from
any Guarantee, and Interest Subsidy Payments and Special Allowance Payments (to
the extent, if any, allowed) in respect of Student Loans pursuant to the Higher
Education Act or other applicable federal statutes. The Indenture Trustee hereby
acknowledges the authority of the Administrator under the terms of the
Administration Agreement to take all action necessary to administer, operate and
perform all acts and things required to administer, operate and maintain the
Program in strict compliance with the law.
SECTION 6.2 Contracts of Guarantee.
-----------------------
So long as any Notes are Outstanding and unpaid, each Eligible
Lender Trustee and the Indenture Trustee (a) will, from and after the date on
which each Eligible Lender Trustee and the Indenture Trustee shall have
succeeded to the rights and interests of any Seller under a Contract of
Guarantee covering a Financed Student Loan, maintain such Contract of Guarantee
and diligently enforce their rights thereunder; (b) will enter into such other
similar or supplemental agreements as the Issuer shall determine are required to
maintain benefits for all Financed Student Loans covered thereby and shall
notify in writing each Eligible Lender Trustee and/or the Indenture Trustee; and
(c) will not voluntarily consent to or permit any rescission of or consent to
any amendment to or otherwise take any action under or in connection with any
such Contract of Guarantee or any similar or supplemental agreement which in any
manner will materially adversely affect the rights of the Holders.
SECTION 6.3 Acquisition, Collection and Assignment of Student
-------------------------------------------------
Loans; Compliance with Law.
- ---------------------------
The Issuer shall Finance directly, or indirectly through an
Eligible Lender Trustee, only Student Loans with moneys under this Indenture and
shall diligently cause to be collected all principal and interest payments on
each Financed Student Loan, and grants,
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subsidies, donations, Guarantee Payments, Interest Subsidy Payments, Special
Allowance Payments (to the extent, if any, allowed) and all defaulted payments
Guaranteed by a Guarantee Agency or the Secretary of Education which relate to
any Financed Student Loan. The Issuer shall also make, or cause to be made by
each Servicer, every effort to perfect the claims of the Issuer and each
Eligible Lender Trustee for payment from the Guarantee Agency or the Secretary
of Education, as soon as possible, of all amounts related to each Financed
Student Loan. The Issuer and each Eligible Lender Trustee, at the Issuer's
written request, shall assign or cause to be assigned each Financed Student Loan
for payment of Guarantee benefits at the earliest date permitted under
applicable law and regulations. The Issuer and each Eligible Lender Trustee, at
the Issuer's written request, shall comply with all State and federal statutes,
rules and regulations which apply to the Program and to Financed Student Loans,
including, the Higher Education Act.
SECTION 6.4 Enforcement of Financed Student Loans.
--------------------------------------
The Issuer and each Eligible Lender Trustee, at the Issuer's
written request, shall cause to be diligently taken all reasonable steps,
actions and proceedings necessary for the enforcement of all terms, covenants
and conditions of all Financed Student Loans and agreements in connection
therewith, including the prompt payment of all principal and interest payments
and all other amounts due thereunder. The Issuer and each Eligible Lender
Trustee, at the Issuer's written request, shall at all times, to the extent
permitted by law, defend, enforce, preserve and protect the rights and
privileges of the Issuer, each such Eligible Lender Trustee and of the Holders
under or with respect to each Financed Student Loan and agreement in connection
therewith. The Issuer and each Eligible Lender Trustee shall not consent, or
agree to or permit any amendment or modification of any Financed Student Loan or
agreement in connection therewith which will in any manner materially adversely
affect the rights or security of the Holders or of any Exchange Counterparty
under this Indenture or the Guarantee of such Financed Student Loans. Nothing in
this Indenture shall be construed to prevent the Issuer or an Eligible Lender
Trustee from permitting a student borrower to settle a default or cure a
delinquency on any Financed Student Loan on such terms as shall be required by
law or consolidate any Financed Student Loan with another Lender.
SECTION 6.5 Enforcement of Master Servicing Agreement and
---------------------------------------------
Servicing Agreements; Removal of Servicer.
- ------------------------------------------
The Issuer shall cause to be diligently enforced and taken all
reasonable steps, actions and proceedings necessary for the enforcement of all
terms, covenants and conditions of the Master Servicing Agreement and the
Servicing Agreements, including the prompt payment of all principal and interest
payments, all Interest Subsidy Payments, all Special Allowance Payments (to the
extent, if any, allowed), all defaulted payments Guaranteed by a Guarantee
Agency or the Secretary of Education which relate to any Financed Student Loan
and all other amounts due the Issuer thereunder. The Issuer shall at all times,
to the extent permitted by law, cause to be defended, enforced, preserved and
protected the rights and interests of the Issuer and of the Holders under or
with respect to the Master Servicing Agreement and the Servicing Agreements. The
Issuer shall not consent or agree to or permit any amendment or modification of
the Master Servicing Agreement or any Servicing Agreement which will in any
manner materially adversely affect the rights or security of the Holders under
this Indenture. Upon termination or expiration of the Master Servicing Agreement
or any Servicing Agreement, the
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Issuer shall take all appropriate steps to maintain adequate provision for the
administration, servicing and collection of the Financed Student Loans. The
Issuer shall notify the Indenture Trustee and each Rating Agency if either a
successor Master Servicer or Servicer is appointed and shall send a copy of any
amendment or supplement to the Master Servicing Agreement or any Servicing
Agreement in connection therewith.
SECTION 6.6 Enforcement of Purchase Agreements.
-----------------------------------
The Issuer shall cause to be diligently enforced and taken all
reasonable steps, actions and proceedings necessary for the enforcement of all
terms, covenants and conditions of its rights under any Purchase Agreements,
including warranties with respect to the Student Loans and Guarantees thereof
and including the prompt payment of all amounts due the Servicers and the Issuer
thereunder, to the extent of the Issuer's rights under such Purchase Agreements.
The Issuer shall at all times, to the extent permitted by law, cause to be
defended, enforced, preserved and protected the rights and interests of the
Issuer, of the Holders and of each Exchange Counterparty under or with respect
to the Purchase Agreements. The Issuer shall not consent or agree to or permit
any amendment or modification of any of its rights under a Purchase Agreement
which will in any manner materially adversely affect the rights or security of
the Holders or of any Exchange Counterparty under this Indenture.
SECTION 6.7 Books of Account; Annual Audit.
-------------------------------
The Issuer shall cause to be kept and maintained, or cause the
Indenture Trustee to keep and maintain, proper books of record and account
relating to the Program in which full, true and correct entries will be made of
all dealings or transactions of or in relation to the Program, the proceeds of
the Notes, the Available Funds and all Funds and Accounts. Such books of record
and account shall be made available for inspection by the Indenture Trustee (or
the Issuer, as the case may be) and by any Holder of more than ten percent (10%)
of the aggregate principal amount of Notes Outstanding, at reasonable hours and
under reasonable circumstances. Within one hundred twenty (120) days after the
end of each Fiscal Year, the Issuer shall cause such books of record and account
to be audited by a firm of independent certified public accountants of national
reputation. A copy of each audit report, annual balance sheet and income and
expense statement showing in reasonable detail the financial condition of the
Program as of the close of each Fiscal Year, summarizing in reasonable detail
the income and expenses for such year, and containing such other reviews or
reports as may be required by the Higher Education Act, including a report of
the transactions relating to the Funds and Accounts, shall be filed promptly
with the Indenture Trustee and shall be available for inspection by any Holder.
Any financial statements prepared in connection with the foregoing may be
presented on a consolidated or combined basis with other programs of the Issuer,
provided that such financial statements for the Program are separately
identified and only to the extent that such basis of reporting is not
inconsistent with that required by this Section 6.7.
The Issuer, pursuant to Section 314(a) of the Trust Indenture
Act, shall:
(a) file with the Indenture Trustee, within fifteen (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
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be required to file with the Commission pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934; or, if the Issuer is not required to
file information, documents or reports pursuant to either of such Sections, then
it shall file with the Indenture Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission, such
of the supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations;
(b) file with the Indenture Trustee and the Commission, in
accordance with the rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with respect to
compliance by the Issuer, as the case may be, with the conditions and covenants
of this Indenture as may be required from time to time by such rules and
regulations; and
(c) transmit within thirty (30) days after the filing thereof
with the Indenture Trustee, in the manner and to the extent provided in Section
313(c) of the Trust Indenture Act, such summaries of any information, documents
and reports required to be filed by the Issuer pursuant to clauses (a) and (b)
of this paragraph as may be required by the rules and regulations prescribed
from time to time by the Commission.
SECTION 6.8 Punctual Payment of Notes.
--------------------------
The Issuer shall duly and punctually pay, or cause to be paid,
the principal of and interest on each Note on the dates, at the places and in
the manner provided in the Notes according to the true intent and meaning
thereof, but only from the Trust Estate, and the Issuer shall faithfully do and
perform and at all times fully observe and keep any and all of its covenants,
undertakings, stipulations and provisions contained in the Notes and this
Indenture.
SECTION 6.9 Further Assurances.
-------------------
The Issuer and each Eligible Lender Trustee, at the written
request of the Issuer, shall at any and all times, make, do, execute,
acknowledge, file, record and deliver all and every such further resolutions,
indentures, acts, deeds, conveyances, assignments, transfers, assurances and
other documents, including financing statements and continuation statements, as
may be necessary or desirable for the better assuring, conveying, granting,
assigning, perfecting and confirming of any and all of the Trust Estate hereby
pledged or charged with or assigned to the payment of the Notes, or intended so
to be, or which the Issuer or any Eligible Lender Trustee may hereafter become
bound to pledge or charge or assign.
SECTION 6.10 Protection of Security.
-----------------------
The Issuer is duly authorized under its Article of
Association, its By-Laws and applicable law to own student loan notes, directly
or indirectly through an Eligible Lender Trustee, and the other assets pledged
to the payment of the Notes and to pledge, to grant, or cause to be granted, a
lien on and a security interest in, and to assign, or cause to be assigned, the
Trust Estate in the manner and to the extent provided in this Indenture. The
Trust Estate is and will be free and clear of any pledge, lien, security
interest, charge or encumbrance thereon or with respect thereto prior to, or of
equal rank with, the pledge, lien, security interest and
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assignment created by this Indenture, except as otherwise expressly provided or
permitted herein, and all action on the part of the Issuer to that end has been
duly and validly taken. The Issuer is duly authorized under its Articles of
Association, its By-Laws and applicable law to enter into this Indenture. The
Notes are and will be legal, valid and binding limited obligations of the Issuer
enforceable in accordance with their respective terms and the terms of this
Indenture and each Supplemental Indenture. The Issuer and each Eligible Lender
Trustee shall at all times, to the extent permitted by law, defend, preserve and
protect the pledge of, lien on, security interest in and assignment of the Trust
Estate, the priority of such pledge, lien, security interest and assignment and
all the rights of the Holders and each Exchange Counterparty thereto against all
claims and demands of all persons whomsoever. The pledge of, lien on, security
interest in and assignment of the Trust Estate made hereby includes the pledge
of, any lien on, security interest in and assignment of any contract or any
evidence of indebtedness or other right of the Issuer and each Eligible Lender
Trustee to receive any of the same, whether now existing or hereafter coming
into existence or acquired and the proceeds thereof, including, without
limitation, all Contracts of Guarantee covering Financed Student Loans, all
Purchase Agreements, the Master Servicing Agreement and all Servicing
Agreements.
SECTION 6.11 No Encumbrances.
----------------
The Issuer and each Eligible Lender Trustee shall not create,
or permit the creation of, any pledge, lien, charge or encumbrance upon the
Trust Estate except only as provided in or permitted by this Indenture. The
Issuer shall not issue any obligations, notes, securities or other evidences of
indebtedness, other than the Notes as permitted by this Indenture secured by a
pledge of the Trust Estate creating a lien or charge on the Trust Estate equal
or superior to the lien of this Indenture; provided, that nothing in this
Indenture shall prevent the Issuer from issuing evidences of indebtedness
secured by a pledge of the Trust Estate subordinate in priority to that of the
Notes, or secured by a pledge of the Trust Estate arising on or after such date
as the pledge of the Trust Estate hereunder shall be discharged and satisfied as
provided in this Indenture, or from issuing notes, Notes or other evidences of
indebtedness of the Issuer (whether or not under other indentures in order to
fund the Program or other programs of the Issuer) secured by assets and revenues
of the Issuer other than the Trust Estate.
SECTION 6.12 Compliance with Indenture.
--------------------------
The Issuer shall not issue, or permit to be issued, any Notes
in any manner other than in accordance with the provisions of this Indenture and
shall not suffer or permit any Event of Default to occur under this Indenture,
but shall faithfully observe and perform all the covenants, conditions and
requirements hereof. The Issuer, for itself, its successors and assigns,
represents, covenants and agrees with the Holders, as a material inducement to
the purchase and holding of the Notes, that so long as any of the Notes remain
Outstanding and the principal thereof or interest thereon is unpaid or
unprovided for, it shall faithfully perform all of the covenants and agreements
contained in this Indenture and the Notes.
SECTION 6.13 Limitation on Program Operating Expenses.
-----------------------------------------
The Issuer shall not permit the Program Operating Expenses
described in clause (iv) of the definition thereof to exceed in any Fiscal Year
an amount equal to 0.10% (ten basis points) of the average aggregate outstanding
principal balance of the Financed Student Loans
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during such Fiscal Year, unless (i) the Issuer shall have delivered to the
Indenture Trustee and each Rating Agency a revised statement of such Program
Operating Expenses and such supporting data as each Rating Agency may reasonably
request, (ii) each such Rating Agency shall have confirmed that such revised
statement will not adversely affect the rating of such Rating Agency on the
Notes and (iii) the Issuer shall have delivered a Cash Flow Statement giving
effect to such revised Program Operating Expenses satisfactory to the Indenture
Trustee. Thereafter, such Program Operating Expenses shall not exceed those
projected in such revised statement until a further revised statement is
delivered and approved as aforesaid.
SECTION 6.14 Notice of Additional Guarantee Agencies or
-------------------------------------------------------
Servicers.
- ----------
The Issuer shall give notice to each Rating Agency of the
appointment of (i) any Guarantee Agency in addition to the Guarantee Agencies
set forth on Schedule I hereto and (ii) any Servicer in addition to the
Servicers set forth on Schedule II hereto.
SECTION 6.15 Issuer to Furnish Indenture Trustee Names and
----------------------------------------------------------
Addresses of Holders.
- ---------------------
In accordance with Section 312(a) of the Trust Indenture Act,
the Issuer shall furnish or cause to be furnished to the Indenture Trustee:
(a) semi-annually with respect to each Series of Notes on
January 15 and July 15 of each year or upon such other dates as are set forth in
or pursuant to a resolution of the board of directors of the Issuer or a
Supplemental Indenture, a list, in each case in such form as the Indenture
Trustee may reasonably require, of the names and addresses of Holders as of the
applicable date, and
(b) at such other times as the Indenture Trustee may request
in writing, within 30 days after the receipt by the Issuer of any such request,
a list of similar form and content as of a date not more than 15 days prior to
the time such list is furnished, provided, however, that so long as the
Indenture Trustee is the Registrar no such list shall be required to be
furnished.
SECTION 6.16 Undertaking for Costs.
----------------------
The Issuer and the Indenture Trustee agree, and each Holder by
such Holder's acceptance of an 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 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 6.16 shall not apply to
(i) any suit instituted by the Indenture Trustee, (ii) any suit instituted by
any Holder, or group of Holders, in each case holding in the aggregate more than
ten percent (10%) of the Outstanding principal amount of the Notes or (iii) any
suit instituted by any Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on any Note in accordance with
Section 8.5 hereof.
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ARTICLE VII
Concerning the Indenture Trustee
--------------------------------
SECTION 7.1 Appointment of, Acceptance by, and Duties of
--------------------------------------------------------
Indenture Trustee; Qualification; Resignation; Removal; Successor.
- ------------------------------------------------------------------
(a) APPOINTMENT, ACCEPTANCE AND DUTIES. The Issuer hereby
appoints Firstar Bank, National Association to act as the initial Indenture
Trustee hereunder. Firstar Bank, National Association hereby accepts such
appointment and the trusts created under this Indenture, and agrees to perform
said trusts, but only upon and subject to the following terms and conditions, to
all of which the Holders agree, such agreement to be evidenced with respect to
the Holders by their acceptance of the Notes:
(i) Except during the continuance of an Event of Default,
(A) 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
(B) 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; but in the case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to the Indenture
Trustee, the Indenture Trustee shall be under a duty to examine the same to
determine whether or not they conform as to form with the requirements of this
Indenture and whether or not they conform to the requirements of this Indenture.
(ii) In case an Event of Default has occurred and is
continuing, the Indenture Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and shall use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his/her own affairs.
(iii) No provisions of this Indenture shall be construed
to relieve the Indenture Trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct, except that
(A) this subsection shall not be construed to affect
the limitation of the Indenture Trustee's duties and obligations provided in
subparagraph (i)(A) of this Section or the Indenture Trustee's right to rely on
the truth of statements and the correctness of opinions as provided in
subparagraph (i)(B) of this Section;
(B) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by any one of its officers, unless it shall
be established that the Indenture Trustee was negligent in ascertaining the
pertinent facts;
(C) the Indenture Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of
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the Holders of not less than a majority in principal amount of the Notes then
Outstanding relating to the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee, or exercising any trust or
power conferred upon the Indenture Trustee, under this Indenture; and
(D) no provision of this Indenture shall require the
Indenture Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it (with the exception of any action
required to be taken under Section 8.8 hereof).
(iv) Before taking any action hereunder requested by any
Holder, the Indenture Trustee may require that it be furnished an indemnity bond
or other indemnity satisfactory to it in its sole discretion by the Holder for
the reimbursement of all expenses to which it may be put and to protect it
against all liability, except liability which results from the negligence or
misconduct of the Indenture Trustee, by reason of any action so taken by the
Indenture Trustee;
(v) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Indenture Trustee shall be subject to the
provisions of this Section 7.1 and to the provisions of the Trust Indenture Act.
(b) QUALIFICATION. The Indenture Trustee, including any
successor Indenture Trustee shall at all times be a trust company or bank having
the powers of a trust company within the state in which it is located, organized
and doing business under the laws of the United States of America, any state
thereof or the District of Columbia, eligible under Section 310(a) of the Trust
Indenture Act to act as Indenture Trustee under an indenture qualified under the
Trust Indenture Act and have a combined capital and surplus (computed in
accordance with Section 310(a)(2) of the Trust Indenture Act) of at least Ten
Million Dollars ($10,000,000.). The Indenture Trustee shall meet all the
requirements of law for the performance of the duties of the Indenture Trustee
specified herein, shall at all times maintain a rating from any one of the
Rating Agencies in one of their three highest categories (except that Firstar
Bank, National Association shall not be required to maintain such rating).
(c) RESIGNATION. The Indenture Trustee and any successor to
the Indenture Trustee may resign and be discharged from the trusts created by
this Indenture by giving to the Issuer notice in writing which notice shall
specify the date on which such resignation is to take effect and which date
shall not be sooner than sixty (60) days after the date of giving such notice.
Such resignation shall take effect on the day specified in such notice, if a
successor Indenture Trustee shall have been appointed pursuant to Section 7.1(e)
hereof and is qualified to be the Indenture Trustee under the requirements of
this Indenture. If no successor Indenture Trustee has been appointed by the date
specified or within a period of sixty (60) days from the receipt of the notice
by the Issuer, whichever period is the longer, the resigning Indenture Trustee
may request a court of competent jurisdiction to (i) require the Issuer to
appoint a successor, as provided in Section 7.1(e) hereof, within three (3) days
of the receipt of citation or notice by the court, or (ii) appoint an Indenture
Trustee having the qualifications provided in Section 7.1(e) hereof. In no
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event may the resignation of the Indenture Trustee be effective until a
qualified successor Indenture Trustee shall have been selected and appointed.
(d) REMOVAL. If at any time,
(1) the Indenture Trustee has or shall fail to comply with
the obligations imposed on it under Section 310(b) of the Trust Indenture Act
with respect to the Notes of any Series after written request therefor by the
Issuer or any Holder of such Series who has been a bona fide Holder of a Note of
such Series for at least six (6) months, or
(2) the Indenture Trustee shall cease to be eligible under
Section 7.1(b) hereof and shall fail to resign after written request therefor by
the Issuer or any such Holder, or
(3) the Indenture Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of the Indenture
Trustee or of its property shall be appointed or any public officer shall take
charge or control of the Indenture Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, (i) the Issuer, by or pursuant to a resolution of its board of directors,
may remove the Indenture Trustee with respect to all Notes or the Notes of such
Series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder
who has been a bona fide Holder of a Note of such Series for at least six (6)
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Indenture Trustee with
respect to all Notes of such Series and the appointment of a successor Indenture
Trustee or Indenture Trustees.
The Indenture Trustee may be removed at any time with or
without cause by the written direction or upon affirmative vote of the Holders
of a majority in aggregate principal amount of the Directing Notes then
Outstanding or their attorneys-in-fact duly authorized.
(e) SUCCESSOR. In the event of resignation, removal,
ineligibility, disability or refusal to act of the Indenture Trustee, a
successor may be appointed by the Holders of not less than a majority in
aggregate principal amount of the Directing Notes then Outstanding by an
instrument or concurrent instruments in writing signed by such Holders or their
attorneys-in-fact duly authorized provided, nevertheless, that in case at any
time there shall be a vacancy in the office of the Indenture Trustee hereunder,
the Issuer, by an instrument in writing shall appoint a successor to fill such
vacancy until a new Indenture Trustee shall be appointed by the Holders of the
Directing Notes as above authorized; and any such successor Indenture Trustee
appointed by the Issuer shall be superseded, immediately and without further
act, by the new Indenture Trustee appointed by the Holders of the Directing
Notes. No resignation or removal of the Indenture Trustee shall be effective
until a successor Indenture Trustee has been appointed and has qualified under
this Section 7.1 and the predecessor Indenture Trustee has been paid all money
then due it under this Indenture.
Any successor Indenture Trustee shall meet the qualifications
of this Section 7.1. Such successor Indenture Trustee shall execute, acknowledge
and deliver to its predecessor and to the Issuer an instrument in writing
accepting such appointment hereunder, and thereupon such successor Indenture
Trustee, without any further act, deed or conveyance, shall become fully
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vested with all the rights, powers, trusts, duties and obligations of its
predecessor in trust hereunder, with like effect as if originally named as
Indenture Trustee, but such predecessor shall, nevertheless, on the written
request of the Issuer or such successor execute and deliver an instrument
transferring to such successor Indenture Trustee all rights, powers, trusts,
duties and obligations of such predecessor in trust hereunder and shall deliver
all balances (including lawful money of the United States, Eligible Investments,
Financed Student Loans and all evidences of indebtedness, securities and
certificates relating thereto) held by it to such successor Indenture Trustee,
together with an accounting of balances held by the predecessor Indenture
Trustee hereunder. The successor Indenture Trustee shall have no responsibility
for the acts of the predecessor Indenture Trustee. Upon acceptance of
appointment by the successor Indenture Trustee as provided in this Section 7.1,
the Issuer shall give written notice to each Holder within ten (10) days
thereafter.
Any corporation or association into which the Indenture
Trustee may be merged or with which it may be consolidated, or any corporation
or association resulting from any merger or consolidation to which the Indenture
Trustee shall be a party, or any corporation or association to which the
Indenture Trustee may sell or transfer all or substantially all of its corporate
trust business, shall be the successor Indenture Trustee under this Indenture
without the execution or filing of any paper or any further act on the part of
the parties hereto, anything herein to the contrary notwithstanding, provided
such Issuer or association meets the qualifications of this Section 7.1.
The Holders agree to the appointment of the Indenture Trustee
under this Indenture and the performance by the Indenture Trustee of the trusts
imposed upon the Indenture Trustee, but only upon the terms and conditions set
forth in this Indenture, such agreement of the Holders being evidenced with
respect to the Holders by their acceptance of the Notes.
SECTION 7.2 Appointment of Co-Indenture Trustee.
------------------------------------
It is the purpose of this Indenture that there shall be no
violation of any law of any jurisdiction (including in particular the Trust
Indenture Act, if and when applicable, and the law of the State) denying or
restricting the right of banking corporations or associations to transact
business as the Indenture Trustee in such jurisdiction. It is recognized that in
case of litigation under this Indenture or any Financed Student Loan or related
agreement, and in particular in case of the enforcement thereof on default, or
in case of a conflict of interest, or in case the Indenture Trustee deems that
by reason of any present or future law of any jurisdiction it may not exercise
any of the powers, rights or remedies herein granted to the Indenture Trustee or
hold title to the properties, in trust, as herein granted, or take any other
action which may be desirable or necessary in connection therewith, it may be
necessary that the Indenture Trustee appoint an additional individual or
institution as a separate or co-Indenture Trustee. The following provisions of
this Section are intended to accomplish these ends.
The Indenture Trustee may appoint a co-Indenture Trustee under
this Section 7.2 with the consent of the Issuer. In the event that the Indenture
Trustee so appoints an individual or institution as a separate or co-Indenture
Trustee, each and every remedy, power, right, duty, obligation, claim, demand,
cause of action, immunity, estate, title, interest, pledge and security interest
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Indenture Trustee with respect thereto shall be conferred or
imposed upon and exercised or
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performed by the Indenture Trustee, or the Indenture Trustee and such separate
or co-Indenture Trustee jointly, 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 remedy, power, right, duty, obligation, claim, demand,
cause of action, immunity, estate, title, interest, pledge and security interest
shall be exercised and performed by such separate or co-Indenture Trustee but
shall be exercised only to the extent necessary to enable such separate or
co-Indenture Trustee to exercise such powers, rights and remedies, and every
covenant, duty and obligation necessary to the exercise thereof by such separate
or co-Indenture Trustee shall run to and be enforceable by either of them.
Should any instrument in writing from the Issuer or each
Eligible Lender Trustee be required by the separate or co-Indenture Trustee so
appointed by the Indenture Trustee for more fully and certainly vesting in and
confirming to him or its such properties, rights, powers, trusts, duties and
obligations, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Issuer or each Eligible Lender
Trustee. In case any separate or co-Indenture Trustee, or a successor to either,
shall die, become incapable of acting, resign or be removed, all the estates,
properties, rights, powers, trusts, duties and obligations of such separate or
co-Indenture Trustee, so far as permitted by law, shall vest in and be exercised
by the Indenture Trustee until the appointment of a new Indenture Trustee or a
successor to such separate or co-Indenture Trustee.
SECTION 7.3 Certain Rights and Obligations of the Indenture
-----------------------------------------------
Trustee.
- --------
The following paragraphs (a) through (j), inclusive, of this
Section 7.3 are subject to Sections 315(a) through 315(d) of the Trust Indenture
Act.
(a) The Indenture Trustee (i) may execute any of the trusts or
powers hereof and perform any of its duties by or through attorneys, agents,
receivers or employees appointed by the Indenture Trustee in the exercise of
reasonable care, (ii) shall be entitled to the advice of counsel concerning all
matters of trusts hereof and duties hereunder, and (iii) may pay reasonable
compensation in all cases to all of those attorneys, agents, receivers and
employees reasonably employed by it in connection with the trusts hereof. The
Indenture Trustee may act upon the opinion or advice of an attorney (who may be
the attorney or attorneys for the Issuer) approved by the Indenture Trustee in
the exercise of reasonable care. The Indenture Trustee shall not be responsible
for any loss or damage resulting from any action taken or omitted to be taken in
good faith in reliance upon that opinion or advice. In addition, the Indenture
Trustee shall not be answerable for the default or misconduct of any such
attorney, agent or employee selected by it with reasonable care.
(b) Except as provided herein, the Indenture Trustee shall
have no responsibility or duty with respect to the application of any moneys
paid to the Issuer or to the Servicers.
(c) Except for its certificate of authentication on the Notes
and pursuant to Section 7.1(a)(i)(A), the Indenture Trustee shall not be
responsible for or have any liability for:
(i) any act of the Issuer or any Eligible Lender Trustee;
(ii) any recital in this Indenture or in the Notes;
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(iii) the validity, priority, recording, rerecording,
filing or refiling of this Indenture or any Supplemental Indenture issued
hereunder or of any other document in connection herewith;
(iv) any instrument or document of further assurance or
collateral assignment;
(v) any financing statements, amendments thereto, or
continuation statements;
(vi) the validity of the execution by the Issuer of this
Indenture, any Supplemental Indenture or instruments or documents of further
assurance;
(vii) the sufficiency of the security for the Notes issued
hereunder or intended to be secured hereby; and (viii) the maintenance of the
security hereof.
(d) The Indenture Trustee shall be protected in acting upon
any notice, resolution, request, consent, order, certificate, report, appraisal,
opinion, or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties. Any action taken by the
Indenture Trustee pursuant to this Indenture upon the request of any Person who
is a Holder at the time of making the request or giving the authority or consent
shall be conclusive and binding upon all future Holders of the same Note and of
Notes issued in exchange therefor or in place thereof.
(e) Whenever in the administration hereof the Indenture
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering, or omitting any action hereunder, the Indenture Trustee
(unless other evidence be herein specifically prescribed), in the absence of bad
faith on its part, may, but shall not be obligated to, rely upon a certificate
signed by an Authorized Officer of the Issuer. Prior to the occurrence of a
default or Event of Default hereunder, the Indenture Trustee may accept a
similar certificate to the effect that any particular dealing, transaction or
action is necessary or expedient; provided, that the Indenture Trustee in its
discretion may require and obtain any further evidence which it deems to be
necessary or advisable; and, provided further, that the Indenture Trustee shall
not be bound to secure any further evidence.
(f) At any reasonable time, the Indenture Trustee and its duly
authorized agents, attorneys, experts, engineers, accountants and
representatives (i) may inspect and copy fully all books, papers and records of
the Issuer pertaining to the Notes, and (ii) may take any memoranda from and in
regard thereto as the Indenture Trustee may desire.
(g) The Indenture Trustee shall not be required to give any
bond or surety with respect to the execution of these trusts and powers or
otherwise.
(h) Notwithstanding anything contained elsewhere in this
Indenture, the Indenture Trustee may demand any showings, certificates, reports,
opinions, appraisals and other information, and any corporate action and
evidence thereof, in addition to that required by the terms hereof, as a
condition to the authentication of any Notes or the taking of any action
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whatsoever within the purview of this Indenture, if the Indenture Trustee deems
it to be desirable for the purpose of establishing the right of the Issuer to
the authentication of any Notes or the right of any person to the taking of any
other action by the Indenture Trustee; provided, that the Indenture Trustee
shall not be required to make that demand and shall be protected by the
provisions hereof if such demand is not made.
(i) Unless otherwise provided herein, all moneys received by
the Indenture Trustee under this Indenture shall be held in trust for the
purpose for which those moneys were received, until those moneys are used,
applied or invested as provided herein; provided, however, that those moneys
need to be segregated from other moneys, except to the extent required by this
Indenture or by law. The Indenture Trustee shall not have any liability for
interest on any moneys received hereunder, except to the extent expressly
provided herein or agreed in writing with the Issuer.
(j) Any opinions, certificates and other instruments and
documents for which provision is made in this Indenture may be accepted by the
Indenture Trustee, in the absence of bad faith on its part, as conclusive
evidence of the facts and conclusions stated therein and shall be full warrant,
protection and authority to the Indenture Trustee for its actions taken
hereunder. In all cases the Indenture Trustee shall be entitled to rely
conclusively upon the notice of the rate of interest on the Notes announced by
the Calculation Agent pursuant to Section 2.03(a) of the Terms Supplement and
any applicable subsections thereunder.
SECTION 7.4 Evidence of Compliance with Conditions Precedent;
-------------------------------------------------
Examination of Evidence; Evidence of Rights of Holders.
- -------------------------------------------------------
The Issuer will furnish, or will cause to be furnished, to the
Indenture Trustee any evidence of compliance with the conditions precedent, if
any, provided in this Indenture (including any covenants compliance with which
constitutes a condition precedent) which relate to any action to be taken by the
Indenture Trustee at the request or upon the application of the Issuer. The
Indenture Trustee shall examine such evidence and any evidence furnished to it
pursuant to any other provisions of this Indenture to determine whether or not
such evidence conforms to the requirements of this Indenture.
Any request, consent or other instrument required by this
Indenture to be signed and executed by Holders may be in any number of
concurrent writings of substantially similar tenor and may be signed or executed
by such Holders in person or by agent or agents duly appointed in writing. Proof
of the execution of any such request, consent or other instrument or of a
writing appointing any such agent, or of the ownership of Notes, shall be
sufficient for any purpose of this Indenture and shall be conclusive in favor of
the Indenture Trustee, the Issuer if made in the following manner:
(a) The fact and date of the execution by any person of any
such request, consent or other instrument or writing may be proved by the
affidavit of a witness of such execution or by the certificate of any notary
public or other officer of any jurisdiction, authorized by the laws thereof to
take acknowledgments of deeds, certifying that the person signing such request,
consent or other instrument or writing acknowledged to him the execution
thereof.
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(b) The ownership of Notes shall be proved by the Note
registry maintained by the Indenture Trustee pursuant to Section 2.4 hereof. The
fact and the date of execution of any request, consent or other instrument and
the amount and distinguishing numbers of Notes held by the person so executing
such request, consent or other instrument may also be proved in any other manner
which the Indenture Trustee may deem sufficient. The Indenture Trustee may
nevertheless, in its discretion, require further proof in cases where it may
deem further proof desirable.
Any request, consent or vote of the Holder of any Note shall
bind every future Holder of the same Note and the Holder of any Note issued in
exchange therefor or in lieu thereof, in respect of anything done or suffered to
be done by the Indenture Trustee, the Issuer in pursuance of such request,
consent or vote.
In determining whether the Holders of the requisite aggregate
principal amount of Notes have concurred in any demand, request, direction,
consent or waiver under this Indenture, Notes which are owned by the Issuer or
by any other direct or indirect obligor on the Notes, or by any person directly
or indirectly controlling or controlled by, or under direct or indirect common
control with, the Issuer or any other direct or indirect obligor on the Notes,
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, provided that, for the purpose of determining whether the
Indenture Trustee shall be protected in relying on any such demand, request,
direction, consent or waiver, only Notes which the Indenture Trustee knows to be
so owned shall be disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding for the purposes of this paragraph if the
pledgees shall establish to the satisfaction of the Indenture Trustee the
pledgee's right to vote such Notes and that the pledgee is not a person directly
or indirectly controlling or controlled by, or under direct or indirect common
control with, the Issuer or any other direct or indirect obligor on the Notes.
In case of a dispute as to such right, any decision by the Indenture Trustee
taken upon the advice of counsel shall provide full protection to the Indenture
Trustee.
SECTION 7.5 Proofs of Claims and Other Papers and Documents.
------------------------------------------------
The Indenture Trustee may file such proofs of claims and other
papers or documents as may be necessary or advisable in order to have claims of
the Indenture Trustee and of the Holders of the Notes allowed in any judicial
proceedings relative to the Notes and the security therefor.
SECTION 7.6 Dealing with the Issuer.
------------------------
The Indenture Trustee, each Eligible Lender Trustee and their
respective directors, officers, employees or agents, may in good faith buy,
sell, own, hold and deal in any of the Notes, and may join in any action which
any Holder of a Note may be entitled to take, with like effect as if the
Indenture Trustee or such Eligible Lender Trustee were not the Indenture Trustee
or an Eligible Lender Trustee, respectively, under this Indenture. The Indenture
Trustee or any Eligible Lender Trustee may in good faith hold any other form of
indebtedness of the Issuer, own, accept or negotiate any drafts, bills of
exchange, acceptances or obligations of the Issuer, and make disbursements for
the Issuer and enter into any commercial or business arrangement therewith,
including, without limitation, acting as Servicer and/or Seller of Financed
Student Loans under the Program. The Indenture Trustee may act as depository
for, and permit
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any of its officers or directors to act as a member of, or act in any other
capacity in respect to, any committee formed to protect the rights of the
Holders or to effect or aid in any reorganization growing out of the enforcement
of the Notes or of this Indenture. Notwithstanding the foregoing, the Indenture
Trustee shall not be responsible for servicing any Financed Student Loans unless
the Indenture Trustee, acting at its sole discretion, elects to enter into a
Servicing Agreement with the Issuer or the Administrator.
