<PAGE> 1
As filed with the Securities and Exchange Commission on May 24, 1999
Registration No. 333-73455
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
STUDENT LOAN FUNDING 1998 - A/B TRUST
(Issuer)
STUDENT LOAN FUNDING LLC
(Depositor)
(Exact name of registrant as specified in its charter)
Delaware 6159 31-1599686
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
ONE WEST FOURTH STREET, SUITE 210
CINCINNATI, OHIO 45202
(513) 763-4415
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MICHAEL H. SHAUT, PRESIDENT
ONE WEST FOURTH STREET, SUITE 210
CINCINNATI, OHIO 45202
(513) 352-4300 (513) 763-4340 (TELECOPY)
(Name, address, including zip code and telephone number, including
area code, of agent for service)
COPIES TO: ROBERT A. SELAK AND TO: PAUL F. SEFCOVIC
THOMPSON HINE & FLORY LLP SQUIRE, SANDERS & DEMPSEY L.L.P.
312 WALNUT STREET, SUITE 1400 41 SOUTH HIGH STREET, SUITE 1300
CINCINNATI, OHIO 45202 COLUMBUS, OHIO 43215
(513) 352-6700 (614) 365-2700
(513) 241-4771 (TELECOPY) (614) 365-2499 (TELECOPY)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ] __________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount of
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Registration
Being Registered Registered(1) Offering Price Per Unit Aggregate Offering Price Fee(2)(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series 1998A1-3 Notes $385,000,000 100% $385,000,000 $107,030
- -----------------------------------------------------------------------------------------------------------------------------
Series 1998A1-4 Notes $93,300,000 100% $93,300,000 $25,937
- -----------------------------------------------------------------------------------------------------------------------------
Series 1998A1-5 Notes $90,000,000 100% $90,000,000 $25,020
- -----------------------------------------------------------------------------------------------------------------------------
Series 1998A1-6 Notes $90,000,000 100% $90,000,000 $25,020
- -----------------------------------------------------------------------------------------------------------------------------
Series 1998B1-3 Notes $54,500,000 100% $54,500,000 $15,151
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being offered.
(3) Previously paid.
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON THIS 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 THEREAFTER BECOME EFFECTIVE UNDER SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THIS DATE AS
THE SEC, ACTING UNDER SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 2
Prospectus
STUDENT LOAN FUNDING 1998 - A/B TRUST
(ISSUER)
OFFER TO EXCHANGE
$365,036,478.23 Senior Asset-Backed Notes, Series 1998A1-3 (LIBOR Floating
Rate)
$93,300,000 Senior Asset-Backed Callable Notes, Series 1998A1-4 (Auction Rate)
$90,000,000 Senior Asset-Backed Callable Notes, Series 1998A1-5 (Auction Rate)
$90,000,000 Senior Asset-Backed Callable Notes, Series 1998A1-6 (Auction Rate)
$54,500,000 Subordinate Asset-Backed Notes, Series 1998B1-3 (Fixed Rate)
for similarly titled notes issued by the issuer on December 22, 1998.
- --------------------------------------------------------------------------------
The notes are payable solely from the financed student loans and other
assets of the trust.
The principal amount of the notes, at March 31, 1999, exceeds the sum
of principal and accrued interest on the financed student loans and other assets
pledged to secure the notes by approximately $13,598,000.
In some cases, holders of auction rate notes may be required to tender
their notes for purchase.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS FOR A DISCUSSION OF
FACTORS THAT YOU SHOULD CONSIDER BEFORE DECIDING TO PARTICIPATE IN THE EXCHANGE
OFFER OR TO PURCHASE NOTES IN RESALES BY BROKER-DEALERS.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The dealer manager for the exchange offer is:
SALOMON SMITH BARNEY INC.
- --------------------------------------------------------------------------------
The date of this prospectus is May 26, 1999.
-2-
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................................................................................5
Risk Factors......................................................................................19
Where You Can Find More Information...............................................................30
The Issuer....................................................................................... 30
The Trust.................................................................................. 30
Co-owner Trustee............................................................................32
Owner Trustee...............................................................................32
The Administrator and Master Servicer.......................................................32
The Depositor.....................................................................................34
Use of Proceeds...................................................................................38
The Exchange Offer............................................................................... 38
Purpose of the Exchange Offer.............................................................. 38
Effect of the Exchange Offer................................................................39
Terms of the Exchange Offer.................................................................39
Expiration Date; Extensions; Amendments.....................................................40
Procedures for Tendering....................................................................41
Acceptance of Old Notes for Exchange; Delivery of New Notes.................................43
Guaranteed Delivery Procedures..............................................................44
Withdrawal of Tenders.......................................................................44
Conditions to the Exchange Offer............................................................45
The Financed Student Loans........................................................................47
Transfer and Sale Agreement.......................................................................53
Conveyance of Financed Student Loans; Representations and Warranties........................53
Maturity and Prepayment Considerations............................................................55
Description of the FFEL Program...................................................................58
Loan Terms..................................................................................62
Contracts with Guarantee Agencies...........................................................71
Servicing.........................................................................................76
Master Servicer.............................................................................81
The Guarantee Agencies........................................................................... 84
Guarantee Agency Information................................................................99
Description of the New Notes.....................................................................100
Interest...................................................................................103
Determination of LIBOR.....................................................................104
Determination of the Auction Rate..........................................................104
Auction Procedures.........................................................................108
Specific Limitations on Determinations of Auction Rate.....................................108
Auction Period Adjustment..................................................................108
Auction Period Conversion of and Mandatory Tender of the Auction Rate Notes................108
Principal..................................................................................109
Book-entry Registration....................................................................109
Redemption...................................................................................... 115
Security for the Notes.......................................................................... 117
The Trust................................................................................. 117
Subordination of the Series B-3 Notes..................................................... 118
Reserve Fund.............................................................................. 118
Interest Rate Exchange Agreements......................................................... 119
The Indenture................................................................................... 119
Indenture Trustee......................................................................... 119
Eligible Lender Trustee................................................................... 120
Reports to Holders........................................................................ 120
Acquisition Fund.......................................................................... 122
Student Loan Portfolio Fund............................................................... 123
Collection Fund........................................................................... 123
Reserve Fund.............................................................................. 129
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C>
Events of Default......................................................................... 132
Amendment and Supplemental Indentures..................................................... 137
Federal Income Tax Consequences................................................................. 141
Characterization of the Notes as Indebtedness............................................. 142
Characterization of the Trust..............................................................144
Original Issue Discount................................................................... 147
Market Discount........................................................................... 149
Gain or Loss or Disposition................................................................150
Backup Withholding, Foreign Holders, and Other Tax Matters................................ 151
State Tax Considerations........................................................................ 151
ERISA Considerations.............................................................................151
Legal Matters................................................................................... 151
Rating.......................................................................................... 152
Plan of Distribution............................................................................ 152
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE
NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE
FRONT COVER. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE.
-4-
<PAGE> 5
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION ABOUT THE EXCHANGE OFFER
AND THE NEW NOTES AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU FIND
IMPORTANT IN MAKING YOUR DECISION TO PARTICIPATE IN THE EXCHANGE OFFER. THIS
PROSPECTUS CONTAINS MORE DETAILED TERMS ABOUT THE EXCHANGE OFFER AND THE NEW
NOTES BEING OFFERED TO YOU, AS WELL AS SELECTED BUSINESS INFORMATION AND
FINANCIAL DATA. YOU ARE STRONGLY ENCOURAGED TO READ THIS ENTIRE PROSPECTUS
BEFORE DECIDING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
THE EXCHANGE OFFER
You are entitled to exchange your old notes for new notes that have been
registered under the Securities Act. The new notes will have the same terms as
the old notes that you currently hold, except that the new notes will be
registered under the 1933 securities act and will not have registration rights.
The new notes will be backed by the same pool of financed student loans as the
old notes. Following the exchange offer, any old notes held by you that are not
exchanged will continue to have the existing restrictions on their transfer, and
we will have no further obligation to register your old notes under the 1933
securities act.
Student Loan Funding LLC entered into a registration rights agreement with the
initial purchasers of the old notes. Student Loan Funding LLC, as the depositor,
formed the issuer as a common law trust. Subsequently, the depositor sold the
financed student loans, eligible investments and some accounts to the issuer and
the issuer assumed all of the depositor's obligations under the indenture, the
registration rights agreement and the old notes. Under the registration rights
agreement, the issuer as the successor to the depositor's obligations, is
required to deliver this prospectus to you and to file a registration statement
with the SEC to register the new notes. You should read the discussion under the
heading "The Exchange Offer" for more detailed information about the exchange
offer and resales of the new notes. You should also read the discussion under
the headings "Prospectus Summary - Summary of Terms of the New Notes" for
further information regarding the new notes.
SUMMARY OF THE EXCHANGE OFFER
THE DEPOSITOR . . . . . . . . . . . . . . .Student Loan Funding LLC
THE ISSUER . . . . . . . . . . . . . . . . Student Loan Funding 1998-A/B Trust
SECURITIES OFFERED . . . . . . . . . . . . $365,031,478.23 in principal amount
of Senior Asset-Backed Notes, Series
1998A1-3 (LIBOR Floating Rate)
$93,300,000 in principal amount of
Senior Asset-Backed Callable Notes,
Series 1998A1-4 (Auction Rate)
$90,000,000 in principal amount of
Senior Asset-Backed Callable Notes,
Series 1998A1-5 (Auction Rate)
$90,000,000 in principal amount of
Senior Asset-Backed Callable Notes,
Series 1998A1-6 (Auction Rate)
-5-
<PAGE> 6
$54,500,000 in principal amount of
Subordinate Asset-Backed Notes,
Series 1998B1-3 (Fixed Rate)
All of the financed student loans are
FFELP loans guaranteed by guarantee
agencies. The guarantee agencies that
collectively guarantee more than 99%
of the aggregate loan balances of the
initial pool of financed student
loans are the following:
- Florida Department of Education,
Office of Student Financial
Assistance
- Georgia Higher Education
Assistance Corporation
- United Student Aid Funds, Inc.
- Kentucky Higher Education
Assistance Authority
- Great Lakes Higher Education
Guaranty Corporation
REGISTRATION RIGHTS AGREEMENT . . . . . . .Student Loan Funding LLC sold the old
notes to the initial purchasers on
December 18, 1998 in a private
placement under exemptions from
registration available under the 1933
securities act. In connection with
the private placement, Student Loan
Funding LLC entered into the
registration rights agreement with
the initial purchasers and the issuer
subsequently assumed Student Loan
Funding LLC's obligations under the
registration rights agreement. Under
the registration rights agreement, we
are required to file this
registration statement in connection
with the exchange offer.
After the exchange offer is complete,
you will no longer be entitled to
exchange your old notes for new
notes.
THE EXCHANGE OFFER . . . . . . . . . . . . We are offering to exchange new notes
in principal amount equal to the
principal amount of the old notes
held by you. In order to be
exchanged, your old notes must be
properly tendered and accepted. All
old notes that are validly tendered
and not validly withdrawn will be
exchanged. We will issue new notes on
or promptly after the expiration of
the exchange offer.
ABILITY TO RESELL NEW NOTES . . . . . . . .The issuer has obtained an opinion of
its counsel that you may offer or
sell your new notes without
compliance with the registration
-6-
<PAGE> 7
and prospectus delivery requirements
of the 1933 securities act if:
- you acquire the new notes in the
ordinary course of your
business;
- you are not participating, do
not intend to participate and
have no arrangement or
understanding with any person to
participate in the distribution
of new notes; and
- you are not our affiliate.
The exchange offer is not being made
to:
- holders of old notes in any
jurisdiction in which the
exchange offer or its acceptance
would not comply with the
applicable securities or blue
sky laws of that jurisdiction;
or
- holders of old notes who are our
affiliates.
CONSEQUENCES OF FAILURE TO EXCHANGE If you do not exchange your old notes
YOUR NOTES. . . . . . . . . . . . . . . . .for new notes, the restrictions on
transfer provided in the old notes
and in the indenture governing the
old notes will continue to apply to
your old notes.
EXPIRATION DATE . . . . . . . . . . . . . .The exchange offer will expire at
5:00 p.m., New York City time, on
June 28, 1999, unless it is extended.
The expiration date is the latest
date and time to which we extend the
exchange offer.
WITHDRAWAL RIGHTS . . . . . . . . . . . . .You may withdraw the tender of your
old notes at any time prior to 5:00
p.m., New York City time, on the
expiration date.
FEDERAL TAX CONSIDERATIONS. . . . . . . . .Thompson Hine & Flory LLP has
rendered an opinion, included as
Exhibit 8.1 to the registration
statement of which this prospectus is
a part, regarding the following items
that constitute all material federal
income tax consequences of
participating in the offering:
- there will be no federal income
tax consequences to you if you
exchange your old notes for new
notes in the exchange offer, and
- the new notes will be
characterized as debt
-7-
<PAGE> 8
for federal income tax purposes.
By acceptance of your new notes, you
will be deemed to have agreed to
treat your new notes as debt
instruments for purposes of federal
and state income tax, franchise tax
and any other tax measured in whole
or in part by income.
For additional information regarding
federal income tax considerations,
you should read the discussion under
the heading "Federal Income Tax
Consequences."
USE OF PROCEEDS . . . . . . . . . . . . . .We will not receive any proceeds from
the issuance of the new notes in the
exchange offer. We will pay all
expenses incident to the exchange
offer.
EXCHANGE AGENT . . . . . . . . . . . . . . Firstar Bank, N.A. is serving as the
exchange agent for the exchange
offer. The exchange agent's address,
telephone number and facsimile number
is:
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Brian J. Gardner
Phone Number: (513) 762-8870
Facsimile: (513) 632-5511
DEALER MANAGER . . . . . . . . . . . . . . Salomon Smith Barney Inc. is serving
as the dealer manager for the
exchange offer.
SUMMARY OF TERMS OF THE NEW NOTES
The new notes to be issued to you in the exchange offer will evidence the same
obligations of the trust as the old notes you currently hold. You should be
aware that the indenture that currently governs your old notes will be the same
indenture that will govern the new notes, except that there will be no
restrictions on your ability to transfer the new notes.
THE DEPOSITOR . . . . . . . . . . . . . . Student Loan Funding LLC organized
the trust and acquired the pool of
student loans that secure the new
notes.
THE ISSUER . . . . . . . . . . . . . . . . Student Loan Funding 1998-A/B Trust
assumed the obligations under the old
notes and will issue and exchange the
new notes for the outstanding old
notes.
-8-
<PAGE> 9
SECURITY FOR THE NOTES. . . . . . . . . . .The notes are secured by the financed
student loans. At March 31, 1999,
$90,732,249 (13.87%) of the financed
student loans were more than 30 days
delinquent. At March 31, 1999,
$794,184 (0.12%) of the financed
student loans had defaulted and had
claims filed with their guarantor.
The notes are also secured by the
reserve fund and other funds held
under the indenture. No other party
is providing any other security or
credit enhancement for the note
THE SERVICER . . . . . . . . . . . . . . . Student Loan Funding Resources, Inc.,
as the master servicer, will arrange
for the servicing of the student
loans under a master servicing
agreement. The master servicer will
arrange for one or more other
institutions to service the student
loans on a day-to-day basis.
Currently, the servicers servicing
the financed student loans are the
following:
- InTuition, Inc.
- USA Group Loan Services, Inc.
- Great Lakes Higher Education Loan
Servicing
- UNIPAC Servicing Corporation
InTuition, Inc. services
approximately 88% of the financed
student loans.
The Trustees . . . . . . . . . . . . . . . The institutional bank trustees are
as follows:
- Firstar Bank, N.A., a national
banking association, is the
eligible lender trustee. One or
more additional eligible lender
trustees may be added or
substituted for Firstar Bank,
N.A. from time to time;
- First Union Trust Company,
National Association, is the
owner trustee for purposes of
the trust's beneficial ownership
of the student loans;
- Firstar Bank, N.A., is the
co-owner trustee for purposes of
the trust's beneficial ownership
of the student loans; and
- Firstar Bank, N.A., a national
banking association, is the
indenture trustee.
ISSUE DATE . . . . . . . . . . . . . . . . Issuance of the new notes is
scheduled for June 28, 1999.
INTEREST. . . . . . . . . . . . . . . . . .We will pay you interest as described
below on the new notes in the same
manner as we have paid interest on
the old notes, from available funds.
-9-
<PAGE> 10
<TABLE>
<CAPTION>
--------------------------------------------------
PAYMENT DATE INTEREST RATE MAXIMUM RATE
<S> <C> <C> <C>
Series A-3 Notes Last business day One-month LIBOR Lesser of 17% or
of each month plus 0.38% the net loan rate
Series A-4 Notes Business day Auction rate Lesser of 17% or
Series A-5 Notes following each the net loan rate
Series A-6 Notes auction period
Series B-3 Notes Last business 6.25%
day of each
month
--------------------------------------------------
</TABLE>
EXAMPLE: On March 29, 1999, LIBOR was
4.93875% and the interest rate on the
Series A-3 Notes for the period from
March 31, 1999 to April 29, 1999 was
5.31875%.
The net loan rate is an annualized
percentage rate and for a monthly
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 means all
reasonable and proper expenses,
including both operating expenses and
capital expenditures incurred or to
be incurred in connection with the
program of financing the financed
student loans under the indenture.
Principal . . . . . . . . . . . . . . . . .We will pay principal as described
below on the new notes in the same
manner as we have paid principal on
the old notes, from available funds.
-10-
<PAGE> 11
<TABLE>
<CAPTION>
--------------------------------------------------
PRIORITY OF AMOUNT OF
PAYMENT DATE PAYMENT PAYMENT
<S> <C> <C> <C>
Series A-3 Notes Last business day Equal to the reduction in
day of each month the student loan principal
balance, minus, for each
monthly payment date after
June 30, 2003, the amount of
principal paid on the date on
the Series B-3 Notes
Series A-4 Notes Business day following After the Series A-3 Notes Equal to the reduction in
each auction period have been paid in full the student loan principal
balance, minus, for each
monthly payment date after
June 30, 2003, the amount of
principal paid on the date on
the Series B-3 Notes
Series A-5 Notes Business day following After the Series A-3 Notes Equal to the reduction in
each auction period and the Series A-4 Notes the student loan principal
have been paid in full balance minus, for each
monthly payment date after
June 30, 2003, the amount of
principal paid on the date
on the Series B-3 Notes
Series A-6 Notes Business day following After the Series A-3 Notes, Equal to the reduction in the
each auction period the Series A-4 Notes and the student loan principal balance
Series A-5 Notes have been minus, for each monthly
paid in full payment date after June 30,
2003, the amount of principal
paid on the date on the
Series B-3 Notes
</TABLE>
-11-
<PAGE> 12
<TABLE>
<CAPTION>
PRIORITY OF AMOUNT OF
PAYMENT DATE PAYMENT PAYMENT
<S> <C> <C> <C>
Series B-3 Notes Last business day of After the Series A-3 Notes, Equal to the reduction in the
each month the Series A-4 Notes, the student loan principal
Series A-5 Notes and the balance
Series A-6 Notes have been
paid in full
After June 30, 2003, principal
payments on the Series B-3
Notes will equal the lesser
of:
- An amount generally equal
to the reduction in the student
loan principal balance and
- The greatest amount
that would result in a senior
parity percentage of not less
than 109% and a parity
percentage of not less than
101% after the payment of
principal on the Series B-3
Notes.
--------------------------------------------------
</TABLE>
-12-
<PAGE> 13
If an event of default occurs,
principal will be paid pro rata on
the Series A-3 Notes, the Series A-4
Notes, the Series A-5 Notes and the
Series A-6 Notes.
ACCELERATED PRINCIPAL The notes entitled to principal
payments also will receive on each
monthly payment date or auction
period payment date, as applicable,
parity percentage payments of
principal until the parity percentage
equals 101%.
PARITY PERCENTAGE. . . . . . . . . . . . . The parity percentage basically is
determined by dividing:
- The principal amount (including
capitalized interest) of the
student loans plus accrued
interest, interest subsidies and
special allowance payments, and
all amounts in the acquisition
fund, the collection fund and
the reserve fund, by
- The principal balance of all
notes plus accrued and unpaid
interest and expenses.
SENIOR PARITY PERCENTAGE. . . . . . . . . The senior parity percentage
basically is determined by dividing:
- The principal amount (including
capitalized interest) of the
student loans plus accrued
interest, interest subsidies and
special allowance payments, and
all amounts in the acquisition
fund, the collection fund and
the reserve fund, by
- The principal balance of all
Series 1998A Notes plus accrued
and unpaid interest and expenses
relating to all notes.
FINAL MATURITY. . . . . . . . . . . . . . .
The final payment of principal and
interest will be made no later than
these dates:
- December 1, 2006 on the Series
A-3 Notes
- December 1, 2019 on the Series
A-4 Notes
- December 1, 2019 on the Series
A-5 Notes
- December 1, 2019 on the Series
A-6 Notes
- December 1, 2019 on the Series
B-3 Notes
The financed student loans include
loans that mature prior to the final
maturity of each series of the notes.
For this and other reasons, the
actual maturity of each series may
occur sooner.
PRIORITY OF PAYMENTS. . . . . . . . . . .
On each payment date, we will apply
funds available after paying expenses
in the following priority.
-13-
<PAGE> 14
o FIRST, to pay interest on the
Series A-3 Notes, the Series A-4
Notes, the Series A-5 Notes and
the Series A-6 Notes and to pay
any related interest rate
exchange payment;
o SECOND, to pay interest on the
Series B-3 Notes and any related
interest rate exchange payment;
o THIRD, to pay principal on the
Series A-3 Notes and, subject to
limitations, to pay principal
after June 30, 2003 on the
Series B-3 Notes;
o FOURTH, after the principal
balance of the Series A-3 Notes
has been paid, to pay principal
on the Series A-4 Notes and,
subject to limitations, to pay
principal occurring after June
30, 2003 on the Series B-3
Notes;
o FIFTH, after the principal
balance of the Series A-3 Notes
and Series A-4 Notes has been
paid, to pay principal on the
Series A-5 Notes and, subject to
limitations, to pay principal
after June 30, 2003 on the
Series B-3 Notes;
-14-
<PAGE> 15
o SIXTH, after the principal
balance of the Series A-3 Notes,
the Series A-4 Notes and the
Series A-5 Notes has been paid,
to pay principal on the Series
A-6 and, subject to limitations,
to pay principal after June 30,
2003 on the Series B-3 Notes;
o SEVENTH, after the principal
balance of the Series A-3 Notes,
the Series A-4 Notes, the Series
A-5 Notes and the Series A-6
Notes has been paid, to pay
principal on the Series B-3
Notes;
o EIGHTH, to the reserve fund the
amount, if any, necessary to
attain the specified reserve
fund balance;
o NINTH, if the parity percentage
is not at least 101%, to pay
principal until the parity
percentage equals 101%:
first on the Series A-3 Notes
until the principal balance
has been paid, then
on the Series A-4 Notes until
the principal balance has been
paid, then
on the Series A-5 Notes until
the principal balance has been
paid, then
on the Series A-6 Notes until
the principal balance has been
paid, and then,
on the Series B-3 Notes;
o TENTH, to pay carryover
interest, if any:
first, on the Series A-3
Notes, then
on the Series A-4 Notes, then
on the Series A-5 Notes, and
then
on the Series A-6 Notes;
o ELEVENTH, the amount, if any,
owed an exchange counterparty in
respect of an early termination
or as a result of a default by
the issuer; and
-15-
<PAGE> 16
o TWELFTH, any remainder will be
transferred 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:
o The aggregate principal amount
of the Series A-3 Notes, the
Series A-4 Notes, the Series A-5
Notes and the Series A-6 Notes
would exceed the sum of the
principal amount of the student
loans (including capitalized
interest) and amounts in the
indenture funds and accounts as
of the end of the preceding
collection period, or
o a payment event of default has
occurred under the indenture,
but prior to the acceleration of
maturity of the notes.
As long as either of the above
conditions exist, the Series B-3
Notes will not receive any payments.
As long as any Series A-3 Notes,
Series A-4 Notes, Series A-5 Notes or
Series A-6 Notes remain outstanding,
any deferral of payments on the
Series B-3 Notes will not constitute
an event of default under the
indenture unless the deferral exists
on the maturity date for the Series
B-3 Notes. Where an event of default
has occurred, we will allocate pro
rata, without preference or priority
of any kind principal distributions
on the Series A-3 Notes, the Series
A-4 Notes, the Series A-5 Notes and
the Series A-6 Notes.
RESERVE FUND. . . . . . . . . . . . . . . In any case, we will make principal
payments on the Series A-4 Notes, the
Series A-5 Notes and the Series A-6
Notes only in multiples of $50,000.
The indenture trustee made an initial
deposit of $10,917,000 from the
proceeds of the original sale of the
old notes into a reserve fund for the
notes. This amount is the reserve
fund's specified reserve fund balance
which is subject to reduction as the
principal balance of the notes is
paid. To the extent necessary, the
initial deposit will be supplemented
on each monthly payment date with all
amounts remaining after making all
required prior distributions on that
date until the specified reserve fund
balance is attained.
REDEMPTION. . . . . . . . . . . . . . . . On or after May 31, 2007, if the
AUCTION OF THE FINANCED STUDENT LOANS principal balance of the student
loans (including capitalized
interest) is equal to or less than
10% of the initial principal amount
-16-
<PAGE> 17
of the student loans in the trust,
the indenture trustee will offer the
student loans for sale. If the
indenture trustee receives at least
two bids (which may include bids from
the issuer or its affiliates), the
indenture trustee will accept the
higher bid if it will pay transaction
costs and all amounts due to the
holders, including carryover
interest, after application of funds
on deposit in the reserve fund. If
the bid proceeds are not sufficient
to pay transaction costs and all
amounts due to the holders, the
indenture trustee may, but shall be
under no obligation to, solicit bids
for the sale of student loans on
future payment dates. The proceeds of
any sale will be used to redeem any
outstanding notes at par plus accrued
interest on the next applicable
payment date. The indenture trustee
can give no assurance as to whether
it will be successful in soliciting
acceptable bids to purchase the
student loans on any auction date.
OPTIONAL REDEMPTION. . . . . . . . . . . All outstanding series of notes will
be subject to redemption in whole on
any applicable payment date in the
event the depositor exercises its
option to repurchase all remaining
student loans, and cause the early
retirement of the notes, on any
payment date on or after the monthly
payment 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 student
loan, the outstanding principal
balance of the student loan as of the
end of the preceding collection
period, together with all accrued
interest and unamortized premiums, if
any, and sufficient to pay
transaction costs and all amounts due
to the holders, including carryover
interest, after application of funds
on deposit in the reserve fund. An
optional purchase of the student
loans will result in the prepayment
of all outstanding notes.
In addition, on and after the payment
date that the Series A-3 Notes have
been paid in full, the Series A-4
Notes, the Series A-5 Notes and the
Series A-6 Notes will be subject to
redemption in whole or in part on any
applicable auction period payment
date at the option of the issuer,
with 15 days' notice given by the
indenture trustee, at a redemption
price equal to their principal
amount, plus all accrued interest
including carryover interest,
provided that after any redemption,
the parity percentage must be no less
than 101% and other conditions must
be satisfied.
-17-
<PAGE> 18
ERISA CONSIDERATIONS. . . . . . . . . . The new 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 . . Your new notes will be held through
DTC in the United States or through
Cedel Bank, societe anonyme or the
Euroclear System in Europe. You will
not receive a definitive note
representing your interest, except in
limited circumstances.
The Series 1998A1-3 Notes will be
offered in minimum denominations of
$50,000 and integral multiples of
$1,000 in excess of $50,000, reduced
by the amount of principal payments
made before the exchange offer, if
any.
The Series 1998A1-4 Notes, the Series
1998A1-5 Notes and the Series
1998A1-6 Notes will be offered in
minimum denominations of $50,000 and
any integral multiple of $50,000.
The Series 1998B1-3 Notes will be
offered in minimum denominations of
$50,000 and integral multiples of
$1,000 in excess of $50,000.
RATING. . . . . . . . . . . . . . . . . . It is a condition to the issuance of
the new notes that they be rated by
the following rating agencies as
follows:
<TABLE>
<CAPTION>
Moody's Fitch
------- -----
<S> <C> <C>
Series 1998A1-3 Notes Aaa AAA
Series 1998A1-4 Notes Aaa AAA
Series 1998A1-5 Notes Aaa AAA
Series 1998A1-6 Notes Aaa AAA
Series 1998B1-3 Notes A2 A
</TABLE>
These ratings are the same ratings
that currently apply to the related
series of old notes.
-18-
<PAGE> 19
RISK FACTORS
You should carefully consider the following factors together with the other
matters set forth in this prospectus before deciding whether to exchange your
old notes for new notes in the exchange offer.
<TABLE>
<S> <C>
YOU ARE RESTRICTED FROM If you do not exchange old notes for new notes in this exchange offer,
TRANSFERRING YOUR OLD NOTES you will be restricted from transferring your old notes in the future. In
IF YOU FAIL TO EXCHANGE general, outside of the exchange offer, you may not offer or sell your
THEM FOR NEW NOTES old notes unless they have been registered under the federal and state
securities laws or you offer or sell them in a transaction that is exempt
from these laws. We do not currently intend to register your old
notes except in connection with this exchange offer.