SECTION 7.7 Fees and Reimbursement of Indenture Trustee.
--------------------------------------------
The Issuer shall promptly pay to the Indenture Trustee from
time to time, but solely from the Trust Estate, customary compensation for all
services rendered by it hereunder, and also all its reasonable expenses,
charges, and other disbursements and those of its attorneys, agents, and
employees incurred in and about the administration and execution of the trusts
hereby created. For purposes hereof, fees for ordinary services provided for by
its applicable standard fee schedules with respect to such services, in the
absence of a written agreement between the Issuer and the Indenture Trustee with
respect to its compensation for ordinary services rendered hereunder, shall be
deemed to be customary. As security for such payment, each Eligible Lender
Trustee and the Issuer in the granting clauses hereof or a Supplemental
Indenture, as the case may be, has pledged, and granted unto the Indenture
Trustee a security interest in, the Trust Estate, prior to any rights of the
Holders; provided, however, so long as no Event of Default under Section 8.1(1)
hereof exists, such pledge and security interest shall secure payment of the
fees and expenses of the Indenture Trustee incurred hereunder in an amount not
to exceed in any one calendar year $100,000; provided further, however, that if
an Event of Default under Section 8.1(1) exists, such pledge and security
interest shall secure payment of the fees and expenses of the Indenture Trustee
incurred hereunder without limitation as to amount so long as such Event of
Default continues to exist.
SECTION 7.8 Fees and Reimbursements of Each Eligible Lender
Trustee. -----------------------------------------------
- --------
The Issuer shall promptly pay to each Eligible Lender Trustee
from time to time customary compensation for all services rendered by it under
this Indenture and each Supplemental Indenture hereto and under the applicable
Eligible Lender Trust Agreement, and also all of its respective reasonable
expenses, charges and other disbursements and those of its attorneys, agents and
employees incurred relating to the administration and execution of the trusts
created by this Indenture and further trusts created by any Supplemental
Indenture. For purposes hereof, fees for ordinary services provided for by its
standard fee schedules with respect to such services, in the absence of a
written agreement between the Issuer and an Eligible Lender Trustee or with
respect to its compensation for ordinary services rendered hereunder and under
the Eligible Lender Trust Agreement shall be deemed to be customary. As security
for such payment, each Eligible Lender Trustee and the Issuer in the granting
clauses hereof or in a Supplemental Indenture, as the case may be, has pledged
and granted unto the Indenture Trustee for the fees and expenses of each
Eligible Lender Trustee hereunder and under any Supplemental Indenture and under
the applicable Eligible Lender Trust Agreement a security interest in the Trust
Estate hereunder, prior to any rights of the Holders of Notes or; provided,
however, so long as no Event of Default hereunder exists, such pledge and
security interest shall secure payment of such fees and expenses of each
Eligible Lender Trustee incurred with respect to this Indenture and any
Supplemental Indenture hereto in an amount not to exceed in any one calendar
year $100,000; provided further, however, that if an Event of Default hereunder
exists, such pledge
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and security interest shall secure payment of such fees and expenses, without
limitation as to amount, of each Eligible Lender Trustee so long as such Event
of Default continues to exist.
SECTION 7.9 Covenants of Indenture Trustee Pursuant to Higher
-------------------------------------------------
Education Act.
- --------------
The Indenture Trustee hereby represents, covenants and agrees
as follows:
1. The Indenture Trustee is an eligible lender under
the Higher Education Act and so long as any of the Notes
remain Outstanding and any Financed Student Loans are held by
the Indenture Trustee under the Indenture, the Indenture
Trustee will remain an eligible lender.
2. The Indenture Trustee will not exercise any of the
rights, duties or privileges under this Indenture
(particularly those enumerated in Article V, Article VII or
Article VIII hereof) in such manner as would cause any
Financed Student Loans to be sold, transferred, assigned or
pledged as security to any person or entity other than an
eligible lender so long as the Higher Education Act prohibits
such sale, transfer, assignment or pledge.
3. The Indenture Trustee will comply with the Higher
Education Act, and will execute such Supplemental Indentures
in accordance with Section 9.1(6) hereof as may from time to
time be required in order for this Indenture, as amended by
any such Supplemental Indenture, to be operative in a manner
consistent with amendments made to the Higher Education Act.
4. Prior to the Financing of any Student Loan, the
Indenture Trustee shall have received the certificates and
other documents required by Section 5.3 hereof.
The Indenture Trustee and the Issuer hereby acknowledge their
understanding that the Indenture Trustee has special contractual obligations to
the Secretary of Education which must be maintained and preserved in order for
the Indenture Trustee to remain an eligible lender under the Higher Education
Act, and the Indenture Trustee specifically recognizes its obligations
thereunder and in particular such obligations during the administration of the
trust created hereby.
SECTION 7.10 Statements and Reports by Indenture Trustee of
----------------------------------------------
Funds and Accounts and Other Matters.
- -------------------------------------
Within twenty (20) days following the end of each calendar
month, the Indenture Trustee shall furnish to the Issuer a statement setting
forth (to the extent applicable) with respect to such calendar month (a) the
balances held by the Indenture Trustee at the end of such month to the credit of
each Fund and Account, (b) the principal amount of Notes Outstanding at the end
of such calendar month and the principal amount thereof redeemed or paid by the
Indenture Trustee during such calendar month and (c) any other information which
the Issuer may reasonably request and which is customarily provided by indenture
trustees under trusts similar hereto.
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Within sixty (60) days after each April 15 of each year
commencing with the April 15 following the first issuance of Notes under this
Indenture, if required by Section 313(a) of the Trust Indenture Act, the
Indenture Trustee shall transmit, pursuant to Section 313(c) of the Trust
Indenture Act, a brief report dated as of such April 15 with respect to any of
the events specified in such Section 313(a) which may have occurred since the
later of the immediately preceding April 15 or the date of this Indenture. The
Indenture Trustee shall transmit the reports required by Section 313(a) of the
Trust Indenture Act at the time specified therein. Reports pursuant to this
Section 7.10 shall be transmitted in the manner and to the Persons required by
Sections 313(c) and 313(d) of the Trust Indenture Act.
On each Monthly Distribution Date, the Indenture Trustee shall
provide to each Rating Agency and to each Noteholder of the applicable Series of
Notes, a statement substantially in the form of Exhibit A to the Terms
Supplement, setting forth at least the following information with respect to
such Distribution Date or the preceding Collection Period or Collection Periods,
to the extent applicable:
(a) the Principal Factor for each Series of Notes, as
applicable;
(b) the amount of the payment allocable to principal of each
Series of Notes;
(c) the amount of the payment allocable to interest on such
Series of Notes, together with the Series Interest Rates applicable with respect
thereto (indicating, whether such Series Interest Rates are based on the Formula
Rate or on the Net Loan Rate with respect to such Notes, and specifying what
each such Series Interest Rate would have been if it had been calculated using
the alternate basis);
(d) the amount of the payment, if any, allocable to any
Carryover Interest, together with the outstanding amount, if any, thereof after
giving effect to any such distribution;
(e) the Pool Balance, the Parity Percentage and the Senior
Parity Percentage, in each case as of the close of business on the last day of
the preceding Collection Period;
(f) the aggregate outstanding principal amount of each Series
of Notes as of such Monthly Distribution Date, after giving effect to
distributions allocated to principal on such Distribution Date;
(g) the estimated amount to be allocated to Program Operating
Expenses on the upcoming Monthly Distribution Date;
(h) the amount of the aggregate Realized Losses, if any, for
the preceding Collection Period and the aggregate amount, if any, received
(stated separately for interest and principal) during such Collection Period
relating to Financed Student Loans for which a Realized Loss was previously
allocated;
(i) the amount of the distribution attributable to amounts in
the Reserve Fund, the Acquisition Fund or other Account hereunder, the amount of
any other withdrawals from such Funds and other Accounts for such Monthly
Distribution Date, the balance of such Funds and other Accounts on such
Distribution Date, after giving effect to changes therein on such
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Distribution Date, the then applicable Parity Percentage and the amount of the
distribution, if any, attributable to Parity Percentage Payments;
(j) the aggregate amount, if any, paid for Financed Student
Loans purchased from the Student Loan Portfolio Fund during the preceding
Collection Period;
(k) the following information as reported to the Indenture
Trustee by the Issuer or Servicers: the number and principal amount of Financed
Student Loans, as of the end of the preceding Collection Period, that are (i) 31
to 60 days delinquent, (ii) 61 to 90 days delinquent, (iii) 91 to 120 days
delinquent, (iv) more than 120 days delinquent and (v) for which claims have
been filed with the appropriate Guarantee Agency or the Secretary of Education
and which are awaiting payment; and
(l) any other information specified in Terms Supplement.
Within the prescribed period of time for federal tax reporting
purposes after the end of each calendar year during the term of the Indenture,
the Indenture Trustee shall mail to each Person who at any time during such
calendar year was a Noteholder and received any payment thereon, a statement
containing the information required for such Noteholder's preparation of its
federal income tax returns.
SECTION 7.11 Additional Authenticating Agent.
--------------------------------
The Indenture Trustee may at any time, subject to the approval
of the Issuer, appoint an authenticating agent which shall be authorized to act
on the Indenture Trustee's behalf and subject to its direction in the
authentication and delivery of Notes in connection with transfers and exchanges
of Notes as fully to all intents and purposes as though the agent had been
expressly authorized to authenticate and deliver Notes hereunder. Any
authenticating agent appointed hereunder shall be a commercial bank, trust
company or other financial institution, in each case whose debt securities are
rated "Baa3/P-3" or higher or "BBB-/A-3" or higher by a Rating Agency. For all
purposes of this Indenture, the authentication and delivery of Notes by the
agent appointed pursuant to this Indenture shall be deemed to be the
authentication and delivery of such Notes by the Indenture Trustee.
SECTION 7.12 Notice to Rating Agencies.
--------------------------
The Indenture Trustee shall give written notice to any Rating
Agency that then maintains a rating on the Notes: (a) if a successor Indenture
Trustee is appointed hereunder; (b) if this Indenture is amended or
supplemented; (c) if all Notes are no longer Outstanding or are defeased; (d) if
there is a change in or an addition to Servicers or Guarantee Agencies or (e) if
an Event of Default has occurred and is continuing.
SECTION 7.13 Indenture Trustee Not Liable for Acts of the
--------------------------------------------
Issuer; No Representations by Indenture Trustee.
- ------------------------------------------------
The Indenture Trustee shall not be responsible or have any
liability for any act of the Issuer. The Indenture Trustee shall not be
responsible in any manner whatsoever for the correctness of the recitals,
statements and representations of the Issuer in this Indenture and any and all
Supplemental Indentures or in the Notes, all of which are made by the Issuer
solely.
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Except with regard to the execution of the certificate of authentication set
forth on each Note and as to the authority and eligibility of the Indenture
Trustee hereunder and due execution by the Indenture Trustee hereof, the
Indenture Trustee makes no representation as to the validity of this Indenture
or of the Notes issued hereunder, and the Indenture Trustee shall incur no
liability or responsibility in respect of any such matters.
SECTION 7.14 Indenture Trustee Not Responsible for Calculation
-------------------------------------------------
Agent.
- ------
The Indenture Trustee shall not be liable or responsible for
the actions of or the failure to act by the Calculation Agent under this
Indenture or under any Calculation Agent Agreement. The Indenture Trustee may
conclusively rely upon any information required to be furnished by the
Calculation Agent without undertaking any independent review or investigation of
the truth or accuracy of such information.
SECTION 7.15 Indemnification of the Indenture Trustee and each
-------------------------------------------------
Eligible Lender Trustee.
- ------------------------
The Indenture Trustee shall be under no obligation or duty to
perform any act at the request of any Holder or to institute or defend any suit
in respect thereof unless properly indemnified to its satisfaction as provided
in Section 7.1(a) hereof, except as otherwise provided in said Section 7.1(a).
The Indenture Trustee shall not be required to take notice, or be deemed to have
knowledge, of any default or Event of Default of the Issuer hereunder and may
conclusively assume that there has been no such default or Event of Default
(other than an Event of Default described in Section 8.1(1) hereof) unless it
shall have actual notice thereof or unless and until it shall have been
specifically notified in writing of such default or Event of Default by a Holder
or the Issuer. The Issuer agrees to indemnify (a) the Indenture Trustee for, and
to hold it harmless against, any loss, liability, or expenses incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder and (b) each Eligible Lender Trustee for, and to hold it harmless
against, any loss, liability or expenses incurred without negligence or bad
faith on its part, arising out of or in connection with (i) the acceptance or
administration of the trust or trusts under its respective Eligible Lender Trust
Agreement or (ii) the exercise of performance of any of its powers or duties
under this Indenture, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any or its powers or duties under its respective Eligible Lender Trust Agreement
or hereunder; provided, however, that any such indemnification shall be payable
solely out of the Trust Estate.
All expenses and obligations incurred by the Issuer by reason
of the indemnification provided for in this Section 7.15 shall be payable solely
from, as appropriate, the Trust Estate, including, without limitation, the
Excess Surplus Account, in accordance with the provision of Sections 5.5.1,
5.5.4 and 5.5.5 hereof.
SECTION 7.16 Intervention by the Indenture Trustee.
--------------------------------------
The Indenture Trustee may intervene on behalf of the Holders,
and shall intervene if requested to do so in writing by the Holders of not less
than a majority of the aggregate
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principal amount of Notes then Outstanding, in any judicial proceeding with
respect to this Indenture to which the Issuer is a part and which in the opinion
of the Indenture Trustee and its counsel has a substantial bearing on the
interest of the Holders of the Notes. The rights and obligations of the
Indenture Trustee under this Section are subject to the approval of that
intervention by a court of competent jurisdiction. The Indenture Trustee may,
but is not required to, require that an indemnity bond satisfactory to it be
provided to it in accordance with Section 7.1(a) hereof before it takes action
under this Section.
SECTION 7.17 Preferential Collection of Claims Against Issuer.
-------------------------------------------------
The Indenture Trustee shall comply with Section 311(a) of the
Trust Indenture Act, excluding any creditor relationship listed in Section
311(b) of the Trust Indenture Act. An Indenture Trustee who has resigned or been
removed shall be subject to Section 311(a) of the Trust Indenture Act to the
extent indicated.
SECTION 7.18 Preservation of Information; Communication to
---------------------------------------------
Holders.
- --------
The Indenture Trustee shall comply with the obligations
imposed upon it pursuant to Section 312 of the Trust Indenture Act.
Every Holder, by receiving and holding the same, agrees with
the Issuer and the Indenture Trustee that no one of the Issuer, the Indenture
Trustee, any Paying Agent or Registrar shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with Section 312(c) of the Trust Indenture Act, regardless
of the source from which such information was derived, and that the Indenture
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under Section 312(b) of the Trust Indenture Act.
SECTION 7.19 Survival of Certain Provisions of the Indenture.
------------------------------------------------
The provisions of Sections 7.1(a), 7.3, 7.4, 7.7, 7.8, 7.9 and
7.15 of this Article VII shall survive the release, discharge and satisfaction
of this Indenture.
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ARTICLE VIII
Defaults and Remedies
---------------------
SECTION 8.1 Events of Default.
------------------
The following shall constitute "Events of Default":
1. Failure in the due and punctual payment of:
(i) the principal of or interest on any
Note when due, either at Final Legal Maturity or upon
redemption or otherwise (excluding, however, (a) any shortfall
on a Distribution Date other than the Legal Final Maturity of
any Series of Notes if Available Funds are insufficient to pay
the related Principal Distribution Amount on such date, (b)
for so long as any Senior Notes are Outstanding under this
Indenture, any shortfall on a Distribution Date other than the
Legal Final Maturity of any Series of Subordinate Notes if
Available Funds are insufficient to pay the related
Noteholders' Interest Distribution Amount on such date, and
(c) for so long as any Senior Notes are Outstanding under this
Indenture, any deferral in the payment of interest or
principal on Subordinate Notes on a Distribution Date other
than the Legal Final Maturity of the Subordinate Notes
pursuant to Section 5.5.1 hereof and Article IV of the Terms
Supplement), or
(ii) any Issuer Exchange Payment when due,
excluding, however (a) payment in respect of an early
termination of the Exchange Agreement, (b) for so long as
Senior Notes are Outstanding under this Indenture, any
shortfall on a Distribution Date other than the Legal Final
Maturity of any series of Subordinate Notes if Available Funds
are insufficient to pay any Subordinate Issuer Exchange
Payments relating to such Subordinate Notes, and (c) for so
long as any Senior Notes are Outstanding under this Indenture,
any deferral in the payment of Subordinate Issuer Exchange
Payments pursuant to Section 5.5.1 hereof and Article IV of
the Terms Supplement;
2. Failure by the Issuer in the observance and performance
of any other of the covenants and agreements of the Issuer contained in this
Indenture and the continuation of such failure for a period of 30 days after
written notice thereof is given to the Issuer from the Indenture Trustee or from
the Holders of at least a majority of the aggregate principal amount of the
Notes then Outstanding under this Indenture;
3. If an order or decree shall be entered, with the
consent or acquiescence of the Issuer, appointing a receiver or other custodian
for the Trust Estate, or approving a petition filed against the Issuer seeking
reorganization or liquidation of the Issuer under the federal bankruptcy laws or
any other similar state or federal law, or if any such order or decree, having
been entered without the consent or acquiescence of the Issuer, shall not be
vacated or discharged or stayed on appeal within thirty (30) days after the
entry thereof; or any proceeding shall be instituted, with the consent or
acquiescence of the Issuer, for the purpose of effecting a composition or other
arrangement between the Issuer and its creditors or for the purpose of adjusting
the claims of such creditors pursuant to any federal or state statute, if the
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claims of such creditors are under any circumstances payable from the Trust
Estate; or if the Issuer makes an assignment for the benefit of its creditors,
or consents to the appointment of a receiver, trustee or other custodian for
itself or for the whole or any part of the Trust Estate; or if (i) the Issuer is
adjudged insolvent by a court of competent jurisdiction, or (ii) an order,
judgment or decree be entered by any court of competent jurisdiction appointing,
without the consent of the Issuer, a receiver, trustee or other custodian of the
Issuer or of the whole or any substantial part of its property and any of the
aforesaid adjudications, orders, judgments or decrees shall not be vacated or
set aside or stayed within thirty (30) days from the date of entry thereof; or
if the Issuer shall file a petition or answer seeking reorganization or any
arrangement under the federal bankruptcy laws or any other applicable state or
federal law; or if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume custody or control
of the Issuer or of the whole or any substantial part of its property, and such
custody or control shall not be terminated within thirty (30) days from the date
of assumption of such custody or control;
4. The entry of a final judgment against the Issuer which
judgment constitutes or could result in (a) a lien or charge upon the Available
Funds or the Trust Estate equal or superior to the lien granted under this
Indenture for the benefit of the Holders of Senior, (b) if there are no Senior
Notes Outstanding, a lien or charge upon the Available Funds or the Trust Estate
equal or superior to the lien granted under this Indenture for the benefit of
the Holders of Subordinate Notes, or (c) which materially and adversely affects
the ownership, control or operation of the Program, if such judgment will not be
discharged within 60 days from the entry thereof, or if an appeal will not be
taken therefrom, or from the order, decree or process upon which or pursuant to
which such judgment was granted or entered, in such manner as to conclusively
set aside the execution or levy under such judgment, order, decree or process,
or the enforcement thereof.
Upon the occurrence of an Event of Default,
(a) in the case of an Event of Default described in clause (1)
above, so long as such Event of Default shall not have been remedied, unless the
principal of all of the Notes shall have already become due and payable, the
Indenture Trustee may, and upon written request of the Holders of at least a
majority of the aggregate principal amount of the Outstanding Directing Notes,
the Indenture Trustee shall, by written notice to the Issuer, declare the
principal of all the Notes then Outstanding and the interest and Carryover
Interest, if any, accrued thereon to be due and payable immediately, and upon
any such declaration the same shall become and be immediately due and payable,
anything contained in the Indenture or in any of the Notes to the contrary
notwithstanding; or
(b) in the case of an Event of Default described in clauses
(2) and (4) above, so long as such Event of Default shall not have been
remedied, unless the principal of all of the Notes shall have already become due
and payable, the Indenture Trustee may, and upon written request of all of the
Holders of the Directing Notes then Outstanding in the case of an Event of
Default under clause (2) above and at least a majority of the aggregate
principal amount of the Directing Notes then Outstanding in the case of an Event
of Default under clause (4) above, the Indenture Trustee shall, by written
notice to the Issuer, declare the principal of all the Notes then Outstanding
and the interest and Carryover Interest, if any, accrued thereon to be due and
payable immediately, and upon any such declaration the same shall become and be
immediately
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due and payable, anything contained in the Indenture or in any of the Notes to
the contrary notwithstanding; or
(c) in the case of any Event of Default described in clause
(3) above, so long as such Event of Default shall not have been remedied, the
principal of and all accrued interest and Carryover Interest, if any, on the
Notes then Outstanding shall become immediately due and payable without notice
or any action by the Indenture Trustee of any kind and a declaration of such
acceleration shall be deemed to have been made.
The right of the Indenture Trustee to make any such
declaration as aforesaid, however, is subject to the condition that if, at any
time after such declaration, but before any judgment or decree for the payment
of moneys due shall have been obtained or entered unless the same has been
discharged:
1. all defaults under the Notes or under the Indenture
(other than the payment of principal and interest due and payable solely by
reason of such declaration) shall have been cured to the satisfaction of the
Indenture Trustee or provision deemed by the Indenture Trustee to be adequate
shall have been made therefor, and
2. the following amounts shall either have been paid by or
for the account of the Issuer or provision satisfactory to the Indenture Trustee
shall have been made for such payment:
(i) all overdue installments of interest upon (a) the
Senior Notes for so long as any Senior Notes are Outstanding, or
(b) the Subordinate Notes if no Senior Notes are Outstanding, and
(ii) the reasonable and proper charges, expenses and
liabilities of the Indenture Trustee, any Exchange Counterparty and
the Noteholders and their respective agents and attorneys, and all
other sums then payable by the Issuer under this Indenture (except
the principal of and interest accrued since the next preceding
Distribution Date on the Notes due and payable solely by virtue of
such declaration),
then, the Holders of at least a majority of the aggregate principal amount of
the Directing Notes then Outstanding, by written notice to the Issuer and to the
Indenture Trustee, may rescind such declaration with respect to the Notes and
annul such Event of Default with respect to the Notes, or, if the Indenture
Trustee has acted with respect to the Notes without a direction from the Holders
of at least a majority of the aggregate principal amount of the Directing Notes
Outstanding at the time of such request, and if there has not been theretofore
delivered to the Indenture Trustee written direction to the contrary by the
Holders of at least a majority of the aggregate principal amount of the
Directing Notes then Outstanding, then the Indenture Trustee may annul, by
written notice to the Issuer, such declaration and any such default with respect
to the Notes and its consequences will be annulled; provided that no such
rescission and annulment will extend to or affect any subsequent Event of
Default or impair or exhaust any right or power consequent thereon.
Upon any declaration of acceleration of the Notes hereunder,
the Indenture Trustee shall give notice of such declaration and its consequences
to Holders and to any related
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Exchange Counterparty in the manner set forth in Section 8.8 hereof. Notice of
such acceleration having been given as aforesaid, anything contained in this
Indenture or in the Notes to the contrary notwithstanding, interest and
Carryover Interest, if any, shall cease to accrue on the Notes from and after
the date set forth in such notice (which shall be not more than five (5) days
from the date of such declaration).
SECTION 8.2 Inspection of Books and Records.
--------------------------------
The Issuer covenants that if an Event of Default shall have
happened and shall not have been remedied, the books of record and account of
the Issuer and the Servicers relating to the Program shall at all times, at
reasonable hours and under reasonable circumstances, be subject to the
inspection and use of the Indenture Trustee and any Holder of at least ten
percent (10%) of the aggregate principal amount of Notes then Outstanding and of
their respective agents and attorneys.
The Issuer covenants that if an Event of Default shall have
happened and shall not have been remedied, the Issuer will continue to account,
as a Indenture Trustee of an express trust, for all moneys, securities and
property pledged under this Indenture.
SECTION 8.3 Application of Moneys.
----------------------
In the event that an Event of Default shall have occurred and
be continuing and at any time the moneys held by the Indenture Trustee will be
insufficient for the payment of (i) the principal of and interest then due on
the Notes and/or (ii) any Issuer Exchange Payment, such moneys (other than
moneys held for the payment or redemption of particular Notes, which proceeds
and moneys shall be applied solely to the payment of principal and interest to
Holders other than the Issuer, the Depositor, the Administrator or their
affiliates) and all Available Funds received or collected from the Trust Estate
or otherwise for the benefit or for the account of Holders and/or an Exchange
Counterparty by the Indenture Trustee shall be applied first to the payment of
the costs and expenses of the proceedings resulting in the collection of such
moneys, the expenses, liabilities and advances incurred or made by the Indenture
Trustee in connection with such proceedings and to the payment of the other
reasonable and proper fees and expenses of the Indenture Trustee under this
Indenture and of such other expenses as are necessary in the judgment of the
Indenture Trustee to prevent loss of Available Funds and to protect the
interests of the Holders and/or each Exchange Counterparty, and thereafter as
follows:
1. If the principal of all of the Notes shall not have become
or has not been declared due and payable,
FIRST, to the payment to the Persons entitled thereto of all
installments of interest then due on the Senior Notes (including any interest on
overdue principal at the rate borne by the respective Senior Notes), and to each
Senior Exchange Counterparty of all Senior Issuer Exchange Payments then due, in
the order that such installments of interest and/or Senior Issuer Exchange
Payments shall have become due, and, if the amounts available shall not be
sufficient to pay in full all installments of interest and/or Senior Issuer
Exchange Payments coming due on the same date, then to the payment thereof
ratably, according to the amount due thereon, to such Persons entitled thereto,
without any discrimination or preference; and
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SECOND, to the payment to the Persons entitled thereto, of the
unpaid Noteholders' Principal Distribution Amount and/or principal due and
unpaid on the Senior Notes at the time of such payment without preference or
priority of any Senior Notes over any other Senior Notes, ratably, according to
the Noteholders' Principal Distribution Amount and/or amounts due for principal,
to such Persons entitled thereto without any discrimination or preference; and
THIRD, to the payment to the Persons entitled thereto of all
installments of interest then due on the Subordinate Notes (including any
interest on overdue principal at the interest rates borne by the respective
Subordinate Notes), and to each Subordinate Exchange Counterparty of all
Subordinate Issuer Exchange Payments then due, in the order that such
installments of interest and/or Subordinate Issuer Exchange Payments shall have
become due, and, if the amounts available shall not be sufficient to pay in full
all installments of interest and/or Subordinate Issuer Exchange Payments coming
due on the same date, then to the payment thereof ratably, according to the
amount due thereon, to such Persons entitled thereto, without any discrimination
or preference; and
FOURTH, to the payment to the Persons entitled thereto of the
unpaid Noteholders' Principal Distribution Amount and/or principal due and
unpaid on the Subordinate Notes at the time of such payment without preference
or priority of any Subordinate Notes over any other Subordinate Notes, ratably,
according to the amounts due for principal, to such Persons entitled thereto
without any discrimination or preference.
No Carryover Interest shall be paid under this Part 1 until
all payments required to be made pursuant to FIRST through FOURTH of this Part 1
have been made in full, and then if paid, shall be paid in accordance with the
provisions of Section 4.02 of the Terms Supplement.
2. If the principal of all of the Notes shall have become or
have been declared due and payable,
FIRST, to the payment of the principal and interest then due
and unpaid on the Senior Notes and all Senior Issuer Exchange Payments then due,
without preference or priority of principal over interest or over any Senior
Issuer Exchange Payment, or of interest over principal or over any Senior Issuer
Exchange Payment, of any installment of interest over any other installment of
interest, or of any Senior Note over any other Senior Note, or of any Senior
Issuer Exchange Payment over any other Senior Issuer Exchange Payment, ratably,
according to the amounts due respectively for principal and interest, and all
Senior Issuer Exchange Payments to the Persons entitled thereto without any
discrimination or preference; and
SECOND, to the payment of the principal and interest then due
and unpaid on the Subordinate Notes and all Subordinate Issuer Exchange Payments
due, without preference or priority of principal over interest or over any
Subordinate Issuer Exchange Payment, of interest over principal or over any
Subordinate Issuer Exchange Payment, of any installment of interest over any
other installment of interest, or of any Subordinate Note over any other
Subordinate Note, or of any Subordinate Issuer Exchange Payment over any other
Subordinate Issuer Exchange Payment, ratably, according to the amounts due
respectively for principal and interest, and any Subordinate Issuer Exchange
Payment to the Persons entitled thereto without any discrimination or
preference; and
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THIRD, to the payment of all Carryover Interest due and unpaid
on the Senior Notes, without preference or priority of any Senior Notes over any
other Senior Notes, ratably, according to the amounts due for Carryover
Interest, to the Persons entitled thereto without any discrimination or
preference; and
FOURTH, to the payment of all Carryover Interest due and
unpaid on the Subordinate Notes, without preference or priority to any
Subordinate Notes over any other Subordinate Notes, ratably according to the
amounts due for Carryover Interest, to the Persons entitled thereto without any
discrimination or preference.
Whenever moneys are to be applied pursuant to the foregoing
paragraphs, such moneys shall be applied at such times, and from time to time,
as the Indenture Trustee in its sole discretion shall determine, having due
regard to the amount of such moneys available for application and the likelihood
of additional moneys becoming available for such application in the future.
Whenever the Indenture Trustee shall exercise such discretion, it shall fix the
date upon which application is to be made, and upon such date interest and
Carryover Interest, if any, on the amounts of principal to be paid on such date
shall cease to accrue on the Notes. The Indenture Trustee shall give such notice
as it may deem appropriate of the fixing of any such date and shall not be
required to make payment to the Holder of any unpaid Note unless such Note is
presented for appropriate endorsement.
Whenever moneys are to be applied pursuant to the foregoing
paragraphs, irrespective of and whether other remedies authorized shall have
been pursued in whole or in part, the Indenture Trustee may cause any or all of
the Trust Estate to be sold. The Indenture Trustee may, with or without entry,
so sell the Trust Estate and all right, title, interest, claim and demand
thereto and the right of redemption thereof, in one or more parts, at any such
place or places, and at such time or times and upon such notice and terms as the
Indenture Trustee may deem appropriate and as may be required by law and apply
the proceeds thereof in accordance with the provisions of this Section 8.3. Upon
such sale, the Indenture Trustee may make and deliver to the purchaser or
purchasers a good and sufficient assignment or conveyance for the same, which
sale shall be a perpetual bar both at law and in equity against the Issuer and
all Persons claiming such properties. No purchaser at any sale shall be bound to
see to the application of the purchase money or to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
Nevertheless, the Issuer and/or each Eligible Lender Trustee, if so requested by
the Indenture Trustee, shall ratify and confirm any sale or sales by executing
and delivering to the Indenture Trustee or to such purchaser or purchasers all
such instruments as may be necessary or in the judgment of the Indenture Trustee
and/or such Eligible Lender Trustee proper for the purpose which may be
designated in such request.
The Indenture Trustee shall not sell or permit the sale or
assignment of any Financed Student Loans or any interest therein (as a part of
the Trust Estate) to any Person who is not an eligible lender under the Higher
Education Act if such Act or the regulations thereunder, or either of them, in
force and effect at the time, prohibit the same.
If and whenever all overdue installments of interest on all
Notes, and all overdue Issuer Exchange Payments, together with the reasonable
and proper charges, expenses and liabilities of the Indenture Trustee, each
Exchange Counterparty, the Holders of Notes, their respective agents and
attorneys, and all other sums payable by the Issuer under this Indenture,
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including the principal of and accrued and unpaid interest on all Notes and
amounts due under each Exchange Agreement which shall then be payable by
declaration or otherwise, shall either be paid in full by or for the account of
the Issuer or provision satisfactory to the Indenture Trustee shall be made for
such payment, and all Events of Default under this Indenture or the Notes shall
be made good or secured to the satisfaction of the Indenture Trustee or
provision deemed by the Indenture Trustee to be adequate shall be made therefor,
thereupon the Issuer and the Indenture Trustee shall be restored, respectively,
to their former positions and rights under this Indenture, and all Available
Funds shall thereafter be applied as provided in Article V hereof. No such
resumption of the application of Available Funds as provided in Article V hereof
shall extend to or affect any subsequent Event of Default under this Indenture
or impair any right consequent thereon.
SECTION 8.4 Suits at Law or in Equity; Direction of Action by
-------------------------------------------------
Holders.
- --------
If an Event of Default shall happen and shall not have been
remedied within the applicable time period, if any, provided herein, then and in
every such case, the Indenture Trustee either in its own name or as trustee of
an express trust, or as attorney-in-fact for the Holders and/or each such
Exchange Counterparty or in any one or more of such capacities by its agents and
attorneys, shall be entitled and empowered to proceed forthwith to institute
such suits, actions and proceedings at law or in equity against the Issuer for
the collection of all sums due in connection with the Notes and any Issuer
Exchange Payment and to protect and enforce its rights and the rights of the
Holders and each Exchange Counterparty under this Indenture for the specific
performance of any covenant herein contained, or in aid of the execution of any
power herein granted, or for an accounting as Indenture Trustee of any express
trust, or in the enforcement of any legal or equitable right as the Indenture
Trustee, being advised by counsel, shall deem most effectual to enforce any of
its rights, or to perform any of its duties under this Indenture. The Indenture
Trustee shall be entitled and empowered either in its own name or as a trustee
of an express trust, or as attorney-in-fact for the Holders and/or each such
Exchange Counterparty, or in any one or more of such capacities, to file such
proof of debt, claim, petition or other document as may be necessary or
advisable in order to have the claims of the Indenture Trustee, the Holders and
any Exchange Counterparty allowed in any equity, receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other similar
proceedings. For this purpose, subject to the provisions of Section 8.10 hereof,
the Indenture Trustee is hereby irrevocably appointed the true and lawful
attorney-in-fact of the respective Holders and any Exchange Counterparty (and
the successive Holders by taking and holding the same shall be conclusively
deemed to have so appointed the Indenture Trustee) with authority to make and
file in the respective names of the Holders and any Exchange Counterparty any
such proof of debt, amendment of proof of debt, claim, petition or other
document in any such proceedings, and to receive payment of any sums becoming
distributable on account thereof, and to execute any such other papers and
documents and to do and perform any and all acts and things for and on behalf of
the Holders and any Exchange Counterparty as may be necessary or advisable in
the opinion of the Indenture Trustee in order to have the respective claims of
the Indenture Trustee and the Holders and any Exchange Counterparty allowed in
any such proceedings and to receive payment of and on account of such claims.
All rights of action under this Indenture may be enforced by
the Indenture Trustee without the possession of any of the Notes or any of the
Exchange Agreements or the production thereof in any suit, action or other
proceeding.
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The Holders of at least a majority in aggregate principal
amount of the Outstanding Directing Notes shall have the right, at any time, by
an instrument or instruments in writing executed and delivered to the Indenture
Trustee, to direct the time, method and place of conducting all proceedings to
be taken in connection with the enforcement of the terms and conditions of this
Indenture; provided that (i) such direction shall not be otherwise than in
accordance with the provisions of law and this Indenture ; (ii) the Indenture
Trustee shall not determine that the action so directed would be unjustly
prejudicial to the Holders not taking part in such direction, other than by
effect of the subordination of any of their interests hereunder; and (iii) the
Indenture Trustee may take any other action deemed proper by the Indenture
Trustee which is not inconsistent with such direction.
In case the Indenture Trustee shall have proceeded to enforce
any right or remedy under this Indenture and such proceedings shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Indenture Trustee, then and in every such case the Issuer and
the Indenture Trustee shall be restored to their former positions and rights
hereunder with respect to the Trust Estate (subject, however, to such
determination), and all rights, remedies and powers of the Indenture Trustee
shall continue as if no such proceedings have been taken.
SECTION 8.5 Suits by Individual Holders or an Exchange
------------------------------------------
Counterparty.
- -------------
Except as otherwise specifically provided in this Section 8.5,
no Holder or Exchange Counterparty shall have any right to institute any suit,
action or proceeding in equity or at law for the enforcement of any provision
of, or the execution of any trust or for any remedy under, this Indenture unless
(i) such Holder or Exchange Counterparty, as the case may be, previously shall
have given to the Indenture Trustee notice of the Event of Default on account of
which such suit, action or proceeding is to be instituted, (ii) with respect to
any Exchange Counterparty, such Exchange Counterparty is not in default of its
obligations under its respective Exchange Agreement, all obligations of all the
parties under such Agreement have not been satisfied and such Exchange Agreement
has not been terminated, (iii) the Holders of not less than a majority in
aggregate principal amount of the Directing Notes then Outstanding shall have
filed a written request with the Indenture Trustee after the right to exercise
such powers or right of action, as the case may be, shall have accrued that such
suit, action or proceeding be instituted, (iv) there shall have been offered to
the Indenture Trustee reasonable security and indemnity against the costs,
expenses and liability to be incurred therein or thereby, (v) the Indenture
Trustee for a period of thirty (30) days after the receipt by it of such notice,
request and offer of indemnity shall have failed to proceed to exercise such
powers or to institute any such action, suit or proceeding, or the Indenture
Trustee shall at any time after such receipt have stated in writing that it
shall not so proceed, and (vi) no direction inconsistent with such written
request shall have been given to the Indenture Trustee pursuant to Section 8.4
hereof by the Holders of at least a majority in aggregate principal amount of
the Directing Note then Outstanding; it being understood and intended that,
except as otherwise above provided, neither an Exchange Counterparty nor one or
more Holders shall have any right in any manner whatsoever by its or their
action to affect, disturb or prejudice the pledge created by this Indenture, or
to enforce any right under this Indenture except in the manner herein provided
and that all proceedings at law or in equity shall be instituted, had and
maintained in the manner herein provided for the benefit of Holders and each
Exchange Counterparty.
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Notwithstanding any other provision in this Indenture, each
Holder and each Exchange Counterparty shall have the right, which is absolute
and unconditional as to the payment, respectively, of principal and interest and
which is limited and conditional as the payment of Carryover Interest, to
receive payment of the principal of, and interest and Carryover Interest, if
any, on such Holder's Note in accordance with the terms thereof and hereof and
of each Issuer Exchange Payment, and, upon the occurrence of an Event of Default
with respect thereto, to institute suit for the enforcement of any such payment,
and nothing in this Indenture shall affect or impair the right of any Holder or
Exchange Counterparty to enforce the payment, respectively, of the principal of
and interest and Carryover Interest, if any, on any Note at and after the
maturity thereof and of each Issuer Exchange Payment at the time, place, from
the source and in the manner provided herein.
Notwithstanding any other provision of this Indenture, the
right of any Holder of any Note to receive payment of the principal of and
interest and Carryover Interest on such Note, on or after the respective due
dates expressed in such Note, or the right of any Exchange Counterparty to
receive payment of any Issuer Exchange Payment, or to institute suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 8.6 Remedies Not Exclusive.
-----------------------
No remedy by the terms of this Indenture conferred upon or
reserved to the Indenture Trustee, the Holders or an Exchange Counterparty is
intended to be exclusive of any other remedy, but each and every such remedy
shall be cumulative and shall be in addition to every other remedy given under
this Indenture or existing at law or in equity or by statute on or after the
date of adoption of this Indenture.
SECTION 8.7 Waivers of Default.
-------------------
No delay or omission of the Indenture Trustee, any Holder or
any Exchange Counterparty to exercise any right or power arising upon the
happening of an Event of Default shall impair any right or power or shall be
construed to be a waiver of any such Event of Default or to be an acquiescence
therein and every power and remedy given by this Article VIII to the Indenture
Trustee, the Holders or any Exchange Counterparty may be exercised from time to
time and as often as may be deemed necessary by the Indenture Trustee, such
Holders or any Exchange Counterparty. No waiver of any Event of Default
hereunder, whether by the Indenture Trustee, any Holder or any Exchange
Counterparty, shall extend to or shall affect any subsequent Event of Default or
shall impair any rights or remedies consequent thereon.
Prior to a declaration accelerating the maturity of the Notes
as provided in Section 8.1 hereof, the Holders of not less than two-thirds (2/3)
in principal amount of the Directing Notes at the time Outstanding and each
Exchange Counterparty (so long as such Exchange Counterparty is not in default
of its obligations under its respective Exchange Agreement and such Exchange
Agreement has not be terminated), or their attorneys-in-fact duly authorized,
may, on behalf of the Holders of all of the Notes and each such Exchange
Counterparty, respectively, waive any past failure under this Indenture and its
consequences with respect to the Notes, except a failure in payment of the
principal of or interest on any of the Notes. The Indenture Trustee shall, upon
the written request of an Exchange Counterparty,
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except as otherwise provided in the next succeeding paragraph, waive any failure
in the payment of an Issuer Exchange Payment to such Exchange Counterparty. No
such waiver shall extend to any subsequent or other failure or impair any right
consequent thereon.
SECTION 8.8 Notice of Events of Default.
----------------------------
The Indenture Trustee shall, within thirty (30) days after the
Indenture Trustee becomes aware of the occurrence of an Event of Default, give
written notice to each Exchange Counterparty and all Holders by registered mail
of all Events of Default known to the Indenture Trustee, unless such Event of
Default shall have been cured before the giving of such notice.
SECTION 8.9 Computations.
-------------
For the purposes of this Article VIII and Section
7.1(a)(iii)(C) hereof, in determining whether the Holders of a required
principal amount of Notes have concurred in any such direction or consent, Notes
owned by the Issuer, or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Issuer, shall
be disregarded, except for purposes of determining whether the Indenture Trustee
shall be protected in relying on any such direction or consent, only Notes which
the Indenture Trustee knows are so owned shall be so disregarded.
SECTION 8.10 Article Subject to Certain Provisions.
--------------------------------------
The provisions of this Article VIII are subject to the
provisions of Section 7.8 hereof.
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ARTICLE IX
Amending and Supplementing of Indenture
---------------------------------------
SECTION 9.1 Amending and Supplementing of Indenture Without
-----------------------------------------------
Consent of Holders.
- -------------------
The Issuer, each Eligible Lender Trustee and the Indenture
Trustee, with the written confirmation from each Rating Agency then rating the
Notes that execution of the proposed Supplemental Indenture will not adversely
affect the rating of such Rating Agency on the Notes (provided, however, that
such written confirmation shall not be required for a Supplemental Indenture
executed pursuant to item (13) of this Section 9.1), from time to time and at
any time and without the consent or concurrence of any Holder, may execute a
Supplemental Indenture for any one or more of the following purposes:
(1) To make any changes or corrections in this Indenture as
are required for the purpose of curing or correcting any ambiguity or
defective or inconsistent provision or omission or mistake or manifest
error contained in this Indenture or to insert in this Indenture such
provisions clarifying matters or questions arising under this Indenture
as are necessary or desirable;
(2) To add additional covenants and agreements of the Issuer
for the purpose of further securing the payment of the Notes;
(3) To surrender any right, power or privilege reserved to or
conferred upon the Issuer by the terms of this Indenture;
(4) To confirm as further assurance any lien, pledge, security
interest, assignment or charge, or the subjection to any lien, pledge,
security interest, assignment or charge, created or to be created by
the provisions of this Indenture;
(5) To grant to or confer upon the Holders any additional
rights, remedies, powers, authority or security that lawfully may be
granted to or conferred upon them, or to grant to or to confer upon the
Indenture Trustee for the benefit of the Holders or an Exchange
Counterparty any additional rights, duties, remedies, powers or
authority;
(6) To make such amendments to this Indenture as are required
to permit the Indenture Trustee fully to comply with the Higher
Education Act, or as required in order for this Indenture, as amended
by such Supplemental Indenture, not to be contrary to the terms of the
Higher Education Act;
(7) To make such amendments to this Indenture as may be
necessary or convenient to provide for issuance of the Notes in coupon
form or issuance and registration of the Notes in book-entry form and
to provide for other related provisions of the Notes;
(8) To modify, amend or supplement this Indenture or any
indenture supplemental hereto in such manner as to maintain the
qualification hereof or thereof under the Trust Indenture Act or any
similar federal statute hereafter in effect, and, if the
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Issuer and the Indenture Trustee so determine, to add to this Indenture
or any indenture supplemental hereto such other terms, conditions and
provisions as may be permitted by the Trust Indenture Act or similar
federal statute, and which shall not materially adversely affect the
interests of the Holders of the Notes;
(9) To authorize the establishment of agreements providing for
the pledge of funds in excess of the amount required to pay principal
of and interest on the Notes hereunder to other indentures, and for the
pledge of such funds under other indentures to this Indenture;
(10) To permit any changes or modifications hereof required
(a) by a Rating Agency to maintain the outstanding rating on the Notes
or (b) by the issuer of (i) a policy of bond insurance or (ii) any
similar financial guaranty insuring the payment of the principal of and
interest on any Notes to obtain an internal rating of at least
investment grade or as a condition of the issuance of such insurance or
guaranty;
(11) To make the terms and provisions of this Indenture,
including the lien and security interest granted herein, applicable to
an Exchange Agreement;
(12) To provide for the issuance of credit enhancement,
including, but not limited to, a policy of bond insurance, with respect
to any Series of Notes;
(13) To add any additional Eligible Lender Trustee or replace
any existing Eligible Lender Trustee; or
(14) To make any other amendment which, in the judgment of the
Indenture Trustee, is not to the material prejudice of the Indenture
Trustee, the Holders or any Exchange Counterparty.
The Issuer, each Eligible Lender Trustee and the Indenture
Trustee, from time to time and at any time without the consent or concurrence of
any Holder, may execute a Supplemental Indenture, if the Issuer determines that
the provisions of such Supplemental Indenture are necessary or desirable to
maximize Available Funds.
SECTION 9.2 Amendment of Indenture with Consent of Holders and
--------------------------------------------------
Exchange Counterparties.
- ------------------------
The Issuer, each Eligible Lender Trustee and the Indenture
Trustee from time to time and at any time may execute a Supplemental Indenture,
with the prior written consent of the Holders of not less than a majority in
aggregate principal amount of the Directing Notes then Outstanding (or, with
respect to any change affecting only certain Series of Notes, the Holders of a
majority in aggregate principal amount of the Outstanding Notes of such Series)
for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture, or modifying or amending
the rights and obligations of the Issuer hereunder, or modifying or amending in
any manner the rights of an Exchange Counterparty or the Holders of Notes then
Outstanding; PROVIDED, HOWEVER, that, without the specific consent of the Holder
of each such Note which would be affected thereby, no Supplemental Indenture
amending or supplementing the provisions hereof shall: (1) change the Legal
Final Maturity for the payment of the principal of any Note or any date for the
payment of interest thereon, or
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reduce the principal amount of any Note or, except on an Interest Determination
Date, the Series Interest Rate thereon; or (2) reduce the aforesaid proportion
of Notes the Holders of which are required to consent to any Supplemental
Indenture amending or supplementing the provisions of the Indenture; or (3)
except as shall be otherwise provided herein, give to any Note any preference
over any other Notes secured hereby; or (4) except as shall be otherwise
provided herein, authorize the creation of any pledge of the Trust Estate prior,
superior or equal to, or deprive the Holders or any Exchange Counterparty of,
the pledge, lien, security interest and assignment created herein for the
payment of the Notes or any Issuer Exchange Payment.
It shall not be necessary that the consents of the Holders
approve the particular form of wording of the proposed amendment or supplement
or of the Supplemental Indenture effecting such amendment or supplement, but it
shall be sufficient if such consents approve the substance of the proposed
amendment or supplement.
SECTION 9.3 Effectiveness of Supplemental Indenture.
----------------------------------------
Upon the execution pursuant to this Article IX by the Issuer,
each Eligible Lender Trustee and the Indenture Trustee of any Supplemental
Indenture amending or supplementing the provisions of this Indenture or at such
later date as may be specified in such Supplemental Indenture, this Indenture
shall be amended or supplemented in accordance with such Supplemental Indenture.
SECTION 9.4 Supplemental Indenture Affecting Indenture
------------------------------------------
Trustee.
- --------
The Indenture Trustee shall not be required to execute any
Supplemental Indenture changing, amending or modifying any of the rights, duties
and obligations of the Indenture Trustee.
SECTION 9.5 Supplemental Indentures Affecting Certain
-----------------------------------------
Requirements of the Higher Education Act.
- -----------------------------------------
No Supplemental Indenture amending the provisions of this
Indenture which prohibit the transfer of, or the granting of a security interest
in, Financed Student Loans (or any security interest therein) to persons other
than eligible lenders under the Higher Education Act shall be effective unless
the Higher Education Act shall have been amended to permit such a transfer or
grant.
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ARTICLE X
Defeasance; Moneys Held for Payment of Defeased Notes
-----------------------------------------------------
SECTION 10.1 Trust Irrevocable.
------------------
The trust created by this Indenture shall be irrevocable until
the indebtedness secured hereby has been fully paid or provision for the payment
thereof has been made as provided in this Article X.
SECTION 10.2 Discharge of Liens and Pledges; Notes No Longer
-----------------------------------------------
Outstanding and Deemed to Be Paid.
- ----------------------------------
The Notes of the Issuer under this Indenture and the liens,
pledges, security interests, charges, trusts, assignments, covenants and
agreements of the Issuer and each Eligible Lender Trustee, herein made or
provided for, shall be fully discharged and satisfied as to: (a) any Note, when
either of items (i) or (ii) below shall have occurred; (b) any Program Operating
Expenses, when item (iii) below shall have occurred; (c) any Exchange Agreement,
when item (iv) below shall have occurred; and (d) Carryover Interest, when item
(v) below shall have occurred, and such Note, Program Operating Expense.
Exchange Agreement or Carryover Interest shall no longer be deemed to be
Outstanding hereunder (provided, however, that this Indenture shall not be
deemed defeased unless and until all of the following shall have occurred):
(i) when such Note shall have been canceled;
(ii) as to any Note not canceled, when payment of the
principal of such Note, plus interest on such
principal to the due date thereof (whether such due
date is by reason of maturity or upon redemption, or
otherwise), either:
(a) shall have been made or caused to be made
in accordance with the terms thereof,or
(b) shall have been provided for by an
irrevocable deposit with the Indenture
Trustee or the Authenticating Agent, which
is irrevocably appropriated and set aside
exclusively for such payment, and which is
derived from a source which is not a
transfer of property voidable under Sections
544 or 547 of the United States Bankruptcy
Code, (accompanied by an opinion of counsel
experienced in bankruptcy matters to that
effect), should the Issuer be a debtor under
such Code of:
(1) moneys sufficient to make such
payment, and/or
(2) Eligible Investments (which for the
purpose of this Article X shall
include only those obligations which
are described in item (a) of the
definition thereof in Section 5.7
hereof and which are not subject to
call for redemption prior to
maturity), maturing as to principal
and interest in such amounts and at
such times as will insure the
availability of
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sufficient moneys to make such
payment, the sufficiency of said
moneys or Eligible Investments to be
verified in writing by a firm of
independent certified public
accountants;
(iii) when all Program Operating Expenses then owed by the
Issuer, including related necessary and proper fees,
compensation and expenses of the Indenture Trustee,
each Eligible Lender Trustee and the Authenticating
Agent, if any, when they shall have been paid or the
payment thereof provided for to the satisfaction of
the Indenture Trustee;
(iv) in the case of payment of any Issuer Exchange Payment
pursuant to Section 5.8 hereof and the applicable
Exchange Agreement, when payment of all Issuer
Exchange Payments due and payable to each Exchange
Counterparty under its respective Exchange Agreement
has been made or duly provided for to the
satisfaction of each Exchange Counterparty and each
Exchange Agreement has been terminated and
(v) in the case of payment of any amount of Carryover
Interest, when the first of the following occurs:
(a) payment of all such Carryover Interest that
has accrued and remains unpaid has been made
or duly provided for to the satisfaction of
such Indenture Trustee; or
(b) all amounts held in the Funds and Accounts
hereunder which are available pursuant to
the provisions of this Indenture to pay
Carryover Interest have been paid out, and
no further amounts, or assets the proceeds
of which could be used to pay Carryover
Interest, are so available hereunder to make
payment of Carryover Interest.
At such time as an Note shall be deemed to be no longer
Outstanding, hereunder, as aforesaid, such Note shall cease to accrue interest
from the due date thereof (whether such due date is by reason of maturity, or
upon redemption, or otherwise), or, in the case of any Note paid after the due
date thereof, from the date of such payment or provision for payment as
aforesaid, and shall no longer be secured by or entitled to the benefits of this
Indenture and the Holder of such Note thereafter shall be entitled only to
payment out of such moneys or Eligible Investments.
Notwithstanding the foregoing, in the case of Notes which are
to be redeemed prior to their stated maturities, no deposit under clause (b) of
subparagraph (ii) above shall constitute such payment, discharge and
satisfaction as aforesaid until proper notice of such redemption shall have been
given in accordance with Article IV hereof or provision satisfactory to the
Indenture Trustee shall have been irrevocably made for the giving of such
notice.
Anything in Article IX hereof to the contrary notwithstanding,
if moneys and/or Eligible Investments have been deposited or set aside with the
Indenture Trustee pursuant to this Section for the payment of Notes and such
Notes shall be deemed to have been paid and to be no
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longer Outstanding hereunder as provided in this Section, but such Notes shall
not have in fact been actually paid in full, no amendment to the provisions of
this Section shall be made without the consent of the Holder of each Note
affected thereby.
The Issuer may at any time cause to be canceled any Note
previously executed and delivered which the Issuer may have acquired in any
manner whatsoever, and such Note upon such surrender for cancellation shall be
deemed to be paid and no longer Outstanding hereunder.
Notwithstanding any provision of any other Section of this
Indenture which may be contrary to the provisions of this Section, all moneys or
Eligible Investments set aside and held in trust pursuant to the provisions of
this Section for the payment of the Notes described in items (a) and (c) of the
first paragraph of this Section 10.2 (including, without limitation, any accrued
but unpaid interest on items (a) and (c)) shall be applied to and used solely
for the payment of the particular Notes with respect to which such moneys and
Eligible Investments have been so set aside in trust.
In no event shall the Indenture Trustee deliver over to the
Issuer any Financed Student Loans unless the Issuer is at the time an eligible
lender under the Higher Education Act, if the Higher Education Act as then in
effect then requires the owner or holder of Student Loans to be an eligible
lender. If to be the owner or holder of Student Loans, the Issuer is required to
be an eligible lender under the Higher Education Act, it shall evidence the fact
that it is an eligible lender under the Higher Education Act by a written
certificate to that effect delivered to the Indenture Trustee. If the Higher
Education Act does not permit the Issuer to be the owner or holder of Student
Loans, then such Financed Student Loans shall remain in the name of an Eligible
Lender Trustee, or its duly appointed and qualified successor, for the benefit
of the Issuer.
SECTION 10.3 Notes Not Presented for Payment When Due; Moneys
------------------------------------------------
Held for the Notes after Due Date Thereof.
- ------------------------------------------
Subject to the provisions of the next sentence of this Section
10.3, if any Note shall not be presented for payment when the principal thereof
shall become due, whether at maturity or at the date fixed for the redemption
thereof, or otherwise, and if moneys and/or Eligible Investments shall at such
due date be held by the Indenture Trustee, in trust for that purpose sufficient
and available to pay the principal of such Note, together with all interest and
Carryover Interest, if any, due and payable pursuant to the provisions of this
Indenture on such principal, to the due date thereof, or to the date fixed for
redemption thereof, as the case may be, all liability of the Issuer for such
payment shall forthwith cease, determine and be completely discharged, and
thereupon it shall be the duty of the Indenture Trustee, to hold said moneys
and/or Eligible Investments without liability to the Holder of such Note for
interest thereon, in trust for the benefit of the Holder of such Note, who
thereafter shall be restricted exclusively to said moneys and/or Eligible
Investments for any claim of whatever nature on its part on or with respect to
said Note, including for any claim for the payment thereof; provided, however,
that any such moneys and/or Eligible Investments held by the Indenture Trustee
remaining unclaimed by the Holders of such Notes for four (4) years after the
principal of the respective Notes with respect to which such moneys and/or
Eligible Investments have been so set aside has become due and payable (whether
at maturity or upon redemption or otherwise) shall be paid to the
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Issuer free from the trusts created by this Indenture, and all liabilities of
the Indenture Trustee with respect to such moneys and/or Eligible Investments
shall cease. In such event such Holders shall thereafter be deemed to be general
unsecured creditors of the Issuer for the amounts so paid to the Issuer (without
interest thereon), subject to any applicable statute of limitation.
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ARTICLE XI
Meetings of Holders
-------------------
SECTION 11.1 Purposes of Meetings.
---------------------
A meeting of Holders of the Notes, or of the Holders of any
Series of Notes, may be called at any time and from time to time pursuant to the
provisions of this Article XI, to the extent relevant to the Holders of all of
the Notes or of Notes of that Series, as the case may be, to take any action
authorized to be taken by or on behalf of the Holders of any specified aggregate
principal amount of the Notes, or of that Series, under any provision of this
Indenture or authorized or permitted by law.
SECTION 11.2 Call of Meetings; Place of Meetings.
------------------------------------
The Indenture Trustee may, but is not obligated to, call at
any time a meeting of Holders pursuant to this Article to be held at any
reasonable time and place which the Indenture Trustee shall determine. Notice of
that meeting, setting forth the time and the place of the meeting and, in
general terms, the subject thereof and the action proposed to be taken, shall be
mailed not fewer than fifteen (15) or nor more than ninety (90) days prior to
the date determined for the meeting. That notice shall be mailed to each Holder
at the close of business on the 15th day preceding the mailing of the notice at
its address as it appears on the books of registry maintained by the Indenture
Trustee pursuant to Section 2.4 hereof on that 15th day preceding the mailing.
The date of determination of Holders for purposes of the mailing shall
constitute the record date for the meeting.
At any time, the Issuer or the Holders of not less than a
majority in aggregate principal amount of the Outstanding Notes, or if
applicable, the affected Series of Outstanding Notes, may request the Indenture
Trustee in writing to call a meeting of respective Holders. The request shall
describe in general terms the subject of the meeting and the action proposed to
be taken. If the Indenture Trustee shall not have mailed the notice of the
meeting within twenty (20) days after receipt of the request, the Issuer or the
Holders of Notes in the amount described above, as the case may be, may
determine a reasonable time and place of the meeting and may call the meeting to
take any action authorized in this Article, by mailing notice thereof as
provided above.
Any meetings of Holders, or the Holders of any Series of
Outstanding Notes affected by a particular matter, shall be valid without
notice, if
(a) the Holders of all Outstanding Notes, or if applicable,
the affected Series of Outstanding Notes, are present in person or by proxy; or
notice is waived before or after the meeting by the Holders of all Outstanding
Notes, or if applicable, the affected Series of Outstanding Notes, who were not
so present at the meeting; and
(b) the Issuer and the Indenture Trustee are either present by
duly authorized representatives or have waived notice, before or after the
meeting.
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SECTION 11.3 Meetings; Regulations of the Indenture Trustee.
-----------------------------------------------
Notwithstanding any other provisions of this Indenture, the
Indenture Trustee may make any reasonable regulations which it may deem to be
advisable for meetings of Holders, with regard to
(a) proof of the holding of Outstanding Notes and of the
appointment of proxies;
(b) the appointment and duties of inspectors of votes;
(c) recordation of the proceedings of those meetings;
(d) the execution, submission and examination of proxies and
other evidence of the right to vote; and
(e) any other matters concerning the conduct, adjournment or
reconvening of meetings which it may consider to be necessary or desirable.
The Indenture Trustee shall appoint a temporary chair of the
meeting by an instrument or document in writing, unless the meeting shall have
been called by the Issuer or Holders, in which case the Issuer or the Holders
calling the meeting, as the case may be, shall appoint a temporary chair in like
manner. A permanent chair and a permanent secretary of the meeting shall be
elected by vote of the Holders of a majority in principal amount of the
Outstanding Notes represented at the meeting and entitled to vote.
SECTION 11.4 Voting; Speaking at Meeting; Record of Meeting.
-----------------------------------------------
To be entitled to vote at any meeting of Holders, a Person
shall
(a) be a Holder of one or more Outstanding Notes, or if
applicable, of the affected Series of Outstanding Notes, as of the record date
for the meeting as determined above; or
(b) be a person appointed in writing by an instrument or
document as proxy by a Holder, as of the record date for the meeting, of one or
more Outstanding Notes or, if applicable, of the affected Series of Outstanding
Notes.
The only Persons who shall be entitled to be present or to
speak at any meeting of Holders shall be the Persons entitled to vote at the
meeting and their counsel, any representatives of the Issuer and its counsel.
Each Holder or proxy shall be entitled to one vote for each $5,000 principal
amount of Outstanding Notes held or represented by it; provided, however, that
no vote shall be cast or counted at any meeting in respect of any Notes
challenged as not Outstanding and ruled by the chair of the meeting to be not
Outstanding.
The chair of the meeting shall have no right to vote other
than by virtue of Notes held by him or her or of instruments or documents
described above duly designating him or her as the person entitled to vote on
behalf of other Holders. Any meeting duly called pursuant to
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the provisions of this Article XI may be adjourned from time to time, and the
meeting may be held as so adjourned without further notice.
The vote upon any resolution submitted to any meeting of
Holders shall be by written ballots on which shall be subscribed the signatures
of the Holders of Outstanding Notes, or if their representatives by proxy and
the identifying number or numbers of the Outstanding Notes held or represented
by them.
The permanent chair of the meeting shall appoint two
inspectors of votes, who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the
meeting their verified written reports in triplicate of all votes cast at the
meeting. A record in triplicate of the proceedings of each meeting of Holders
shall be prepared by the secretary of the meeting.
The original reports of the inspectors of votes on any vote by
ballot taken at the meeting and the affidavits by one or more individuals having
knowledge of the facts, setting forth a copy of the notice of the meeting and
showing that the notice was mailed as provided herein, shall be attached to each
copy of the record of the meeting prepared by the secretary. Each copy of the
record shall be signed and verified by the affidavits of the permanent chair and
the secretary of the meeting. One of the triplicate copies shall be delivered to
the Issuer and the other to the Indenture Trustee to be preserved by the
Indenture Trustee. The copy delivered to the Indenture Trustee shall have
attached thereto the ballots voted at the meeting.
Any record signed and verified as described above shall be
conclusive evidence of the matters therein stated.
SECTION 11.5 Miscellaneous.
--------------
Nothing contained in this Article XI shall be deemed or
construed to authorize or permit any hindrance or delay in the exercise of any
right, remedy or power conferred upon or reserved to the Indenture Trustee or to
the Holders under any of the provisions of this Indenture or of any Series of
Notes by reason of any call of a meeting of Holders or any right, remedy or
power conferred expressly or impliedly hereunder to make a call of a meeting.
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ARTICLE XII
Miscellaneous
-------------
SECTION 12.1 Benefits of Indenture Limited to Issuer, Eligible
-------------------------------------------------
Lender Trustees, Indenture Trustee, Exchange Counterparty and Holders.
- ----------------------------------------------------------------------
With the exception of rights or benefits herein expressly
conferred, nothing expressed or mentioned in or to be implied from this
Indenture or the Notes is intended or shall be construed to confer upon or give
to any Person other than the Issuer, each Eligible Lender Trustee, the Indenture
Trustee, any Exchange Counterparty and the Holders, any legal or equitable
right, remedy or claim under or by reason of or in respect to this Indenture or
any covenant, condition, stipulation, promise, agreement or provision contained
herein and all of the covenants, conditions, stipulations, promises, agreements
and provisions hereof are intended to be and shall be for and inure to the sole
and exclusive benefit of the Issuer, each Eligible Lender Trustee, the Indenture
Trustee, any Exchange Counterparty and the Holders from time to time of the
Notes as herein and therein provided.
SECTION 12.2 Effect of Legal Holidays.
-------------------------
Whenever this Indenture requires any action to be taken on a
day which is not a Business Day, such action shall be taken on the next
succeeding Business Day with the same force and effect as if taken on such day.
SECTION 12.3 Partial Invalidity.
-------------------
If any one or more of the covenants or agreements or portion
thereof provided in this Indenture on the part of the Issuer, each Eligible
Lender Trustee or the Indenture Trustee to be performed should be determined by
a court of competent jurisdiction to be contrary to law, then such covenant or
covenants, or such agreement or agreements, or such portions thereof, shall be
deemed severable from the remaining covenants and agreements provided in this
Indenture and the invalidity thereof shall in no way affect the validity of the
other provisions of this Indenture or of the Notes, and the Holders shall retain
all the rights and benefits accorded to them hereunder and under any applicable
provisions of law.
SECTION 12.4 Notices.
--------
Except as otherwise expressly provided herein, any notice to
or demand upon the Indenture Trustee may be served or presented, and such demand
may be made, at the principal corporate trust office of the Indenture Trustee in
Cincinnati, Ohio, at 425 Walnut Street, Cincinnati, Ohio 45202, Attention:
Corporate Trust Services, telecopier number: (513) 632-3286, or at such other
address or number as may have been filed in writing by the Indenture Trustee
with the Issuer and each Eligible Lender Trustee.
Except as otherwise expressly provided herein, any notice to
or demand upon the Initial Co-Owner Eligible Lender Trustee may be served or
presented, and such demand may be made, at the principal corporate trust office
of the Initial Co-Owner Eligible Lender Trustee in Cincinnati, Ohio, at 425
Walnut Street, Cincinnati, Ohio 45202, Attention: Corporate Trust Services,
telecopier number: (513) 632-3286, or at such other address or number as may
have
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been filed in writing by the Initial Co-Owner Eligible Lender Trustee with
the Issuer and the Indenture Trustee.
Except as otherwise expressly provided herein, any notice to
or demand upon the Issuer may be served or presented, and such demand may be
made, at the principal corporate trust office of the Co-Owner Trustee not in its
individual capacity, but solely as co-owner trustee of the Delaware Trust, at
425 Walnut Street, Cincinnati, Ohio 45202, Attention: Corporate Trust Services,
telecopier number: (513) 632-3286, or to the Issuer at such other address or
number as may have been filed in writing by the Issuer with the Indenture
Trustee and each Eligible Lender Trustee.
Copies of any notices delivered to the Indenture Trustee, the
Holders (except for any notice of redemption) or the Issuer shall be delivered
by the Indenture Trustee or the Issuer to each Exchange Counterparty at the
address filed in writing by each such Exchange Counterparty with the Indenture
Trustee.
Any notice required to be in writing shall be deemed to be in
writing if given by telex, telecopier or other method which produces a written
record.
SECTION 12.5 Law and Place of Enforcement of Indenture.
------------------------------------------
This Indenture shall be construed and interpreted in
accordance with the laws of the State and all suits and actions arising out of
this Indenture shall be instituted in a court of competent jurisdiction in the
State.
SECTION 12.6 No Recourse Against Directors, Officers or
-------------------------------------------------------
Employees of the Issuer.
- ------------------------
All representations, covenants and obligations of any
director, officer or employee of the Issuer shall be treated as representations,
covenants and obligations of the Issuer and not as made in such person's
individual capacity, and no recourse shall be had for the payment of the
principal of or interest or Carryover Interest on the Notes or for any claim
based on that payment or on this Indenture against any such person or any person
executing the Notes on behalf of the Issuer; but nothing herein contained shall
relieve any such director, officer or employee from the performance of any
official duty provided by law or by this Indenture.
SECTION 12.7 Cross-Indemnification.
----------------------
The Issuer, the Indenture Trustee and the Eligible Lender
Trustee hereby covenant and agree to indemnify, solely from the assets held in
the Trust Estate, any trust estate held under any other indenture between the
Issuer and the Eligible Lender Trustee entered into after the date hereof, in
which trust estate are held Student Loans assigned the same Department of
Education lender identification numbers as Student Loans included in the Trust
Estate, against any offset, shortfall or other loss of payments with respect to
Student Loans in such trust estate caused solely by an offset or withholding of
payments on Student Loans in this Trust Estate that share the same Department of
Education lender identification number.
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SECTION 12.8 Suspension of Mail.
-------------------
If because of the suspension of delivery of first class mail
or, for any other reason, the Indenture Trustee shall be unable to mail by the
required class of mail any notice, request, complaint, demand or other
instrument or document required to be mailed hereby, the Indenture Trustee shall
give it in any other manner which shall approximate most effectively the mailing
thereof in accordance herewith in the judgment of the Indenture Trustee. The
giving of that notice, request, complaint, demand or other instrument or
document in that manner shall be deemed for all purposes of this Indenture to be
in compliance with the requirement for the mailing thereof. Except as provided
otherwise herein, the mailing of any notice, request, complaint, demand or other
instrument or document shall be deemed to be complete upon deposit thereof in
the mail, and the giving thereof by any other means of delivery shall be deemed
to be complete upon receipt thereof by the delivery service.
SECTION 12.9 Opinion as to Trust Estate.
---------------------------
On the Date of Issuance of the Notes, the Issuer shall furnish
or cause to be furnished to the Indenture Trustee an opinion of counsel either
(i) stating that, in the opinion of such counsel, such action has been taken
with respect to the recording and filing of any financing statements and
continuation statements, as are necessary to make effective the lien and
security interest created by this Indenture in favor of the Indenture Trustee,
for the benefit of the parties described in the granting clauses and Section 5.6
of this Indenture, and reciting the details of such action, or (ii) stating that
in the opinion of such counsel, no such action is necessary to make such lien
and security interest effective.
On or before June 30 in each calendar year, beginning in 2003,
the Issuer shall furnish or cause to be furnished to the Indenture Trustee an
opinion of counsel with respect to each jurisdiction in which the Financed
Student Loans are located or a Uniform Commercial Code financing statement has
been filed by the Issuer 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 Supplemental Indentures 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 Supplemental Indentures and any other requisite documents and
with respect to the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture until June 30 in
the following calendar year.
SECTION 12.10 Conflict with Trust Indenture Act.
----------------------------------
If any provision of this Indenture 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 the Trust Indenture Act, Sections 310
through 317, inclusive, that impose duties on any Person (including the
86
<PAGE> 93
provisions automatically deemed included herein unless expressly excluded by a
provision in this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
SECTION 12.11 Effect of Article and Section Headings and Table
------------------------------------------------
of Contents.
- ------------
The heading or titles of the several Articles and Sections
hereof, and any table of contents appended hereto, shall be solely for
convenience of reference and shall not affect the meaning or construction,
interpretation or effect of this Indenture.
SECTION 12.12 Execution of Counterparts.
--------------------------
This Indenture may be executed in several counterparts, each
of which shall be regarded as an original and all of which shall constitute but
one and the same document. It shall not be necessary in proving this Indenture
to produce or account for more than one of those counterparts.