LIMITED TRADING MARKET MAY The new notes will constitute a new issue of securities without any
NOT BE SUFFICIENTLY LIQUID established trading market. The initial purchasers may assist in resales
TO ALLOW YOU TO RESELL YOUR of the new notes but they are not required to do so. A secondary
NEW NOTES market for any series of new notes may not develop. If a secondary
market does develop, it might not continue or it might not be
sufficiently active or liquid to allow you to resell any of your new
notes.
THE TRUST WILL HAVE LIMITED The trust will not have any significant assets or sources of funds
ASSETS WHICH COULD except for the student loans and related assets. Your new notes are
ADVERSELY AFFECT ITS ABILITY secured by and payable solely from the assets of the trust and will not
TO PAY PRINCIPAL AND INTEREST be insured or guaranteed by the depositor, the administrator, the
ON YOUR NEW NOTES master servicer, the guarantee agencies, the eligible lender trustee, any
of their affiliates, or the Department of Education. You must rely for
repayment on proceeds realized from the student loans and other assets in
the trust. See "Security for the Notes" and "The Indenture - Collection
Fund."
FAILURE BY LOAN HOLDERS OR The Higher Education Act requires loan holders and servicers to
SERVICERS TO COMPLY WITH follow specified procedures to ensure that the FFELP Loans are
STUDENT LOAN ORIGINATION AND properly originated and serviced. Failure to follow these procedures
SERVICING PROCEDURES COULD may result in:
ADVERSELY AFFECT ABILITY TO
PAY PRINCIPAL ON INTEREST ON - LOSS OF REINSURANCE PAYMENTS, INTEREST SUBSIDIES AND SPECIAL
YOUR NEW NOTES 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 of these payments may adversely affect the ability to
pay principal and interest on your new notes.
</TABLE>
-19-
<PAGE> 20
<TABLE>
<S> <C>
HOLDERS OF SERIES B-3 NOTES Your Series B-3 Notes and any exchange counterparties under an
COULD SUFFER LOSSES DUE TO interest rate exchange agreement relating to your Series B-3 Notes are
SUBORDINATION OF THE SERIES subordinated to the Series 1998A Notes and any exchange
B-3 NOTES TO THE SERIES counterparties under an interest rate exchange agreement relating to
1998A NOTES the Series 1998A Notes. In some circumstances payment of interest
on and any interest rate exchange payments relating to your Series B-3
Notes may be deferred and payment of principal of the Series B-3 Notes may
be suspended until all Series 1998A Notes have been paid in full.
Consequently, as holders of Series B-3 Notes, you will bear losses on the
student loans before these losses are borne by the holders of the Series
1998A Notes. In addition, as holders of the Series B-3 Notes, you may be
limited in the legal remedies that are available to you until the holders
of the Series 1998A Notes and any exchange counterparties under an interest
rate exchange agreement on a parity with the Series 1998A Notes are paid in
full.
OFFSET BY GUARANTEE AGENCIES If the Department of Education or a guarantee agency determines that
OR A REDUCTION IN THE AMOUNT the eligible lender trustee owes a liability to the Department of
OF AVAILABLE FUNDS BY THE Education or the guarantee agency on any FFELP Loan for which the
DEPARTMENT OF EDUCATION eligible lender trustee is or was legal titleholder, including FFELP
COULD ADVERSELY AFFECT THE loans held under the indenture or other indentures, the Department of
ABILITY TO PAY PRINCIPAL AND Education or the guarantee agency might seek to collect that liability
INTEREST ON NEW NOTES 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 ability to pay interest
and principal on your new notes.
Indentures of the depositor, the administrator and their affiliates prior
to September, 1998 do not contain provisions for cross-indemnification
with respect to the payments and offsets. The indenture for your new notes
and other indentures of the depositor, the administrator and their
affiliates entered into after September, 1998 will contain
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 may be
adequate to compensate the trust and you for any previous reductions 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.
</TABLE>
-20-
<PAGE> 21
<TABLE>
<S> <C>
A DECLINE IN THE FINANCIAL The FFELP Loans are not secured by any collateral of the borrowers.
HEALTH OF GUARANTEE AGENCIES Payments of principal and interest are guaranteed by guarantee
COULD ADVERSELY AFFECT THE agencies to the extent described in this prospectus. Excessive
ABILITY TO PAY PRINCIPAL AND borrower defaults could impair a guarantee agency's ability to meet its
INTEREST ON YOUR NEW NOTES 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 the new 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 insurance 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. 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.
A DECLINE IN THE FINANCIAL If any interest rate exchange agreement relating to the notes is ever
HEALTH OF ANY EXCHANGE executed, any time that the exchange rate being paid by an exchange
COUNTERPARTY OR ANY counterparty is greater than the exchange rate being paid by the issuer,
PROVIDER OF AN EXCHANGE the ability to make principal and interest payments on your notes will
COUNTERPARTY GUARANTEE be adversely affected by the exchange counterparty's ability or the
COULD REDUCE THE FUNDS ability of any provider of an exchange counterparty guarantee to meet
AVAILABLE TO PAY YOUR its net payment obligation to the indenture trustee. In addition, under
NEW NOTES some circumstances, the failure by the issuer to make an exchange
payment (other than an early termination payment) under the interest
rate exchange agreement may constitute an event of default under the
indenture.
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C>
CHANGES TO FFEL PROGRAM The Higher Education Act and other relevant federal or state laws may
COULD ADVERSELY AFFECT THE be amended or modified in the future. In particular, the level of
ABILITY TO PAY PRINCIPAL AND guarantee payments may be adjusted from time to time which may
INTEREST ON YOUR NEW NOTES effect 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 these changes may have on the trust or your notes.
INCREASED COMPETITION FROM The Federal Direct Student Loan Program has been established under
THE FEDERAL DIRECT STUDENT the Higher Education Act. This program could result in reductions in
LOAN PROGRAM COULD the volume of loans made under the FFEL Program. If so, the
ADVERSELY AFFECT THE ABILITY depositor, the administrator, the master servicer and the servicers may
TO PAY PRINCIPAL AND INTEREST experience increased costs due to reduced economies of scale. These
ON YOUR NEW NOTES 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 prices available in the secondary market for those loans. All
of these possibilities could effect the ability to pay principal and
interest on your notes.
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.
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C>
REINVESTMENT RISK AND Student loans may be prepaid by borrowers at any time without
PREPAYMENTS BY BORROWERS penalty. The rate of prepayments cannot be predicted and may be
ARE UNPREDICTABLE AND MAY influenced by economic and other factors, such as interest rates, the
REDUCE YOUR YIELD ON YOUR availability of other financing and the general job market. In addition,
NEW NOTES under some circumstances, the depositor will be obligated to repurchase
student loans from the trust under the transfer and sale agreement as a
result of breaches of the depositor's representations and warranties.
To the extent borrowers elect to borrow money through consolidation
loans, you 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 these prepayments
initially will be to increase the rate of payment on each series of notes
on which principal is then being paid. Reinvestment risk resulting from
prepayments is expected to be borne first by the holders of senior series
of notes, and then by the holders of more subordinated series of notes.
UNCERTAINTY OF THE MATURITY Scheduled payments on the student loans and the maturities of the
OF YOUR INVESTMENT MAY student loans may be extended without your consent, which may
CREATE REINVESTMENT RISK 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. See "Maturity and
Prepayment Considerations."
BORROWERS OF STUDENT LOANS Collections on the student loans during a collection period may vary
ARE SUBJECT TO A VARIETY OF greatly in both timing and amount from the payments actually due on
FACTORS THAT MAY ADVERSELY the student loan for that collection period for a variety of economic,
AFFECT THEIR REPAYMENT social and other factors.
ABILITY
Failures by borrowers to pay timely the principal and interest on the
student loans or an increase in deferments or forbearances could affect
the timing and amount of available funds for any collection period and
the trust's ability to pay principal and interest on your new 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 new notes is impossible to predict.
</TABLE>
-23-
<PAGE> 24
<TABLE>
<S> <C>
THE INTEREST RATES ON THE The maximum rate of interest on the Series 1998A Notes will be
NOTES ARE SUBJECT TO limited by the net loan rate for each series which will equal the
LIMITATIONS WHICH MAY weighted average effective interest rate of the student loans, less the
CREATE AN INTEREST SHORTFALL program operating expenses. For a payment date on which the net loan
ON YOUR NEW NOTES WHICH rate applies, the shortfall resulting from the difference between the
MAY NOT BE RECOVERED amount of interest which would otherwise be borne by the Series 1998A
Notes at the applicable variable rate, auction rate or fixed rate 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 The interest rate on the financial student loans underlying your notes
LOANS AND OTHER INVESTMENTS may be lower than the interest rate on your notes. A shortfall may
MAY BE INSUFFICIENT TO COVER occur which would effect the issuer's ability to pay principal and
INTEREST ON THE NOTES DUE TO interest on your notes.
RATE-INDEX DIFFERENCES
The interest rates on your notes (except the Series B-3 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 a result of these differences between the indices used to determine
the interest rates on 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 decrease or do not increase as fast as the interest rates
on the notes, the interest rates with respect to the notes may be limited
to the net loan rate or may be deferred to future periods. There can be
no assurance that sufficient funds will be available in future periods to
make up for any shortfalls in the current payments of interest on the
notes. Further, if there is a decline in the interest rates on student
loans, the amount of funds representing interest deposited in to 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
paid out of these funds (such as 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 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.
</TABLE>
-24-
<PAGE> 25
<TABLE>
<S> <C>
IF PRINCIPAL BALANCE OF NOTES The principal amount of the notes exceeds the principal amount of all
EXCEEDS THE POOL BALANCE assets in the trust. Payment of principal and interest on the notes is
THE TRUST MAY NOT HAVE dependent on collections on the financed student loans, particularly
SUFFICIENT FUNDS TO REPAY collection of interest on the financed student loans. If the yield on
YOUR NEW NOTES the student loans does not generally exceed the interest rate on the
notes and program operating expenses, the trust may not have sufficient
funds to repay your notes.
If an event of default occurs and the assets of the trust are liquidated,
the student loans would have to be sold at a premium for the holders of
the Series B-3 Notes and possibly the holders of the Series 1998A Notes
to avoid a loss. Neither the issuer, the depositor nor the administrator
can predict the rate or timing of accelerated payments of principal or
when the aggregate principal amount of the notes may be reduced to the
aggregate principal amount of the student loans.
IF THE INDENTURE TRUSTEE Generally, during an event of default, the indenture trustee is
HAS DIFFICULTY LIQUIDATING authorized to sell the student loans. However, the indenture trustee
FINANCED STUDENT LOANS may not find a purchaser for the student loans. Also, the market value
YOU MAY SUFFER A LOSS of the student loans might not equal the principal amount of notes plus
accrued interest. In either event, there may not be sufficient funds to
pay principal and interest on the notes and you may suffer a loss.
THE INSUFFICIENCY OF FUNDS The principal amount required to be paid on the notes on any payment
FOR PRINCIPAL DISTRIBUTIONS IS date under the indenture generally is limited to amounts available for
NOT AN EVENT OF DEFAULT AND payment. Therefore, failure to pay principal will not result in the
YOU WOULD NOT HAVE ANY occurrence of an event of default until the legal final maturity of the
REMEDIES notes.
</TABLE>
-25-
<PAGE> 26
<TABLE>
<S> <C>
BANKRUPTCY OF DEPOSITOR, If the depositor becomes bankrupt, and the
ISSUER OR STUDENT LOAN assets and liabilities of the trust are
FUNDING RESOURCES, INC. included in the depositor's bankruptcy estate,
COULD RESULT IN ACCELERATED the United States Bankruptcy Code could
PREPAYMENT ON THE NOTES, materially limit or prevent the enforcement of
REDUCTIONS OF PAYMENT OR the issuer's obligations, including, without
DELAYS IN PAYMENT 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 the notes and
liquidate the assets in the trust. If the
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,
rather than as 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 new
notes or reductions in the amounts of these
payments.
The depositor is organized to prevent any
voluntary or involuntary application for
relief by Resources 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.
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 any "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 these payments. See
"Risk Factors - If Sale of the Student Loans
From the Depositor to the Issuer Is Not a True
Sale Delays or Reductions in Payments to You
Could Result."
CHANGES IN INCENTIVE AND Under borrower incentive programs, the
REPAYMENT TERMS FOR depositor may terminate or change the
BORROWERS RESULT IN YIELD terms of the incentives with respect to any or
UNCERTAINTIES FOR YOU 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 student loans. If the yield on
student loans is reduced it could adversely
affect the ability to pay principal and
interest on your new notes.
CONSUMER PROTECTION LAWS Consumer protection laws impose
MAY INCREASE COSTS AND substantial requirements on lenders and
UNCERTAINTIES OF YOUR servicers. Some state laws impose finance
INVESTMENT charge ceilings and other restrictions on
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 the promissory notes
evidencing loans made to borrowers attending
for-profit schools are subject to any claims
and legal defenses that the borrower may have
against the school.
</TABLE>
-26-
<PAGE> 27
<TABLE>
<S> <C>
BOOK-ENTRY REGISTRATION MAY Your notes may be represented by one or more
LIMIT INVESTORS' ABILITY certificates registered in the name of Cede &
TO PARTICIPATE DIRECTLY Co., the nominee for DTC, and will not be
AS A HOLDER registered in your name. If so, you will only
be able to exercise your rights indirectly
through DTC and its participating
organizations.
CREDIT RATINGS ADDRESS A rating agency will rate each series of
ONLY A LIMITED SCOPE notes in one of its four highest rating
OF INVESTOR CONCERNS categories. A rating is not a recommendation to
buy, hold or sell notes or a comment concerning
the market price or suitability for any
investor. A rating only addresses the
likelihood of the ultimate payment of principal
and stated interest and does not address the
likelihood of prepayments on the notes or the
likelihood of the payment of carryover
interest. A rating may not remain in effect for
the life of the notes. Any reduction or
withdrawal of a rating may have an adverse
effect on the liquidity and market price of the
notes.
</TABLE>
-27-
<PAGE> 28
<TABLE>
<S> <C>
IF A SALE OF THE STUDENT LOANS The depositor has taken steps in structuring
FROM THE DEPOSITOR TO THE its purchase of student loans from affiliates
ISSUER IS NOT A TRUE SALE to increase the likelihood that each purchase
DELAYS OR REDUCTIONS IN will be deemed a "true sale."
PAYMENTS TO YOU COULD RESULT
If any transfer by an affiliate to the
depositor of student loans is deemed by a
court to be a secured financing rather than a
"true sale," 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. Also,
if an 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
the 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 new notes could occur. If the court ruled
in favor of any trustee, debtor or creditor,
reductions in the amount of payments on the
new notes could occur.