87
<PAGE> 94
IN WITNESS WHEREOF, STUDENT LOAN FUNDING 1999-A/B TRUST, by
Firstar Bank, National Association, not in its individual capacity, but solely
as Co-Owner Trustee, has caused this Indenture to be signed in its name and on
its behalf by one of its officers thereunto duly authorized and FIRSTAR BANK,
NATIONAL ASSOCIATION, as Initial Co-Owner Eligible Lender Trustee, has caused
this Indenture to be signed in its name and on its behalf by one of its officers
thereunto duly authorized; and FIRSTAR BANK, NATIONAL ASSOCIATION, to evidence
its acceptance of the trusts hereby created, has caused this Indenture to be
signed in its name and on its behalf by one of its officers thereunto duly
authorized, all as of the date first above written.
STUDENT LOAN FUNDING 1999-A/B TRUST,
By FIRSTAR BANK NATIONAL BANK,
not in its individual capacity, but solely as Co-
Owner Trustee of the Issuer on behalf of the Issuer
By_________________________________________________
Title:_____________________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Initial Co-Owner Eligible Lender Trustee
By_________________________________________________
Title:_____________________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By_________________________________________________
Title:_____________________________________________
88
<PAGE> 95
SCHEDULE I
SCHEDULE OF APPROVED GUARANTEE AGENCIES
---------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
California Student Aid Commission Nebraska Student Loan Program
- -----------------------------------------------------------------------------------------------------
Educational Credit Management Corporation New Jersey Higher Assistance Authority
- -----------------------------------------------------------------------------------------------------
Finance Authority of Maine New York State Higher Education Services
Corporation
- -----------------------------------------------------------------------------------------------------
FLORIDA DEPARTMENT OF EDUCATION, OFFICE OF Oklahoma Guaranteed Student Loan Program
STUDENT FINANCIAL ASSISTANCE
- -----------------------------------------------------------------------------------------------------
Georgia Higher Education Assistance Pennsylvania Higher Education Assistance
Corporation Agency
- -----------------------------------------------------------------------------------------------------
GREAT LAKES HIGHER EDUCATION GUARANTY Tennessee Student Assistance Commission
AUTHORITY
- -----------------------------------------------------------------------------------------------------
Kentucky Higher Education Assistance Texas Guaranteed Student Loan Corporation
Authority
- -----------------------------------------------------------------------------------------------------
Missouri Guaranteed Student Loan Program UNITED STUDENT AID FUNDS, INC.
- -----------------------------------------------------------------------------------------------------
</TABLE>
BOLD = NAMED IN S-3 REGISTRATION STATEMENT
II-1
<PAGE> 96
SCHEDULE II
SCHEDULE OF APPROVED SERVICERS AND SERVICING AGREEMENTS
-------------------------------------------------------
Servicers Servicing Agreements
- --------- --------------------
- --------------------------------------------------------------------------------
AFSA DATA CORPORATION ("AFSA") Servicing Agreement, dated as of
November 1, 1998,
[among/between] the [Master
Servicer, the Depositor] and
AFSA and the Subservicing
Addendum, dated as of ________
1, 1999, among the Master
Servicer, AFSA and the
Depositor.
- --------------------------------------------------------------------------------
GREAT LAKES HIGHER EDUCATION SERVICING CENTER Servicing Agreement, dated as of
("GLHESC") November 1, 1998, between the
Master Servicer and GLHESC and
the Subservicing Addendum, dated
as of ________ 1, 1999, among
the Master Servicer, GLHESC and
the Depositor.
- --------------------------------------------------------------------------------
INTUITION, INC. ("INTUITION") Servicing Agreement, dated as of
July 31, 1998, between the
Master Servicer and InTuition
and the Subservicing Addendum,
dated as of __________, 1999,
among the Master Servicer,
InTuition and the Depositor.
- --------------------------------------------------------------------------------
KENTUCKY HIGHER EDUCATION STUDENT LOAN Servicing Agreement, dated as of
CORPORATION ("KHESLC") November 1, 1998,
[among/between] the [Master
Servicer, the Depositor] and
KHESLC and the Subservicing
Addendum, dated as of ________
1, 1999, among the Master
Servicer, KHESLC and the
Depositor.
- --------------------------------------------------------------------------------
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE Servicing Agreement, dated as of
AGENCY ("PHEAA") November 1, 1998,
[among/between] the [Master
Servicer, the Depositor] and
PHEAA and the Subservicing
Addendum, dated as of ________
1, 1999, among the Master
Servicer, PHEAA and the
Depositor.
- --------------------------------------------------------------------------------
II-1
<PAGE> 97
- --------------------------------------------------------------------------------
UNIPAC SERVICE CORPORATION ("UNIPAC") Servicing Agreement, dated as of
September 1, 1998, between the
Master Servicer and UNIPAC and
the Subservicing Addendum, dated
as of November 1, 1998, among
the Master Servicer, UNIPAC and
the Depositor.
- --------------------------------------------------------------------------------
USA GROUP LOAN SERVICES, INC. ("USAGLS") Servicing Agreement, dated as of
November 1, 1998, between the
Master Servicer and USAGLS and
the Subservicing Addendum, dated
as of November 1, 1998, among
the Master Servicer, USAGLS and
the Depositor.
- --------------------------------------------------------------------------------
BOLD = NAMED IN S-3 REGISTRATION STATEMENT
II-2
<PAGE> 98
EXHIBIT A
---------
to the
Indenture of Trust,
dated as of ________ 1, 1999, by and among
Student Loan Funding 1999-A/B Trust,
Firstar Bank, National Association,
as Initial Co-Owner Eligible Lender Trustee,
and
Firstar Bank, National Association,
as Indenture Trustee
[Addressed to Indenture Trustee]
STUDENT LOAN ACQUISITION CERTIFICATE
------------------------------------
This Student Loan Acquisition Certificate is submitted
pursuant to the provisions of the Indenture of Trust, dated as of _________ 1,
1999 (the "Indenture"), among Student Loan Funding 1999-A/B Trust, (the
"Issuer") by Firstar Bank, National Association, not in its individual capacity,
but solely as co-owner trustee of the Issuer (the "Co-Owner Trustee"), Firstar
Bank, National Association, as Initial Co-Owner Eligible Lender Trustee, and
Firstar Bank, National Association, as Indenture Trustee. All capitalized terms
used in this Certificate and not otherwise defined herein shall have the same
meanings given to such terms in the Indenture. In your capacity as Indenture
Trustee, you are hereby authorized and requested to disburse to
_____________________________ (the "Lender") the sum of $_______________________
for the acquisition of Student Loans. With respect to the Student Loans so to be
acquired, the Issuer hereby certifies as follows:
1. The Student Loans to be acquired (the "Acquired Student
Loans") will be further described by an updating certificate if required by the
Indenture.
2. The amount to be disbursed pursuant to this Certificate
does not exceed the aggregate of the remaining unpaid principal amount of the
Acquired Student Loans plus accrued borrower interest, if any, [plus a premium
of ____% of the unpaid principal amount of Acquired Student Loans] [plus
transfer fees of $_________] [plus interest on the amount of principal and
accrued borrower interest from the date of transfer of said Student Loans until
the date of payment in the amount of $______________, said rate of interest not
exceeding the current yield on funds in the Expense Account.
3. Each Acquired Student Loan is a Student Loan authorized so
to be acquired by the Indenture.
4. The Issuer is not, on the date hereof, in default under the
Indenture.
5. The undersigned, as the _________________________ of the
Issuer, is authorized to sign and submit this Certificate on behalf of the
Issuer.
A-1
<PAGE> 99
WITNESS my hand this _____ day of ___________________, 199_.
STUDENT LOAN FUNDING 1999-A/B Trust,
By FIRSTAR BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as co-owner
trustee of the Issuer
By:_________________________________
Title:______________________________
A-2
<PAGE> 100
EXHIBIT B
---------
to the
Indenture of Trust,
dated as of ________ 1, 1999,
by and among
Student Loan Funding 1999-A/B Trust,
Firstar Bank, National Association,
as Initial Co-Owner Eligible Lender Trustee
and
Firstar Bank, National Association,
as Indenture Trustee
[Addressed to Indenture Trustee]
UPDATING STUDENT LOAN ACQUISITION CERTIFICATE
---------------------------------------------
This Updating Student Loan Acquisition Certificate is
submitted pursuant to the provisions of the Indenture of Trust, dated as of
____________ 1, 1999, (the "Indenture"), among Student Loan Funding 1999-A/B
Trust (the "Issuer"), by Firstar Bank, National Association, not in its
individual capacity, but solely as co-owner trustee of the Issuer, Firstar Bank,
National Association, as Initial Co-Owner Eligible Lender Trustee, and Firstar
Bank, National Association, as Indenture Trustee. All capitalized terms used in
this Certificate and not otherwise defined herein shall have the same meanings
given to such terms in the Indenture. In your capacity as Indenture Trustee, you
have, pursuant to a Student Loan Acquisition Certificate, dated
__________________________, been previously authorized and requested to disburse
to _____________________________ the sum of $__________ for the acquisition of
Student Loans. With respect to the Student Loans so acquired, the Issuer hereby
certifies as follows:
1. The Student Loans acquired with such moneys are those
specified in Schedule A attached hereto (the "Acquired Student Loans").
2. The remaining unpaid principal amount of each Acquired
Student Loan is as shown on Schedule A attached hereto.
3. The undersigned, as _____________________ of the Issuer, is
authorized to sign and submit this Certificate on behalf of the Issuer.
4. The additional sum of $___________ is due and owing to the
Lender for the purchase price of such Student Loans representing
_________________________________.
OR
We are herewith transmitting to you $_______________
representing an overpayment made to the Lender for such Student Loans.
B-1
<PAGE> 101
WITNESS my hand this _____ day of ___________________, 199_.
STUDENT LOAN FUNDING 1999-A/B Trust,
By FIRSTAR BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as co-owner
trustee of the Issuer
By:_________________________________
Title:______________________________
B-2
<PAGE> 1
EXHIBIT 4.2
TERMS SUPPLEMENT
TO THE
INDENTURE OF TRUST
Dated as of ________ 1, 1999,
by and among
STUDENT LOAN FUNDING 1999-A/B TRUST,
A Delaware common law trust,
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as co-owner eligible
lender trustee for the benefit of
Student Loan Funding 1999-A/B Trust,
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee,
Dated as of ________ 1, 1999
Securing
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-1
(LIBOR RATE),
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1999A-2
(LIBOR RATE)
and
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTES,
SERIES 1999B-1
(LIBOR RATE)
OF
STUDENT LOAN FUNDING 1999-A/B TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions
-----------
ARTICLE II
Authorization, Terms and Provisions of Notes
--------------------------------------------
<S> <C> <C>
SECTION 2.01 Authorization of Notes; Notes to Constitute Special Obligations..................10
SECTION 2.02 Terms of Notes...................................................................10
SECTION 2.03 Determination of Series Interest Rates on the Notes..............................13
SECTION 2.03.1 Determination of the Series Interest Rate on the Notes.......13
SECTION 2.03.2 Carryover Interest...........................................14
SECTION 2.03.3 Additional Provisions Regarding Series Interest Rate.........15
SECTION 2.04 Forms of Notes and Instructions for Payment......................................15
ARTICLE
Redemption of the Notes
-----------------------
SECTION 3.01 Redemption of Notes in General...................................................17
SECTION 3.02 Auction of Financed Student Loans; Redemption of Outstanding Notes from
Auction Proceeds prior to the Legal Final Maturity......................................17
SECTION 3.03 Optional Redemption of Notes prior to the Legal Final Maturity...................18
ARTICLE IV
Disposition of Proceeds of the Notes; Collection Account; Acquisition Fund
--------------------------------------------------------------------------
SECTION 4.01 Disposition of Proceeds of the Notes.............................................19
SECTION 4.02 Disposition of Collection Account................................................19
ARTICLE V
Miscellaneous
-------------
SECTION 5.01 Execution and Delivery of this Terms Supplement..................................23
SECTION 5.02. Effect of Terms Supplement on Indenture.........................................23
SECTION 5.03 Execution of Counterparts........................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.04. Governing Law...................................................................23
</TABLE>
SCHEDULE I TERMS OF SENIOR NOTES; TERMS OF SUBORDINATE NOTES
EXHIBIT A DISTRIBUTION STATEMENT
EXHIBIT B FORM OF SENIOR LIBOR FLOATING RATE NOTE
EXHIBIT C FORM OF SUBORDINATE NOTE
EXHIBIT D INSTRUCTION FOR PAYMENT OF INTEREST
ii
<PAGE> 4
TERMS SUPPLEMENT
THIS TERMS SUPPLEMENT, dated as of ________ 1, 1999 (this "Terms
Supplement"), by and among STUDENT LOAN FUNDING 1999-A/B TRUST, a common law (as
opposed to statutory) trust created under the laws of the State of Delaware (the
"Issuer"), by FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking association
duly organized and existing under the laws of the United States, having its
principal corporate trust office in Cincinnati, Ohio, not in its individual
capacity, but solely as Co-Owner Trustee of the Issuer (the "Co-Owner Trustee"),
FIRSTAR BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely
in its capacity as the initial eligible lender trustee holding title to the
Financed Student Loans on behalf of the Issuer (the "Initial Co-Owner Eligible
Lender Trustee"), and FIRSTAR BANK, NATIONAL ASSOCIATION, a national banking
association duly organized and existing under the laws of the United States,
having its principal corporate trust office in Cincinnati, Ohio (the "Indenture
Trustee"), as Indenture Trustee under that certain Indenture of Trust, dated as
of ________ 1, 1999 (as hereafter amended and supplemented by Supplemental
Indentures, the "Base Indenture"), among the Issuer, the Initial Co-Owner
Eligible Lender Trustee and the Indenture Trustee, amends and supplements the
Base Indenture (as amended and supplemented by this Terms Supplement, the
"Indenture"). Words and terms used as defined words and terms herein and not
otherwise defined herein shall have the meanings given them in the Base
Indenture. (References to the name "Student Loan Funding 1999-A/B Trust" or to
the term "Issuer" in this Terms Supplement, including the Schedules and Exhibits
attached hereto and made a part hereof, shall mean the Co-Owner Trustee, not in
its individual capacity, but solely as Co-Owner Trustee of the Issuer on behalf
of the Issuer.)
WITNESSETH:
WHEREAS, Section 2.1 of the Base Indenture provides, among other
things, that the Issuer, the Initial Co-Owner Eligible Lender Trustee and the
Indenture Trustee shall enter into a Terms Supplement thereto for the purposes
of (i) authorizing the issuance of a Series of Notes thereunder and (ii)
specifying certain terms of such Notes; and
WHEREAS, the Issuer has determined to provide hereunder for the
issuance of (i) its Student Loan Senior Asset-Backed Notes, Series 1999A-1
(LIBOR Rate) (the "Series 1999A-1 Notes"), (ii) Student Loan Senior Asset-Backed
Notes, Series 1999A-2 (LIBOR Rate) (the "Series 1999A-2 Notes" and, together
with the Series 1999A-1 Notes, the "Senior Notes"), and (iii) its Student Loan
Subordinate Asset-Backed Notes, Series 1999B-1 (LIBOR Rate) (the "Subordinate
Notes" and, collectively with the Senior Notes, the "Notes"); and
WHEREAS, the Issuer, the Initial Co-Owner Eligible Lender Trustee and
the Indenture Trustee desire to execute and deliver this Terms Supplement in
order to authorize the issuance of each Series of the Notes and to declare the
terms upon which each Series of the Notes will be issued; and
1
<PAGE> 5
NOW, THEREFORE, THIS TERMS SUPPLEMENT WITNESSETH:
That it is hereby mutually covenanted and agreed that the terms and
conditions upon which each Series of the Notes are executed, authenticated,
issued, delivered, secured and accepted by all Persons who shall from time to
time be or become the Holders thereof, and the trusts and conditions upon which
the Trust Estate is to be held and disbursed, are as set forth herein and in the
Base Indenture:
2
<PAGE> 6
ARTICLE I
DEFINITIONS
Unless the context shall clearly indicate some other meaning or may
otherwise require, the terms defined in this Article I shall, for all purposes
of the Base Indenture and of any indenture or other instrument amendatory or
supplemental thereto, have the meanings herein specified (terms used herein as
defined terms and not defined herein, shall have the meanings ascribed thereto
in the Base Indenture):
"AUTHORIZED DENOMINATIONS" shall mean (a) as applicable solely in
connection with the original issuance of each such Series of Notes, $1,000 and
integral multiples of $1,000 in excess thereof and (b) after distribution of
principal in accordance with Section 5.5.2 of the Base Indenture, the
Outstanding principal amount that results after such distribution.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" shall mean a form or system
under which (i) the beneficial right to principal and interest may be
transferred only through a book entry, (ii) physical Series 1999A-1 Notes,
Series 1999A-2 Notes, Series 1999B-1 Notes or notes in registered form are
issued only to a Depository or its nominee as registered owner, with such Notes
"immobilized" to the custody of the Depository, and (iii) the book entry is the
record that identifies the owners of beneficial interests in that principal and
interest and Carryover Interest, if any.
"CALCULATION AGENT" shall mean __________________________________, as
Calculation Agent under the Calculation Agent Agreement, or any successor to it
as such agent under the Calculation Agent Agreement.
"CALCULATION AGENT AGREEMENT" shall mean the Calculation Agent
Agreement, dated as of ________ 1, 1999, among the Issuer, the Calculation Agent
and the Indenture Trustee, in each case as originally executed and as from time
to time amended or supplemented in accordance with the terms thereof and the
Indenture.
"CEDEL" shall mean a professional depository incorporated under the
laws of Luxembourg which holds securities for its participating organizations
and facilitates the clearance and settlement of securities transactions between
Cedel Participants through electronic book-entry.
"CEDEL PARTICIPANTS" means recognized financial institutions around the
world that utilize the services of Cedel, including initial purchasers,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Initial Purchasers.
"COLLECTION PERIOD" shall mean (i) initially, (a) with respect to the
Series 1999A Notes, the period commencing on Date of Issuance and running
through and including ________________, and (b) with respect to the Series
1999B-1 Notes, the period commencing on Date of Issuance and running through and
including ________________, (ii) thereafter (a) with respect to the Series 1999A
Notes, a period of one calendar month commencing and including the
3
<PAGE> 7
date next following the end of the preceding Collection Period and (b) with
respect to the Series 1999B-1 Notes, a period of three calendar months
commencing and including the date next following the end of the preceding
Collection Period.
"DATE OF ISSUANCE" shall mean with respect to each Series of the Notes,
________________, the date of their initial issuance and delivery.
"DEPOSITORY" shall mean any securities depository that is a clearing
agency under federal law operating and maintaining a Book-Entry System to record
beneficial ownership of the right to principal and interest, and to effect
transfers of Notes, in Book-Entry Form, and includes and means initially (i)
DTC, if the Notes are offered in the United States, and (ii) Cedel or Euroclear,
if the Notes are offered in Europe.
"DEPOSITORY PARTICIPANT" shall mean any broker-dealer, bank or other
financial institution for which a Depository holds Notes from time to time as
securities depository.
"DISTRIBUTION DATE" shall mean (i) with respect to each Series of
Series 1999A Notes, a Monthly Distribution Date, (ii) with respect to the Series
1999B-1 Notes, a Quarterly Distribution Date, (iii) any date on which an Issuer
Exchange Payment is due and payable, and (iv) the Legal Final Maturity of each
Series of Notes, or if such day is not a Business Day, on the next succeeding
Business Day.
"DTC" shall mean The Depository Trust Company (a limited purpose trust
company), New York, New York.
"EUROCLEAR" shall mean Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
"FORMULA RATE" shall mean, (i) with respect to the Series 1999A-1
Notes, the lesser of One-Month LIBOR as of the related Interest Determination
Date for such Interest Accrual Period plus ____% per ------------ annum and 18%,
(ii) with respect to the Series 1999A-2 Notes, the lesser of One-Month LIBOR as
of the related Interest Determination Date for such Interest Accrual Period plus
____% per annum and 18%, and (iii) with respect to the Series 1999B-1 Notes, the
lesser of Three-Month LIBOR as of the related Interest Determination Date for
such Interest Accrual Period plus ____% and 18%.
"INDIRECT PARTICIPANT" shall mean any Person which has indirect access
to a Clearing Agency, such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
"INITIAL DISTRIBUTION DATE" shall mean, (i) as to the Series 1999A-1
Notes, ___________, 1999, (ii) as to the Series 1999A-2 Notes, ____________,
1999, and (iii) as to the Series 1999B-1 Notes, _____________, 1999.
"INITIAL INTEREST DETERMINATION DATE" shall mean (i) as to the Series
1999A-1 Notes, ____________, 1999, (ii) as to the Series 1999A-2 Notes,
_________, 1999, and (iii) as to the Series 1999B-1 Notes, ____________, 1999.
4
<PAGE> 8
"INTEREST ACCRUAL PERIOD" shall mean with respect to each Series of
Notes, the period of time in which interest may accrue commencing initially on
the Date of Issuance for such Series of Notes and ending on the day before the
Initial Distribution Date for each Series and thereafter commencing on each
Distribution Date for such Series of Notes and ending on the day before the next
Distribution Date for such Series.
"INTEREST DETERMINATION DATE" shall mean (i) the Initial Interest
Determination Date and thereafter (ii) the second London Banking Day immediately
preceding the first day of each Interest Accrual Period.
"LEGAL FINAL MATURITY" shall mean with respect to (i) the Series
1999A-1 Notes, _______________, (ii) the Series 1999A-2 Notes, ____________; and
(iii) the Series 1999B-1 Notes, ______________.
"LIBOR" shall mean, the rate of interest per annum equal to the rate
per annum at which United States dollar deposits having a particular maturity
are offered to prime banks in the London interbank market which appears on the
Telerate Page 3750 as of approximately 11:00 a.m., Greenwich Mean time, on the
Interest Determination Date. If such rate does not appear on Telerate Page 3750,
the rate for that day will be determined on the basis on the Reuters Screen
LIBOR Page. If at least two such quotations appear, LIBOR shall be the
arithmetic mean (rounded to the nearest one-hundredth of one percent (.01%)) of
such offered rates. If fewer than two such quotes appear, LIBOR with respect to
an Interest Accrual Period will be determined at approximately 11:00 a.m.,
London time, on such applicable Interest Determination Date on the basis of the
rate at which deposits in United States dollars having such particular maturity
are offered to prime banks in the London interbank market by four major banks in
the London interbank market selected by the Calculation Agent and in a principal
amount of not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time. The Calculation Agent will request the
principal London office of each of such banks to provide a quotation of its
rate. If at least two quotations are provided, LIBOR shall be the arithmetic
mean (rounded to the nearest one-hundredth of one percent (.01%)) of such
offered rates. If fewer than two quotations are provided, LIBOR with respect to
such Interest Accrual Period shall be the arithmetic mean (rounded to the
nearest one-hundredth of one percent (.01%)) of the rates quoted at
approximately 11:00 a.m., New York City time on such applicable Interest
Determination Date by three major banks in New York, New York selected by the
Calculation Agent for loans in United States dollars to leading European banks
having such particular maturity and in a principal amount equal to an amount of
not less than U.S. $1,000,000 and that is representative for a single
transaction in such market at such time; provided, however, that if the banks
selected as aforesaid are not quoting as mentioned in this sentence, LIBOR in
effect for the applicable Interest Accrual Period shall be LIBOR in effect for
the immediately preceding Interest Accrual Period.
"LONDON BANKING DAY" shall mean any business day on which dealings in
deposits in United States dollars are transacted in the London interbank market.
5
<PAGE> 9
"MONTHLY DISTRIBUTION DATE" shall mean, with respect to a Series of
Series 1999A Notes, the last Business Day of each month, commencing on the
Initial Distribution Date for each such Series of Notes.
"NET LOAN RATE" shall mean with respect to any Interest Accrual Period
for a Series of the Notes, the annualized percentage rate determined by the
Calculation Agent on each Interest Determination Date by multiplying (a) the
ratio of 360 to the actual number of days in such Interest Accrual Period, and
(b) the ratio of (i) Expected Interest Collections for the applicable Collection
Period less Program Operating Expenses with respect to such Collection Period,
to (ii) the Pool Balance as of the first day of such Collection Period. In
calculating the Net Loan Rate, the applicable Collection Period for the Notes is
the Collection Period immediately preceding the Collection Period in which the
Distribution Date occurs.
"ONE-MONTH LIBOR" shall mean LIBOR with respect to U.S. denominated
deposits having a maturity of one (1) month.
"PARITY PERCENTAGE" shall have the meaning given such term in the Base
Indenture.
"PARITY PERCENTAGE LIMITATION" shall mean ___%.
"PARITY PERCENTAGE PAYMENT" shall mean those principal amounts required
to be paid on the Notes pursuant to Section 4.2 hereof until the Parity
Percentage is ___%.
"PARTICIPANT" shall mean a Person who is a participant in or member of
the Depository, as determined by the rules or bylaws of the Depository.
"PRINCIPAL FACTOR" shall mean a seven-digit decimal number which, when
multiplied by the initial principal amount of each Note, produces its
Outstanding principal balance. The Principal Factor will be 1.0000000 for each
such Note as of the Date of Issuance; thereafter, the Principal Factor for each
such Note will decline to reflect reductions in the Outstanding principal
balance of such Note.
"PROGRAM EXPENSE REQUIREMENT" shall have the meaning given such term in
the Base Indenture.
"QUARTERLY DISTRIBUTION DATE" shall mean, with respect to the Series
1999B-1 Notes, the last Business Day of each third month, commencing on the
Initial Distribution Date for the Series 1999B-1 Notes.
"RECORD DATE" shall mean the second Business Day preceding a
Distribution Date.
"SENIOR PARITY PERCENTAGE" shall have the meaning given such term in
the Base Indenture.
"SERIES 1999A NOTEHOLDERS" shall mean, collectively, the Series 1999A-1
Noteholders and the Series 1999A-2 Noteholders.
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"SERIES 1999A NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" shall mean,
with respect to any Distribution Date for a Series of Series 1999A Notes, the
Series 1999A Principal Distribution Amount for such Distribution Date plus the
Series 1999A Principal Shortfall as of the close of the preceding Distribution
Date; provided that the Series 1999A Noteholders' Principal Distribution Amount
will not exceed the outstanding principal balance of the Series 1999A Notes. In
addition, (i) on the Legal Final Maturity of the Series 1999A-1 Notes, the
principal required to be distributed to the Series 1999A-1 Noteholders will
include the amount required to reduce the outstanding principal balance of the
Series 1999A-1 Notes to zero, and (ii) on the Legal Final Maturity of the Series
1999A-2 Notes, the principal required to be distributed to the Series 1999A-2
Noteholders will include the amount required to reduce the outstanding principal
balance of the Series 1999A-2 Notes to zero.
"SERIES 1999A NOTES" shall mean, collectively, the Series 1999A-1 Notes
and the Series 1999A-2 Notes.
"SERIES 1999A PRINCIPAL DISTRIBUTION AMOUNT" shall be equal to (i) with
respect to the Series 1999A-1 Notes, an amount equal to the decline in the Pool
Balance between the end of the second Collection Period preceding a Monthly
Distribution Date and the end of the immediately preceding Collection Period,
and (ii) with respect to the Series 1999A-2 Notes on and after which the
principal balance of the Series 1999A-1 Notes has been paid in full, an amount
equal to the decline in the Pool Balance between the end of the second
Collection Period preceding a Monthly Distribution Date and the end of the
immediately preceding Collection Period.
"SERIES 1999A PRINCIPAL SHORTFALL" shall mean, as of the close of any
Distribution Date, the excess of (i) the Series 1999A Principal Distribution
Amount on such Distribution Date over (ii) the amount of principal actually
distributed to the Series 1999A Noteholders on such Distribution Date.
"SERIES 1999A-1 INTEREST SHORTFALL" shall mean, with respect to any
Monthly Distribution Date, the excess of (i) the Series 1999A-1 Noteholders'
Interest Distribution Amount on the preceding Monthly Distribution Date over
(ii) the amount of interest actually distributed to the Series 1999A-1
Noteholders on such preceding Monthly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1999A-1 Noteholders, to the
extent permitted by law, at the related Series Interest Rate from such preceding
Monthly Distribution Date to the current Monthly Distribution Date.
"SERIES 1999A-1 NOTEHOLDERS" shall mean the Holders of the Series
1999A-1 Notes.
"SERIES 1999A-1 NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT" shall mean
with respect to any Monthly Distribution Date, the sum of (i) the amount of
interest accrued at the related Series Interest Rate for the related Interest
Accrual Period on the aggregate outstanding principal balance of the Series
1999A-1 Notes on the immediately preceding Monthly Distribution Date after
giving effect to all principal distributions to Holders of Series 1999A-1 Notes
on such preceding Monthly Distribution Date (or, in the case of the first
Monthly
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Distribution Date, on the Date of Issuance) and (ii) the Series 1999A-1 Interest
Shortfall for such Distribution Date; provided that the Series 1999A-1
Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series 1999A-1 Notes.
"SERIES 1999A-1 NOTES" shall mean the Student Loan Senior Asset-Backed
Notes, Series 1999A-1 (LIBOR Rate), of the Issuer issued under the Indenture.
"SERIES 1999A-2 INTEREST SHORTFALL" shall mean, with respect to any
Monthly Distribution Date, the excess of (i) the Series 1999A-2 Noteholders'
Interest Distribution Amount on the preceding Monthly Distribution Date over
(ii) the amount of interest actually distributed to the Series 1999A-2
Noteholders on such preceding Monthly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1999A-2 Noteholders, to the
extent permitted by law, at the related Series Interest Rate from such preceding
Monthly Distribution Date to the current Monthly Distribution Date.
"SERIES 1999A-2 NOTEHOLDERS" shall mean the Holders of the Series
1999A-2 Notes.
"SERIES 1999A-2 NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT" shall mean
with respect to any Monthly Distribution Date, the sum of (i) the amount of
interest accrued at the related Series Interest Rate for the related Interest
Accrual Period on the aggregate outstanding principal balance of the Series
1999A-2 Notes on the immediately preceding Monthly Distribution Date after
giving effect to all principal distributions to Holders of Series 1999A-2 Notes
on such preceding Monthly Distribution Date (or, in the case of the first
Monthly Distribution Date, on the Date of Issuance) and (ii) the Series 1999A-2
Interest Shortfall for such Monthly Distribution Date; provided that the Series
1999A-2 Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series 1999A-2 Notes.
"SERIES 1999A-2 NOTES" shall mean the Student Loan Senior Asset-Backed
Notes, Series 1999A-2 (LIBOR Rate), of the Issuer issued under the Indenture.
"SERIES 1999B-1 INTEREST SHORTFALL" shall mean, with respect to any
Quarterly Distribution Date, the excess of (i) the Series 1999B-1 Noteholders'
Interest Distribution Amount on the preceding Quarterly Distribution Date over
(ii) the amount of interest actually distributed to the Series 1999B-1
Noteholders on such preceding Quarterly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1999B-1 Noteholders, to the
extent permitted by law, at the related Series Interest Rate from such preceding
Quarterly Distribution Date to the current Quarterly Distribution Date.
"SERIES 1999B-1 NOTEHOLDERS" shall mean the Holders of the Series
1999B-1 Notes.
"SERIES 1999B-1 NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT" shall mean,
with respect to any Quarterly Distribution Date, the sum of (i) the amount of
interest accrued at the related Series Interest Rate for the related Interest
Accrual Period on the aggregate outstanding principal balance of the Series
1999B-1 Notes on the immediately preceding Quarterly Distribution Date after
giving effect to all principal distributions to Holders of Series 1999B-1
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Notes on such preceding Quarterly Distribution Date (or, in the case of the
first Quarterly Distribution Date, on the Date of Issuance) and (ii) the Series
1999B-1 Interest Shortfall for such Quarterly Distribution Date; provided that
the Series 1999B-1 Noteholders' Interest Distribution Amount will not include
any Carryover Interest on the Series 1999B-1 Notes.
"SERIES 1999B-1 NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" shall mean,
with respect to any Quarterly Distribution Date, the Series 1999B-1 Principal
Distribution Amount for such Quarterly Distribution Date plus the Series 1999B-1
Principal Shortfall as of the close of the preceding Quarterly Distribution
Date; provided that the Series 1999B-1 Noteholders' Principal Distribution
Amount shall not exceed the outstanding principal balance of the Series 1999B-1
Notes. In addition, on the Legal Final Maturity of the Series 1999B-1 Notes, the
principal required to be distributed to the Series 1999B-1 Noteholders shall
include the amount required to reduce the outstanding principal balance on the
Series 1999B-1 Notes to zero.
"SERIES 1999B-1 NOTES" shall mean the Student Loan Subordinate
Asset-Backed Notes, Series 1999B-1 (LIBOR Rate), of the Issuer issued under the
Indenture.
"SERIES 1999B-1 PRINCIPAL DISTRIBUTION AMOUNT" shall mean on each
Quarterly Distribution Date on and after which the principal balance of the
Series 1999A Notes has been paid in full, an amount equal to the decline in the
Pool Balance between the end of the second Collection Period preceding a
Quarterly Distribution Date and the end of the immediately preceding Collection
Period (reduced with respect to the first Quarterly Distribution Date on which
principal is to be paid on the Series 1999B-1 Notes by the Series 1999A
Noteholders' Principal Distribution Amount on such Quarterly Distribution Date).
"SERIES 1999B-1 PRINCIPAL SHORTFALL" shall mean, as of the close of any
Quarterly Distribution Date, the excess of (i) the Series 1999B-1 Principal
Distribution Amount on such Distribution Date over (ii) the amount of principal
actually distributed to the Series 1999B-1 Noteholders on such Quarterly
Distribution Date.
"TELERATE PAGE 3750" shall mean the display page so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"THREE-MONTH LIBOR" shall mean LIBOR with respect to U.S. denominated
deposits having a maturity of three (3) months.
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ARTICLE II
AUTHORIZATION, TERMS AND PROVISIONS OF NOTES
SECTION 2.01 AUTHORIZATION OF NOTES; NOTES TO CONSTITUTE SPECIAL
OBLIGATIONS There is hereby authorized the borrowing of funds, and to evidence
such borrowing there is authorized the issuance of Notes of the Issuer in the
following aggregate principal amounts and Series: (i) _______________ Dollars
($___________) designated "Student Loan Funding 1999-A/B Trust Student Loan
Senior Asset-Backed Notes, Series 1999A-1 (LIBOR Rate)" (herein referred to as
the "Series 1999A-1 Notes"); (ii) _____________________ Dollars ($___________)
designated "Student Loan Funding 1999-A/B Trust Student Loan Senior Asset-Backed
Notes, Series 1999A-2 (LIBOR Rate)" (herein referred to as the "Series 1999A-2
Notes" and together with the Series 1999A-1 Notes, the "Senior Notes"); and
(iii) _____________________ Dollars ($________________) designated "Student Loan
Funding 1999-A/B Trust Student Loan Subordinate Asset-Backed Notes, Series
1999B-1 (LIBOR Rate)" (herein referred to as the "Subordinate Notes" or the
"Series 1999B-1 Notes" and, collectively with the Senior Notes, the "Notes").
SECTION 2.02 TERMS OF NOTES
(a) TERMS OF NOTES GENERALLY. Payments of principal of and interest on
each Note shall be made by the Indenture Trustee from its principal corporate
trust office in Cincinnati, Ohio in lawful money of the United States, and
payment of interest on each Note shall, if the Holder thereof is the registered
owner of $1,000,000 or more in aggregate principal amount of Notes, be made by
the deposit or wiring of immediately available funds to the credit of an account
specified by such Holder in duly executed instructions, with signature
guaranteed in a manner satisfactory to the Indenture Trustee, in the form set
forth in Exhibit D hereto delivered to the Indenture Trustee no less than ten
(10) Business Days prior to the date such payment is to be made. If such
instructions are not delivered to the Indenture Trustee in accordance with the
immediately preceding sentence and except as otherwise provided for when Notes
are registered in the name of the Depository or its nominee, payment of interest
shall be made by check mailed to such Holder's address as it appears on the
books of registry maintained by the Indenture Trustee pursuant to Section 2.4 of
the Base Indenture. Each payment of principal and interest and Carryover
Interest, if any, on each Note of a Series shall be accompanied by the CUSIP
number, if any, of the Note of such Series to which such payment relates.
Notwithstanding the foregoing and except as otherwise provided for when
Notes are registered in the name of the Depository or its nominee, no payment of
principal shall be made on any Note unless and until such Note is tendered to
the Indenture Trustee for cancellation; and no payment of interest or Carryover
Interest shall be made on any Note except to the Person whose name appears on
the books of registry maintained by the Indenture Trustee as the registered
Holder thereof as of the close of business on the Record Date.
If and as long as a Book-Entry System is utilized, (i) the Notes shall
be issued in the form of one fully registered Note for each Legal Final Maturity
within each Series of Notes or otherwise as may be required or requested by the
Depository and agreed to by the Issuer,
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registered in the name of the Depository or its nominee, as registered owner,
and immobilized in the custody of the Depository; (ii) (a) the principal of the
Notes shall be payable in next day or federal funds delivered or transmitted to
the Depository or its nominee on the Legal Final Maturity or such other date as
principal is payable hereunder and (b) interest on the Notes shall be payable in
same day or federal funds delivered to the Depository or its nominee on the
applicable Distribution Date; (iii) the beneficial owners in Book-Entry Form
shall have no right to receive Notes in the form of physical securities or
certificates; (iv) ownership of beneficial interests in Book-Entry Form shall be
shown by a book entry on the system maintained and operated by the Depository
and its Participants, and transfers of the ownership of beneficial interests
shall be made only by book entry by the Depository and its Participants; and (v)
the Notes as such shall not be transferable or exchangeable, except for transfer
to another Depository or to another nominee of a Depository, without further
action by the Issuer.
As long as the Notes are held by a Depository in a Book-Entry System,
the Indenture Trustee shall send any notice of redemption only to the
Depository. In the event that the Indenture Trustee gives notice of redemption
to the Depository, such notice shall initiate the Depository's standard
redemption process.
If any Depository determines not to continue to act as a Depository for
the Notes for use in a Book-Entry System, the Authorized Officer may attempt to
have established a securities depository/book-entry relationship with another
qualified Depository. If (i) the Issuer advises the Indenture Trustee in writing
the a Depository is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Notes, and the Issuer is
unable to locate a qualified successor, (ii) the Issuer, at its option, advises
the Indenture Trustee in writing that it elects to terminate the Book-entry
System through a Depository, or (iii) after the occurrence of an Event of
Default, Noteholders representing not less than 50% of the Outstanding principal
balance of the Directing Notes advise the Indenture Trustee and the Depository
in writing that the continuation of a Book-entry System through a Depository is
no longer in the best interest of the Noteholders, the Indenture Trustee shall
permit withdrawal of the Notes from the Depository or its nominee, all at the
cost and expense (including any costs of printing), if the event is not the
result of Issuer action or inaction, of those Persons requesting such issuance.
Note certificates authenticated and delivered pursuant to this paragraph shall
be in Authorized Denominations.
With respect to the Notes registered in the name of Cede & Co., as
nominee of DTC, or in the name of any successor Depository or its nominee, the
Issuer and the Indenture Trustee shall have no responsibility or obligation to
any Depository Participant or to any Indirect Participant. Without limiting the
generality of the immediately preceding sentence, the Issuer and the Indenture
Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of DTC, Cede & Co., any other Depository, its nominee,
or any Depository Participant with respect to any ownership interest in the
Notes, (ii) the delivery to any Depository Participant or any Indirect
Participant or any other Person, other than a Holder of a Note, of any notice
with respect to the Notes, including any notice of redemption, or (iii) the
payment to any Depository Participant or any Indirect Participant or any other
Person, other than a Holder of a Note, of any amount with respect to principal
of or interest on the Notes.
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For as long as the Notes are in Book-Entry Form, the notice, tender and
delivery procedures of DTC, or any other Depository to which the Notes are
transferred, shall be applicable. Whenever during the term of the Notes the
beneficial ownership thereof is determined by a book-entry at DTC, the
requirements of the Indenture of holding, delivering, surrendering or
transferring Notes shall be deemed modified to require the appropriate person to
meet the requirements of DTC as to registering, holding, surrendering or
transferring the book-entry to produce the same effect.
(b) TERMS OF SENIOR NOTES GENERALLY. The Senior Notes shall be
initially issued in fully registered form in substantially the form set forth in
Exhibit B. The Senior Notes may be issued only in Authorized Denominations. The
Senior Notes initially issued hereunder shall be dated their Date of Issuance,
and each Series of such Senior Notes shall mature on the respective Legal Final
Maturity for such Series. The Senior Notes shall be subject to redemption prior
to their respective Legal Final Maturity as provided in Article III hereof. The
Senior Notes of each Series shall be numbered in consecutive numerical order as
set forth in Schedule I attached hereto.
The Senior Notes shall be issued to a Depository for use in a
Book-Entry System in accordance with the provisions of the Indenture. The
Authorized Officer, on behalf of the Issuer and to the extent necessary or
required, shall enter into any agreements determined necessary in connection
with the registration, authentication, immobilization, and transfer of the
Senior Notes, including arrangements for the payment of principal and interest
by wire transfer, after determining that the execution thereof will not endanger
the funds or securities of the Issuer.
Each Senior Note of a Series shall be payable on its respective Legal
Final Maturity and shall bear interest for each Interest Accrual Period at the
Series Interest Rate determined in accordance with the procedures and subject to
the limitations set forth in Section 2.03 hereof. Interest at such Series
Interest Rate shall accrue during each Interest Accrual Period on the principal
balance of each Series of Senior Notes Outstanding until such Series of Senior
Notes has been paid in full or payment has been duly provided for, as the case
may be, and shall accrue from the later of the date thereof or the most recent
applicable Distribution Date to which interest has been paid or duly provided
for until paid, subject, however, to the provisions of Section 2.03 hereof. Each
Senior Note of a Series shall initially bear interest at the rate of interest
per annum set forth in Schedule I attached hereto. Interest on each Senior Note
shall be paid on each applicable Distribution Date to the extent of interest
accrued on the principal then being paid or redeemed to the Holders of such
Senior Notes as of the Record Date. Interest accrued as of any applicable
Distribution Date on the Senior Notes of a Series but not paid on such
Distribution Date shall be payable on the succeeding applicable Distribution
Date, together with interest thereon at the applicable Series Interest Rate.
Interest shall be paid pro rata to the Holders of each such Series of Senior
Notes Outstanding.
(c) TERMS OF SUBORDINATE NOTES GENERALLY. The Subordinate Notes shall
be initially issued in fully registered form in substantially the form set forth
in Exhibit C hereof. The Subordinate Notes shall be issued only in Authorized
Denominations. The Subordinate Notes issued hereunder shall be dated their Date
of Issuance and shall mature on the Legal Final
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Maturity. The Subordinate Notes shall be subject to redemption prior to their
respective Legal Final Maturity as provided in Article III hereof. The
Subordinate Notes shall be numbered in consecutive numerical order as set forth
in Schedule I hereto.
The Subordinate Notes shall be issued to a Depository for use in a
Book-entry System in accordance with the provisions of the Indenture. The
Authorized Officer, on behalf of the Issuer and to the extent necessary or
required, shall enter into any agreements determined necessary in connection
with the registration, authentication, immobilization, and transfer of the
Subordinate Notes, including arrangements for the payment of principal and
interest by wire transfer, after determining that the execution thereof will not
endanger the funds or securities of the Issuer.
The Subordinate Notes shall be payable on their Legal Final Maturity
and shall bear interest for each Interest Accrual Period at the Series Interest
Rate determined in accordance with the procedures, subject to the limitations
set forth in Section 2.03 hereof. Interest shall accrue during each Interest
Accrual Period on the principal balance of the Subordinate Notes Outstanding
until such Subordinate Notes have been paid in full or payment has been duly
provided for, as the case may be, and shall accrue from the later of the date
thereof or the most recent applicable Distribution Date to which interest has
been paid or duly provided for until paid, subject, however, to the provisions
of Section 2.03 hereof. Each Subordinate Note shall bear interest at the rate of
interest per annum set forth in Schedule I attached hereto. Interest accrued as
of any applicable Distribution Date on the Subordinate Notes but not paid on
such Distribution Date shall be payable on the next succeeding applicable
Distribution Date, together with interest thereon at the applicable Series
Interest Rate. Interest will be paid pro rata to the Holders of the Subordinate
Notes Outstanding.
The Indenture Trustee shall make available to each Holder or owner of a
beneficial interest in a Series of Notes via telephone information concerning
the Series Interest Rate applicable to the Notes of each Series. The Indenture
Trustee shall make such information available to such Holders between the hours
of 9 a.m. and 5 p.m. Eastern time on any day on which the principal corporate
trust office of the Indenture Trustee is open for business.
SECTION 2.03 DETERMINATION OF SERIES INTEREST RATES ON THE NOTES.
SECTION 2.03.1 DETERMINATION OF SERIES INTEREST RATES ON THE NOTES. (a)
The Calculation Agent shall determine the Series Interest Rate with respect to a
Series of Notes for each Interest Accrual Period which Series Interest Rate
shall equal the Formula Rate calculated as follows, subject to the limitation of
the Net Loan Rate as hereinafter described. The Formula Rate for each Interest
Accrual Period for each Series of Series 1999A Notes shall equal One-Month LIBOR
plus ___%, but in no event greater than 18% per annum. The Formula Rate for each
Interest Accrual Period for the Series 1999B-1 Notes shall equal Three-Month
LIBOR plus ____%, but in no event greater than 18%.
Interest on each Series of Notes for each Interest Accrual Period shall
be calculated on the basis of the actual number of days elapsed in such Interest
Accrual Period on
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the basis of a year consisting of 360 days. The calculation of the Formula Rates
described above shall be based on the actual number of days in such Interest
Accrual Period.
If the Calculation Agent shall fail or refuse to determine the Formula
Rate on a Series of Notes on any Interest Determination Date, the Formula Rate
on such Notes shall be determined by a securities dealer appointed by the Issuer
and capable, in the reasonable judgment of the Issuer, of making such a
determination in accordance with the provisions of the Indenture and written
notice of such determination shall be given by such securities dealer to the
Indenture Trustee.
SECTION 2.03.2 CARRYOVER INTEREST. The Calculation Agent shall announce
the Formula Rate and the Net Loan Rate to the Indenture Trustee and the Issuer.
If, with respect to any Series of Notes for any Interest Accrual
Period, interest at the Formula Rate exceeds interest at the Net Loan Rate with
respect to such Series of Notes for such Interest Accrual Period, the Series
Interest Rate for such Interest Accrual Period shall be the Net Loan Rate, and
the Indenture Trustee, on the Distribution Date for such Interest Accrual
Period, shall pay to the Holders of such Series of Notes interest at the Net
Loan Rate. With respect to such Series of Notes, the Indenture Trustee shall
also calculate the amount by which interest at the Formula Rate exceeds interest
at the Net Loan Rate for such Interest Accrual Period, and such excess, together
with interest thereon (compounded on each Distribution Date for the related
Series when such interest is not paid on the first Distribution Date for such
Series when such interest was otherwise payable) at the applicable Formula Rate
from the Distribution Date for the related Series on which such excess was
calculated until paid, if at all, shall constitute Carryover Interest. Such
Carryover Interest shall be paid on each Distribution Date for the related
Series subsequent to the Distribution Date on which such excess was calculated
to the extent funds are available therefor in the Note Payment Account of the
Collection Fund after making the other required payments from the Note Payment
Account in accordance with the provisions of Section 5.5.2 of the Base Indenture
and Section 4.02 hereof. Carryover Interest shall continue to be so payable
notwithstanding that the principal amount of the applicable Series of Notes has
been reduced to zero until (i) no Notes remain outstanding and (ii) the balances
in the Funds and Accounts have been reduced to zero. For purpose of the
Indenture any reference herein to "principal or "interest" shall not include
within the meaning of such words Carryover Interest.
Carryover Interest shall be separately calculated for each Series of
Notes by the Indenture Trustee in sufficient time for the Indenture Trustee to
give notice to each Holder of such Carryover Interest as required in this
paragraph. On the Distribution Date for an Interest Accrual Period with respect
to which Carryover Interest has been calculated by the Indenture Trustee, the
Indenture Trustee shall, in accordance with Section 7.10 of the Base Indenture,
give written notice to each Holder of the Carryover Interest applicable to such
Holder's Note for such Interest Accrual Period, which written notice may
accompany the payment of interest by check made to each such Holder on such
Distribution Date or otherwise shall be mailed on such Distribution Date by
first class mail, postage prepaid, to each such Holder at such Holder's address
as it appears on the books of registry maintained by the Indenture Trustee
pursuant to the Indenture.
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Such notice shall state, in addition to such Carryover Interest, that,
Carryover Interest shall continue to be payable notwithstanding that the
principal amount of the applicable Series of Notes has been reduced to zero
until (i) no Notes remain outstanding and (ii) the balances in the Funds and
Accounts have been reduced to zero.
SECTION 2.03.3 ADDITIONAL PROVISIONS REGARDING SERIES INTEREST RATE.
The determination of a Series Interest Rate by the Calculation Agent or any
other Person pursuant to the provisions of the applicable Section of this
Article II shall be conclusive and binding on the Holders of the Series of Note
or Notes to which such Series Interest Rate applies, and the Issuer and the
Indenture Trustee may rely thereon for all purposes.
In no event shall the cumulative amount of interest paid or payable on
a Series of Notes (including interest calculated as provided herein, plus any
other amounts that constitute interest on the Notes of such Series under
applicable law which are contracted for, charged, reserved, taken or received
pursuant to the Notes of such Series or related documents) calculated from the
Date of Issuance of the Notes of such Series through any subsequent day during
the term of the Notes of such Series or otherwise prior to payment in full of
the Notes of such Series exceed the amount permitted by applicable law. If the
applicable law is ever judicially interpreted so as to render usurious any
amount called for under the Notes of such Series or related documents or
otherwise contracted for, charged, reserved, taken or received in connection
with the Notes of such Series, or if the redemption or acceleration of the
maturity of the Notes of such Series results in payment to or receipt by the
Holder or any former Holder of the Notes of such Series of any interest in
excess of that permitted by applicable law, then, notwithstanding any provision
of the Notes of such Series or related documents to the contrary, all excess
amounts theretofore paid or received with respect to the Notes of such Series
shall be credited on the principal balance of the Notes of such Series (or, if
the Notes of such Series have been paid or would thereby be paid in full,
refunded by the recipient thereof), and the provisions of the Notes of such
Series and related documents shall immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for under the Notes of such Series and under the related documents.
SECTION 2.04 FORMS OF NOTES AND INSTRUCTIONS FOR PAYMENT. The Senior
Notes and the certificate of authentication and form of assignment for transfer
to be endorsed thereon shall be in substantially the form of Exhibit B hereof,
with necessary or appropriate variations, omissions or insertions, as permitted
or required by this Indenture.
Each Subordinate Note and the certificate of authentication and form of
assignment for transfer to be endorsed thereon shall be in substantially the
form of Exhibit C hereof, with necessary or appropriate variations, omissions or
insertions, as permitted or required by this Indenture.
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Any instructions to the Indenture Trustee for payment of interest on
the Notes shall be in substantially the form of Exhibit D hereof, with necessary
or appropriate variations, omissions or insertions, as permitted or required by
this Indenture.
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ARTICLE III
REDEMPTION OF THE NOTES
SECTION 3.01 REDEMPTION OF NOTES IN GENERAL. The Notes shall be
subject to redemption prior to their Legal Final Maturity only upon the terms
and conditions, and only on the applicable dates and at the redemption price, as
are set forth in this Terms Supplement. The redemption price of the Notes shall,
in each case, be par plus (i) accrued interest to the applicable dates on which
such redemption will occur and (ii) all unpaid Carryover Interest, if any,
thereon. Principal of and interest and unpaid Carryover Interest on the Notes
shall be paid from the moneys available therefor in the Note Payment Account in
the Collection Fund and in the Reserve Fund.
If Outstanding Notes are to be redeemed pursuant to the provisions of
this Article III, the Indenture Trustee shall give written notice of such
redemption to the Holders of such Outstanding Notes not less than fifteen (15)
days prior to the applicable dates on which such Outstanding Notes are to be
redeemed. Each notice of redemption shall state (i) the date, Series and numbers
of the Notes to be redeemed, the applicable dates on which such redemption will
occur and the redemption price payable upon such redemption; (ii) that the
interest on such Outstanding Notes and on any unpaid Carryover Interest shall
cease to accrue from and after the applicable date on which such redemption will
occur and (iii) that on said date there will become due and payable on each such
Outstanding Note the principal amount thereof and the interest accrued on such
principal amount to the applicable date on which the redemption will occur and
all unpaid Carryover Interest. Each notice of redemption shall also state that
each such Outstanding Note must be surrendered to the Indenture Trustee for
payment of the principal of and interest and any unpaid Carryover Interest on
such Outstanding Notes.
If notice of redemption of Outstanding Notes has been duly given as
hereinbefore provided and if moneys for the payment of the principal of and
interest and any unpaid Carryover Interest on such Outstanding Notes are held
for the purpose of such payment by the Indenture Trustee, then such Outstanding
Notes shall, on the applicable dates on which such redemption will occur, become
due and payable, and interest on said Outstanding Notes and on any unpaid
Carryover Interest shall cease to accrue.
All Notes surrendered pursuant to the provisions of this Article III
shall be canceled by the Indenture Trustee.
SECTION 3.02 AUCTION OF FINANCED STUDENT LOANS; REDEMPTION OF
OUTSTANDING NOTES FROM AUCTION PROCEEDS PRIOR TO THE LEGAL FINAL MATURITY. On or
after ________________, if the then outstanding Pool Balance is 10% or less of
the Initial Pool Balance, the Indenture Trustee shall offer the Financed Student
Loans in the Trust Estate for sale. The Issuer, its affiliates and unrelated
third parties may offer bids to purchase such Financed Student Loans on or prior
to such date. If at least two bids are received, the Indenture Trustee shall
accept the higher bid if it, together with the funds (including the Value of
Eligible Investments, if any, to the credit of the Reserve Fund) on deposit in
the Collection Account and
17
<PAGE> 21
the Reserve Fund, will pay accrued and unpaid Program Operating Expenses and all
fees and expenses in connection with the sale of the Financed Student Loans and
the redemption of the Notes (the "Transaction Costs") and all principal of and
accrued interest and unpaid Carryover Interest on all such Outstanding Notes due
to the Noteholders and all amounts due to Exchange Counterparties, if any. If at
least two bids are not received or the bid proceeds, together with the funds
(including the Value of Eligible Investments, if any, to the credit of the
Reserve Fund) on deposit in the Reserve Fund, are not sufficient to pay
Transaction Costs and all principal of and accrued interest and unpaid Carryover
Interest on all such Outstanding Notes due to the Noteholders, the Indenture
Trustee shall not consummate the sale and may, but is not obligated to, solicit
bids for the Financed Student Loans in the Trust Estate on future Distribution
Dates until a successful bid is accepted or until the Notes have been paid in
full. The net proceeds of such purchase, together with such funds from the
Reserve Fund as are necessary to effect such redemption, shall be applied to
redeem all Outstanding Notes at par plus accrued interest to and all unpaid
Carryover Interest on the next applicable Distribution Date.
SECTION 3.03 OPTIONAL REDEMPTION OF NOTES PRIOR TO THE LEGAL FINAL
MATURITY. All Outstanding Notes will be subject to redemption in whole on any
applicable Distribution Date in the event the Issuer exercises its option to
repurchase all remaining Financed Student Loans, and thus effect the early
retirement of the Notes, on any applicable Distribution Date for the applicable
Series of Notes on or after the Monthly Distribution Date on which the Pool
Balance is equal to 10% or less of the Initial Pool Balance, at a price at least
equal to, for each Financed Student Loan, the outstanding principal balance of
such Financed Student Loan as of the end of the preceding Collection Period,
together with all accrued interest thereon and unamortized premiums, if any, and
sufficient to pay Transaction Costs and all amount due to the Noteholders,
including Carryover Interest, after application of funds (including the Value of
Eligible Investments, if any, to the credit of the Reserve Fund) on deposit in
the Collection Account and the Reserve Fund.
In connection with the optional redemption of any Notes, all unpaid
Carryover Interest on such Notes (and accrued interest, if any, thereon) shall
be paid on or before the date of optional redemption of such Notes.
18
<PAGE> 22
ARTICLE IV
DISPOSITION OF PROCEEDS OF THE NOTES; COLLECTION ACCOUNT;
ACQUISITION FUND
SECTION 4.01 DISPOSITION OF PROCEEDS OF THE NOTES. All proceeds of the
issuance and sale of the Series of Notes hereunder shall be deposited with the
Indenture Trustee on the Date of Issuance, and the Indenture Trustee shall
deposit such proceeds to the following Funds and Accounts:
(a) $________ of the proceeds of the Notes, an amount equal to
the Specified Reserve Fund Balance, shall be deposited by the Indenture
Trustee upon receipt in the Reserve Fund;
(b) $_________ of the proceeds of the Notes shall be deposited
by the Indenture Trustee upon receipt to the Collection Account in the
Collection Fund;
(c) $________ of the proceeds of the Notes shall be deposited
by the Indenture Trustee upon receipt to the Expense Account in the
Collection Fund; and
(d) $_________ of the proceeds of the Notes shall be deposited
by the Indenture Trustee upon receipt to the Capitalized Interest
Account in the Acquisition Fund; and
(e) The balance of the proceeds of the Notes shall be
deposited by the Indenture Trustee upon receipt in the Acquisition
Fund.
SECTION 4.02 DISPOSITION OF COLLECTION ACCOUNT.
Except as otherwise noted below, on each Monthly Distribution Date, as
described below, the Indenture Trustee shall transfer from the Collection
Account the following amounts in the following priority, subject to Available
Funds for the immediately preceding Collection Period:
(i) to the Expense Account, to the extent required to increase the
balance of such Account to the Program Expense Requirement
calculated as of such Monthly Distribution Date;
(ii) to the Note Payment Account, an amount up to (a) the Series 1999A
Noteholders' Interest Distribution Amount for payment on such
Monthly Distribution Date to the Series 1999A Noteholders without
preference or priority of any kind and (b) any related Senior Issuer
Exchange Payment for payment to the related Senior Exchange
Counterparty, including any related early termination payment as a
result of a default by the Issuer;
19
<PAGE> 23
(iii) to the Note Payment Account, an amount up to (a) one-third (1/3) of
the Series 1999B-1 Noteholders' Interest Distribution Amount for
payment on the next succeeding or concurrent Quarterly Distribution
Date to the Series 1999B-1 Noteholders without preference or
priority of any kind and (b) any related Subordinate Issuer Exchange
Payment for payment to the related Subordinate Exchange
Counterparty, including an early termination payment or as a result
of a default by the Issuer;
(iv) to the Note Payment Account,
(a) an amount up to the Series 1999A Noteholders' Principal
Distribution Amount for payment on such Monthly Distribution Date to
the Series 1999A-1 Noteholders until the Outstanding principal
balance of Series 1999A-1 Notes has been reduced to zero, then,
(b) once the Series 1999A-1 Notes are no longer Outstanding, an
amount up to the Series 1999A Noteholders' Principal Distribution
Amount for payment on such Monthly Distribution Date to the Series
1999A-2 Noteholders until the Outstanding principal balance of the
Series 1999A-2 Notes has been reduced to zero;
(v) once the Series 1999A Notes are no longer Outstanding, on each
Quarterly Distribution Date to the Note Payment Account, an amount
up to the Series 1999B-1 Noteholders' Principal Distribution Amount
for payment on such Quarterly Distribution Date to the Series
1999B-1 Noteholders until the Outstanding principal balance of the
Series 1999B-1 Notes has been reduced to zero;
(vi) to the Reserve Fund the amount, if any, required to increase the
balance thereof to the Specified Reserve Fund Balance as provided
for in Section 5.2 of the Base Indenture;
(vii) to the Note Payment Account, an amount up to Parity Percentage
Payments to the extent then required:
(a) for payment on such Monthly Distribution Date to the Series
1999A-1 Noteholders until the principal balance of the Series
1999A-1 Notes has been reduced to zero, then
(b) once the Series 1999A-1 Notes are no longer Outstanding, for
payment on such Monthly Distribution Date to the Series 1999A-2
Noteholders until the principal balance of the Series 1999A-2 Notes
has been reduced to zero, then
(c) once the Series 1998A Notes are no longer Outstanding, on each
Quarterly Distribution Date for payment on such Quarterly
Distribution Date to the Series
20
<PAGE> 24
1999B-1 Noteholders until the principal balance of each such Series
of Series 1999B-1 Notes has been reduced to zero;
(viii) to the Note Payment Account,
(a) an amount up to any Carryover Interest, ratably, to the Series
1999A Noteholders for payment on such Monthly Distribution Date, and
upon payment of all Carryover Interest due to the Series 1999A
Noteholders, then,
(b) an amount up to one-third (1/3) any Carryover Interest, to the
Series 1999B-1 Noteholders for payment on the next succeeding or
concurrent Quarterly Distribution Date;
(ix) to the Note Payment Account, an amount up to the amount, if any,
owed an Exchange Counterparty in respect of an early termination
payment or damages for early termination as a result of anything
other than a default by the Issuer under any Exchange Agreement for
payment to such Exchange Counterparty; and
(x) any remainder, to the Excess Surplus Account.
Notwithstanding the foregoing, if on any Distribution Date after giving effect
to all distributions to be made on such Distribution Date, either:
(a) the Outstanding principal amount of the Series 1999A Notes would
exceed the sum of the (i) the Pool Balance plus (ii) accruals of
Special Allowance Payments and Interest Subsidy Payments payable
with respect to the Financed Student Loans as of the end of the
preceding Collection Period, plus the balance of the Reserve Fund as
of the computation date, or
(b) an Event of Default described in item 1 of the first paragraph of
Section 8.1 of the Base Indenture has occurred (but prior to the
acceleration of the Legal Final Maturity of the Notes),
then, until the applicable conditions described in clauses (a) and (b) no longer
exist, the Series 1999B-1 Noteholders' Interest Distribution Amount and the
Series 1999B-1 Noteholders' Principal Distribution Amount will not be paid to
the Series 1999B-1 Noteholders pursuant to clauses (iii) and (v) above and no
Subordinate Issuer Exchange Payment shall be made. For so long as any Series
1999A Notes remain Outstanding, such deferral in the payment of the Series
1999B-1 Noteholders' Interest Distribution Amount, the Series 1999B-1
Noteholders' Principal Distribution Amount or Subordinate Issuer Exchange
Payments (except with respect to the Legal Final Maturity of the Series 1999B-1
Notes) shall not constitute an Event of Default. In addition, as long as the
applicable conditions described in clause (b) continue to exist, the Series
1999A Noteholders' Principal Distribution Amount shall be paid pro rata among
each Series of Series 1999A Notes, without preference or priority of any kind.
21
<PAGE> 25
22
<PAGE> 26
ARTICLE V
MISCELLANEOUS
SECTION 5.01 EXECUTION AND DELIVERY OF THIS TERMS SUPPLEMENT. This Terms
Supplement is executed and delivered pursuant to Section 2.1 of the Base
Indenture.MENT
SECTION 5.02 EFFECT OF TERMS SUPPLEMENT ON INDENTURE. This Terms
Supplement shall supplement the Base Indenture, which is in all respects
ratified and confirmed, and the Base Indenture so supplemented by this Terms
Supplement shall be read, taken and construed as one and the same instrument.
Each addition to and amendment of the Base Indenture herein is solely for the
purposes of the Notes. If any term of this Terms Supplement conflicts with any
terms of the Base Indenture, this Terms Supplement shall control for purposes of
the Notes.
SECTION 5.03 EXECUTION OF COUNTERPARTS. This Terms Supplement may be
executed in several counterparts, each of which shall be regarded as an original
and all of which shall constitute but one and the same document. It shall not be
necessary in proving this Terms Supplement to produce or account for more than
one of those counterparts.
SECTION 5.04 GOVERNING LAW. This Terms Supplement is entered into with the
intent that the laws of the State of Ohio shall govern its construction, without
giving effect to the conflict of law principles thereof.
[balance of page left blank intentionally]
23
<PAGE> 27
IN WITNESS WHEREOF, STUDENT LOAN FUNDING 1999-A/B TRUST, by Firstar Bank,
National Association, not in its individual capacity, but solely as co-owner
trustee of the Issuer, has caused this Terms Supplement to be signed in its name
and on its behalf by one of its officers thereunto duly authorized; and FIRSTAR
BANK, NATIONAL ASSOCIATION, as Initial Co-Owner Eligible Lender Trustee, has
caused this Terms Supplement to be signed in its name and on its behalf by one
of its officers thereunto duly authorized; and FIRSTAR BANK, NATIONAL
ASSOCIATION, to evidence its acceptance of the trusts hereby created, has caused
this Terms Supplement to be signed in its name and on its behalf by one of its
officers thereunto duly authorized, all as of the date first above written.
STUDENT LOAN FUNDING 1999-A/B TRUST
By Firstar Bank, National Association,
not in its individual capacity, but solely as
co-owner trustee of the Issuer on behalf of
the Issuer
By___________________________________________
Title:_______________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Initial Co-Owner Eligible Lender Trustee
By___________________________________________
Title:_______________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By___________________________________________
Title:_______________________________________
24
<PAGE> 28
SCHEDULE I
TERMS OF SENIOR NOTES
---------------------
INITIAL INTEREST RATE (A-1) ____%
INITIAL INTEREST RATE (A-2): ____%
DATED DATE: ___________, 1999.
INITIAL INTEREST DETERMINATION
DATE FOR SERIES 1999A-1 NOTES: ___________, 1999
INITIAL INTEREST DETERMINATION
DATE FOR SERIES 1999A-2 NOTES: ___________, 1999
SERIES 1999A-1 - NUMBERED FROM: A-1
SERIES 1999A-2 - NUMBERED FROM: B-1
TERMS OF SUBORDINATE NOTES
--------------------------
INITIAL INTEREST RATE: ____%
DATED DATE: ____________, 1999
INITIAL INTEREST DETERMINATION DATE
FOR THE SERIES 1999B-1 NOTES: ____________, 1999
SERIES 1999B-1 - NUMBERED FROM: C-1
I-1
<PAGE> 29
EXHIBIT A
---------
DISTRIBUTION STATEMENT
NOTEHOLDERS' STATEMENT FOR STUDENT LOAN FUNDING 1999-A/B TRUST
STUDENT LOAN ASSET-BACKED NOTES SERIES 1999 A-1, A-2 AND B-1
FOR COLLECTION PERIOD ENDING
Monthly Distribution Date:______________________
(A) Principal Factor
(i) Series A-1 Notes:____________
(ii) Series A-2 Notes:____________
(iii) Series B-1 Notes:____________
(B) Amount of principal being paid or distributed:
(i) Series A-1 Notes:$___________
(ii) Series A-2 Notes:$___________
(iii) Series B-1 Notes:$___________
(C) (i) Amount of Interest being paid or distributed:
(a) Series A-1 Notes:$____________
(b) Series A-2 Notes:$____________
(c) Series B-1 Notes:$____________
(ii) Applicable Interest Rates (based on the [Formula Rate/Net Loan
Rate]:
(a) Series A-1 Notes:____________%
(b) Series A-2 Notes:____________%
(c) Series B-1 Notes:____________%
(D) Amount of Distribution allocable to any Carryover Interest:
(i) Series A-1 Notes:$____________
(ii) Series A-2 Notes:$____________
(iii) Series B-1 Notes:$____________
(E) Pool Balance at end of preceding Collection Period:$___________
(F) After giving effect to distributions on this Distribution Date:
(i) outstanding principal amount of Series A-1 Notes:$_____________
(ii) outstanding principal amount of Series A-2 Notes:$_____________
(iii) outstanding principal amount of Series B-1 Notes:$_____________
(G) Amount of Program Operating Expenses to be allocated for the upcoming
Distribution Date:$______________
(H) (i) Aggregate amount of Realized Losses (if any) for the Collection
Period immediately preceding the Distribution Date:$_____________
A-1
<PAGE> 30
(ii) Amount received for recoveries of Realized Losses from a previous
Collection Period$____________
(a) interest:$_____________
(b) principal:$____________
(I) (i) Amount of distribution attributable to amounts in the following
Funds:
(a) Reserve Fund:$_________
(b) Expense Account:$____________
(c) Acquisition Fund:$____________
(d) Collection Account:$__________
(e) Note Payment Account:$________
(f) Excess Surplus Account:$________
(ii) Balance of Funds and Accounts on Distribution Date
(a) Reserve Fund:$_________
(b) Expense Account:$___________
(c) Acquisition Fund:$___________
(d) Collection Account:$__________
(e) Note Payment Account:$___________
(f) Excess Surplus Account:$___________
(iii) Parity Percentage:__________%
(iv) Senior Parity Percentage:___________%
(v) Amount of Parity Percentage Payments:$__________
(J) The aggregate amount paid for Financed Student Loans purchased from the
Student Loan Portfolio Fund during the immediately preceding Collection
Period:$____________
(K) Amount of Financed Student Loans:
(i) that are 31 through 60 days delinquent:$_________
(ii) that are 61 through 90 days delinquent:$__________
(iii) that are 91 through 120 days delinquent:$___________
(iv) that are more than 120 days delinquent:$____________
(v) for which claims have been filed with the appropriate guarantor or
the Secretary and which are awaiting payment:$___________
By: Star Bank as Indenture Trustee for Student Loan Funding 1999-A/B Trust
Student Loan Asset-Backed Notes, Series 1999A and Series 1999B.
A-2
<PAGE> 31
EXHIBIT B
FORM OF SENIOR LIBOR RATE NOTE
------------------------------
THE INTEREST ON THIS SERIES 1999A-_ NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. A/B-__ $__,000,000
STUDENT LOAN FUNDING 1999-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1999A-_
(LIBOR RATE)
Dated: ___________, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: ________________
Student Loan Funding 1999-A/B Trust, a common law (as opposed to
statutory) trust created under the laws of the State of Delaware (herein called
the "Issuer"), by Firstar Bank, National Association, a national banking
association duly organized and existing under the laws of the United States, not
in its individual capacity, but solely as co-owner trustee of the Issuer on
behalf of the Issuer (the "Co-Owner Trustee"), hereby acknowledges itself
indebted and, for value received, hereby promises to pay (but only out of the
Trust Estate) to
CEDE & CO.
or registered assigns, on the Legal Final Maturity stated above (subject to
prior redemption referred to herein), the principal sum of
________________________________ DOLLARS
in lawful money of the United States of America; and to pay interest thereon at
the Series Interest Rate applicable for each Interest Accrual Period on the
dates as provided herein (but only out of said Trust Estate) in like lawful
money.
This Series 1999A-_ Note is one of a duly authorized issue of notes of the
Issuer designated as "Student Loan Funding 1999-A/B Trust Student Loan Senior
Asset-Backed Notes, Series 1999A-_ (LIBOR Rate)" in the aggregate principal
amount of $___________ (this series herein referred to as the "Series 1999A-_
Notes"), issued (a) pursuant to a resolution duly adopted by the board of
directors of the Issuer authorizing the issuance of the Series 1999A-_ Notes and
(b) under an Indenture of Trust, dated as of ________ 1, 1999 (the "Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Terms Supplement"), as such Base Indenture and Terms Supplement
is supplemented or amended from time to time (the "Indenture"), each by and
among the Issuer, Firstar Bank, National Association, as initial eligible lender
trustee on behalf of the Issuer (the "Initial Co-Owner Eligible Lender Trustee"
and together with any other eligible lender trustee, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1999A-_ Notes are issued simultaneously and on
a parity with the Issuer's $__________ Student Loan Senior Asset-Backed Notes,
Series 1999A-_ (LIBOR Rate) (the "Series 1999A-_ Notes" and, together with the
Series 1999A-_ Notes, the Series 1999A Notes), and simultaneously with and on a
basis senior to the Issuer's $___________ Student Loan Subordinate Asset-Backed
Notes, Series 1999B-1 (LIBOR Rate) (the "Series 1999B-1 Notes" and collectively
with the Series 1998A Notes, the "Notes").