DELAY IN RECEIPT OF GUARANTEE If there is a default on any of the financed
PAYMENTS ON DEFAULTED STUDENT student loans, a claim for default cannot be
LOANS COULD REDUCE AMOUNT OF submitted by the indenture trustee to a
FUNDS TO PAY PRINCIPAL AND guarantee agency for either 180 or 270 days
INTEREST ON YOUR NEW NOTES depending on when the student loan
originated. It may be up to 60 days after
submission of the claim before the indenture
trustee receives payment from the guarantee
agency. This delay may decrease the issuer's
funds available to pay principal and interest
on your notes.
REGIONAL GEOGRAPHIC Approximately 78% of the borrowers of the
CONCENTRATION INCREASES RISK financed student loans are concentrated in
OF BORROWING DEFAULTS DUE TO Ohio, Florida, Georgia and Kentucky. A
REGIONAL ECONOMIC regional economic downturn in any of these
CONSIDERATIONS areas could increase the likelihood of
borrower defaults on financed student loans.
Any borrower default may decrease the ability
to pay principal and interest on your notes.
ABILITY OF MAJORITY HOLDERS TO Under the indenture, holders of a majority in
WAIVE DEFAULTS UNDER THE principal amount of notes may amend or
INDENTURE MAY ADVERSELY AFFECT supplement provisions of the indenture and
YOU 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 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.
</TABLE>
-28-
<PAGE> 29
DEPOSITOR MAY NOT HAVE The depositor is obligated to repurchase
RESOURCES TO MEET ITS student loans if it breaches any of its
OBLIGATIONS TO PURCHASE representations, warranties or obligations
FINANCED STUDENT LOANS FOR ITS and that breach results in a loss of
BREACH OF A REPRESENTATION OR insurance or guarantee payments. The
WARRANTY 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 The eligible lender trustee on behalf of the
MEET ITS REPURCHASE issuer, as the successor to the depositor
OBLIGATIONS MAY ADVERSELY under the transfer and sale agreement, has
AFFECT THE ABILITY TO PAY the right, under the related student loan
PRINCIPAL AND INTEREST ON YOUR purchase agreement or the transfer and sale
NEW NOTES 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.
PROBLEMS CAUSED BY YEAR 2000 If computer programs and information systems
ISSUES COULD RESULT IN used by the administrator, the master
REDUCTIONS OR DELAYS IN servicer or third parties on which the issuer
PAYMENT WHICH MAY ADVERSELY depends for its programming and financial
AFFECT THE ABILITY TO PAY operations or with which it conducts business
PRINCIPAL AND INTEREST ON YOUR (including without limitation, guarantee
NEW NOTES 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 interests on your notes may be
adversely affected. See "The Depositor - Year
2000."
PROBLEMS CAUSED BY YEAR 2000 If computer programs and information systems
ISSUES WITH THE DEPARTMENT OF used by the Department of Education are not
EDUCATION COULD RESULT IN year 2000 compliant, the master servicer, the
REDUCTIONS OR DELAYS IN servicers and the guarantee agencies ability
PAYMENT WHICH MAY ADVERSELY to provide services required in connection
AFFECT THE ABILITY TO PAY with administration of student loan programs
PRINCIPAL AND INTEREST ON YOUR and the payment of reimbursement payments to
NEW NOTES 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.
All terms that are unique to our industry and this transaction are defined in
"Appendix A - Glossary" of this prospectus.
-29-
<PAGE> 30
WHERE YOU CAN FIND MORE INFORMATION
The issuer has filed with the SEC a registration statement on Form S-4
under the Securities Act and the rules and regulations thereunder covering the
new notes being offered by this prospectus. This prospectus does not contain all
the information set forth in the registration statement and its exhibits and
schedules, as portions have been omitted as permitted by the rules and
regulations of the SEC. For further information with respect to the issuer and
the new notes offered by this prospectus, reference is made to the registration
statement which is on file at the offices of the SEC and may be obtained on
payment of the fee prescribed by the SEC or may be examined without charge at
the offices of the SEC. Statements contained in this prospectus as to the
contents of any documents referred to are not necessarily complete, and, in each
instance, are qualified in all respects by reference to the applicable documents
filed with the SEC.
The issuer is not currently subject to the information reporting
requirements of the 1934 securities exchange act. The issuer will become subject
to these requirements on the effectiveness of the registration statement, and in
accordance therewith will file reports and other information with the SEC. The
registration statement and periodic reports and other information filed by the
issuer with the SEC can be inspected and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C., or at its regional offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New
York 10048 at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains a web site that contains reports and other information regarding
registrants that file electronically with the SEC. The address of this site is
http://www.sec.gov.
THE ISSUER
THE TRUST
Student Loan Funding 1998-A/B Trust is a common law trust formed 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 was formed and initially capitalized with nominal equity represented
by a trust certificate held by the depositor.
The old notes were issued by the depositor under an indenture dated as of
December 1, 1998 between the depositor and Firstar Bank, N.A., as trustee. The
proceeds from the sale of the old notes were used by the eligible lender
trustee, on behalf of the depositor, to acquire the initial financed student
loans. The trust purchased the financed student loans from the depositor by
assuming the obligations of the depositor under the old notes and the indenture.
-30-
<PAGE> 31
The assumption by the trust was completed on April 20, 1999. The trust will
enter into the Second Amended and Restated Indenture of Trust and the Second
Amended and Restated Terms Supplement, each to be dated as of June 1, 1999
between itself and Firstar Bank, N.A. under which the new notes will be issued.
The assets of the trust include:
(1) the pool of financed student loans;
(2) all funds related to the financed student loans collected after the
applicable cut-off date; and
(3) all moneys and investments on deposit in the collection account, note
payment account, expense account, reserve account 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
related servicer will be appointed custodian of the promissory notes
representing the financed FFELP loans by the eligible lender trustee.
Under the trust agreement, the co-owner trustee, on behalf of the trust, will
not engage in any activity other than:
(1) assigning, granting, transferring, pledging, mortgaging and conveying
its right, title and interest in the assets of the trust to the
indenture trustee for the benefit of the holders of the notes:
(2) to 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 deposit in the trust under the indenture;
(3) issuing and exchanging the new notes for the outstanding old notes;
(4) making payments on the notes of the issuer; and
(5) engaging in other activities that are related to the activities listed
in (1) through (4) above.
The depositor 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 new 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, N.A., 425 Walnut Street, Cincinnati, Ohio 45202.
The new notes are obligations of the trust only and are payable solely from the
assets of the trust under the indenture. See "Security for the Notes -- The
Trust Assets."
-31-
<PAGE> 32
CO-OWNER TRUSTEE
Firstar Bank, N.A., 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, N.A. 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.
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 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 information with respect to
the directors of Resources:
STUDENT LOAN FUNDING RESOURCES, INC. BOARD OF DIRECTORS INFORMATION
<TABLE>
<CAPTION>
Joined Term Board Positions Occupation
Director Age Board Ending and Offices Principal Address (past five years)
<S> <C> <C> <C> <C> <C> <C>
Susan E. Arnold 45 1998 2002 One Procter & Gamble Plaza Vice President & General Manager,
Cincinnati, Ohio 45201 Procter & Gamble North America
Ronald D. Brown 45 1998 2000 4701 Marburg Avenue Senior Vice President & CFO, Milacron,
Cincinnati, Ohio 45209 Inc.
</TABLE>
-32-
<PAGE> 33
<TABLE>
<CAPTION>
Joined Term Board Positions Occupation
Director Age Board Ending and Offices Principal Address (past five years)
<S> <C> <C> <C> <C> <C> <C>
Lawrence A. Leser 63 1998 2001 Chairman P.O. Box 5380 Chairman,
Cincinnati, Ohio 45201 The E.W. 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, Jr. 55 1998 2001 Vice Chairman 52 East Gay Street Partner,
Columbus, Ohio 43215 Vorys, Sater, Seymour & Pease LLP
Michael H. Shaut 48 1999 2002 President & CEO One West 4(th) St., Su. 200 Previously: President, Education
Cincinnati, Ohio 45202 Planning Services, Inc.
Previously:
Executive Vice President and Chief
Operating Officer,
The Student Loan Funding
Corporation
Patricia Mann
Smitson 53 Ex- Ex-Officio Secretary 312 Walnut Street, Suite 1400 Partner, Thompson Hine & Flory LLP
Officio Cincinnati, Ohio 45202
Walker J. Wallace 55 1998 2001 1017 Choctawhatchee Dr. Retired, Vice President, Procter &
Niceville, FL 32578 Gamble
</TABLE>
OFFICERS OF RESOURCES
The following is information with respect to the key officers of Resources:
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 though 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 degree from Colgate University and a Juris Doctorate from
Georgetown University Law Center. Mr. Shaut is a member of the Bar Associations
of the States of Arizona, Ohio, Pennsylvania, Virginia and the District of
Columbia.
Stephen T. MacConnell, 52, is Senior Vice President of Legal Services and Human
Resources of Resources. Prior to serving Resources, Mr. MacConnell was a named
partner for 21 years in a prominent Cincinnati law firm. Mr. MacConnell is a
trustee and/or officer of several national and local legal and
-33-
<PAGE> 34
nonprofit organizations and is currently the immediate past president of the
Cincinnati Bar Association. He received his Juris Doctorate from the University
of Cincinnati and Bachelor of Arts from Miami University (Ohio). Through May,
1998, Mr. MacConnell was Senior Vice President of Legal Services and Human
Resources for The Student Loan Funding Corporation.
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 has a Bachelor of Arts from Hope College,
Holland, Michigan.
Perry D. Moore, 36, is Vice President and Interim 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's degree 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.
YEAR 2000
For information describing the level of the trust's, the depositor's and the
administrator's readiness for year 2000, see "The Depositor - Year 2000."
THE DEPOSITOR
Student Loan Funding LLC, a Delaware limited liability company organized as a
bankruptcy remote special purpose entity, is the depositor. The members of the
depositor 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: Christopher P. Chapman, Mark A. Ferrucci, Kim
Lutthans, Perry D. Moore and Michael H. Shaut. Mr. Chapman, Mr. Moore and Mr.
Shaut are officers and employees of Resources and Ms. Lutthans and Mr. Ferrucci
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 210, Cincinnati, Ohio 45202. The
telephone number of the offices is (513) 352-0570.
On June 1, 1998, the Foundation, in connection with an election under Section
150(d)(3) the Internal Revenue Code of 1986, transferred to Resources
substantially all of the assets and liabilities of Foundation, and Resources
subsequently transferred substantially all of the transferred assets and
liabilities to the depositor. As a result of these transfers and assumptions,
the depositor became the sole obligor on approximately $1.9 billion of debt that
was previously debt of the Foundation, which is all non-recourse debt of the
depositor, and Foundation and Resources have no liability on that debt. Until
June 1, 1998, the Foundation was a tax-exempt charitable organization under
Section 501(C)(3) of the Internal Revenue Code and a "qualified scholarship
funding corporation" within the meaning of Section 150(d) of the Internal
Revenue Code engaged in acting as a secondary market for student loans
originated under the Higher Education Act. On May 28, 1998, the Foundation made
the tax election under Section 150(d)(3) of the Internal Revenue Code to
terminate its status as a qualified scholarship
-34-
<PAGE> 35
funding corporation while continuing to qualify as a tax-exempt charitable
organization under Section 501(C)(3) of the Internal Revenue Code.
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 counsel to the effect that subject to
specific facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
corporate 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
specific 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
-35-
<PAGE> 36
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.
After the occurrence of any of event of bankruptcy or insolvency of the
depositor, the financed student loans and other assets of the trust may be
liquidated. The proceeds from that liquidation would be treated as collections
on these assets and deposited in trust 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 in full.
RELATIONSHIP WITH INTUITION HOLDINGS, INC. AND INTUITION, INC.
On November 30, 1998, Resources completed a transaction wherein Resources
acquired a 50% ownership interest in InTuition Holdings, Inc. and has the right
to appoint two members of the board of directors (which consists of four
members) of InTuition Holdings, Inc. As of September 30, 1998, InTuition
Holdings, Inc. had $4.1 million in assets, $3.1 million in liabilities and $1.0
million in shareholders' equity. InTuition, Inc. is wholly owned by InTuition
Holdings, Inc. Approximately 88% of the financed student loans in the initial
pool balance were acquired from InTuition Holdings, Inc. with recourse for
breach of representations, warranties and covenants with respect to the financed
student loans solely to InTuition Holdings, Inc. In some circumstances and
subject to limitations, InTuition Holdings, Inc. has the right to cause the
seller of specific loans to InTuition Holdings, Inc. to repurchase these student
loans in the event of a breach of the representations, warranties or covenants
of the seller with respect to these student loans under the purchase agreement
between InTuition Holdings, Inc. and the seller. See "Risk Factors -- Inability
of Seller to Meet its Repurchase Obligations May Adversely Affect Your Notes"
and "Servicing -- InTuition, Inc."
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 is wholly dependent on the administrator's information systems.
Currently, the administrator is in the process of migration to a new loan
acquisitions system. Migration is expected to be complete by November 30, 1999.
If by June 1, 1999, the administrator determines that the migration will not be
completed by November 30, a contingency plan will be executed whereby the
existing system will be remediated on or before July 31, 1999. The administrator
is conducting a review of its own information systems and expects to have
completed all critical modifications to those systems by July 31, 1999, allowing
time in 1999 for any system refinements that may be needed. The administrator
has also developed high level contingency plans for its mission-critical
applications and will refine these plans in 1999. Nevertheless, it is not clear
whether adequate contingency plans can be developed for all possible problems.
Costs of the administrator's year 2000 efforts are not expected to have a
material adverse impact on operation of the Program or the timely payment of the
notes. The administrator spent approximately $43,000 in 1998 and expects to
spend approximately an additional $40,000 in 1999 on the project.
-36-
<PAGE> 37
If the administrator's actual costs or timing for its own year 2000 remediation
efforts differ materially from its present estimates, or if there are unexpected
increases in the cost of the operation of the student loan program due to year
2000 issues, then the operation of the student loan program could be adversely
affected, and the timing and amount of payments on the notes could be adversely
affected.
THIRD PARTY YEAR 2000 ISSUES
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, 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 New 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
our 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
-37-
<PAGE> 38
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 auction
agent, calculation agent, exchange counterparty, market agent, broker-dealer,
provider of credit enhancement or remarketing agent 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
We will not receive any proceeds from the exchange offer.