Reference is hereby made to the Indenture, a copy of which is on file with
the Indenture Trustee, and to all of the provisions thereof, to all of which
provisions the Holder of this Series 1999A-_ Note, by acceptance hereof, hereby
assents and agrees, for definitions of terms; the descriptions of and the nature
and extent of the security for
B-1
<PAGE> 32
the Series 1999A-_ Notes; the student loan purchase program being financed by
the issuance of the Series 1999A-_ Notes; the revenues and other assets pledged
(the "Trust Estate") to the payment of the principal of and interest and any
Carryover Interest on the Series 1999A-_ Notes (subject to the prior rights of
the Indenture Trustee to any realization from the Indenture Trustee's lien on
and security interest in the Trust Estate for payment of its fees and expenses
and the fees and expenses of each Eligible Lender Trustee); the nature and
extent and manner of enforcement of the pledge; the conditions upon which the
Indenture may be amended or supplemented with or without the consent of the
Holders of the Directing Notes; the rights and remedies of the Holders of the
Series 1999A-_ Notes, including the limitations therein contained upon the right
of a Holder to institute any suit, action or proceeding in equity or at law with
respect hereto and thereto; the rights, duties and obligations of the Issuer,
each Eligible Lender Trustee and the Indenture Trustee thereunder; the terms and
provisions upon which the liens, pledges, charges, trusts, security interests,
assignments and covenants made therein may be discharged at or prior to the
maturity of this Series 1999A-_ Note, this Series 1999A-_ Note thereafter no
longer being secured by the Indenture or being deemed to be outstanding
thereunder; and for the other terms and provisions thereof. References in this
Series 1999A-_ Note to the name "Student Loan Funding 1999-A/B Trust" or to the
term "Issuer" shall mean the Co-Owner Trustee, not in its individual capacity,
but solely as Co-Owner Trustee of the Issuer.
Words and terms used as defined words and terms in this Series 1999A-_
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest and Carryover Interest, if any, on the
Series 1999A-_ Notes are limited obligations of the Issuer payable only out of
the Trust Estate, as and to the extent set forth in the Indenture, and are
secured by a pledge of, lien on, security interest in and assignment of the
Trust Estate, subject to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth
in the Indenture.
THE INTEREST ACCRUAL PERIOD, THE APPLICABLE SERIES INTEREST RATE, THE NET
LOAN RATE, THE METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE
SERIES 1999A-_ NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND
CARRYOVER INTEREST, IF ANY, ON THIS SERIES 1999A-_ NOTE AND REDEMPTION OF THIS
SERIES 1999A-_ NOTE WILL BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS
AND PROVISIONS OF THE INDENTURE AND THE CALCULATION AGENT AGREEMENT, TO WHICH
TERMS, CONDITIONS AND PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND ALL OF
WHICH TERMS, CONDITIONS AND PROVISIONS ARE HEREBY SPECIFICALLY INCORPORATED
HEREIN BY REFERENCE.
No covenant or agreement contained in this Series 1999A-_ Note or in the
Indenture shall be deemed to be a covenant or agreement of any director,
officer, agent or employee of the Issuer in his or her individual capacity, and
none of such directors, officers, agents or employees nor any person executing
this Series 1999A-_ Note on behalf of the Issuer shall be liable personally on
this Series 1999A-_ Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1999A-_ Note.
If an Event of Default occurs, the principal of and interest on all Notes
issued under the Indenture may be declared due and payable upon the conditions
and in the manner and with the effect provided in the Indenture. The Indenture
and the rights and obligations of the Issuer, each Eligible Lender Trustee, the
Indenture Trustee and the registered owner hereof may be modified or amended in
the manner and subject to the conditions set forth in the Indenture.
Except when this Series 1999A-_ Note is held in a Book-entry System, this
Series 1999A-_ Note is transferable by the registered owner hereof or its
attorney duly authorized in writing at the principal corporate trust office of
the Indenture Trustee, upon surrender of this Series 1999A-_ Note, accompanied
by a duly executed instrument of transfer in the form set forth herein, with
signature guaranteed in a manner satisfactory to the Indenture Trustee, subject
to such reasonable regulations as the Issuer or the Indenture Trustee may
prescribe, and upon payment of any tax, fee or other governmental charge
incident to such transfer. Upon any such transfer there shall be issued in the
name of the transferee a new fully registered Series 1999A-_ Note or Series
1999A-_ Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1999A-_ Note. The person in whose name this Series
1999A-_ Note is registered shall be deemed the owner hereof for all purposes,
and the Issuer, the Indenture Trustee and any other designated Authenticating
Agent shall not be affected by any notice to the contrary.
B-2
<PAGE> 33
The Series 1999A-_ Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1999A-_ Note is held in a
Book-entry System and subject to the limitations and upon payment of the
charges, if any, provided in the Indenture, Series 1999A-_ Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1999A-_ Notes of the same date and series of other Authorized
Denominations.
In any case where the date fixed for the payment of principal of or
interest or Carryover Interest on this Series 1999A-_ Note shall not be a
Business Day, then payment of such principal or interest or Carryover Interest
need not be made on such date but may be made on the next succeeding Business
Day with the same force and effect as if made on the date fixed for the payment
thereof.
It is hereby certified, recited and declared that all acts, conditions and
things required to have happened, to exist and to have been performed precedent
to and in the issuance of this Series 1999A-_ Note and the issue of which it is
one, have happened, exist and have been performed in regular and due time, form
and manner as required by law; and that this Series 1999A-_ Note and the issue
of which it is one do not exceed any limitations of indebtedness prescribed by
law or otherwise applicable to the Issuer.
This Series 1999A-_ Note shall not be entitled to any benefit under the
Indenture, or become valid or obligatory for any purpose, until the certificate
of authentication and registration hereon endorsed shall have been signed by the
Indenture Trustee or the Authenticating Agent.
This Series 1999A-_ Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Issuer has caused this Series 1999A-_ Note to be
executed in its name and on its behalf by the facsimile signatures of two
Authorized Officers of the Issuer.
STUDENT LOAN FUNDING 1999-A/B Trust
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee
of the Issuer on behalf of the Issuer
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
----------------------- -----------------------
B-3
<PAGE> 34
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1999A-_ Notes described in the within mentioned
Indenture, and has been registered this date:
Date of Registration and Authentication: _______________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By _________________________________
Authorized Signatory
[Form of Assignment for Transfer]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ (Tax Identification or Social Security Number:
_______________) the within Student Loan Senior Asset-Backed Note, Series
1999A-_ (LIBOR Rate), of Student Loan Funding 1999-A/B Trust, and hereby
irrevocably constitutes and appoints _______________ attorney to transfer said
Note on the registry books kept by the Indenture Trustee for that purpose with
full power of substitution in the premises.
Dated_______________ ______________________________
Signature
NOTE: The signature to the assignment must correspond to the name as
written on the face of this Note in every particular, without any alteration or
change whatsoever.
Signature Guarantee:______________________________
B-4
<PAGE> 35
EXHIBIT C
FORM OF SUBORDINATE NOTE
------------------------
THE INTEREST ON THIS SERIES 1999B-1 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. C-__ $54,500,000
STUDENT LOAN FUNDING 1999-A/B Trust
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1999B-1
(LIBOR RATE)
Dated: ___________, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: ________________
Student Loan Funding 1999-A/B Trust, a common law (as opposed to
statutory) trust created under the laws of the State of Delaware (herein called
the "Issuer"), by Firstar Bank, National Association, a national banking
association duly organized and existing under the laws of the United States, not
in its individual capacity, but solely as co-owner trustee of the Issuer on
behalf of the Issuer (the "Co-Owner Trustee"), hereby acknowledges itself
indebted and, for value received, hereby promises to pay (but only out of the
Trust Estate) to
CEDE & CO.
or registered assigns, on the Legal Final Maturity stated above (subject to
prior redemption referred to herein), the principal sum of
_______________________________ DOLLARS
in lawful money of the United States of America; and to pay interest thereon at
the Series Interest Rate applicable for each Interest Accrual Period on the
dates as provided herein (but only out of said Trust Estate) in like lawful
money.
This Series 1999B-1 Note is one of a duly authorized issue of notes of the
Issuer designated as "Student Loan Funding 1999-A/B Trust Student Loan
Subordinate Asset-Backed Notes, Series 1999B-1 (LIBOR Rate)" in the aggregate
principal amount of $_______________ (this series herein referred to as the
"Series 1999B-1 Notes"), issued (a) pursuant to a resolution duly adopted by the
board of directors of the Issuer authorizing the issuance of the Series 1999B-1
Notes and (b) under an Indenture of Trust, dated as of ________ 1, 1999 (the
"Base Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Terms Supplement"), as such Base Indenture and Terms Supplement
is supplemented or amended from time to time (the "Indenture"), each by and
among the Issuer, Firstar Bank, National Association, as initial eligible lender
trustee on behalf of the Issuer (the "Initial Co-Owner Eligible Lender Trustee"
and together with any other eligible lender trustee, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1999B-1 Notes are issued simultaneously with
and on a basis subordinate to the Issuer's $___________ Student Loan Senior
Asset-Backed Notes, Series 1999A-1 (LIBOR Rate) (the "Series 1999A-1 Notes"),
and the Issuer's $__________ Student Loan Senior Asset-Backed Notes, Series
1999A-2 (LIBOR Rate) (the "Series 1999A-2 Notes", and together with the Series
1999A-1 Notes, the "Series 1999A Notes", and collectively with the Series
1999B-1 Notes, the "Notes").
C-1
<PAGE> 36
Reference is hereby made to the Indenture, a copy of which is on file with
the Indenture Trustee, and to all of the provisions thereof, to all of which
provisions the Holder of this Series 1999B-1 Note, by acceptance hereof, hereby
assents and agrees, for definitions of terms; the descriptions of and the nature
and extent of the security for the Series 1999B-1 Notes; the student loan
purchase program being financed by the issuance of the Series 1999B-1 Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest on the Series 1999B-1 Notes (subject to the prior
rights of the Indenture Trustee to any realization from the Indenture Trustee's
lien on and security interest in the Trust Estate for payment of its fees and
expenses, the fees and expenses of each Eligible Lender Trustee and for payment
of the principal of and interest on the Series 1998A Notes); the nature and
extent and manner of enforcement of the pledge; the conditions upon which the
Indenture may be amended or supplemented with or without the consent of the
Holders of the Series 1999B-1 Notes; the rights and remedies of the Holders of
the Directing Notes, including the limitations therein contained upon the right
of a Holder to institute any suit, action or proceeding in equity or at law with
respect hereto and thereto; the rights, duties and obligations of the Issuer,
each Eligible Lender Trustee and the Indenture Trustee thereunder; the terms and
provisions upon which the liens, pledges, charges, trusts, security interests,
assignments and covenants made therein may be discharged at or prior to the
maturity of this Series 1999B-1 Note, this Series 1999B-1 Note thereafter no
longer being secured by the Indenture or being deemed to be outstanding
thereunder; and for the other terms and provisions thereof. References in this
Series 1999A-1 Note to the name "Student Loan Funding 1999-A/B Trust" or to the
term "Issuer" shall mean the Co-Owner Trustee, not in its individual capacity,
but solely as Co-Owner Trustee of the Issuer.
Words and terms used as defined words and terms in this Series 1999B-1
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest and Carryover Interest, if any, on the
Series 1999B-1 Notes are limited obligations of the Issuer payable only out of
the Trust Estate, as and to the extent set forth in the Indenture, and are
secured by a pledge of, lien on, security interest in and assignment of the
Trust Estate, subject to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth
in the Indenture.
THE INTEREST ACCRUAL PERIOD, THE APPLICABLE SERIES INTEREST RATE, THE NET
LOAN RATE, THE METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE
SERIES 1999B-1 NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND
CARRYOVER INTEREST, IF ANY, ON THIS SERIES 1999B-1 NOTE AND THE REDEMPTION OF
THIS SERIES 1999B-1 NOTE WILL BE DETERMINED IN ACCORDANCE WITH THE TERMS,
CONDITIONS AND PROVISIONS OF THE INDENTURE, TO WHICH TERMS, CONDITIONS AND
PROVISIONS SPECIFIC REFERENCE IS HEREBY MADE, AND ALL OF WHICH TERMS, CONDITIONS
AND PROVISIONS ARE HEREBY SPECIFICALLY INCORPORATED HEREIN BY REFERENCE.
No covenant or agreement contained in this Series 1999B-1 Note or in the
Indenture shall be deemed to be a covenant or agreement of any director,
officer, member, agent or employee of the Issuer in his or her individual
capacity, and none of such directors, officers, agents or employees nor any
person executing this Series 1999B-1 Note on behalf of the Issuer shall be
liable personally on this Series 1999B-1 Note or be subject to any personal
liability or accountability by reason of the issuance of this Series 1999B-1
Note.
If an Event of Default occurs, the principal of and interest on all Notes
issued under the Indenture may be declared due and payable upon the conditions
and in the manner and with the effect provided in the Indenture. The Indenture
and the rights and obligations of the Issuer, each Eligible Lender Trustee, the
Indenture Trustee and the registered owner hereof may be modified or amended in
the manner and subject to the conditions set forth in the Indenture.
Except when this Series 1999B-1 Note is held in a Book-entry System, this
Series 1999B-1 Note is transferable by the registered owner hereof or its
attorney duly authorized in writing at the principal corporate trust office of
the Indenture Trustee, upon surrender of this Series 1999B-1 Note, accompanied
by a duly executed instrument of transfer in the form set forth herein, with
signature guaranteed in a manner satisfactory to the Indenture Trustee subject
to such reasonable regulations as the Issuer or the Indenture Trustee may
prescribe, and upon payment of any tax, fee or other governmental charge
incident to such transfer. Upon any such transfer there shall be issued in the
name of the transferee a new fully registered Series 1999B-1 Note or Series
1999B-1 Notes of
C-2
<PAGE> 37
Authorized Denominations of the same aggregate principal amount and date as this
Series 1999B-1 Note. The person in whose name this Series 1999B-1 Note is
registered shall be deemed the owner hereof for all purposes, and the Issuer,
the Indenture Trustee and any other designated Authenticating Agent shall not be
affected by any notice to the contrary.
The Series 1999B-1 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1999B-1 Note is held in a
Book-entry System and subject to the limitations and upon payment of the
charges, if any, provided in the Indenture, Series 1999B-1 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1999B-1 Notes of the same date and series of other Authorized
Denominations.
In any case where the date fixed for the payment of principal of or
interest or Carryover Interest on this Series 1999B-1 Note shall not be a
Business Day, then payment of such principal or interest or Carryover Interest
need not be made on such date but may be made on the next succeeding Business
Day with the same force and effect as if made on the date fixed for the payment
thereof.
It is hereby certified, recited and declared that all acts, conditions and
things required to have happened, to exist and to have been performed precedent
to and in the issuance of this Series 1999B-1 Note and the issue of which it is
one, have happened, exist and have been performed in regular and due time, form
and manner as required by law; and that this Series 1999B-1 Note and the issue
of which it is one do not exceed any limitations of indebtedness prescribed by
law or otherwise applicable to the Issuer.
This Series 1999B-1 Note shall not be entitled to any benefit under the
Indenture, or become valid or obligatory for any purpose, until the certificate
of authentication and registration hereon endorsed shall have been signed by the
Indenture Trustee or the Authenticating Agent.
This Series 1999B-1 Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Issuer has caused this Series 1999B-1 Note to be
executed in its name and on its behalf by the facsimile signatures of two
Authorized Officers of the Issuer.
STUDENT LOAN FUNDING 1999-A/B Trust
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee
of the Issuer on behalf of the Issuer
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
------------------------ ------------------------
C-3
<PAGE> 38
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1999B-1 Notes described in the within mentioned
Indenture, and has been registered this date:
Date of Registration and Authentication: _______________________
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By __________________________________
Authorized Signatory
[Form of Assignment for Transfer]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________ (Tax Identification or Social Security Number:
_______________) the within Student Loan Subordinate Asset-Backed Note, Series
1999B-1 (LIBOR Rate), of Student Loan Funding 1999-A/B Trust, and hereby
irrevocably constitutes and appoints _______________ attorney to transfer said
Note on the registry books kept by the Indenture Trustee for that purpose with
full power of substitution in the premises.
Dated_______________ ______________________________
Signature
NOTE: The signature to the assignment must correspond to the name as
written on the face of this Note in every particular, without any alteration or
change whatsoever.
Signature Guarantee:______________________________
C-4
<PAGE> 39
EXHIBIT D
---------
[FORM OF]
INSTRUCTIONS FOR
PAYMENT OF INTEREST
Firstar Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Corporate Trust Services
The undersigned is the registered owner of Student Loan Asset-Backed
Note(s), Series 1999[A/B-_], of Student Loan Funding 1999-A/B Trust No(s).
_____________ (the "Note(s)"), in an aggregate principal amount of $1,000,000 or
more. Until further notice or until the undersigned ceases to be the registered
owner of the Note(s), you are instructed to make payment of all interest due on
the Note(s) on any date due by depositing or wiring immediately available funds
on such date to the credit of the undersigned's Account No. ___________ with
__________________.
Name ______________________________
Date:____________________ ____________________________________
Authorized Signature
Signature Guaranteed:
_____________________________________
D-1
<PAGE> 1
Exhibit 5.1
[THOMPSON HINE & FLORY LLP LETTERHEAD]
July 27, 1999
Student Loan Funding Riverfront LLC
One West Fourth Street, Suite 310
Cincinnati, Ohio 45202
Re: Student Loan Funding Riverfront LLC Registration Statement on Form S-3
(No. 333-64283)
Ladies and Gentlemen:
We have acted as counsel to Student Loan Funding Riverfront LLC, a Delaware
limited liability company (the "Company"), in connection with the Company's
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
with respect to the Student Loan Asset-Backed Notes (the "Notes") to be issued
from time to time by separate common law trusts established by the Company
(each, an "Issuer"). Capitalized terms used but not defined herein shall have
the definitions assigned to such terms in the Registration Statement. The Notes
will be issued from time to time pursuant to Indentures to be entered into from
time to time among the applicable Issuer, one or more Eligible Lender Trustees
and an Indenture Trustee.
In the course of rendering this opinion, our review has been limited solely
to the following documents or certificates authenticated or certified to our
satisfaction:
(i) the Registration Statement;
(ii) the Certificate of Formation and Limited Liability Company Agreement
of the Company;
(iii) the form of Trust Agreement attached to the Registration Statement as
Exhibit 3.3;
(iv) the form of Indenture and form of Terms Supplement to the Indenture
attached to the Registration Statement as Exhibits 4.1 and 4.2,
respectively; and
<PAGE> 2
[THOMPSON HINE & FLORY LLP LETTERHEAD]
Student Loan Funding Riverfront LLC
July 27, 1999
Page 2
(v) such other documents as we deemed necessary and appropriate under the
circumstances.
In such examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures (of parties other than the Company
and the applicable Issuer) on original documents and the conformity to the
original documents of all copies submitted to us. We have also assumed the due
execution and delivery by and enforceability against the parties thereto (as to
all parties other than the Company and the applicable Issuer) of all documents
which we have examined where due execution and delivery or enforceability is a
prerequisite to the effectiveness thereof. As to various facts material to our
opinion, we have relied upon statements or certificates of officers and
representatives of the Company.
Based upon the foregoing examinations and assumptions and subject to the
further assumptions, exceptions and qualifications set forth below, it is our
opinion that when the Notes have been validly authorized and executed by or on
behalf of the applicable Issuer, issued and authenticated in accordance with the
provisions of the applicable Indenture and issued, delivered to and paid for by
the purchasers thereof in accordance with the provisions of the applicable
underwriting agreement, the Notes will constitute valid and binding obligations
of the applicable Issuer enforceable in accordance with their terms and entitled
to the benefits of the applicable Indenture, except as follows:
(A) the enforceability of the Notes and the applicable Indenture may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, rearrangement, liquidation, conservatorship or other similar
laws affecting creditors' rights generally, including court decisions
interpreting such laws, statutes of limitations and personal jurisdiction;
(B) the enforceability of the Notes and the applicable Indenture and
the availability of specific performance, injunctive relief and other forms
of equitable relief are subject to principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law);
(C) no opinion is expressed with respect to the enforceability of any
provisions of the Notes or the applicable Indenture that purport to require
payment or reimbursement of attorneys' fees or litigation expenses of
another party.
<PAGE> 3
[THOMPSON HINE & FLORY LLP LETTERHEAD]
Student Loan Funding Riverfront LLC
July 27, 1999
Page 3
This opinion is provided as a legal opinion only. No opinion may be
inferred or implied beyond the matters expressly stated herein. This opinion
speaks as of its date only and we disclaim any undertaking or obligation to
advise you of changes that hereafter may come to our attention.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus Supplement constituting a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Securities Act
of 1933, as amended, or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
Very truly yours,
Thompson Hine & Flory LLP
PMS:RAS:DAN:KKW
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
TRANSFER AND SALE AGREEMENT
BY AND AMONG
STUDENT LOAN FUNDING RIVERFRONT LLC,
A DELAWARE LIMITED LIABILITY COMPANY,
FIRSTAR BANK, NATIONAL ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS
ELIGIBLE LENDER TRUSTEE FOR THE BENEFIT OF
STUDENT LOAN FUNDING RIVERFRONT LLC,
FIRSTAR BANK, NATIONAL ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS
CO-OWNER TRUSTEE OF
STUDENT LOAN FUNDING 1999-A TRUST
A DELAWARE COMMON LAW TRUST,
AND
FIRSTAR BANK, NATIONAL ASSOCIATION,
NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS
CO-OWNER ELIGIBLE LENDER TRUSTEE FOR THE BENEFIT OF
STUDENT LOAN FUNDING 1999-A TRUST
---------------------------------------------------
DATED AS OF ________, _____,
---------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I SALE, TRANSFER AND ACCEPTANCE OF TRANSFERRED ASSETS;
ASSUMPTION OF OBLIGATIONS................................. 2
1.01 SALE, TRANSFER AND ACCEPTANCE OF TRANSFERRED ASSETS............ 2
1.02 CONSIDERATION FOR TRANSFER OF TRANSFERRED ASSETS............... 2
1.03 ASSUMPTION BY THE TRUST AND CO-OWNER ELIGIBLE LENDER
TRUSTEE OF OBLIGATIONS.................................... 3
1.04 RELEASE OF DEPOSITOR AND DEPOSITOR ELIGIBLE LENDER TRUSTEE..... 3
ARTICLE II CLOSING........................................................ 5
2.01 CLOSING........................................................ 5
2.02 GENERAL PROCEDURE.............................................. 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF DEPOSITOR AND DEPOSITOR
ELIGIBLE LENDER TRUSTEE................................... 6
3.01 FORMATION AND AUTHORITY........................................ 6
3.02 EXECUTION, DELIVERY; VALID AND BINDING AGREEMENT............... 6
3.03 AUTHORITY; NO BREACH........................................... 6
3.04 BROKERAGE...................................................... 7
3.05 REGARDING THE FINANCED STUDENT LOANS........................... 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TRUST AND CO-OWNER
ELIGIBLE LENDER TRUSTEE................................... 9
4.01 AUTHORITY UNDER TRUST.......................................... 9
4.02 EXECUTION, DELIVERY; VALID AND BINDING AGREEMENT............... 9
4.03 AUTHORITY; NO BREACH........................................... 9
ARTICLE V COVENANTS OF DEPOSITOR......................................... 10
5.01 REGARDING CLOSING CONDITIONS................................... 10
5.02 REGARDING THE HIGHER EDUCATION ACT............................. 10
5.03 CONDITIONS PRECEDENT TO REPURCHASE OBLIGATION.................. 10
5.04 REPURCHASE BY DEPOSITOR........................................ 10
5.05 REGARDING TAX MATTERS.......................................... 11
ARTICLE VI COVENANTS OF THE TRUST AND THE CO-OWNER ELIGIBLE LENDER
TRUSTEE................................................... 12
6.01 REGARDING CLOSING CONDITIONS................................... 12
6.02 REGARDING THE HIGHER EDUCATION ACT AND THE FINANCED
STUDENT LOANS............................................. 12
6.03 REGARDING TAX MATTERS.......................................... 12
6.04 RESTRICTIONS REGARDING BANKRUPTCY.............................. 12
ARTICLE VII CONDITIONS TO CLOSING.......................................... 13
7.01 CONDITIONS TO CLOSING.......................................... 13
ARTICLE VIII TERMINATION.................................................... 15
8.01 TERMINATION.................................................... 15
8.02 EFFECT OF TERMINATION.......................................... 15
ARTICLE IX SURVIVAL; INDEMNIFICATION...................................... 16
<PAGE> 3
9.01 SURVIVAL....................................................... 16
9.02 INDEMNIFICATION BY THE DEPOSITOR............................... 16
9.03 INDEMNIFICATION BY TRUST....................................... 16
9.04 LEGAL PROCEEDINGS.............................................. 16
ARTICLE X MISCELLANEOUS.................................................. 17
10.01 EXPENSES....................................................... 17
10.02 FURTHER ASSURANCES............................................. 17
10.03 AMENDMENT AND WAIVER........................................... 17
10.04 NOTICES........................................................ 17
10.05 ASSIGNMENT..................................................... 18
10.06 SEVERABILITY................................................... 18
10.07 COMPLETE AGREEMENT............................................. 18
10.08 COUNTERPARTS................................................... 18
10.09 GOVERNING LAW.................................................. 18
EXHIBIT A - Glossary of Defined Terms
EXHIBIT B - Administration Agreement
EXHIBIT C - Master Servicing Agreement
EXHIBIT D - Schedule of Financed Student Loans
ii
<PAGE> 4
TRANSFER AND SALE AGREEMENT
---------------------------
This TRANSFER AND SALE AGREEMENT (the "Agreement"), dated as of __________,
______, is made and entered into by and among STUDENT LOAN FUNDINT RIVERFRONT
LLC, a Delaware limited liability company (the "Depositor"), FIRSTAR BANK,
NATIONAL ASSOCIATION, not in its individual capacity, but as eligible lender
trustee for the Depositor (the "Depositor Eligible Lender Trustee"), FIRSTAR
BANK, NATIONAL ASSOCIATION, not in its individual capacity, but as co-owner
trustee (the "Co-Owner Trustee") of the STUDENT LOAN FUNDING 1999-A TRUST, a
Delaware common law (as opposed to statutory) trust (the "Trust"), and FIRSTAR
BANK, NATIONAL ASSOCIATION, not in its individual capacity, but as eligible
lender trustee (the "Co-Owner Eligible Lender Trustee") for the benefit of the
Trust:
A. The Depositor has heretofore created the Trust, among the Depositor,
First Union Trust Company, National Association, not in its individual capacity,
but solely as Delaware Trustee (the "Delaware Trustee") of the Trust, and the
Co-Owner Trustee of the Trust, and acknowledged and agreed to by Firstar Bank,
National Association, not in its individual capacity, but solely as Co-Owner
Eligible Lender Trustee for the benefit of the Trust.
C. References to the name "Student Loan Funding 1999-A Trust" or to the
"Trust" (other than in the phrase "Co-Owner Trustee of the Trust") in this
Agreement, including the Exhibits attached hereto and made a part hereof, shall
mean the Co-Owner Trustee, not in its individual capacity, but solely as
Co-Owner Trustee of the Trust. Capitalized words and terms used as defined word
and terms in this Agreement and not otherwise defined herein shall have the
meanings given such words and terms in the Glossary of Defined Terms attached as
Exhibit A to this Agreement.
D. Each of the Depositor and the Depositor Eligible Lender Trustee now
desires (i) to sell, transfer, assign and convey to the Co-Owner Trustee of the
Trust and the Co-Owner Eligible Lender Trustee, as the case may be, for the
benefit of the Trust all of their respective right, title and interest in and to
the Transferred Assets and (ii) to carry out such transactions on the terms and
subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements and the conditions set forth in this Agreement and
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto hereby agree as follows:
<PAGE> 5
ARTICLE I
SALE, TRANSFER AND ACCEPTANCE OF TRANSFERRED ASSETS; ASSUMPTION OF OBLIGATIONS
1.01 SALE, TRANSFER AND ACCEPTANCE OF TRANSFERRED ASSETS. (a) Subject to
the terms and conditions set forth in this Agreement and to the security
interest in the Trust Estate granted to the Indenture Trustee pursuant to the
Original Indenture, each of the Depositor and the Depositor Eligible Lender
Trustee, to the full extent of their respective right, title and interest and as
evidenced by the execution and delivery of this Agreement, does hereby sell,
transfer, assign, set over and otherwise convey, without recourse, to the
Co-Owner Trustee of the Trust or to the Co-Owner Eligible Lender Trustee, as the
case may be, for the benefit of the Trust, and each of the Co-Owner Trustee of
the Trust and the Co-Owner Eligible Lender Trustee, as the case may be, for the
benefit of the Trust hereby accepts and acquires from the Depositor or the
Depositor Eligible Lender Trustee, as the case may be, all of the Depositor's
and the Depositor Eligible Lender Trustee's respective right, title and interest
as of the Closing Date, in and to the Transferred Assets, whether now owned or
hereafter acquired; provided, however, that (i) with respect to such sale,
transfer, assignment, and conveyance to the Co-Owner Eligible Lender Trustee,
only the legal title to the Financed Student Loans held by the Depositor
Eligible Lender Trustee is hereby sold, transferred, assigned, set over and
conveyed to the Co-Owner Eligible Lender Trustee and (ii) with respect to such
sale, transfer, assignment, and conveyance of all the Depositor's right, title
and interest in the Purchase Agreements to the Co-Owner Trustee of the Trust, to
the extent that the Trust requests that the Depositor repurchase or cause the
Depositor Eligible Lender Trustee to repurchase a Financed Student Loan pursuant
to Sections 5.03 and 5.04 of this Agreement, the Depositor reserves the right to
exercise all rights under the applicable Purchase Agreement related to the
enforcement of the repurchase obligation of the seller or sellers under such
Purchase Agreement, and the Co-Owner Trustee of the Trust hereby authorizes and
consents to the exercise of such right by the Depositor.
(b) The parties intend that the conveyance of all the respective right,
title and interest in the Transferred Assets be a sale of the Transferred Assets
from each of the Depositor and the Depositor Eligible Lender Trustee, as the
case may be, to each of the Co-Owner Trustee of the Trust and the Co-Owner
Eligible Lender Trustee, as the case may be, for the benefit of the Trust (a
"Sale"). However, in the event that, notwithstanding the intent of the parties,
a court of competent jurisdiction were to hold that the Transferred Assets are
deemed not to have been sold and therefore continue to be the property of the
Depositor and the Depositor Eligible Lender Trustee, as the case may be, then
this Agreement shall be deemed to be a conveyance by the Depositor and the
Depositor Eligible Lender Trustee, as the case may be, of a valid and binding
lien on and a security interest in all of the Depositor's and the Depositor
Eligible Lender Trustee's respective right, title and interest in the
Transferred Assets, whether now owned or hereafter acquired, to the Co-Owner
Trustee of the Trust and the Co-Owner Eligible Lender Trustee, as the case may
be, for the benefit of the Trust (a "Pledge").
1.02 CONSIDERATION FOR TRANSFER OF TRANSFERRED ASSETS. The consideration to
be provided by the Co-Owner Trustee to the Depositor and the Depositor Eligible
Lender Trustee for the Transfer of the Transferred Assets shall be the
assumption by the Trust of the Depositor
2
<PAGE> 6
Obligations in accordance with Section 1.03(a) hereof. The consideration to be
provided by Co-Owner Eligible Lender Trustee to the Depositor and the Depositor
Eligible Lender Trustee for the Transfer of the Transferred Assets shall be the
assumption by Co-Owner Eligible Lender Trustee of the Depositor Eligible Lender
Trustee Obligations in accordance with Section 1.03(b) hereof.
1.03 ASSUMPTION BY THE TRUST AND CO-OWNER ELIGIBLE LENDER TRUSTEE OF
OBLIGATIONS. (a) The Trust hereby agrees to be bound, as successor by assignment
to the Depositor, by all the terms and conditions of, and covenants applicable
to, the Depositor under the Transferred Assets, all to the extent provided
therein (collectively, the "Depositor Obligations"). The Trust hereby assumes,
for the benefit of the Depositor, all of the Depositor Obligations, as evidenced
by its execution and delivery of this Agreement. The Trust does hereby agree to
perform all duties and obligations and to assume all liabilities that the
Depositor has or had with respect to the Transferred Assets, including all
duties and obligations under the Purchase Agreements, but solely with respect to
the Financed Student Loans acquired thereunder, as if the Trust had been the
original party with respect thereto, including, but not limited to, any and all
obligations and liabilities arising from the performance or prior
non-performance of the Depositor under the terms of the Purchase Agreements that
are known or that exist now or arise in the future. The Depositor hereby
consents to the assumption by the Trust, as of the Closing Date, of all of its
Depositor Obligations.
(b) The Co-Owner Eligible Lender Trustee does hereby agree to be bound, as
successor by assignment to the Depositor Eligible Lender Trustee, by all the
terms and conditions of, and covenants applicable to, the Depositor Eligible
Lender Trustee under the Transferred Assets, all to the extent provided therein
(collectively, the "Depositor Eligible Lender Trustee Obligations"). The
Co-Owner Eligible Lender Trustee hereby assumes, for the benefit of the
Depositor Eligible Lender Trustee, all of the Depositor Eligible Lender Trustee
Obligations, as evidenced by its execution and delivery of this Agreement. The
Co-Owner Eligible Lender Trustee does hereby agree to perform all duties and
obligations and to assume all liabilities that the Depositor Eligible Lender
Trustee has or had with respect to the Transferred Assets, including the
Purchase Agreements, but solely with respect to the Financed Student Loans
acquired thereunder, as if the Co-Owner Eligible Lender Trustee had been the
original party with respect thereto, including but not limited to any and all
obligations and liabilities arising from the performance or prior
non-performance of the Depositor Eligible Lender Trustee under the terms of the
Purchase Agreements that are known or that exist now or arise in the future. The
Depositor Eligible Lender Trustee hereby consents to the assumption by the
Co-Owner Eligible Lender Trustee, as of the Closing Date, of all of its
Depositor Eligible Lender Trustee Obligations.
1.04 RELEASE OF DEPOSITOR AND DEPOSITOR ELIGIBLE LENDER TRUSTEE. (a) The
Depositor and the Depositor Eligible Lender Trustee hereby acknowledge and agree
that, upon the assumption by the Trust pursuant to Section 1.03(a) hereof of all
of the obligations of the Depositor as described therein, the Trust has become
the successor to the Depositor with respect thereto. The Depositor Eligible
Lender Trustee hereby releases the Depositor from all of the terms, covenants,
conditions and obligations applicable to the Depositor with respect to the
Transferred Assets, and the Depositor shall have no further obligations or
liabilities thereunder from and after the execution and delivery of this
Agreement.
3
<PAGE> 7
(b) The Depositor and the Depositor Eligible Lender Trustee hereby
acknowledge and agree that, upon the assumption by the Co-Owner Eligible Lender
Trustee pursuant to Section 1.03(b) hereof of all of the obligations of the
Depositor Eligible Lender Trustee as described therein, the Co-Owner Eligible
Lender Trustee has become the successor to the Depositor Eligible Lender Trustee
with respect thereto. The Depositor hereby releases the Depositor Eligible
Lender Trustee from all of the terms, covenants, conditions and obligations
applicable to the Depositor Eligible Lender Trustee with respect to the
Transferred Assets, and the Depositor Eligible Lender Trustee shall have no
further obligations or liabilities thereunder from and after the execution and
delivery of this Agreement.
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ARTICLE II
CLOSING
2.01 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Thompson Hine &
Flory LLP, 312 Walnut Street, Cincinnati, Ohio 45202-4029, on ___________, _____
or at such other place and on such other date as shall be mutually agreed upon
by the Depositor and the Trust (the "Closing Date").
2.02 GENERAL PROCEDURE. (a) At the Closing, and effective as of the Closing
Date, each party shall deliver to the party entitled to receipt thereof the
documents required to be delivered pursuant to Article VII hereof and such other
documents, instruments and materials (or complete and accurate copies thereof,
where appropriate) as may be reasonably required in order to effectuate the
intent and provisions of this Agreement, and all such documents, instruments and
materials shall be satisfactory in form and substance to counsel for the
receiving party.
(b) The Transfer of the respective Transferred Assets to the Trust and the
Co-Owner Eligible Lender Trustee, and the assumption of the Depositor
Obligations and the Depositor Eligible Lender Trustee Obligations by the Trust
and the Co-Owner Eligible Lender Trustee, respectively, shall be effected by the
execution and delivery of this Agreement.
(c) At the Closing, and effective on the Closing Date, Resources and the
Trust shall execute and deliver the Administration Agreement, providing for
certain administrative services to be performed by Resources for the Trust, in
the form of Exhibit B hereto (the "Administration Agreement").
(d) At the Closing, and effective on the Closing Date, Resources and the
Trust shall execute and deliver the Master Servicing Agreement, providing for
the Master Servicer to arrange for the servicing of the Financed Student Loans
on behalf of the Trust, in the form of Exhibit C hereto (the "Master Servicing
Agreement").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DEPOSITOR AND
DEPOSITOR ELIGIBLE LENDER TRUSTEE
Each of the Depositor and the Depositor Eligible Lender Trustee, as the
case may be, hereby represents and warrants to the Trust and the Co-Owner
Eligible Lender Trustee that, as of the date of this Agreement:
3.01 FORMATION AND AUTHORITY. The Depositor is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of Delaware, and had at all relevant times and has all requisite power and
authority to enter into this Agreement and perform its obligations hereunder.
The Depositor Eligible Lender Trustee is a national banking association, duly
formed and validly existing under the law of the United States of America, and
had at all relevant times and has all requisite power and authority to enter
into this Agreement and perform its obligations hereunder. The Depositor
Eligible Lender Trustee was at all relevant times and is an "eligible lender"
under the provisions of the Higher Education Act.
3.02 EXECUTION, DELIVERY; VALID AND BINDING AGREEMENT. The execution,
delivery and performance of this Agreement by each of the Depositor and the
Depositor Eligible Lender Trustee and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
action by each of the Depositor and the Depositor Eligible Lender Trustee, and
no other proceedings on the respective parts of either or both are necessary to
authorize the execution, delivery or performance of this Agreement, and such
action has not been repealed or revoked by the Depositor or the Depositor
Eligible Lender Trustee. This Agreement has been duly executed and delivered by
the Depositor and the Depositor Eligible Lender Trustee, and, assuming that this
Agreement is the valid and binding obligation of the other respective party or
parties thereto, constitutes the valid and binding obligation of each of the
Depositor and the Depositor Eligible Lender Trustee, enforceable against each of
them in accordance with its respective terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights or
by general principles of equity.
3.03 AUTHORITY; NO BREACH. Each of the Depositor and the Depositor Eligible
Lender Trustee has the requisite power and authority to execute and deliver this
Agreement and to Transfer the Transferred Assets and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by each of
the Depositor and the Depositor Eligible Lender Trustee and the consummation of
the transactions contemplated hereby do not conflict with or result in any
breach of any of the provisions of, constitute a default under, result in a
violation of, result in the creation of a right of termination or acceleration
of any lien, security interest, charge or encumbrance upon any assets of the
Depositor or the Depositor Eligible Lender Trustee, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the Certificate of
Formation or the Operating Agreement of the Depositor or under the Articles of
Association and ByLaws of the Depositor Eligible Lender Trustee or under any
indenture, mortgage, lease, loan agreement or other agreement or instrument by
which either the Depositor or the Depositor Eligible Lender Trustee is bound or
affected, or any law, statute, rule or regulation or order,
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judgment or decree to which either the Depositor, the Depositor Eligible Lender
Trustee or the Transferred Assets are bound or affected.
3.04 BROKERAGE. No broker or finder has acted for the Depositor or the
Depositor Eligible Lender Trustee in connection with this Agreement or the
transactions contemplated hereby, and no third party shall be entitled to
receive any fees for financial advisory services or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Depositor or the Depositor
Eligible Lender Trustee.
3.05 REGARDING FINANCED STUDENT LOANS. The Depositor (or the Depositor
Eligible Lender Trustee where expressly otherwise stated) hereby represents and
warrants to the Trust that as of the date of Transfer of the Transferred Assets:
(a) Any information furnished by the Depositor to the Trust or its
agents with respect to any Financed Student Loan is true, complete and correct
in all material respects.
(b) To the best of the Depositor's knowledge, each Financed Student
Loan has been duly executed and delivered and constitutes the legal, valid and
binding obligation of the maker (and the endorser, if any) thereof, enforceable
in accordance with its terms.
(c) To the best of the Depositor's knowledge, the amount of the unpaid
principal balance of each Financed Student Loan is due and owing, and no
counterclaim, offset, defense or right to rescission exists with respect to any
Financed Student Loan which can be asserted and maintained or which with respect
to any Financed Student Loan which can be asserted and maintained or which, with
notice, lapse of time, or the occurrence or failure too occur of any act or
event, could be asserted and maintained by the student borrower against the
Trust as assignee thereof. The rate of interest carried by each Financed Student
Loan is currently allowable and was allowable by law at the time the loan was
made, and no such Financed Student Loan carries a rate of interest in excess of,
or less than, the maximum rate permitted by the provisions of the Higher
Education Act, subject, however, to the timely repayment incentive programs
described in Section 7.3(a)(viii) and Section 7.3(b)(viii) of the Purchase
Agreement.
(d) The Depositor and the Depositor Eligible Lender Trustee are the
sole owners and holders of each Financed Student Loan and have full right and
authority to Transfer the same free and clear of all liens, pledges or
encumbrances, and upon the endorsement and delivery of promissory notes
evidencing such Financed Student Loan to the Trust pursuant to this Agreement,
the Trust will acquire full right, title and interest in, or alternatively, a
lien and perfected security interest in, such Financed Student Loan free and
clear of all liens, pledges or encumbrances whatsoever. All documentation
relating to the Financed Student Loans, including the original promissory note
for each Financed Student Loan, is in the possession of the applicable Servicer.
(e) To the best of the Depositor's knowledge, each Financed Student
Loan complies in all respects with the requirements of the Higher Education Act
and is a Financed Student Loan as those terms are defined in this Agreement.
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(f) The information set forth in Exhibit D hereto - Schedule of
Financed Student Loans is true and correct in all material respects as of the
opening of business on the Closing Date.
(g) It is the intention of the Depositor and the Depositor Eligible
Lender Trustee that the Transfer from the Depositor Eligible Lender Trustee on
behalf of Depositor to the Trust herein contemplated constitute a true sale of
the Financed Student Loans to the Trust and that neither the interest in nor
title to the Financed Student Loans shall become or be deemed property of the
Depositor for any purpose under state or federal law.
(h) The Depositor shall furnish and file, and shall cause the
Depositor Eligible Lender Trustee to furnish and file, if appropriate, any
document reasonably requested by the Trust to perfect the Trust's ownership
interest in the Financed Student Loans.
(i) The transactions contemplated by this Agreement are and will be in
the ordinary course of the Depositor's business, and the Depositor has valid
business reasons for Transferring the Financed Student Loans rather than
obtaining a secured loan with the Financed Student Loans as collateral. Both
before and immediately after giving effect to any Transfer: (i) the Depositor
Transferred or will Transfer the Financed Student Loans to the Trust without any
intent to hinder, delay or defraud any current or future creditor of the
Depositor; (ii) the Depositor was not engaged and was not about to engage, and
will not engage in, any business or transaction for which any property remaining
with the Depositor was or will constitute unreasonably small capital in relation
to the business of the Depositor or the transaction; (iii) the Depositor did not
intend or will not intend to incur, and did not believe or reasonably should not
have believed, or will not believe or reasonably shall not have believed, that
it would incur debts beyond its ability to pay as they become due; and (iv) the
Depositor was not and will not be insolvent or did not or will not become
insolvent as a result of any Transfer.
(j) Each Transfer of the Financed Student Loans (including all
payments due or to become due thereunder) by the Depositor pursuant to this
Agreement is not subject to and will not result in any tax, fee or governmental
charge payable by the Trust or the Depositor to any federal, state or local
government ("Transfer Taxes") except such Transfer Taxes as are paid by the
Depositor at the time of Transfer and except UCC filing fees. In the event that
the Trust receives actual notice of any unpaid Transfer Taxes arising out of the
Transfer of the Financed Student Loans, on written demand by the Trust, or upon
the Depositor otherwise being given notice thereof, the Depositor shall pay, and
otherwise indemnify and hold the Trust harmless therefor. The Depositor shall
not be responsible for the Trust's income taxes, if any.
(k) The Depositor has conducted or caused to be conducted on its
behalf a reasonable investigation of sufficient scope and content to enable it
to make in good faith the representations and warranties contained in this
Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRUST AND CO-OWNER ELIGIBLE LENDER TRUSTEE
Each of the Trust and the Co-Owner Eligible Lender Trustee, as applicable,
hereby represents and warrants to the Depositor that, as of the date of this
Agreement:
4.01 AUTHORITY UNDER TRUST. The Trust is a common law (as opposed to
statutory) trust validly created under the laws of the State of Delaware, and
has all requisite power and authority under the Trust Agreement to enter into
this Agreement, to assume the Depositor Obligations and to perform its
obligations hereunder. The Co-Owner Eligible Lender Trustee is the eligible
lender trustee for the benefit of the Trust, and has all requisite power and
authority under the Trust Agreement to enter into this Agreement, to assume the
Depositor Eligible Lender Trustee Obligations and perform its obligations
hereunder.
4.02 EXECUTION, DELIVERY; VALID AND BINDING AGREEMENT. The execution,
delivery and performance of this Agreement, the assumption of the Depositor
Obligations and Depositor Eligible Lender Trustee Obligations by the Trust and
the Co-Owner Eligible Lender Trustee, respectively, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite action by each of the Trust and the Co-Owner
Eligible Lender Trustee, and no other proceedings on the part of either are
necessary to authorize the execution, delivery or performance of this Agreement
or the assumption of the Depositor Obligations and Depositor Eligible Lender
Trustee Obligations. This Agreement has been duly executed and delivered by the
Trust and the Co-Owner Eligible Lender Trustee and, assuming that such
instrument is the valid and binding obligation of the other respective party or
parties thereto, constitutes the valid and binding obligation of the Trust and
the Co-Owner Eligible Lender Trustee, enforceable against each of them in
accordance with its respective terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights or by general
principles of equity.
4.03 AUTHORITY; NO BREACH. Each of the Trust and the Co-Owner Eligible
Lender Trustee has the requisite power and authority to assume the Depositor
Obligations and Depositor Eligible Lender Trustee Obligations, to execute and
deliver this Agreement and to perform their respective obligations hereunder.
The execution, delivery and performance of this Agreement by the Trust and by
the Co-Owner Eligible Lender Trustee and the consummation of the transactions
contemplated hereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration of any lien, security
interest, charge or encumbrance upon any assets of the Trust, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the Trust Agreement or
the Articles of Association or By-laws of the Co-Owner Eligible Lender Trustee
or under any indenture, mortgage, lease, loan agreement or other agreement or
instrument by which the Trust or the Co-Owner Eligible Lender Trustee is bound
or affected, or any law, statute, rule or regulation or order, judgment or
decree to which the Trust or the Co-Owner Eligible Lender Trustee or their
respective assets are bound or affected.
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ARTICLE V
COVENANTS OF DEPOSITOR
The Depositor covenants and agrees with the Trust as follows:
5.01 REGARDING CLOSING CONDITIONS. The Depositor shall take all
commercially reasonable actions necessary to cause the conditions applicable to
itself and the Trust set forth in Section 7.01 to be satisfied and to consummate
the transactions contemplated herein as soon as reasonably possible after the
satisfaction thereof.
5.02 REGARDING THE HIGHER EDUCATION ACT. The Depositor shall, both before
or after the Closing Date, take all such action, or refrain from taking such
action, to the extent necessary and reasonable to be taken or not taken by the
Depositor in its capacity as assignor in order to comply with the requirements
of the Higher Education Act, so that the receipt of Special Allowance Payments
with respect to Financed Student Loans will not be adversely affected.
5.03 CONDITIONS PRECEDENT TO REPURCHASE OBLIGATION. At the request of the
Trust, (a) the Depositor shall repurchase, or, shall cause the Depositor
Eligible Lender Trustee to repurchase, each Financed Student Loan, with respect
to which the Secretary of Education or a Guarantee Agency, as the case may be,
refuses to honor all or part of a claim filed with respect to such Financed
Student Loan (including any claim for Interest Subsidy Payments, Special
Allowance Payments, Insurance, reinsurance or Guarantee Payments) on account of
any circumstance or event that occurred after the Depositor and the Depositor
Eligible Lender Trustee took title to such Student Loan but prior to the Closing
Date and (b) with respect to any circumstance or event that occurred prior to
the date on which the Depositor and the Depositor Eligible Lender Trustee took
title to such Student Loan and that resulted in the Secretary of Education or a
Guarantee Agency, as the case may be, refusing to honor all or part of a claim
filed with respect to such Financed Student Loan (including any claim for
Interest Subsidy Payments, Special Allowance Payments, Insurance, reinsurance or
Guarantee Payments), the Depositor shall repurchase, or, shall cause the
Depositor Eligible Lender Trustee to repurchase, such Financed Student Loan, but
only after the Depositor has had reasonable time to exercise its rights under
the applicable Purchase Agreement to require the Seller under such Purchase
Agreement to repurchase such Financed Student Loan.
5.04 REPURCHASE BY DEPOSITOR. Upon the occurrence of any of the conditions
set forth in Section 5.03 hereof and upon the request of the Trust, the
Depositor shall pay, or cause to be paid, to the Trust an amount equal to the
same percentage of the then-outstanding Principal Balance of such Financed
Student Loan as the Depositor originally paid in the Purchase Price (as defined
in the Purchase Agreement) for such Financed Student Loan, plus interest and
Special Allowance Payments accrued and unpaid with respect to such Financed
Student Loan from the Closing Date to and including the date of repurchase, plus
any attorneys' fees, legal expenses, court costs, servicing fees or other
expenses incurred by the Trust or the appropriate successors or assigns in
connection with such Financed Student Loan and arising out of the reasons for
the repurchase. With respect to any Financed Student Loan repurchased by the
Depositor pursuant to this Agreement, the Trust shall Transfer, without
recourse, representation or warranty, to the Depositor Eligible Lender Trustee
on behalf of Depositor all of Trust's right,
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title and interest in and to such Financed Student Loan, and all security and
documents relating thereto.
5.05 REGARDING TAX MATTERS. The Depositor shall be responsible for all
taxes attributable to the ownership of the Transferred Assets for all periods
prior to the Closing Date.
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ARTICLE VI
COVENANTS OF THE TRUST AND THE CO-OWNER ELIGIBLE LENDER TRUSTEE
Each of the Trust and the Co-Owner Eligible Lender Trustee covenants and
agrees with the Depositor as follows:
6.01 REGARDING CLOSING CONDITIONS. Each of the Trust and the Co-Owner
Eligible Lender Trustee shall take all commercially reasonable actions necessary
to cause the conditions applicable to itself and the Trust set forth in Section
7.01 to be satisfied and to consummate the transactions contemplated herein as
soon as reasonably possible after the satisfaction thereof.
6.02 REGARDING THE HIGHER EDUCATION ACT AND THE FINANCED STUDENT LOANS.
Each of the Trust and the Co-Owner Eligible Lender Trustee shall, both before
and after the Closing Date, take all such action, or refrain from taking such
action, as is necessary to comply with the requirements of the Higher Education
Act, so that the receipt of Special Allowance Payments and Interest Subsidy
Payments, if applicable, with respect to the Financed Student Loans will not be
adversely affected.
6.03 REGARDING TAX MATTERS. The Trust shall be responsible for the payment
of all taxes attributable to the ownership of the Transferred Assets for all
periods after the Closing Date; provided, however, that the Trust shall be
responsible for the payment of such taxes only from the Transferred Assets and
the Indenture Estate of which the Transferred Assets shall be a part.
6.04 RESTRICTIONS REGARDING BANKRUPTCY. Neither the Trust nor the Co-Owner
Eligible Lender Trustee shall, for any reason, institute proceedings for the
Depositor be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Depositor, or file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to the bankruptcy of the Depositor, or consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Depositor or a substantial part of the property
of the Depositor or cause or permit the Depositor to make any assignment for the
benefit of creditors, or admit in writing the inability of the Depositor to pay
its debts generally as they become due, or declare or effect a moratorium on the
debt of the Depositor or take any action in furtherance of any such action.
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ARTICLE VII
CONDITIONS TO CLOSING
7.01 CONDITIONS TO CLOSING. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) The respective representations and warranties of the Depositor,
the Trust and the Co-Owner Eligible Lender Trustee set forth in Articles
III and IV hereof, respectively, shall be true and correct in all material
respects at and as of the Closing Date as though then made, except that any
such representation or warranty made as of a specified date (other than the
date hereof) shall only need to have been true on and as of such date;
(b) Each party shall have performed in all material respects all of
the covenants and agreements required to be performed and complied with by
it under this Agreement prior to the Closing Date;
(c) Each party shall have obtained, or caused to be obtained, each
consent and approval required in order to complete the transactions
contemplated hereby including, without limitation, rating agency
confirmations;
(d) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic
or foreign, challenging or seeking to make illegal, or to delay or
otherwise directly or indirectly restrain or prohibit, the consummation of
the transactions contemplated hereby or seeking to obtain material damages
in connection with such transactions;
(e) On the Closing Date, the Depositor, the Depositor Eligible Lender
Trustee, the Trust or the Co-Owner Eligible Lender Trustee, as applicable
(and any other parties to each of the following agreements or instruments),
shall have executed and delivered the following to the applicable parties,
together with the execution and delivery of this Agreement (provided,
however, that this Agreement shall be deem delivered immediately prior to,
but nevertheless subject to, the delivery of the following agreements or
instruments):
(1) the Base Indenture, together with the Terms Supplement
(collectively, the "Indenture"), relating to and securing payment
of the Notes, to be entered into by and among the Trust, the
Co-Owner Eligible Lender Trustee and the Indenture Trustee;
(2) an opinion of Calfee, Halter & Griswold LLP as to the first
perfected security interest of the Indenture Trustee for the
benefit of the Noteholders;
(3) written evidence from the Co-Owner Eligible Lender Trustee
satisfactory to the Indenture Trustee and Calfee, Halter &
Griswold LLP as to the
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existence of a fully effective Contract of Guarantee with each
Guarantee Agency with whom the Depositor Eligible Lender Trustee
had maintained a Contract of Guarantee with respect to the
Financed Student Loans;
(4) an executed original Administration Agreement between the Trust
and the Administrator;
(5) an executed original Master Servicing Agreement between the Trust
and the Master Servicer;
(6) bills of sale, blanket endorsements and such other instruments of
transfer, assignment and delivery as each of the Trust and the
Co-Owner Eligible Lender Trustee shall have reasonably requested
pursuant to Section 2.02 hereof;
(7) a certificate of an appropriate officer of the Depositor and the
Depositor Eligible Lender Trustee, dated the Closing Date, stating
that the conditions set forth in subsections 7.01(b) and (c) above
to be satisfied by the Depositor and the Depositor Eligible Lender
Trustee have been satisfied; and
(8) (a) such other instruments of assumption and/or release as the
Depositor and the Depositor Eligible Lender Trustee, or any one of
them, shall reasonably request of the Trust and Co-Owner Eligible
Lender Trustee to cause the Trust and Co-Owner Eligible Lender
Trustee to assume, respectively, the Depositor Obligations and the
Depositor Eligible Lender Trustee Obligations or to release,
respectively, the Depositor from the Depositor Obligations and the
Depositor Eligible Lender Trustee from the Depositor Eligible
Lender Trustee Obligations; (b) legal opinions, in form and
substance satisfactory to the parties listed in subsection 7.01(a)
and their counsel, with respect to the organization and authority
of the Depositor and Trust, true sale, non-consolidation and
bankruptcy remoteness, and such other matters as such counsel may
reasonably require and (c) such other opinions, documents,
instruments and agreements as the Indenture Trustee, Calfee,
Halter & Griswold LLP, Thompson Hine & Flory LLP, the Trust or the
Co-Owner Eligible Lender Trustee, or their respective counsels,
may request.
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ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated at any time prior to the
consummation of the Transfer of the Transferred Assets:
(a) by the mutual consent of the Depositor and the Trust; or
(b) by either the Depositor or the Trust if there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of the
other in the representations, warranties and covenants set forth in this
Agreement.
8.02 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either the Depositor or the Trust as provided in Section 8.01, this Agreement
shall become void and there shall be no liability on the part of the Depositor
or the Trust, or their respective officers, members or trustees, except that
Sections 10.01 and 10.09 hereof shall survive indefinitely, and except with
respect to willful breaches of this Agreement prior to the time of such
termination.
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ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.01 SURVIVAL. Subject to Section 3.05 hereof, the representations and
warranties of the parties to this Agreement shall not survive the Closing Date.
The covenants contained in this Agreement shall survive the Closing Date.
9.02 INDEMNIFICATION BY THE DEPOSITOR. The Depositor agrees to indemnify
the Trust and its officers and employees (the "Trust Indemnified Parties") with
respect to, and hold the Trust Indemnified Parties harmless from, any loss,
liability or expense (including, but not limited to, reasonable legal fees)
which the Trust Indemnified Parties may directly or indirectly incur or suffer
by reason of, or which results, arises out of or is based upon the failure of
the Depositor to comply with any covenants or other commitments made by the
Depositor in this Agreement or any other agreement or document delivered by the
Depositor in connection herewith.
9.03 INDEMNIFICATION BY TRUST. The Trust agrees to indemnify the Depositor
and its Management Committee members, officers and employees (the "Depositor
Indemnified Parties") with respect to, and hold the Depositor Indemnified
Parties harmless from, any loss, liability or expense (including, but not
limited to, reasonable legal fees) which the Depositor Indemnified Parties may
directly or indirectly incur or suffer by reason of, or which results, arises
out of or is based upon the failure of the Trust to comply with any covenants or
other commitments made by the Trust in this Agreement or any other agreement or
document delivered by the Trust in connection herewith.
9.04 LEGAL PROCEEDINGS. In the event the Depositor or the Trust becomes
involved in any legal, governmental or administrative proceeding which may
result in indemnification claims hereunder, such party shall promptly notify the
other party against whom indemnity may be sought (the "Indemnifying Party") in
writing and in full detail of the filing, and of the nature of such proceeding.
The Indemnifying Party may, at its option and expense, defend any such
proceeding if the proceeding could give rise to an indemnification obligation
hereunder. If the Indemnifying Party elects to defend any proceeding, it shall
have full control over the conduct of such proceeding, although each party being
indemnified shall have the right to retain legal counsel at its own expense and
shall have the right to approve any settlement of any dispute giving rise to
such proceeding, provided that such approval may not be withheld unreasonably by
the party being indemnified. The party being indemnified shall reasonably
cooperate with the Indemnifying Party in such proceeding.
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ARTICLE X
MISCELLANEOUS
10.01 EXPENSES. Except as otherwise expressly provided for herein, each
party will pay all of its respective expenses incurred (including attorneys' and
accountants' fees) in connection with the negotiation of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether consummated or not).
10.02 FURTHER ASSURANCES. The Depositor, the Depositor Eligible Lender
Trustee, the Trust and the Co-Owner Eligible Lender Trustee each agrees that, on
and after the Closing Date, it shall take all appropriate action and execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out the transfers of assets and assumptions of
liabilities provided for herein.
10.03 AMENDMENT AND WAIVER. This Agreement may be amended in writing by the
parties thereto, with the consent of the Indenture Trustee, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement; 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 the Financed Student Loans or
distributions that are required to be made for the benefit of the Holders of
Notes or (ii) reduce the percentage of the Notes which are required to consent
to any such amendment, without the consent of the Holders of all the outstanding
Notes affected thereby.
10.04 NOTICES. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or three
business days after being mailed by first class U.S. mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to the
parties will, unless another address is specified in writing, be sent to the
address indicated below:
Notices to the Depositor: Student Loan Funding Riverfront LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Attention: Manager
Notices to the Trust: Firstar Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Corporate Trust Administration
with copies of all notices to: Thompson Hine & Flory LLP
312 Walnut Street, Suite 1400
Cincinnati, Ohio 45202-4029
Attn: Patricia Mann Smitson, Esq.
17
<PAGE> 21
10.05 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any party
hereto without the prior written consent of the other parties hereto; provided,
however, that, notwithstanding the foregoing in this Section 10.05, the
Depositor and the Depositor Eligible Lender Trust acknowledge, consent and agree
that on the Closing Date the Co-Owner Trustee and the Co-Owner Eligible Lender
Trustee will, in the Indenture, collaterally assign their respective rights
under this Agreement to the Indenture Trustee.
10.06 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.07 COMPLETE AGREEMENT. This Agreement and the documents referred to
herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
10.08 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
10.09 GOVERNING LAW. The law, without regard to conflicts of laws
principles, of the State of Ohio will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
[Remainder of page intentionally left blank]
18
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day, month and year first above written.
STUDENT LOAN FUNDING RIVERFRONT LLC FIRSTAR BANK, NATIONAL ASSOCIATION,
a Delaware limited liability company not in its individual capacity, but
("Depositor") solely as eligible lender trustee for
the Depositor
("Depositor Eligible Lender Trustee")
By: _________________________________ By: ____________________________________
Title: ______________________________ Title: _________________________________
FIRSTAR BANK, NATIONAL ASSOCIATION, FIRSTAR BANK, NATIONAL ASSOCIATION,
Not in its individual capacity, not in its individual capacity, but
But solely as Co-Owner Trustee of solely as eligible lender trustee for
STUDENT LOAN FUNDING 1999-A TRUST the benefit of the Trust
("Co-Owner Trustee") ("Co-Owner Eligible Lender Trustee")
By: _________________________________ By: ____________________________________
Title: ______________________________ Title: _________________________________
19
<PAGE> 23
EXHIBIT A
to
Transfer and Sale Agreement,
dated as of March 15, 1999,
and effective April 20, 1999
GLOSSARY OF DEFINED TERMS
-------------------------
Words and terms used as defined words in this Agreement or in this Glossary
of Defined Terms and not otherwise defined in this Agreement or in this Glossary
of Defined Terms shall have the meanings given such words and terms in the
Original Indenture. Unless the context shall clearly indicate some other meaning
or may otherwise require, the terms defined in this Glossary of Defined Terms
shall, for all purposes of this Transfer and Sale Agreement and of any
instrument amendatory hereof or supplemental hereto, have the meanings herein
specified:
"BASE INDENTURE" shall mean the Indenture of Trust, to be dated as of
__________, 1999, among the Co-Owner Trustee, the Co-Owner Eligible Lender
Trustee and the Indenture Trustee.
"CO-OWNER ELIGIBLE LENDER TRUSTEE" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as
eligible lender trustee on behalf of the Trust, and its successor and assigns.
"DELAWARE TRUSTEE" shall mean First Union Trust Company, National
Association, not in its individual capacity, but solely in its capacity as owner
trustee in the State of Delaware under the Trust Agreement, and its successor
and assigns.
"DEPOSITOR" shall mean Student Loan Funding Riverfront LLC, a limited
liability company formed under the laws of the State of Delaware, and its
successors and assigns.
"DEPOSITOR ELIGIBLE LENDER TRUSTEE" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as
eligible lender trustee on behalf of the Depositor, and its successor and
assigns.
"FFELP LOANS" shall mean student loans made under the FFELP Program.
"FFELP PROGRAM" shall mean the Federal Family Education Loan Program
established by the Higher Education Act pursuant to which student loans are made
to borrowers pursuant to certain guidelines, and the repayment of such loans is
guaranteed by a Guarantee Agency, and any predecessor or successor program.
"FINANCED STUDENT LOANS" shall mean, collectively, the Student Loans
described in Exhibit D hereto.
A-1
<PAGE> 24
"HIGHER EDUCATION ACT" shall mean Title IV, Part B of the Higher Education
Act of 1965, as amended, or any successor federal act, and all regulations,
directives and guidelines promulgated thereunder from time to time.
"INDENTURE ESTATE" shall mean the Trust Estate as defined in the Indenture.
"INDENTURE TRUSTEE" shall mean Firstar Bank, National Association,
Cincinnati, Ohio.
"INSURANCE" shall mean, with respect to a Financed Student Loan, the
insurance by the Secretary of Education under the Higher Education Act (as
evidenced by a Contract of Insurance issued or entered into under the provisions
of the Higher Education Act) of 100%, or such lesser percentage as is provided
by the Higher Education Act, of the principal of such Financed Student Loan and,
during such time as such Financed Student Loan is not entitled to Interest
Subsidy Payments, the interest on such Financed Student Loan.
"PURCHASE AGREEMENTS" shall mean the Student Loan Purchase Agreements with
Sellers, for purposes of the Program (in whole or in part), in each case as from
time to time amended or supplemented in accordance with the terms thereof and
with the Indenture, and in each case only to the extent that each such Purchase
Agreement covers Financed Student Loans.
"RESOURCES" shall mean Student Loan Funding Resources, Inc., a Ohio
corporation.
"TRANSFER" with respect to the Transferred Assets shall mean, and it is the
intention of the parties hereto that it mean, the sale, transfer, assignment and
conveyance of, or to sell, transfer, assign and convey, the Transferred Assets,
provided, however, that if a court of competent jurisdiction were to hold that
any such sale, transfer, assignment or conveyance were not a sale, transfer,
assignment and conveyance, then with respect to the Transferred Assets,
"Transfer" shall be deemed to mean (i) a conveyance of a valid and binding lien
on and a security interest in, or (ii) to convey a valid and binding lien on and
a security interest in, the Transferred Assets.
"TRANSFERRED ASSETS" shall mean collectively, the Original Indenture, the
Trust Estate and the Ancillary Agreements.
"TRUST" shall mean the common law (as opposed to statutory) trust created
under the laws of the State of Delaware by the Trust Agreement; provided that
references to the name "Student Loan Funding 1999-A Trust" or to the term
"Trust" in this Agreement or Exhibits attached hereto shall mean the Co-Owner
Trustee, not in its individual capacity, but solely in its capacity as Co-Owner
Trustee of the Trust.
"TRUST AGREEMENT" shall mean the Trust Agreement, dated as of __________,
1999, among the Depositor, the Delaware Trustee and the Trust, acknowledged and
agreed to by the Co-Owner Eligible Lender Trustee.
A-2
<PAGE> 25
EXHIBIT B
to
Transfer and Sale Agreement,
dated as of __________, 1999
FORM OF ADMINISTRATION AGREEMENT
--------------------------------
<PAGE> 26
EXHIBIT C
to
Transfer and Sale Agreement,
dated as of _________, ______
FORM OF MASTER SERVICING AGREEMENT
----------------------------------
<PAGE> 27
EXHIBIT D
to
Transfer and Sale Agreement,
dated as of ___________, ______
SCHEDULE OF FINANCED STUDENT LOANS
----------------------------------
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------
-------------------
(Date of earliest event reported)
STUDENT LOAN FUNDING 1999 - A/B TRUST
(Exact name of registrant as specified in its charter)
Delaware 333-64283 31-1599686
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WEST FOURTH STREET, SUITE 310
CINCINNATI, OHIO 45202
(513) 763-4415
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
NOT APPLICABLE.
(Registrant's former name or former address, if changed since last report)
-1-
<PAGE> 2
Item 5. Other Events.
Pursuant to the Indenture of Trust (the "Indenture"), dated as
of _____________, among Student Loan Funding 1999 - A/B Trust,
as Issuer (the "Issuer"), Student Loan Funding Riverfront LLC,
as Depositor (the "Depositor"), and Firstar Bank, N.A. as
Trustee (the "Trustee"), the Trustee delivered to the
noteholders the statement required by the Indenture, which
statement is being filed as Exhibit 99.1 to this Form 8-K, and
based thereon the Trustee is required to make distributions to
the holders of the Issuer's Senior LIBOR Rate Notes Series
1999A-1, Senior LIBOR Rate Notes Series 1999A-2 and
Subordinate LIBOR Rate Notes Series 1999B-1.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
The following exhibit is filed herewith. The exhibit number
corresponds with Item 601(b) of Regulation S-K.
Exhibit No. Description
----------- -----------
99.1 Noteholders' Statement, dated
--------------
-2-
<PAGE> 3
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, hereto duly authorized.
FIRSTAR BANK, N.A., not in its individual capacity but
solely in its capacity as Co-owner Trustee for
STUDENT LOAN FUNDING 1999 - A/B TRUST
Date: By:
---------- -----------------------
Brian J. Gardner
Vice President & Trust Officer
EXHIBIT INDEX
-------------
Exhibit Description of Exhibit
- ------- ----------------------
99.1 Noteholders' Statement, dated
---------------
-3-
<PAGE> 4
Exhibit 99.1
Noteholders' Statement for Student Loan Funding 1999 - A/B Trust
Student Loan Senior & Subordinate Asset Backed Notes
for Collection Period Ending:____________
CUSIP
Senior Series 1999 A-1 ----------------
Senior Series 1999 A-2 ----------------
Subordinate Series 1999 B-1 ----------------
DISTRIBUTION DATE ----------------
(a) Principal Factor
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
(b) Amount of principal being paid or distributed:
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
(c) Amount of interest being paid or distributed based upon the Formula Rate:
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
Formula Interest Rates
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
Interest Rates if they were based upon the Net Loan Rate
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
(d) Amount of distribution allocable to any Noteholders' Interest Carryover:
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
(e) Pool Balance at end of preceding Collection Period:
(i) Parity Percentage
(ii) Senior Parity Percentage
-4-
<PAGE> 5
(f) After giving effect to distributions on this Distribution Date:
(i) 1999 A-1 Notes:
(ii) 1999 A-2 Notes:
(iii) 1999 B-1 Notes:
Total Series A Notes outstanding:
Total Notes outstanding:
(g) Amount of Program Operating Expenses to be allocated for the upcoming
Distribution Date:
(h) (i) Aggregate amount of Realized Losses (if any) for the Collection
Period immediately preceding the Distribution Date:
(ii) Amount received for recoveries of Realized Losses from a previous
Collection Period
(a) interest
(b) principal
(i) (i) Amount of distribution attributable to the Reserve Fund:
(ii) Amount of distribution attributable to the Acquisition Fund:
(iii) Amount of distribution attributable to other Indenture accounts:
(iv) Reserve Fund Balance:
(v) Acquisition Fund Balance:
(vi) Other Indenture Account Balances:
(vii) Amount of Parity Percentage Payments:
(j) The aggregate amount paid for Financed Student Loans purchased by the trust
during the immediately preceding Collection Period:
(k) Amount of Financed Student Loans:
(i) that are 31 through 60 days delinquent:
(ii) that are 61 through 90 days delinquent:
(iii) that are 91 through 120 days delinquent:
(iv) that are more than 120 days delinquent:
(v) for which claims have been filed with the appropriate Guaranty
Agency, guarantor, or escrow fund and which are awaiting payment:
-5-
<PAGE> 1
EXHIBIT 99.2
AUCTION PROCEDURES
GENERAL
The following description of the Auction Procedures applies separately to each
series of auction rate notes. The term "Note," as used in this Appendix B,
refers to each series of auction rate notes, and the term "Holder" refers to
holders holding auction rate notes.