The net proceeds to depositor from the sale of the $727,800,000 of old notes
were $727,397,583 after deducting discounts and paying offering expenses. The
depositor used the proceeds from the offering of the old notes in the following
amounts:
<TABLE>
<CAPTION>
Percentage of
Fund or Account Amount Proceeds
--------------- ------ --------
<S> <C> <C>
acquisition fund $708,205,483 97.36%
reserve fund 10,917,000 1.50%
collection account 5,000,000 0.69%
expense account 3,275,100 0.45%
--------- ----
Total Uses $727,397,583 100.00%
</TABLE>
We paid the initial purchasers a fee of $2,602,595 from moneys in the expense
account.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The depositor sold the old notes in a private offering on December 22, 1998, to
Salomon Smith Barney Inc., Fifth Third/The Ohio Company and NationsBanc
Montgomery Securities LLC, the initial purchasers, under a purchase agreement
dated December 18, 1998 among the depositor and the initial purchasers. The
initial purchasers subsequently resold the old notes to institutional investors.
Under the registration rights agreement that the depositor and the initial
purchasers entered into in connection with the private offering of the old notes
and that was subsequently assumed by the issuer, we are required to file the
registration statement of which this prospectus is a part. The assumption by the
trust was completed on April 20, 1999. The registration statement provides for a
registered exchange offer of new notes identical in all material respects to the
old notes, except that the new notes will be issued by the trust, will be freely
transferable and will not have any covenants regarding exchange and registration
rights. Under the registration rights agreement, we are required to use our best
efforts to:
-38-
<PAGE> 39
- cause the registration statement to be declared effective no later May
31, 1999; and
- consummate the exchange offer as promptly as practicable, but no later
than June 30, 1999.
We are also required to keep the exchange offer open for not less than 20
business days (or longer if required by applicable law) after the date that
notice of the exchange offer is mailed to holders of the old notes.
For a more complete understanding of your exchange and registration rights, you
should refer to the registration rights agreement, which is included as an
exhibit to the registration statement of which this prospectus is a part.
EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the staff of the SEC set forth in no-action letters
issued to third parties, Thompson Hine & Flory LLP, counsel to the issuer, has
rendered an opinion that you may offer for resale, resell and otherwise transfer
the new notes issued to you under the exchange offer in exchange for your old
notes without compliance with the registration and prospectus delivery
provisions of the 1933 securities act, so long as by tendering old notes in
exchange for new notes and by executing the letter of transmittal that
accompanies this prospectus you represent that:
- you are not our "affiliate" (as defined in Rule 405 of the 1933
securities act);
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new notes; and
- you are acquiring the new notes in the ordinary course of your
business.
In addition, each broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the new notes. See "Plan of Distribution." In the registration agreement,
depositor has agreed that it will allow exchanging dealers (and any other
persons subject to similar prospectus delivery requirements) to use this
prospectus in connection with a resale.
To the extent old notes are tendered and accepted in the exchange offer, the
principal amount of outstanding old notes will decrease with a resulting
decrease in the liquidity in the market for the old notes. Old notes that are
still outstanding following the consummation of the exchange offer will continue
to be subject to transfer restrictions.
TERMS OF THE EXCHANGE OFFER
On the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal, we will accept any and all old notes validly tendered
and not validly withdrawn prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. As of the date of this prospectus, a
total of $692,836,478.23 principal amount of the old notes is outstanding. We
will issue and exchange new notes of each series in principal amounts equal to
the principal amounts of outstanding old notes of each series accepted in the
exchange offer. You may tender some or all of your old notes under the exchange
offer.
You only may tender and exchange your old notes for a corresponding series of
new notes, such that you may tender and exchange:
- - Series 1998A-3 Notes for Series 1998A1-3 Notes;
-39-
<PAGE> 40
- Series 1998A-4 Notes for Series 1998A1-4 Notes;
- Series 1998A-5 Notes for Series 1998A1-5 Notes;
- Series 1998A-6 Notes for Series 1998A1-6 Notes; and
- Series 1998B-3 Notes for Series 1998B1-3 Notes.
The form and terms of the new notes will be identical in all material respects
to the form and terms of the old notes, except that:
- the new notes will be issued by the trust;
- the offering of the new notes has been registered under the 1933
securities act;
- the new notes will not be subject to transfer restrictions; and
- the new notes will be issued free of any covenants regarding exchange
and registration rights.
The new notes will evidence the same debt as the old notes and will be entitled
to the benefits of the indenture under which the old notes were, and the new
notes will be, issued.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of old notes on or about May 27,
1999. The exchange offer is not conditioned on any minimum aggregate principal
amount of old notes being tendered. However, the exchange offer is subject to
conditions, which we may waive, and to the terms and provisions of the
registration agreement. See "--Conditions to the Exchange Offer."
You do not have any appraisal or dissenters' rights under law or the indenture
in connection with the exchange offer. During the exchange offer, we will
comply with the applicable requirements of the 1934 Securities Exchange Act and
the rules and regulations of the SEC established under the 1934 Securities
Exchange Act.
If we do not accept for exchange any tendered old notes because of an invalid
tender, the occurrence of other events set forth in this prospectus or for
another reason, certificates for any unaccepted old notes will be returned,
without expense to you, as promptly as practicable after the expiration date of
the exchange offer.
If you tender old notes in the exchange offer you will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of old notes under the
exchange offer. We will pay all charges and expenses, other than specific
applicable taxes, in connection with the exchange offer. See "--Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York City time, on June 28, 1999, unless
we, in our sole discretion, extend the exchange offer, in which case the
expiration date will be the latest date and time to which the exchange offer is
extended.
-40-
<PAGE> 41
We have the right to delay accepting any old notes, to extend the exchange offer
or, if any of the conditions set forth under the heading "--Conditions to the
Exchange Offer" have been satisfied, to terminate the exchange offer, by giving
oral or written notice of the delay, extension or termination to the exchange
agent. We also have the right to amend the terms of the exchange offer. If we
delay acceptance of any old notes, or terminate or amend the exchange offer, we
will make a public announcement to that effect as promptly as practicable. If we
believe that we have made a material amendment of the terms of the exchange
offer, we will promptly disclose the amendment in a manner reasonably calculated
to inform you of the amendment and we will extend the exchange offer to the
extent required by law. We will notify the exchange agent of any extension of
the exchange offer in writing or orally (which we will promptly confirm in
writing). Unless otherwise required by applicable law or regulation, we will
make a public announcement of any extension of the expiration date before 9:00
a.m., New York City time, on the first business day after the previously
scheduled expiration date. We have no obligation to publish, advise or otherwise
communicate any public announcement, other than by making a timely press
release.
INTEREST ON THE NEW NOTES
Interest on the new notes will accrue from the last interest payment date on
which we paid interest on the old notes surrendered in exchange for them. See
"Description of the New Notes--Interest."
PROCEDURES FOR TENDERING
Each holder of old notes wishing to accept the exchange offer must:
(1) complete, sign and date the letter of transmittal, or a facsimile of
it;
(2) have the signatures on it guaranteed if required by the letter of
transmittal; and
(3) mail or otherwise deliver the letter of transmittal or the facsimile,
together with the old notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer (unless the tender is being
effected under the procedure for book-entry transfer described below).
Any financial institution that is a participant in the book-entry transfer
facility system of The Depository Trust Company may make book-entry delivery of
the old notes by causing DTC to transfer the old notes into the exchange agent's
account and to deliver an agent's message (as described below) on or prior to
the expiration date of the exchange offer under DTC's procedures for the
transfer and delivery. If delivery of old notes is made through book-entry
transfer into the exchange agent's account at DTC and an agent's message is not
delivered, the letter of transmittal (or facsimile of it), with any required
signature guarantees and any other required documents must be transmitted to and
received or confirmed by the exchange agent at its addresses set forth under the
heading"-- Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. DELIVERY OF DOCUMENTS TO DTC UNDER ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term agent's message means a message that states that DTC has received an
express acknowledgment from the tendering DTC participant that the DTC
participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the letter of transmittal and that
we may enforce the letter of transmittal against the DTC participant. The
agent's message is transmitted by DTC to, and received by, the exchange agent
and forms a part of the confirmation of the book-entry tender of old notes into
the exchange agent's account at DTC.
A holder's tender (as set forth above) of old notes will constitute an agreement
between the holder and us under the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
-41-
<PAGE> 42
You must deliver all documents to the exchange agent at its address set forth in
this prospectus under "--Exchange Agent." Holders may also request that their
respective brokers, dealers, commercial banks, trust companies or nominees
effect the tender for the holders.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the election and risk of the
holders. Instead of delivery by mail, we recommend that holders use an overnight
or hand delivery service. In all cases, you should allow enough time to assure
timely delivery. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US.
Only a person in whose name old notes are registered on the register maintained
by the trustee or any other person who has obtained a properly completed bond
power from the registered holder, or any person whose old notes are held of
record by DTC who desires to deliver the old notes by book-entry transfer at DTC
may tender the old notes in the exchange offer.
Any beneficial holder whose old notes are registered in the name of his broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct the registered holder
to tender on his behalf. If the beneficial holder wishes to tender on his own
behalf, he must, prior to completing and executing the letter of transmittal and
delivering his old notes, obtain a properly completed bond power from the
registered holder. THE TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent
in the United States; or
- an eligible guarantor institution within the meaning of Rule 17Ad-15
under the 1934 securities exchange act,
unless the old notes tendered under the letter of transmittal are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of an eligible guarantor institution.
If a person other than the registered holder of any old notes signs the letter
of transmittal, the old notes must be endorsed or accompanied by appropriate
bond powers that authorize that person to tender the old notes on behalf of the
registered holder, and, in either case, signed as the name of the registered
holder or holders appears on the old notes.
If a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other acting as a fiduciary or representative signs the letter of
transmittal or any old notes or bond powers, that person should so indicate when
signing, and, unless we waive the requirement, must submit with the letter of
transmittal evidence satisfactory to us of their authority to so act.
The validity, form, eligibility (including time of receipt), acceptance and
withdrawal of the tendered old notes will be determined by us in our sole
discretion. Our determination will be final and binding. We reserve the absolute
right to reject any and all old notes not properly tendered or any old notes
that, in the opinion of our counsel, it would be unlawful for us to accept. We
also reserve the absolute right to waive any irregularities or conditions of
tender as to particular old notes. Our interpretation of the terms and
-42-
<PAGE> 43
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within this time as we shall determine. Neither we, the exchange agent nor any
other person is under any duty to give notification of defects or irregularities
with respect to tenders of old notes. Also, neither we, the exchange agent nor
any other person has any liability for failure to give this notification.
Tenders of old notes will not be deemed to have been made until any
irregularities have been cured or waived. Any old notes received by the exchange
agent that are not properly tendered, and as to which the defects or
irregularities have not been cured or waived, will be returned without cost by
the exchange agent to the tendering holder of the old notes unless otherwise
provided in the letter of transmittal as soon as practicable following the
expiration date of the exchange offer.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any old notes that remain outstanding
after the expiration date of the exchange offer, or (as set forth
under the heading "--Conditions to the Exchange Offer") to terminate
the exchange offer; and
- to the extent permitted by applicable law, purchase old notes in the
open market, in privately negotiated transactions or other ways.
The terms of any of these purchases or offers may differ from the terms of the
exchange offer.
By tendering, you represent to us that, among other things:
- the new notes acquired under the exchange offer in exchange for your
old notes are being obtained in the ordinary course of your business;
- you do not have an arrangement or understanding with any person to
participate in the distribution of the new notes; and
- you are not an "affiliate" of depositor within the meaning of Rule 405
under the 1933 securities act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
On satisfaction or waiver of all of the conditions to the exchange offer, we
will accept, promptly after the expiration date of the exchange offer, all old
notes properly tendered and will issue the new notes promptly after acceptance
of the old notes. See "--Conditions to the Exchange Offer." For each old note
that we accept for exchange, the holder of the old note will receive a new note
having a principal amount equal to that of the surrendered old note.
For purposes of the exchange offer, we will have accepted properly tendered old
notes for exchange when, as and if we give oral or written notice to that effect
to the exchange agent, with written confirmation of any oral notice to be given
promptly afterwards.
In all cases, we will issue new notes for old notes that we accept for exchange
under the exchange offer only after timely receipt by the exchange agent of:
- certificates for the old notes,
- a properly completed and duly executed letter of transmittal, and
- all other required documents or a timely book-entry confirmation of
the old notes into the exchange agent's account at DTC.
-43-
<PAGE> 44
If we do not accept any tendered old notes for any reason set forth in the terms
and conditions of the exchange offer or if old notes are submitted for a greater
principal amount than the holder desired to exchange, we will return these
unaccepted or non-exchanged old notes without expense to the tendering holder
(or, in the case of old notes tendered by book-entry transfer into the exchange
agent's account at DTC under the book-entry procedures described below, the
non-exchanged old notes will be credited to an account maintained with the
book-entry transfer facility) as promptly as practicable after the expiration
date of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the old notes at DTC for purposes of the exchange offer within two business days
after the date of this prospectus, and any financial institution that is a
participant in DTC's systems may make book-entry delivery of old notes by
causing DTC to transfer the old notes into the exchange agent's account at DTC
under DTC's procedures for transfer. Although delivery of old notes may be
effected through book-entry transfer at DTC, either:
- the letter of transmittal (or a facsimile of it or an agent's message
in lieu of it), with any required signature guarantees and any other
required documents, must always be transmitted to and received by the
exchange agent at one of the addresses set forth under the
heading"--Exchange Agent" on or prior to the expiration date of the
exchange offer, or
- the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and who cannot deliver their old
notes, the letter of transmittal, or any other required documents to the
exchange agent prior to the expiration date of the exchange offer, or holders
who cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration date of the exchange offer, the exchange agent
receives from the eligible guarantor institution a properly completed
and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery): (1) setting forth the name and
address of the holder of the old notes, the certificate number or
numbers of the old notes and the principal amount of old notes
tendered, (2) stating that the tender is being made, and (3)
guaranteeing that, within three business days after the expiration date
of the exchange offer, the letter of transmittal (or facsimile of it),
together with the certificate(s) representing the old notes to be
tendered in proper form for transfer and any other documents required
by the letter of transmittal, will be deposited by the eligible
guarantor institution with the exchange agent; and
- the properly completed and executed letter of transmittal (or facsimile
of it), together with the certificate(s) representing all tendered old
notes in proper form for transfer (or confirmation of a book-entry
transfer into the exchange agent's account at DTC of old notes
delivered electronically) and all other documents required by the
letter of transmittal are received by the exchange agent within three
business days after the expiration date of the exchange offer.
On request to the exchange agent, a notice of guaranteed delivery will sent to
holders who wish to tender their old notes according to the delivery procedures
set forth above.
WITHDRAWAL OF TENDERS
-44-
<PAGE> 45
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of old notes in the exchange offer, the exchange agent must
receive a facsimile transmission or letter notice of withdrawal at its address
set forth in this prospectus prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. A notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn;
- include a statement that the note depositor is withdrawing its election
to have old notes exchanged and identify the old notes to be withdrawn
(including the certificate number or numbers and principal amount of
the old notes);
- be signed by the note depositor in the same manner as the original
signature on the letter of transmittal by which the old notes were
tendered (including any required signature guarantees) or be
accompanied by documents of transfer that will permit the trustee with
respect to the old notes to register the transfer of the old notes into
the name of the note depositor withdrawing the tender; and
- specify the name in which any the old notes are to be registered, if
different from that of the note depositor.
If you have tendered old notes under the procedures for book-entry transfer set
forth under the headings "--Procedures for Tendering" and "--Book-entry
Transfer," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of old notes, in which case a
notice of withdrawal will be effective if delivered to the exchange agent by
written, telegraphic, telex or facsimile transmission.
The validity, form and eligibility (including time of receipt) of withdrawal
notices will be determined by us, and our determination will be final and
binding on all parties. Any old notes withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer and no new notes will be
issued with respect to them unless the old notes that have been withdrawn are
validly re-tendered. Properly withdrawn old notes may be re-tendered by
following one of the procedures set forth under the heading "--Procedures for
Tendering," at any time prior to the expiration date of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is not subject to any conditions, other than that:
- the exchange offer does not violate any applicable law or
interpretation of the staff of the SEC; and
- there is no injunction, order or decree issued by any court or any
governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer.
We cannot assure you that this condition will not occur. Holders of old notes
will have specific rights under the registration rights agreement if we fail to
consummate the exchange offer. If we determine that we may terminate the
exchange offer, as set forth above, we may:
- refuse to accept any old notes and return any old notes that have been
tendered to their holders;
-45-
<PAGE> 46
- extend the exchange offer and retain all old notes tendered before the
expiration date of the exchange offer, subject to the rights of holders
of tendered old notes to withdraw their tendered old notes; or
- waive the termination event with respect to the exchange offer and
accept all properly tendered old notes that have not been withdrawn.
If a waiver constitutes a material change in the exchange offer, we will
disclose the change by means of a supplement to this prospectus that will be
distributed to each registered holder of old notes, and we will extend the
exchange offer for a period of five to ten business days, depending on the
significance of the waiver and the manner of disclosure to the registered
holders of the old notes, if the exchange offer would otherwise expire during
this period.
Dealer Manager
Salomon Smith Barney Inc., as dealer manager, has agreed to solicit exchanges of
the old notes. The depositor will pay the dealer manager specified expenses
payable as of the completion of the exchange offer. Additional solicitation may
be made by telecopier, by telephone, or in person by officers and regular
employees of the depositor and its affiliates. No additional compensation will
be paid to any officers or employees who engage in soliciting exchanges.
The depositor has agreed to indemnify the dealer manager against some
liabilities, including civil liabilities under the 1933 securities act, and to
contribute to payments that the dealer manager may be required to make in
respect the securities act.
The dealer manager engages in transactions with, and from time to time has
performed services for, the depositor.
EXCHANGE AGENT
Firstar Bank, N.A., the trustee under the indenture, has been appointed as
exchange agent for the exchange offer. Questions and requests for assistance and
inquiries for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent addressed as follows:
By mail: By hand or overnight delivery:
Corporate Trust Department Corporate Trust Department
425 Walnut Street 425 Walnut Street
Mail Location 5155 6th Floor
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Brian J. Gardner Attention: Brian J. Gardner
(if by mail, registered or certified mail recommended)
facsimile transmission number:
(for eligible institutions only)
(513) 632-5511
confirm by telephone:
(513) 762-8870
-46-
<PAGE> 47
Delivery of the letter of transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute a valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will pay the cash expenses to be incurred
in connection with soliciting tenders under the exchange offer. These expenses
include fees and expenses of the exchange agent and the indenture trustee,
accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to pay any
transfer taxes in connection with the tender, except that holders will be
responsible for the payment of any applicable transfer tax if they instruct us
to register new notes in the name of, or request that old notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes on
the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes. The expenses of the exchange offer and the unamortized
expenses relating to the issuance of the old notes will be amortized over the
term of the new notes.
THE FINANCED STUDENT LOANS
The notes are secured by and payable solely from the assets of the trust. The
trust includes:
(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 in the case of financed student loans refers to student loans made or
acquired through the eligible lender trustee, with the proceeds of the old notes
or moneys in the acquisition fund or the collection account. Financed also
refers to the exchange of financed student loans under the indenture, and
included in the student loan portfolio fund. The pool of financed student loans
includes the student loans to be financed by the issuer or the eligible lender
trustee of the issuer.
As a result of variation in the effective rates of interest applicable, the
distribution by weighted average interest rate, may be different from the tables
below. The information set forth below with respect to the original and
remaining terms to maturity of financed student loans may vary significantly
from the actual term to maturity of any of the financed student loans as a
result of deferral and forbearance periods being granted.
The financed student loans were acquired on or about December 31, 1998 at their
principal balance as of their purchase date. The financed student loans
-47-
<PAGE> 48
are FFELP loans that at the time of acquisition met the following criteria:
(1) 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) bear 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 indenture;
(3) contain 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 that financed student
loan is acquired. See "Description of the FFEL Program" and "The
Guarantee Agencies."
The following is a summary of the delinquency status of the financed student
loans as of March 31, 1999.
<TABLE>
<CAPTION>
Percent of Initial Financed
Aggregate Student Loans
Outstanding by Outstanding
Days Delinquent Principal Balance Principal Balance
--------------- ----------------- -----------------
<S> <C> <C>
0 - 30 ................................ $563,349,557 86.13%
31 - 60 ............................... 32,733,891 5.01
61 - 90 ............................... 18,799,141 2.87
91 - 120 .............................. 22,697,079 3.47
121 and above ......................... 16,502,138 2.52
---------- ----
Total ....................... $654,081,806 100%
</TABLE>
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 as
provided under the Higher Education Act. Each financed student loan is eligible
for special allowance payments, those that are subsidized Stafford loans are
eligible for interest subsidy payments paid by the Department of Education. See
"Description of the FFEL Program."
Additional student loans that may be financed after the closing date include
specific financed student loans substituted for other financed student loans in
the trust meeting specific specified characteristics. See "The Indenture--
Student Loan Portfolio Fund" and "The Indenture-- Collection Fund."
Although characteristics of additional financed student loans are expected to be
similar to the initial loans, the aggregate characteristics of the entire pool
will vary from them, because additional financed student loans may be financed
after the closing date. The aggregate characteristics 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.
-48-
<PAGE> 49
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 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 that financed student loan.
A total of approximately $680,000,000 of financed student loans were acquired.
The tables below describe characteristics of the initial financed student loans
as of March 31, 1999.
COMPOSITION OF THE INITIAL FINANCED STUDENT LOANS
<TABLE>
<CAPTION>
<S> <C>
Aggregate Outstanding Principal Balance $654,081,806
Aggregate Outstanding Accrued Interest $ 5,293,278
Number of Borrowers 73,687
Average Outstanding Principal Balance Per Borrower $ 8,876
Number of Loans 205,667
Average Outstanding Principal Balance Per Loan $ 3,180
Weighted Average Annual Borrower Interest Rate 8.33%
Weighted Average Remaining Term (months) (does not include the months
remaining for the In-School, Grace, Deferment or Forbearance periods)(1) 108
Weighted Average Remaining Term (months) (including the months
remaining for the In-School, Grace, Deferment or Forbearance periods)(1) 109
</TABLE>
- ------------
(1)Refers to the payment status of the borrower of each financed student loan as
of March 31, 1999: 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 that loan or may have temporarily ceased repaying
that loan through a deferral or a forbearance period. See "Description of the
FFEL Program."
-49-
<PAGE> 50
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY LOAN TYPE
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Loan Type Loans Balance Balance
- --------- ----- ------- -------
<S> <C> <C> <C>
Stafford-Subsidized 45,431 $133,844,830 20.46%
Stafford-Unsubsidized 153,782 478,927,034 73.22
Consolidation 696 16,230,557 2.48
PLUS 2,619 11,560,539 1.77
SLS 3,139 13,518,845 2.07
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY MINIMUM GUARANTEE LEVEL
<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% 94,273 $270,606,537 41.37%
FFELP Loan Guaranteed 98% 111,394 383,475,268 58.63
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
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 128,819 $393,724,755 60.20%
Financial Assistance
Georgia Higher Education Assistance Corporation 14,394 44,695,738 6.83
United Student Aid Funds, Inc. 31,659 139,594,151 21.34
Kentucky Higher Education Assistance Authority 18,803 41,438,957 6.34
Great Lakes Higher Education Guaranty Corporation 10,650 24,987,155 3.82
Other Guarantee Agencies 1,342 9,641,050 1.47
------- ------------ ------
Total 205,667 $654,081.086 100.00%
</TABLE>
-50-
<PAGE> 51
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY BORROWER INTEREST RATE
<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% 1,575 $ 3,685,723 0.56%
7.50% to 7.99% 2,252 6,396,610 0.98
8.00% to 8.49% 173,081 506,185,361 77.39
8.50% to 8.99% 25,127 95,121,099 14.54
9.00% to 9.49% 3,248 41,843,853 6.40
9.50% or greater 384 849,162 0.13
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
(1) Determined using the interest rates applicable to the initial financed
student loans as of March 31, 1999. However, because some of the initial
financed student loans bear interest at variable rates, the existing interest
rates are not indicative of future interest rates on the financed student loans.
See "Description of the FFEL Program."
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY RANGE OF OUTSTANDING PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Principal Balance Loans Balance Balance
- ----------------- ----- ------- -------
<S> <C> <C> <C>
Less than $500 13,134 $ 3,735,490 0.57%
$500-$999.99 20,410 15,479,574 2.37
$1,000-$1,999.99 46,224 68,374,285 10.45
$2,000-$2,999.99 50,031 119,730,367 18.31
$3,000-$3,999.99 24,664 83,201,016 13.68
$4,000-$5,999.99 28,917 138,729,564 21.21
$6,000-$7,999.99 8,797 56,341,809 8.61
$8,000-$9,999.99 5,982 50,096,525 7.66
$10,000-$14,999.99 4,693 50,368,484 7.70
$15,000-$19,999.99 1,251 18,127,451 2.77
$20,000 or greater 1,564 43,670,667 6.67
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
-51-
<PAGE> 52
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY BORROWER PAYMENT STATUS
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Borrower Payment Status Loans Balance Balance
- ----------------------- ----- ------- -------
<S> <C> <C> <C>
In School 5,187 $ 14,856,181 2.27%
Grace 3,953 11,029,437 1.69
Repayment 137,108 413,714,224 63.25
Deferment 28,710 93,224,498 14.25
Forbearance 30,475 120,463,282 18.42
Claim 234 794,184 0.12
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY
<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 5,935 $ 3,260,671 0.50%
13 to 24 9,231 10,485,667 1.60
25 to 36 17,262 29,295,045 4.48
37 to 48 28,015 67,461,528 10.31
49 to 60 96,233 338,077,083 51.69
61 to 72 5,051 12,680,581 1.94
73 to 84 5,196 20,917,908 3.20
85 to 96 5,386 21,632,009 3.31
97 to 108 5,871 26,188,855 4.00
109 to 120 27,451 123,158,273 18.82
121 to 180 22 360,435 0.06
181 to 240 10 330,423 0.05
241 to 300 4 233,329 0.04
Over 300 0 0 0.00
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
Location (1) Loans Balance Balance
- ------------ ----- ------- -------
<S> <C> <C> <C>
Ohio 9,999 $ 20,228,679 3.09%
Florida 115,925 382,156,038 59.36
Georgia 17,088 54,702,836 8.36
Kentucky 14,660 32,327,979 4.94
Others (57) 47,995 164,666,274 24.25
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
(1) Based on the current permanent billing addresses of the borrowers of the
initial financed student loans shown on the Servicer's records.
(2) Consist of locations that include 46 other states, U.S. territories,
possessions and commonwealths, foreign countries, overseas military
establishments, and unknown locations, none of the aggregate principal balance
of the financed student loans relating to which exceeds 2.00% of the initial
pool balance.
-52-
<PAGE> 53
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 that borrowers to repay
their financed student loans may be impacted to a larger extent than if that
borrowers were dispersed more geographically.
DISTRIBUTION OF THE INITIAL FINANCED STUDENT LOANS BY SCHOOL TYPES
<TABLE>
<CAPTION>
Percent of
Loans by
Outstanding Outstanding
Number of Principal Principal
School Type Loans Balance Balance
- ----------- ----- ------- -------
<S> <C> <C> <C>
4 Year Institution 133,265 $408,774,525 62.96%
2 Year Institution 31,364 94,455,833 14.44
Graduate 25,733 99,584,662 15.23
Proprietary 844 2,649,950 0.41
Other/Unknown 14,461 45,492,763 6.96
------- ------------ ------
Total 205,667 $654,081,806 100.00%
</TABLE>
INCENTIVE PROGRAMS
Some of the financed student loans, known as reduced rate loans, are eligible
for a reduction in interest rate that is less than the maximum rate permitted by
the Higher Education Act. Reduced rate loans are Stafford loans and unsubsidized
Stafford loans originated on or after July 1, 1996, wherein the applicable
interest rate on that a reduced rate loan is reduced by 2.00% . The reduction in
interest rate is effective on the receipt of the initial 48 consecutive monthly
payments, with no missed or late payments, following commencement of repayment
status, and continuing as long as no payments are missed on the reduced rate
loans. In addition, after receipt of the initial 24 consecutive monthly payments
following commencement of repayment status, a borrower is entitled to receive a
credit to their principal balance of any origination fee paid by the borrower in
excess of $250. The indenture provides that 15% of the financed student loans
are eligible to become reduced rate loans.
TRANSFER AND SALE AGREEMENT
Under the transfer and sale agreement the depositor and its eligible lender
trustee sold and transferred to the trust and its eligible lender trustee,
without recourse, their entire right, title and interest in the financed student
loans and all collections received and to be received after the effective date
of the transfer and sale agreement. In consideration of this transfer and sale
the trust assumed all payment obligations of the depositor on the notes.
CONVEYANCE OF FINANCED STUDENT LOANS; REPRESENTATIONS AND WARRANTIES.
Under the transfer and sale agreement the depositor sold its right, title and
interest in 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 valid and binding lien
on and a security interest in the financed student loans to the trust.
-53-
<PAGE> 54
The depositor made 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 to the financed student
loans is true and correct in all material respects; and
(3) to the best of the depositor's knowledge, each financed student loan,
complies in all material respects with the requirements of the Higher
Education Act.
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:
(a) 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
(b) because something that occurred prior to the date on which the
depositor took title to that financed student loan, the depositor
is obligated to that 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 of that
financed student loan to repurchase it.