AUCTION PARTICIPANTS
EXISTING HOLDERS AND POTENTIAL HOLDERS. Participants in each Auction
will include: (i) "Existing Holders," which will mean, for purposes of dealing
with the auction agent in connection with an Auction, a Person who is a
broker-dealer listed in the Existing Holder Registry at the close of business on
the business day preceding the Auction, and, for purposes of dealing with the
broker-dealer in connection with an Auction, a Person who is a beneficial owner
of auction rate notes and (ii) "Potential Holders," which will mean any Person
(including an Existing Holder) that is a broker-dealer for purposes of dealing
with the auction agent, and a potential beneficial owner for purposes of dealing
with a broker-dealer, who may be interested in acquiring auction rate notes.
By purchasing the auction rate notes, whether in an Auction or
otherwise, each prospective purchaser of the auction rate notes or its
broker-dealer must agree and will be deemed to have agreed: (i) to participate
in Auctions on the terms described in the indenture; (ii) so long as the
beneficial ownership of the auction rate notes is maintained in book-entry form
to sell, transfer or otherwise dispose of auction rate notes, only under a Bid
(as defined below) or a Sell Order (as defined below) in an Auction, or to or
through a broker-dealer, provided that in the case of all transfers other than
those under an Auction, the Existing Holder of auction rate notes so
transferred, its Participant or broker-dealer advises the auction agent of the
transfer-, (iii) to have its beneficial ownership of auction rate notes
maintained at all times in book-entry form for the account of its Participant,
which in turn will maintain records of beneficial ownership, and to authorize
the Participant to disclose to the auction agent information with respect to
beneficial ownership as the auction agent may request; (iv) that a Sell Order
placed by an Existing Holder will constitute an irrevocable offer to sell the
principal amount of auction rate notes specified in the Sell Order; (v) that a
Bid placed by an Existing Holder will constitute an irrevocable offer to sell
the principal amount of auction rate notes specified in the Bid if the rate
specified in the Bid is greater than, or in some cases equal to, the Interest
Rate, determined as described in this Appendix B; (vi) that a Bid placed by a
Potential Holder will constitute an irrevocable offer to purchase the principal
amount, or a lesser principal amount, of the auction rate notes specified in the
Bid if the rate specified in the Bid is, respectively, less than or equal to the
auction rate, determined as described in this Appendix B; and (vii) to tender
its auction rate notes for purchase at 100% of the principal amount of the note,
plus accrued but unpaid interest and unpaid carryover interest, if any, and
interest accrued, on an auction period conversion date.
<PAGE> 2
The principal amount of the auction rate notes purchased or sold may be
subject to proration procedures on the interest determination date. Each
purchase or sale of the auction rate notes on the interest determination date
will be made for settlement on the first day of the interest accrual period
immediately following the interest determination date at a price equal to 100%
of the principal amount plus accrued interest, if any. The auction agent is
entitled to rely on the terms of any Order submitted to it by a broker-dealer.
AUCTION AGENT. ________________________is appointed in the indenture as
initial auction agent to serve as agent for the issuer in connection with
Auctions. The indenture trustee was directed by the depositor to enter into the
initial Auction Agent Agreement with ________________, as the initial auction
agent. Any substitute Auction Agent will be (i) a bank, national banking
association or trust company duly organized under the laws of the United States
of America or any state or territory having its principal place of business in
the Borough of Manhattan, New York, or other location as approved by the
indenture trustee and the calculation agent in writing and having a combined
capital stock or surplus of at least $50,000,000, or (ii) a member of the
National Association of Securities Dealers, Inc. having a capitalization of at
least $50,000,000, and, in either case, authorized by law to perform all the
duties imposed on it under the indenture and under the Auction Agent Agreement.
The auction agent may at any time resign and be discharged of the duties and
obligations created by the indenture by giving at least 90 days' notice to the
indenture trustee, the issuer and the calculation agent. The auction agent may
be removed at any time by the indenture trustee on the written direction of the
issuer, or the holders of at least 66 2/3 % of the aggregate principal amount of
the auction rate notes then outstanding, by an instrument signed by the holders
or their attorneys and filed with the auction agent, the issuer, the indenture
trustee and the calculation agent on at least 90 days' notice. Neither
resignation nor removal of the auction agent under the preceding two sentences
will be effective until and unless a substitute auction agent has been appointed
and has accepted the appointment. If required by the issuer or the calculation
agent, a substitute Auction Agent Agreement will be entered into with a
substitute auction agent. However, the auction agent may terminate the Auction
Agent Agreement if, within 15 days after notifying the indenture trustee, the
issuer and the calculation agent in writing that it has not received payment of
any Auction Agent Fee due it under the terms of the Auction Agent Agreement, the
auction agent does not receive payment.
If the auction agent should resign or be removed or be dissolved, or if
the property or affairs of the auction agent will be taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the indenture trustee, at the direction of
the issuer (after receipt of a certificate from the calculation agent confirming
that any proposed substitute auction agent meets the requirements described in
the preceding paragraph above), shall use its best efforts to appoint a
substitute auction agent.
The auction agent is acting as agent for the issuer in connection with
Auctions. In the absence of bad faith, negligent failure to act or negligence on
its part, the auction agent will not be liable for any action taken, suffered or
omitted or any error of judgment made by it in the performance of its duties
under the Auction Agent Agreement and will not be liable for any error of
2
<PAGE> 3
judgment made in good faith unless the auction agent will have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
The indenture trustee will pay the auction agent the Auction Agent Fee
on each auction period distribution date for the auction rate notes and will
reimburse the auction agent on its request for all reasonable expenses,
disbursements and advances incurred or made by the auction agent under any
provision of the Auction Agent Agreement or the Broker-Dealer Agreements
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel). The amounts are payable as provided in the indenture. The
issuer will indemnify and hold harmless the auction agent for and against any
loss, liability or expense incurred without negligence or bad faith on the
auction agent's part, arising out of or in connection with the acceptance or
administration of its agency under the Auction Agent Agreement and the
Broker-Dealer Agreements including the reasonable costs and expenses (including
the reasonable fees and expenses of its counsel) of defending itself against any
claim or liability in connection with its exercise or performance of any of its
duties under the indenture, the Auction Agent Agreement and the Broker-Dealer
Agreement and of enforcing this indemnification provision; provided that the
issuer will not indemnify the auction agent as described in this paragraph for
any fees and expenses incurred by the auction agent in the normal course of
performing its duties under the Auction Agent Agreement and under the
Broker-Dealer Agreements, these fees and expenses being payable as described
above.
BROKER-DEALER. Existing Holders and Potential Holders may participate
in Auctions only by submitting orders (in the manner described below) through a
"broker-dealer," including ________________________________ as the sole initial
broker-dealer or any other broker or dealer (each as defined in the Securities
Exchange Act of 1934, as amended), commercial bank or other entity permitted by
law to perform the functions required of a broker-dealer set forth below which
(i) is a Participant or an affiliate of a Participant, (ii) has been selected by
the issuer and (iii) has entered into a Broker-Dealer Agreement with the auction
agent that remains effective, in which the broker-dealer agrees to participate
in Auctions as described in the Auction Procedures, as from time to time amended
or supplemented.
The broker-dealers are entitled to a Broker-Dealer Fee, which is
payable by the auction agent from moneys received from the indenture trustee, on
each auction period distribution date. The Broker-Dealer Fee is payable as
provided in the indenture and the Broker-Dealer Agreement. Broker-dealers may
submit Orders in Auctions for their own accounts. Any broker-dealer submitting
an Order for its own account in any Auction might have an advantage over other
Bidders in that it would have knowledge of other Orders placed through it in
that Auction, but it would not have knowledge of Orders submitted by other
broker-dealers. The Broker-Dealer Agreements provide that a broker-dealer shall
handle its customers' Orders under their respective duties under applicable
securities laws and rules. Any entity that is an affiliate of the issuer and
becomes a broker-dealer must submit a Sell Order covering any auction rate notes
held for its own account.
CALCULATION AGENT. Under the Calculation Agent Agreement, and in
connection with the auction rate notes, the "calculation agent," initially
__________________________, will act solely
3
<PAGE> 4
as agent of the issuer and will not assume any obligation or relationship of
agency or trust for or with any of the holders or book-entry interest owners of
the auction rate notes. The calculation agent will receive nominal compensation
for the performance of its duties under the Calculation Agent Agreement.
AUCTION PROCEDURES
GENERAL. Under the indenture, Auctions to establish the auction rate
for the auction rate notes will be held on each interest determination date,
except as described under the heading "Description of the Notes-Determination of
the Auction Rate" in the Prospectus Supplement, by application of the Auction
Procedures described herein and in the indenture.
The auction agent will calculate the maximum auction rate, the all hold
rate and the Applicable LIBOR Rate on each interest determination date. The
administrator will calculate and, no later than the business day preceding each
interest determination date, will report to the auction agent in writing, the
net loan rate. On receipt of notice from the indenture trustee of a failed
auction period conversion as described in the indenture, the auction agent will
calculate the maximum auction rate, and the administrator will report to the
auction agent in writing the net loan rate, for the auction rate notes as of the
failed auction period conversion date and give notice as provided and to the
parties specified in the Auction Agent Agreement. If the ownership of the
auction rate notes is no longer maintained in book-entry form, the indenture
trustee will calculate the maximum auction rate, and the administrator will
report to the indenture trustee in writing the net loan rate, for the auction
rate notes on the business day immediately preceding the first day of each
interest accrual period commencing after delivery of the Note certificates. If a
payment default has occurred, the indenture trustee will calculate the
non-payment rate on the interest determination date for (i) each interest
accrual period commencing on or after the occurrence and during the continuance
of the payment default and (ii) any interest accrual period commencing less than
two business days after the cure of any payment default. The auction agent will
determine the Applicable LIBOR Rate for each interest accrual period other than
the Initial Period; provided, that if the ownership of the auction rate notes is
no longer maintained in book-entry form, or if a payment default has occurred,
then the indenture trustee will determine the Applicable LIBOR Rate for each
interest accrual period. The determination by the indenture trustee or the
auction agent, as the case may be, of the Applicable LIBOR Rate will (in the
absence of manifest error) be final and binding on the holders and all other
parties. If calculated or determined by the auction agent, the auction agent
will promptly advise the indenture trustee of the Applicable LIBOR Rate.
SUBMISSION OF ORDERS. So long as the ownership of the auction rate
notes is maintained in book-entry form, an Existing Holder may sell, transfer or
otherwise dispose of auction rate notes only under a Bid or Sell Order (as
hereinafter defined) placed in an Auction or through a broker-dealer, provided
that, in the case of all transfers other than under Auctions, the Existing
Holder, its broker-dealer or its Participant advises the auction agent of the
transfer. Except with respect to the interest determination date immediately
preceding an auction period conversion date, Auctions will be conducted on each
interest determination date, if there is an auction agent on the interest
4
<PAGE> 5
determination date, in the following manner (the procedures will apply to
separately to each series of auction rate notes).
Prior to the Submission Deadline (defined as 12:30 P.M., eastern time,
on any interest determination date or other time on any interest determination
date by which broker-dealers are required to submit Orders to the auction agent
as specified by the auction agent from time to time) on each interest
determination date:
(a) each Existing Holder of auction rate notes may submit to a
broker-dealer by telephone or otherwise information as to: (i) the principal
amount of outstanding auction rate notes, if any, held by the Existing Holder
which the Existing Holder desires to continue to hold without regard to the
series interest rate for the next succeeding auction period (a "Hold Order");
(ii) the principal amount of outstanding auction rate notes, if any, which the
Existing Holder offers to sell if the series interest rate for the next
succeeding auction period will be less than the rate per annum specified by the
Existing Holder (a "Bid"); and/or (iii) the principal amount of outstanding
auction rate notes, if any, held by the Existing Holder which the Existing
Holder offers to sell without regard to the series interest rate for the next
succeeding auction period (a "Sell Order"); and
(b) one or more broker-dealers may contact Potential Holders to
determine the principal amount of auction rate notes which each Potential Holder
offers to purchase, if the series interest rate for the next succeeding auction
period will not be less than the rate per annum specified by the Potential
Holder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Holder and each Potential Holder placing an Order is referred to as a "Bidder."
Subject to the provisions described below under "Validity of Orders," a
Bid by an Existing Holder will constitute an irrevocable offer to sell: (i) the
principal amount of outstanding auction rate notes specified in the Bid if the
series interest rate will be less than the rate specified in the Bid, (ii) the
principal amount or a lesser principal amount of outstanding auction rate notes
to be determined as described below in "Acceptance and Rejection of Orders," if
the series interest rate will be equal to the rate specified in the Bid or (iii)
the principal amount or a lesser principal amount of outstanding auction rate
notes to be determined as described below under "Acceptance and Rejection of
Orders," if the rate specified therein will be higher than the series interest
rate and Sufficient Clearing Bids (as defined below) have not been made.
Subject to the provisions described below under "Validity of Orders," a
Sell Order by an Existing Holder will constitute an irrevocable offer to sell:
(i) the principal amount of outstanding auction rate notes specified in the Sell
Order or (ii) the principal amount or a lesser principal amount of outstanding
auction rate notes as described below under "Acceptance and Rejection of
Orders," if Sufficient Clearing Bids have not been made.
Subject to the provisions described below under "Validity of Orders," a
Bid by a Potential
5
<PAGE> 6
Holder will constitute an irrevocable offer to purchase: (i) the principal
amount of outstanding auction rate notes specified in the Bid if the series
interest rate will be higher than the rate specified in the Bid or (ii) the
principal amount or a lesser principal amount of outstanding auction rate notes
as described below in "Acceptance and Rejection of Orders," if the series
interest rate is equal to the rate specified in the Bid.
Each broker-dealer will submit in writing to the auction agent prior to
the Submission Deadline on each interest determination date all Orders obtained
by the broker-dealer and will specify with respect to each Order: (i) the name
of the Bidder placing the Order; (ii) the aggregate principal amount of auction
rate notes that are the subject of the Order; (iii) to the extent that the
Bidder is an Existing Holder: (a) the principal amount of auction rate notes, if
any, subject to any Hold Order placed by the Existing Holder; (b) the principal
amount of auction rate notes, if any, subject to any Bid placed by the Existing
Holder and the rate specified in the Bid; and (c) the principal amount of
auction rate notes, if any, subject to any Sell Order placed by the Existing
Holder; and (iv) to the extent the Bidder is a Potential Holder, the rate
specified in the Potential Holder's Bid.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the auction agent will round the rate up to the
next highest one-thousandth (.001) of one percent.
If an Order or Orders covering all outstanding auction rate notes held
by any Existing Holder are not submitted to the auction agent prior to the
Submission Deadline, the auction agent will deem a Hold Order to have been
submitted on behalf of the Existing Holder covering the principal amount of
outstanding auction rate notes held by the Existing Holder and not subject to an
Order submitted to the auction agent.
Neither the issuer, the indenture trustee nor the auction agent will be
responsible for any failure of a broker-dealer to submit an Order to the auction
agent on behalf of any Existing Holder or Potential Holder.
An Existing Holder may submit multiple Orders, of different types and
specifying different rates, in an Auction with respect to auction rate notes
then held by the Existing Holder. An Existing Holder that offers to purchase
additional auction rate notes is, for purposes of the offer, treated as a
Potential Holder.
Any Bid specifying a rate higher than the maximum auction rate will (i)
be treated as a Sell Order if submitted by a Existing Holder and (ii) not be
accepted if submitted by a Potential Holder.
VALIDITY OF ORDERS. If any Existing Holder submits through a
broker-dealer to the auction agent one or more Orders covering in the aggregate
more than the principal amount of outstanding auction rate notes held by the
Existing Holder, these Orders will be considered valid as follows and in the
order of priority described below.
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HOLD ORDERS. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of outstanding auction rate notes held by the
Existing Holder, and if the aggregate principal amount of auction rate notes
subject to the Hold Orders exceeds the aggregate principal amount of auction
rate notes held by the Existing Holder, the aggregate principal amount of
auction rate notes subject to each the Hold Order will be reduced pro rata so
that the aggregate principal amount of auction rate notes subject to all the
Hold Orders equals the aggregate principal amount of outstanding auction rate
notes held by the Existing Holder.
BIDS. Any Bid will be considered valid up to the amount of the excess
of the principal amount of outstanding auction rate notes held by the Existing
Holder over the aggregate principal amount of auction rate notes subject to any
Hold Orders referred to above. Subject to the preceding sentence, if multiple
Bids with the same rate are submitted on behalf of the Existing Holder and the
aggregate principal amount of outstanding auction rate notes subject to these
Bids is greater than the excess, these Bids will be considered valid up to the
amount of the excess. Subject to the two preceding sentences, if more than one
Bid with different rates are submitted on behalf of the Existing Holder, these
Bids will be considered valid first in the ascending order of their respective
rates until the highest rate is reached at which the excess exists and then at
the rate up to the amount of the excess. In any event, the aggregate principal
amount of outstanding auction rate notes, if any, subject to Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Holder at the rate therein specified.
SELL ORDERS. All Sell Orders will be considered valid up to the amount
of the excess of the principal amount of outstanding auction rate notes held by
the Existing Holder over the aggregate principal amount of auction rate notes
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for auction rate notes is submitted on behalf of
any Potential Holder, each Bid submitted will be a separate Bid with the rate
and principal amount therein specified. Any Bid or Sell Order submitted by an
Existing Holder covering an aggregate principal amount of auction rate notes not
equal to an Authorized Denomination will be rejected and will be deemed a Hold
Order. Any Bid submitted by a Potential Holder covering an aggregate principal
amount of auction rate notes not equal to an Authorized Denomination will not be
rejected. Any Order submitted in an Auction by a broker-dealer to the auction
agent prior to the Submission Deadline on any interest determination date will
be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid
under the procedures described above is referred to as a "Submitted Hold Order."
a "Submitted Bid" and a "Submitted Sell Order," respectively (collectively,
"Submitted Orders").
DETERMINATION OF SUFFICIENT CLEARING BIDS AND BID AUCTION RATE. Not
earlier than the Submission Deadline on each interest determination date, the
auction agent will assemble all valid Submitted Orders and will determine:
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(a) the excess of the total principal amount of outstanding auction
rate notes over the sum of the aggregate principal amount of outstanding auction
rate notes subject to Submitted Hold Orders (this excess being hereinafter
referred to as the "available auction rate notes"); and
(b) from the Submitted Orders whether the aggregate principal amount of
outstanding auction rate notes subject to Submitted Bids by Potential Holders
specifying one or more rates equal to or lower than the maximum auction rate
exceeds or is equal to the sum of (i) the aggregate principal amount of
outstanding auction rate notes subject to Submitted Bids by Existing Holders
specifying one or more rates higher than the maximum auction rate and (ii) the
aggregate principal amount of outstanding auction rate notes subject to
Submitted Sell Orders (in the event the excess or the equality exists other than
because all of the outstanding auction rate notes are subject to Submitted Hold
Orders, the Submitted Bids by Potential Holders above will be hereinafter
referred to collectively as "Sufficient Clearing Bids"); and
(c) if Sufficient Clearing Bids exist, the "Bid Auction Rate" which
will be the lowest rate specified in the Submitted Clearing Bids so that if-
(i) each Submitted Bid from Existing Holders specifying the
lowest rate and all other Submitted Bids from Existing Holders specifying lower
rates were rejected (thus entitling the Existing Holders to continue to hold the
principal amount of auction rate notes subject to the Submitted Bids); and
(ii) each Submitted Bid from Potential Holders specifying the
lowest rate and all other Submitted Bids from Potential Holders specifying lower
rates, were accepted, the result would be that the Existing Holders described in
subparagraph (i) above would continue to hold an aggregate principal amount of
outstanding auction rate notes which, when added to the aggregate principal
amount of outstanding auction rate notes to be purchased by the Potential
Holders described in subparagraph (ii) above, would equal not less than the
Available auction rate notes.
NOTICE OF AUCTION RATE AND SERIES INTEREST RATE. Promptly after the
auction agent has made the determinations described above, the auction agent
will advise the indenture trustee of the net loan rate for the auction rate
notes, the maximum auction rate, the all hold rate and the components on the
interest determination date, and based on determinations, the auction rate for
the next succeeding interest accrual period as follows:
(a) if Sufficient Clearing Bids exist, that the auction rate for the
next succeeding interest accrual period will be equal to the Bid Auction Rate so
determined;
(b) if Sufficient Clearing Bids do not exist (other than because all of
the outstanding auction rate notes are subject to Submitted Hold Orders), that
the auction rate for the next succeeding interest accrual period will be equal
to the maximum auction rate; or
(c) if all outstanding auction rate notes are subject to Submitted Hold
Orders, that the
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auction rate for the next succeeding interest accrual period will be equal to
the all hold rate.
Promptly after the auction agent has determined the auction rate, the
auction agent will determine and advise the indenture trustee of the series
interest rate, which rate will be the lesser of (a) the formula rate and (b) the
net loan rate for the auction rate notes. In no event shall the series interest
rate exceed ___%.
ACCEPTANCE AND REJECTION OF ORDERS. Existing Holders will continue to
hold the principal amount of auction rate notes that are subject to Submitted
Hold Orders. If the net loan rate for the auction rate notes is equal to or
greater than the Bid Auction Rate and if Sufficient Clearing Bids, as described
above under "Determination of Sufficient Clearing Bids and Bid Auction Rate,"
have been received by the auction agent, the Bid Auction Rate will be the
auction rate, and Submitted Bids and Submitted Sell Orders will be accepted or
rejected and the auction agent will take other action as set forth below.
If the net loan rate for the auction rate notes is greater than the
auction rate, the series interest rate shall be the auction rate. If the net
loan rate for the auction rate notes is less than the auction rate, the series
interest rate will be the net loan rate for the auction rate notes. If the
auction rate and the net loan rate for the auction rate notes are both greater
than ___%, the series interest rate shall be equal to ___%. If the auction agent
has not received Sufficient Clearing Bids as described above under
"Determination of Sufficient Clearing Bids and Bid Auction Rate" (other than
because all of the outstanding auction rate notes are subject to Submitted Holds
Orders), the series interest rate will be the lesser of the maximum auction rate
or the net loan rate for the auction rate notes, but in no event greater than
___%. In any of the cases described above in this paragraph, Submitted Orders
will be accepted or rejected and the auction agent will take other action as
described below under "Insufficient Bids."
SUFFICIENT CLEARING BIDS. If Sufficient Clearing Bids have been made
and the net loan rate for the auction rate notes is equal to or greater than the
Bid Auction Rate (in which case the series interest rate will be the Bid Auction
Rate), all Submitted Sell Orders will be accepted and, subject to the
denomination requirements described below, Submitted Bids will be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids will be rejected:
(a) Existing Holders' Submitted Bids specifying any rate that is higher
than the series interest rate will be accepted, thus requiring each Existing
Holder to sell the aggregate principal amount of auction rate notes subject to
the Submitted Bids;
(b) Existing Holders' Submitted Bids specifying any rate that is lower
than the series interest rate will be rejected, thus entitling each Existing
Holder to continue to hold the aggregate principal amount of auction rate notes
subject to the Submitted Bids;
(c) Potential Holders' Submitted Bids specifying any rate that is lower
than the series interest rate will be accepted;
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(d) Each Existing Holder's Submitted Bid specifying a rate that is
equal to the series interest rate will be rejected, thus entitling the Existing
Holder to continue to hold the aggregate principal amount of auction rate notes
subject to the Submitted Bid, unless the aggregate principal amount of auction
rate notes subject to the Submitted Bids will be greater than the principal
amount of auction rate notes (the "remaining principal amount") equal to the
excess of the Available auction rate notes over the aggregate principal amount
of auction rate notes subject to Submitted Bids described in subparagraphs (b)
and (c) above, in which event the Submitted Bid of the Existing Holder will be
rejected in part and the Existing Holder will be entitled to continue to hold
the principal amount of auction rate notes subject to the Submitted Bid, but
only equal to the aggregate principal amount of auction rate notes obtained by
multiplying the remaining principal amount by a fraction, the numerator of which
will be the principal amount of outstanding auction rate notes held by the
Existing Holder subject to the Submitted Bid and the denominator of which will
be the sum of the principal amount of outstanding auction rate notes subject to
the Submitted Bids made by all the Existing Holders that specified a rate equal
to the series interest rate;
(e) Each Potential Holder's Submitted Bid specifying a rate that is
equal to the series interest rate will be accepted, but only equal to the
principal amount of auction rate notes obtained by multiplying the excess of the
aggregate principal amount of Available auction rate notes over the aggregate
principal amount of auction rate notes subject to Submitted Bids described in
subparagraphs (b), (c) and (d) above by a fraction, the numerator of which will
be the aggregate principal amount of outstanding auction rate notes subject to
the Submitted Bid and the denominator of which will be the sum of the principal
amount of outstanding auction rate notes subject to Submitted Bids made by all
Potential Holders that specified a rate equal to the series interest rate; and
(f) Each Potential Holder's Bid specifying a rate that is higher than
the series interest rate will be rejected.
INSUFFICIENT BIDS. If Sufficient Clearing Bids have not been made
(other than because all of the outstanding auction rate notes are subject to
Submitted Hold Orders) or if the net loan rate for the auction rate notes is
less than the Bid Auction Rate (in which case the series interest rate shall be
the net loan rate for the auction rate notes) or if the series interest rate
would be greater than 17%, subject to the denomination requirements described
below, Submitted Orders will be accepted or rejected as follows in the following
order of priority:
(a) Existing Holders' Submitted Bids specifying any rate that is equal
to or lower than the series interest rate will be rejected, thus entitling
Existing Holders to continue to hold the aggregate principal amount of auction
rate notes subject to the Submitted Bids,
(b) Potential Holders' Submitted Bids specifying (i) a rate that is
equal to or lower than the series interest rate will be accepted, and (ii) a
rate that is higher than the series interest rate will be rejected, and
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(c) Each Existing Holder's Submitted Bid specifying any rate that is
higher than the series interest rate and the Submitted Sell Order of each
Existing Holder will be accepted, thus entitling each Existing Holder that
submitted any Submitted Bid or Submitted Sell Order to sell the auction rate
notes subject to the Submitted Bid or Submitted Sell Order, but in both cases
only equal to the aggregate principal amount of auction rate notes obtained by
multiplying the aggregate principal amount of auction rate notes subject to
Submitted Bids described in subparagraph (b) above by a fraction, the numerator
of which will be the aggregate principal amount of outstanding auction rate
notes held by the Existing Holder subject to the Submitted Bid or Submitted Sell
Order and the denominator of which will be the aggregate principal amount of
outstanding auction rate notes subject to all Submitted Bids and Submitted Sell
Orders.
ALL HOLD ORDERS. If all outstanding auction rate notes are subject to
Submitted Hold Orders, all Submitted Bids will be rejected.
AUTHORIZED DENOMINATIONS REQUIREMENT. If, as a result of the procedures
described above regarding Sufficient Clearing Bids and Insufficient Bids, any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a principal amount of auction rate
notes that is not equal to an Authorized Denomination, the auction agent will,
in a manner as in its sole discretion it will determine, round up or down the
principal amount of auction rate notes to be purchased or sold by any Existing
Holder or Potential Holder so that the principal amount of auction rate notes
purchased or sold by each Existing Holder or Potential Holder will be equal to
an Authorized Denomination. If, as a result of the procedures described above
regarding Insufficient Bids, any Potential Holder would be entitled or required
to purchase less than a principal amount of auction rate notes equal to an
Authorized Denomination or any integral multiple of, the auction agent will, in
a manner as in its sole discretion it will determine, allocate auction rate
notes for purchase among Potential Holders so that only auction rate notes in an
Authorized Denomination are purchased by any Potential Holder, even if
allocation results in one or more of the Potential Holders not purchasing any
auction rate notes.
Based on the results of each Auction, the auction agent will determine
the aggregate principal amount of auction rate notes to be purchased and the
aggregate principal amount of auction rate notes to be sold by Potential Holders
and Existing Holders on whose behalf each broker-dealer submitted Bids or Sell
Orders and, with respect to each broker-dealer, to the extent that the aggregate
principal amount of auction rate notes to be sold differs from the aggregate
principal amount of auction rate notes to be purchased, determine to which other
broker-dealer or broker-dealers acting for one or more purchasers the
broker-dealer will deliver, or from which broker-dealers acting for one or more
sellers the broker-dealer will receive, as the case may be, auction rate notes.
Neither the issuer nor any affiliate of the issuer may submit an Order
in any Auction.
Any calculation by the auction agent (or the administrator or the
indenture trustee, if applicable) of the series interest rate, the Applicable
LIBOR Rate, the maximum auction rate, the all hold rate, the net loan rate for
the auction rate notes and the non-payment rate will, in the absence
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of manifest error, be binding on all other parties.
SETTLEMENT PROCEDURES. The auction agent is required to advise each
broker-dealer that submitted an Order in an Auction of the series interest rate
for the next interest accrual period and, if the Order was a Bid or Sell Order,
whether the Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., eastern time, on the interest determination
date, if the series interest rate is the auction rate, or 4:00 p.m., eastern
time, on the interest determination date, if the series interest rate is the net
loan rate for the auction rate notes. Each broker-dealer that submitted an Order
on behalf of a Bidder is required to then advise the Bidder of the series
interest rate for the next interest accrual period and, if the Order was a Bid
or a Sell Order, whether the Bid or Sell Order was accepted or rejected, in
whole or in part, confirm purchases and sales with each Bidder purchasing or
selling auction rate notes as a result of the Auction and advise each Bidder
purchasing or selling auction rate notes as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
the auction rate notes or to deliver the auction rate notes against payment
therefor, as appropriate. Under the Auction Agent Agreement, the auction agent
will record each transfer of auction rate notes on the Existing Holders Registry
to be maintained by the auction agent.
Under DTC's normal procedures, on the business day after the interest
determination date, the transactions described above will be executed through
DTC, so long as DTC is the Depository, and the accounts of the respective
Participants at DTC will be debited and credited and auction rate notes
delivered as necessary to effect the purchases and sales of auction rate notes
as determined in the Auction. Purchasers are required to make payment through
their Participants in same-day funds to DTC against delivery through their
Participants. DTC will make payment under its normal procedures, which now
provide for payment against delivery by its Participants in immediately
available funds
If any Existing Holder selling auction rate notes in an Auction fails
to deliver the auction rate notes, the broker-dealer of any person that was to
have purchased auction rate notes in the Auction may deliver to the person a
principal amount of auction rate notes that is less than the principal amount of
auction rate notes that otherwise was to be purchased by the person but in any
event equal to an Authorized Denomination. In that event, the principal amount
of auction rate notes to be delivered will be determined by the broker-dealer.
Delivery of the lesser principal amount of auction rate notes will constitute
good delivery. Neither the indenture trustee nor the auction agent will have any
responsibility or liability with respect to the failure of a Potential Holder,
Existing Holder or their respective broker-dealer or Participant to deliver the
principal amount of auction rate notes or to pay for the auction rate notes
purchased or sold under an Auction or otherwise.
INDENTURE TRUSTEE NOT RESPONSIBLE FOR AUCTION AGENT, CALCULATION AGENT AND
BROKER-DEALERS
The indenture trustee will not be liable or responsible for the actions
of or failure to act by the auction agent, calculation agent or any
broker-dealer under the indenture or under the Auction Agent Agreement, the
Calculation Agent Agreement or any Broker-Dealer Agreement. The
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indenture trustee may conclusively rely on any information required to be
furnished by the auction agent, the calculation agent or any broker-dealer
without undertaking any independent review or investigation of the truth or
accuracy of the information.
CHANGES IN AUCTION TERMS
CHANGES IN AUCTION PERIOD OR PERIODS. The issuer may change, from time
to time, the length of the one or more auction periods in order to conform with
then current market practice with respect to similar securities or to
accommodate economic and financial factors that may affect or be relevant to the
length of the auction period and the interest rate borne by the auction rate
notes (an "auction period adjustment"). The issuer will not initiate a change in
the length of the auction period unless it has received the written consent of
the calculation agent, which consent shall not be unreasonably withheld, not
less than fifteen days nor more than 20 days prior to the effective date of an
auction period adjustment. The issuer will initiate an auction period adjustment
by giving written notice to the indenture trustee, the auction agent, the
calculation agent, the Depository and each rating agency then rating the auction
rate notes subject to the auction period adjustment, in substantially the form
of, or containing substantially the information contained in, the indenture at
least 10 days prior to the interest determination date for the auction period.
No auction period adjustment may result in an auction period of less
than 7 nor more than 91 days, with respect to auction rate notes with a short
auction period, or in an auction period that is more than three months shorter
or longer than the auction period established on the issuance or auction period
conversion of the auction rate notes, with respect to auction rate notes with a
long auction period. An auction period adjustment will not be allowed unless
Sufficient Clearing Bids existed at both the Auction preceding the date on which
the notice of the proposed change was given as described above and the Auction
preceding the proposed change.
An auction period adjustment will take effect only if (A) the indenture
trustee and the auction agent receive, by 11:00 A.M., eastern time, on the
business day before the interest determination date for the first auction
period, a certificate from the issuer authorizing an auction period adjustment
specified in the certificate and the written consent of the calculation agent
described above and (B) Sufficient Clearing Bids exist at the Auction on the
interest determination date for the first auction period. If the condition
referred to in (A) is not met, the auction rate applicable for the next auction
period will be determined under the Auction Procedures and the length of the
auction period will remain the same. If the condition referred to in (A) is met,
but the condition referred to in (B) above is not met. the series interest rate
applicable for the next auction period will be the lesser of the maximum auction
rate and the net loan rate for the auction rate notes, but in no event greater
than ___%, and the length of the auction period will remain the same.
The issuer, with the written consent of the Rating Agencies then rating
the outstanding Notes, may, from time to time, change the length of one or more
auction periods under an auction period conversion. In the event of a failed
auction period conversion, the series interest rate for the auction period for
which the proposed auction period conversion was to have been effective will be
the lesser
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of the maximum auction rate and the net loan rate for the auction rate notes.
but in no event greater than ___%, and the length of the auction period will
remain the same.
CHANGES IN THE INTEREST DETERMINATION DATE. The calculation agent may
specify an earlier interest determination date than the interest determination
date that would otherwise be determined under the definition of "interest
determination date" with respect to one or more specified auction periods in
order to conform with then current market practice with respect to similar
securities or to accommodate economic and financial factors that may affect or
be relevant to the day of the week constituting an interest determination date
and the interest rate borne on the auction rate notes. The Authorized Officer of
the issuer will not consent to the change in the interest determination date
unless the issuer shall have received from the calculation agent not less than
15 days nor more than 20 days prior to the effective date of the change a
written request for consent. The calculation agent will provide notice of its
determination to specify an earlier interest determination date for one or more
auction periods by means of a written notice delivered at least 10 days prior to
the proposed changed interest determination date to the indenture trustee, the
auction agent, the issuer and the Depository. This notice will be substantially
in the form of, or contain substantially the information contained in, the
indenture.
The changes in Auction terms described above may be made with respect
to any of the series of auction rate notes (but in the latter case separate
notices will be prepared and delivered as provided above and, with respect to
changes in the length of auction periods, the conditions specified above will be
applied to each series separately). In connection with any change in Auction
terms described above, the auction agent will provide further notice to the
parties as is specified in the Auction Agent Agreement.
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