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
this 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
-54-
<PAGE> 55
(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 therefor. Any financed student loan
returned to the depositor which has been endorsed to the co-owner trustee shall
be endorsed by the eligible lender trustee on behalf of the trust to the
eligible lender trustee of the depositor on the form supplied by the eligible
lender trustee on behalf of the trust.
AMENDMENT.
The parties may agree in writing to amend the transfer and sale agreement, with
the consent of the indenture trustee, to add any provisions to or to change or
eliminate any provisions of the transfer and sale agreement. The parties may
amend it by modifying in any manner, the rights of holders of notes, provided
that 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 required for the benefit of the holders
of notes; or
(2) reduce the percentage of the notes required to consent to any such
amendment, without the consent of the holders of all the outstanding
notes affected thereby.
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
-55-
<PAGE> 56
(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
the 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 May 31, 2007, if the outstanding pool balance is equal
to or less than 10% 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 10% of
the initial pool balance. The depositor has an option to redeem the Series A-4
Notes, the Series A-5 Notes and the Series A-6 Notes on any auction period
distribution date. See "Redemption."
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 these interest rates and these spreads
would otherwise have been had such prepayments not been made or had
these 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
-56-
<PAGE> 57
NOT A 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 prepayments resulting
from making consolidation loans, in full or in part as a result of:
(1) borrower default, death, disability or bankruptcy;
(2) a closing of or a false certification by the borrower's school;
(3) subsequent liquidation of guarantee payments with respect the loans;
and
(4) 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."
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 the 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) scheduled payments of principal on the financed student loans are
received in a timely manner and prepayments are made at the percentages
of the prepayment model set forth in the table;
(2) the initial principal balance of the financed student loans is
$680,000,000 and the financed student loans have the characteristics
described under the heading "The Financed Student Loans";
(3) payments are made on the Series A-3 Notes on the last business day of
each month;
(4) payments are made on the auction rate notes on the business day
following the expiration of each auction period commencing June 30,
2003. This determination is made on the assumption of an auction period
of 28 days with no auction period adjustments or auction period
conversions;
(5) payments are made on the Series B-3 Notes on the last business day each
month commencing July 31, 2003;
(6) the financed student loans in the trust are auctioned on May 31, 2007;
and
(7) the new notes are issued on the closing date.
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.
-57-
<PAGE> 58
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 RESPECTIVE CPRS SET FORTH BELOW:
<TABLE>
<CAPTION>
Weighted Average Life (years)
0% CPR 3% CPR 5% CPR 7% CPR 9% CPR 15% CPR
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Series A-3 Notes 2.92 2.41 2.15 1.95 1.78 1.39
Series B-3 Notes 5.73 5.55 5.46 5.37 5.31 5.31
</TABLE>
DESCRIPTION OF THE FFEL PROGRAM
The Higher Education Act sets forth provisions establishing the FFEL program,
according to which state agencies or private nonprofit corporations
administering student loan insurance programs are reimbursed for losses
sustained in the operation of their programs, and holders of specific loans made
under these programs are paid subsidies for owning these loans. These agencies
and nonprofit corporations administering student loan insurance programs are
known as guarantee agencies.
The Higher Education Act currently authorizes specific student loans to be
covered under the FFEL program through June 30, 2003. Congress has extended
similar authorization dates in prior versions of the Higher Education Act, but
there can be no assurance that the current authorization dates will again be
extended or that the other provisions of the Higher Education Act will be
continued in their present form.
Various amendments to the Higher Education Act have revised the FFEL program
from time to time. These amendments include, but are not limited to:
- the Higher Education Amendments of 1998 (the 1998 Reauthorization
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;
- 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
-58-
<PAGE> 59
- 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 significantly 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. Such 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;
(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.
-59-
<PAGE> 60
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, the
President signed into law, a temporary measure relating to the Higher Education
Act and FFELP loans as part of the Intermodal Surface Transportation Efficiency
Act of 1998, 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) 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.
-60-
<PAGE> 61
- 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 loans 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.
- 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.
-61-
<PAGE> 62
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;
- 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.
-62-
<PAGE> 63
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 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:
- - graduate or professional students;
- - independent undergraduate students; and
- - 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.
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
-63-
<PAGE> 64
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%.
A repeat borrower is one who does have an outstanding balance on a previous loan
made under the FFEP 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 (a) 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;
-64-
<PAGE> 65
(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%.
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
-65-
<PAGE> 66
(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 or PLUS
loans of the same borrower held by the lender under a single repayment schedule.
The repayment period for each included loan shall be based on the commencement
of repayment of the most recent loan. The consolidated loan shall bear interest
at a rate equal to the weighted average of the rates of the included loans. 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
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, 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 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, Sections 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 above under
"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.
-66-
<PAGE> 67
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 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" below), applied with respect to each student on behalf
of whom the parent borrowed.
SLS Loans. A student who had not successfully completed the first and second
year of a program of undergraduate education could borrow an SLS loan in an
amount of up to $4,000. A student who had successfully completed 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
-67-
<PAGE> 68
(a) not more than twelve months after the borrower ceases to
pursue at least a half-time course of study with respect to
Stafford loans for which the applicable rate of interest is
7%;
(b) not more than six months after the borrower ceases to pursue
at least a half-time course of study with respect to other
Stafford loans and unsubsidized Stafford loans (the six month
or twelve month periods are the grace periods); and
(c) on the date of final disbursement of the loan in the case of
SLS, PLUS and consolidation loans, except that the borrower of
an SLS loan who also has a Stafford or unsubsidized Stafford
loan may defer repayment of the SLS loan to coincide with the
commencement of repayment of the Stafford or unsubsidized
Stafford loan.
During periods in which repayment of principal is required, payments of
principal and interest must in general be made at a rate of not less than the
greater of $600 per year or the interest that accrues during the year, except
that a borrower and lender may agree at any time before or during the repayment
period, that repayment may be at a lesser rate. A borrower may agree, with
concurrence of the lender, to repay the loan in less than five years with the
right subsequently to extend his minimum repayment period to five years.
Borrowers 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;
-68-
<PAGE> 69
(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 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 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,
-69-
<PAGE> 70
which includes the FFEL program, equals or exceeds 20% of the borrower's gross
income, and also is entitled to forbearance while he or she is serving in a
qualifying medical or dental internship program or in a "national service
position" under the National and Community Service Trust Act of 1993.
In addition, mandatory administrative forbearances are provided when exceptional
circumstances such as a local or national emergency or military mobilization
exist; or when the geographical area in which the borrower or endorser resides
has been designated a disaster area by the President of the United States or
Mexico, the Prime Minister of Canada, or by the governor of a state. In other
circumstances, forbearance is at the lender's option. Such forbearance also
extends the ten year maximum term.
As described under the heading "-- Contracts with Guarantee Agencies-- Federal
Interest Subsidy Payments" below, 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 o 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
-70-
<PAGE> 71
guarantees, see "The 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 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 "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 s a result of the default of the borrower.
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
-71-
<PAGE> 72
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%. The amount of payment is
98% for loans made on or after October 1, 1993 and 95% for loans made on or
after October 1, 1998.
Beginning at any time during any fiscal year that federal reimbursement payments
exceed 5%, and until 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:
(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%.
-72-
<PAGE> 73
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. Such 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.
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 completed loan applications be processed, a
determination of whether an applicant is an eligible borrower attending an
eligible institution under the Higher Education Act be made, the borrower's
responsibilities under the loan be explained to him or her, the promissory note
evidencing the loan be executed by the borrower and that the loan proceeds be
disbursed by the lender in a specified manner. After the loan is made, the
lender must establish repayment terms with the borrower, properly administer
deferments and forbearances and credit the borrower for payments made. If a
borrower becomes delinquent in repaying a loan, a lender must perform specific
collection procedures that vary depending on the length of time a loan is
delinquent.
-73-
<PAGE> 74
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 "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 herein and the other requirements set forth in Section
428(b) of the Higher Education Act.
The Secretary of Education makes interest subsidy payments quarterly on behalf
of the borrower to the holder of a guaranteed loan in a total amount equal to
the interest which accrues on the unpaid principal amount prior to the
commencement of the repayment period of the loan or during any deferment period.
A borrower may elect to forego interest subsidy payments, in which case the
borrower is required to make interest payments.
Federal Administrative Expense Allowances
Prior to the adoption of the 1993 Amendments, each guarantee agency was entitled
to receive from the Secretary of Education an administrative cost allowance
equal to 1% of the total principal amount of the loans other than consolidation
loans guaranteed by the guarantee agency in any fiscal year, for the purposes of
administrative 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.
-74-
<PAGE> 75
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% 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, Sections 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.
-75-
<PAGE> 76
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 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 FFEL
program loans, how many students will seek loans under the Federal Direct
Student Loan Program instead of the FFEL program. In addition, it is impossible
to predict whether future legislation will eliminate, limit or expand the
Federal Direct Student Loan Program or the FFEL program.
SERVICING
MASTER SERVICER
Resources, in its capacity as the master servicer, will arrange for the
servicing of the financed student loans under the Master Servicing Agreement,
dated as of March 15, 1999, between the depositor and the master servicer and
attached as an exhibit to the registration statement of which this prospectus is
part. The following is a summary of the servicing arrangements entered, or to
be entered,
-76-
<PAGE> 77
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 depositor, 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 depositor 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 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 shall materially affect the rights of holders
and which continues for 60 days after written notice of the
failure; or
(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 does not purport to be complete and is qualified by reference to all
provisions of the master servicing agreement.
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.
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 and all other applicable federal and state laws.
The duties of the servicer include, but are not limited to, 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;
and 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
-77-
<PAGE> 78
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 so
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:
(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.
Initially, InTuition, Inc., USA Group Loan Services, Inc., in part, through a
subservicing agreement with InTuition, Inc., Great Lakes Higher Education
Servicing Corporation and UNIPAC Service Corporation will be the servicers for
financed student loans. Initially, InTuition, Inc. (including through its
subservicing agreement with USA Group Loan Services, Inc.) is responsible for
servicing approximately 88% of 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 relating to the particular servicers set forth herein, which is
particularly within each servicer's knowledge, has been requested of and has
been provided by the respective servicers. Such information and information
included in the reports referred to herein have not been verified or
independently
-78-
<PAGE> 79
confirmed by the issuer, the administrator, the master servicer, the initial
purchasers 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 administrator, the master servicer or any initial purchaser. See
"The Issuer -- Relationship with InTuition Holdings, Inc. and InTuition, Inc."
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. See "The Depositor--Relationship
with InTuition Holdings, Inc. and InTuition, Inc." 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.
Approximately 23% of the financed student loans serviced by InTuition are
subserviced by USA Group Loan Services, Inc. under a subservicing arrangement
between InTuition and USA Group Loan Services, Inc. Recourse by the issuer with
respect to servicing errors on the financed student loans subserviced by USA
Group Loan Services, Inc. is limited solely to InTuition under the servicing
agreement between the issuer and InTuition.
InTuition has recently received an audit report stating that InTuition was in
material compliance with the requirements specified under Compliance Audits
(Attestation Engagements) for Lenders and Lender Servicers Participating in the
Federal Family Education Loan Program. This compliance audit guide is issued,
monitored and mandated by the Department of Education, Office of Inspector
General, and is relative to InTuition's administration of the Federal Family
Education Loan Program on behalf of its lender clients for the year ended
December 31, 1998. Critical aspects of third party loan servicing are addressed
and reviewed to be compliant with Federal Family Education Loan Program
participation as a recognized servicer. The report identified one immaterial
finding relating to treatment of loans rejected by the guaranty agency. It was
noted that the findings only occurred when the date of the violation was prior
to conversion to InTuition's current servicing system. No other findings were
noted indicating InTuition's compliance with acceptable servicing standards.
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 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.
USA GROUP LOAN SERVICES, INC.
USA Group Loan Services, Inc., now referred to as Loan Services, formerly known
as Educational Loan Servicing Center, Inc., is a private, nonprofit, non-stock
membership corporation which was organized in 1982 under and 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 USA Funds, a student loan guarantee agency and one of the
issuer's guarantee agencies. As
-79-
<PAGE> 80
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: USAGLS)
GREAT LAKES HIGHER EDUCATION SERVICING CORPORATION
As of March 31, 1999, Great Lakes Higher Education Servicing Corporation
serviced 888,491 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 ensuring 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.)
UNIPAC SERVICE CORPORATION
UNIPAC Service Corporation, a Nebraska corporation, 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
-80-
<PAGE> 81
corporate headquarters is located in Aurora, Colorado, where UNIPAC employs
approximately 749 people. In December 1989, UNIPAC opened a second servicing
center in Lincoln, Nebraska, which as of March 31, 1999 employed approximately
273 people. In November 1997, UNIPAC opened a third servicing center in St.
Paul, Minnesota, which as of March 31, 1999, employed approximately 172 people.
As of March 31, 1999, UNIPAC's servicing volume was approximately $9.8 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.
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 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 May 1997.
(Source: UNIPAC)
THE GUARANTEE AGENCIES
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 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
-81-
<PAGE> 82
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 o 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 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
-82-
<PAGE> 83
insurance payments that the guarantee agency makes to eligible lenders with
respect to loans guarantee 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
(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.
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, an 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
-83-
<PAGE> 84
September 30. On October 1 of each year the claims rate begins at zero,
regardless of the experience in preceding years. For loans made prior to October
1, 1998, 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 prior to October 1, 1998, 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."
GUARANTEE AGENCY INFORMATION
Florida Department of Education, Office of Student Financial Assistance, Georgia
Higher Education Assistance Corporation, United Student Aid Funds, Inc.,
Kentucky Higher Education Assistance Authority and Great Lakes Higher Education
Guaranty Corporation are the principal guarantee agencies for the financed
student loans. Information relating to these particular guarantee agencies is
set forth below. These guarantee agencies collectively guarantee in excess of
99% of the financed student loans.
Information relating to the particular guarantee agencies set forth herein,
which is particularly within each guarantee agency's knowledge, has been
requested of and has been provided by the respective guarantee agencies. Such
information and information included in the reports referred to herein have not
been verified or independently confirmed by the issuer, the depositor, the
administrator, the master servicer, the initial purchasers or their respective
counsel, and comprises all information in respect of each guarantee agency that
the issuer obtained after a reasonable request and inquiry. No guarantee agency
is affiliated with the issuer, the depositor, the administrator, the master
servicer or any initial purchaser.
FLORIDA DEPARTMENT OF EDUCATION, OSFA
The Florida Department of Education is authorized to administer or contract for
the administration of the State's student financial assistance programs. Since
1966, the Department of Education has been authorized to administer federally
guaranteed student loans under what is now known as the Federal Family Education
Loan Program, in compliance with the Higher Education Act of 1965, as amended.
Chapter 240, Florida Statutes. The Department of Education performs these
functions through its Office of Student Financial Assistance (OSFA).
The head of the Department of Education is the Commissioner of Education, who is
a member of the Cabinet. Section 20.15(2), Florida Statutes. The State Board of
Education is the chief policymaking body of public education in Florida as
provided in Chapter 229, Florida Statutes. Section 20.15(1), Florida Statutes.
The State Board is composed of the Governor and Cabinet, who are elected by a
vote of the qualified electors of the state. The members of the State Board are:
the Governor who is the chair, the Secretary of State, the Attorney General, the
Comptroller, the Treasurer, the Commissioner of Agriculture, and the
Commissioner of Education, who is the secretary and executive officer, and in
the absence of the Governor serves as chair.
The director of OSFA reports to the Director of the Division of Support
Services, Florida Department of Education. In addition to the OSFA Director's
Office, OSFA's FFEL Program has three sections, each headed by a program
director. These sections are: Institutional Oversight and Compliance; Policy,
Training, and Customer Service; and Contract Management and Program Operations.
OSFA, in its capacity as a guarantee agency, has a staff of 71 people.
OSFA has participated in FFEL Programs for over 30 years. In its capacity as a
guarantee agency, OSFA has made gross guarantees of approximately $6.06 billion
since its inception.
-84-
<PAGE> 85
Guarantee Volume. OSFA's guarantee volume for each of the following four fiscal
years ending September 30 are as follows:
<TABLE>
<CAPTION>
OSFA's
Fiscal Guarantee Volume
Year (in millions)
<S> <C>
1994 $3,734
1995 4,262
1996 4,836
1997 5,426
</TABLE>
Reserve Ratio. A student loan guarantor's reserve ratio is determined by
dividing its fund balance by the total amount of loans outstanding. OSFA's
reserve ratio for the last four federal fiscal years ending September 30 is as
follows:
<TABLE>
<CAPTION>
Fund Total Loans
Fiscal Balance Outstanding Reserve
Year (in millions) (in millions) Ratio
<S> <C> <C> <C>
1994 1,220 3,006 40.6%
1995 1,736 3,438 50.5
1996 1,766 3,895 45.3
1997 2,068 4,381 47.2
</TABLE>
Recovery Rate. The recovery rate is a key performance indicator in evaluating
the effectiveness of a student loan guarantor's collection efforts after the
loans have defaulted. The rate is determined by dividing the amount recovered by
the cumulative amount of default claims paid by the student loan guarantor.
OSFA's recovery rates as of the end of each of the following four fiscal years
ending September 30 are as follows:
<TABLE>
<CAPTION>
Fiscal OSFA's
Year Recovery Rate
<S> <C>
1994 41.8%
1995 43.0
1996 45.6
1997 45.4
</TABLE>
-85-
<PAGE> 86
CLAIMS RATE. A guarantor's claims rate is used to determine the amount of
reinsurance it receives from the Department of Education on claims payments. If
the rate does not exceed 5% the maximum reinsurance will be paid. The rate is a
percentage of claims filed in a federal fiscal year and the loans in repayemnt
status at the beginning of that year. The reate the Department of Education uses
to determine a reinsurance payment is calculated each September 30. For the past
two fiscal years ending Jun 30, OSFA's claims rate has not exceeded 5% and as a
result, the highest allowable reinsurance has been paid on all OSFA's claims.
The actual claims rates are as follows:
<TABLE>
<CAPTION>
Fiscal Year Claims Rate
<S> <C>
1997 2.9%
1998 2.9
</TABLE>
OSFA is aware of concerns relating to the functional effectiveness and usage of
computer systems beyond December 31, 1999. OSFA is dedicated to resolving the
potential impact of the year 2000 on the ability of OSFA's computerized
information systems to accurately process information that may be date
sensitive. OSFA is seeking to assure itself that both internal systems and the
systems of third parties, which include but are not limited to the United States
Department of Education, which provide services to OSFA or on whose computer
software and operating systems OSFA 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. OSFA is
planning to be ready to perform normal business functions and intends to meet
its obligations both before and after January 1, 2000. However, OSFA is unable
to give any assurances at this time that all year 2000 related problems will be
avoided.
(The above information has been provided by OSFA as public official document or
statement.)
GEORGIA HIGHER EDUCATION ASSISTANCE CORPORATION
Georgia Higher Education Assistance Corporation (GHEAC) is the designated
student loan guarantor for the State of Georgia. GHEAC guarantees FFEL program
student loans for borrowers.
GUARANTEE VOLUME. GHEAC's guarantee volume for each of the following five fiscal
years ending September 30 are as follows:
<TABLE>
<CAPTION>
GHEAC's
Fiscal Guarantee Volume
Year (in Millions)
<S> <C>
1994 $ 322.1
1995 253.3
1996 179.4
1997 219.1
1998 232.8
</TABLE>
RESERVE RATIO. A student loan guarantor's reserve ratio is determined by
dividing its fund balance by the total amount of loans outstanding. GHEAC's
reserve ratio for the last five federal fiscal years ending September 30 is as
follows:
-86-
<PAGE> 87
<TABLE>
<CAPTION>
FISCAL FUND TOTAL LOANS RESERVE
YEAR BALANCE OUTSTANDING RATIO
<S> <C> <C> <C>
1994 $ 8,923,287 $1,212,609,394 0.74%
1995 12,750,548 1,366,346,215 0.93
1996 12,315,910 1,392,127,071 0.88
1997 15,147,028 1,462,775,613 1.04
1998 19,948,513 1,512,336,029 1.32
</TABLE>
RECOVERY RATE. The recovery rate is a key performance indicator in evaluating
the effectiveness of a student loan guarantor's collection efforts after the
loans have defaulted. The rate is determined by dividing the amount recovered by
the cumulative amount of default claims paid by the student loan guarantor.
GHEAC's recovery rates as of the end of each of the following five fiscal years
ending September 30 are as follows:
<TABLE>
<CAPTION>
FISCAL GHEAC'S
YEAR RECOVERY RATE
<S> <C>
1994 52.8%
1995 50.7
1996 51.0
1997 49.3
1998 56.8
</TABLE>
PROPRIETARY LOANS. Default rates for student loans made to students attending
proprietary schools have been much higher than those for students attending
two-year and four-year schools. GHEAC's approximate amount and percentage of
student loans guaranteed per type of school by GHEAC as of September 30, 1998 is
set forth below.
-87-
<PAGE> 88
<TABLE>
<CAPTION>
Loans Percentage of
Type of School Outstanding Loans Outstanding
<S> <C> <C>
Two-year $ 137,622,578 9.1%
Four-year 1,286,997,555 85.1
Proprietary 87,715,896 5.8
--------------- -----
$ 1,512,336,029 100.0%
=============== =====
</TABLE>
-88-
<PAGE> 89
CLAIMS RATE. For the past five fiscal years ending September 30, GHEAC's claims
rate has not exceeded 5% and as a result, the highest allowable reinsurance has
been paid on all GHEAC's claims. The actual claims rates are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CLAIMS RATE
<S> <C>
1994 3.1%
1995 2.4
1996 3.6
1997 3.3
1998 2.7
</TABLE>
GHEAC's new guarantor system, GOALS, is provided under third party contract with
the Great Lakes Higher Education Guaranty Corporation which has been certified
Year 2000 compliant.
As of September 30, 1998, Year 2000 renovations to the GOALS front-end
(guarantee, loan record maintenance, preclaims and claims) including all
ancillary PC systems, e.g. school based software, SCHOLAR was completed. During
Renovation each module was independently tested, approved and implemented into
the production environment. Validation was completed on December 31, 1998.
For GHEAC's collections functionality, Year 2000 renovations were fully
implemented into the GOALS production environment on March 6, 1999 prior to the
conversion of GHEAC's claims portfolio to GOALS. Validation was completed on
April 28, 1999.
Unless otherwise indicated, all of the above information was provided by GHEAC.
GHEAC will provide a copy of its most recent audited financial statements on
receipt of a written request directed to Ruth T. Vincent, Chief Administrator,
Guaranteed Student Loans Division, 2082 E. Exchange Place, Suite 200, Tucker,
Georgia 30084, Telephone (770) 414-3000.
(Source: GHEAC)
-89-
<PAGE> 90
-90-
<PAGE> 91
GREAT LAKES HIGHER EDUCATION GUARANTY CORPORATION
Great Lakes Higher Education Guaranty Corporation (GLHEGC) is the designated
guarantor for the State of Wisconsin, State of Minnesota, State of Ohio, Puerto
Rico and the Virgin Islands.
GUARANTEE VOLUME. GLHEGC's guarantee volume for each of the following five
fiscal years ending September 30 is as follows:
<TABLE>
<CAPTION>
GLHEGC's Guarantee
Volume
Fiscal (in millions)
Year
<S> <C>
1994 $ 1,197.3
1995 1,070.7
1996 1,172.6
1997 1,794.6
1998 1,640.2
</TABLE>
RESERVE RATIO. Following are GLHEGC's reserve fund levels as calculated under 34
CFR 5682.410(a)(10) for the last five fiscal years ending September 30.
<TABLE>
<CAPTION>
Federal Guaranty Federal Guaranty
Fiscal Reserve Total Loans Reserve
Year Fund Balance outstanding* Fund Level
---- ------------ ------------ ----------
<S> <C> <C> <C>
1994 $ 50,938,050 $4,836,782,111 1.05%
1995 62,438,430 5,441,840,211 1.15
1996 71,964,949 6,048,428,342 1.19
1997 81,625,095 6,858,162,170 1.19
1998 107,534,663 7,493,233,844 1.44
</TABLE>
* Does not include loans transferred from Higher Education Assistance
Foundation, Northstar Guarantee, Ohio Student Aid Commission or Puerto Rico
guarantee agencies.
(Source: ED Forms 1130 and 1189 Reports submitted to U.S. Department of
Education)
RECOVERY RATE. The recovery rate is a key performance indicator in evaluating
the effectiveness of a student loan guarantor's collection efforts after the
loans have defaulted. The rate is determined by dividing the amount recovered by
the cumulative amount of default claims paid by the guarantee agency. Following
are GLHEGC's recovery rates as of the end of each of the last seven fiscal years
for which data
-91-
<PAGE> 92
is available, the national averages for each year and GLHEGC's recovery rate
ranking among all student loan guarantors.
<TABLE>
<CAPTION>
Fiscal Great Lakes' National Average Great Lakes'
Year Recovery Rate Recovery Rate Ranking
---- ------------- ------------- -------
<S> <C> <C> <C>
1993 36.2% 34.7% 33
1994 35.2 39.3 37
1995 35.8 40.7 36
1996 39.8 43.4 31
1997 43.9 45.0 25
</TABLE>
(Source: Joseph Boyd & Associates, Guaranty Agency Report.)
PROPRIETARY LOANS. Default rates for proprietary loans have been much higher
than default rates for loans made to borrowers attending two-year and four-year
schools. GLHEGC's original principal amount of student loans guaranteed and
outstanding (in whole or in part) and percentage of proprietary, two-year and
four-year guaranteed loans as of September 30, 1998 are set forth below.
<TABLE>
<CAPTION>
School Type Loans Percentage
- ----------- ----- ----------
(in millions)
<S> <C> <C>
Two-year $ 1,436 8.7%
Four-year 12,930 78.3
Proprietary 578 3.5
Consolidation 1,569 9.5
------- ------
$16,513 100.0%
======= ======
</TABLE>
CLAIMS RATE. For the past five fiscal years, GLHEGC's claims rate has not
exceeded 3.3% and, as a result, the highest allowable reinsurance has been paid
on all GLHEGC's claims. GLHEGC's claims rate for fiscal year 1998 was lower than
its 1997 claims rate. The actual claims rates are as follows:
<TABLE>
<CAPTION>
Fiscal Year Claims Rate
----------- -----------
<S> <C>
1994 3.3%
1995 3.0
1996 2.3
1997 2.1
1998 1.8
</TABLE>
(Source: U.S. Department of Education Guaranty Agency Activity Report except for
fiscal year 1998 which is based on unadjusted default experience data submitted
to ED.)
The staff and management at GLHEGC take the issue of year 2000 compliance very
seriously. GLHEGC is committed to take the reasonable and necessary actions to
prepare its systems to accurately process dates from the twentieth and
twenty-first centuries. GLHEGC 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.
GLHEGC has adopted a structured management approach to ensuring its systems are
compliant. The Chief Information Officer has been assigned overall
responsibility for year 2000 compliance. GLHEGC
-92-
<PAGE> 93
has not evaluated any computer system, product or procedure of any third party
with whom GLHEGC exchanges data, including but not limited to, the U.S.
Department of Education, schools or lenders. Accordingly, GLHEGC is unable to
provide any assurances regarding the year 2000 compliance of any third parties
or their effect on GLHEGC's ability to properly perform its activities.
(Source: GLHEGC)
Kentucky Higher Education Assistance Authority
The Kentucky Higher Education Assistance Authority (KHEAA) is a public
corporation and governmental agency and instrumentality of the Commonwealth of
Kentucky established in 1966 to serve the public purpose of improving
opportunities for higher education by insuring student loans for students
eligible under the Higher Education Act; providing loans, grants, and
scholarship awards to qualified Kentucky students; and offering information
relating to KHEAA programs to Kentucky residents. The powers of KHEAA with
respect to insuring student loans include:
(1) providing loan insurance within the limitations of Kentucky law and the
Higher Education Act, the loan in each case to be subject to agreements
providing for interest payments, reimbursements, reinsurance and other
benefits to the extent provided by the Higher Education Act;
(2) entering into agreements and undertakings with the Secretary in order
to constitute KHEAA as a state agency qualified to insure student loans
under the Higher Education Act and to qualify these student loans for
interest subsidies, reimbursement, reinsurance, and other benefits
available under the Higher Education Act;
(3) entering into contracts with eligible lenders and eligible education
institutions to provide for the administration of student financial
assistance programs;
(4) collecting from the borrower amounts due under a student loan on which
KHEAA has fulfilled its insurance obligations following the inability
of the holders to collect that loan;
(5) approving, limiting, suspending, or terminating the eligibility of
educational institutions or lenders to participate in the KHEAA's loan
guarantee program, subject to the provisions of the Higher Education
Act and applicable Kentucky law;
(6) if any conflict exists between applicable State law and the Higher
Education Act that would result in a loss by KHEAA of federal funds,
adopting rules, regulations, and policies consistent with the Higher
Education Act, but which are not in derogation of the Constitution and
general laws of the Commonwealth;
(7) administering federal funds allotted to the Commonwealth in respect of
student loans, administrative costs, and other matters; and
(8) receiving funds and acquiring property from any source, public or
private, except that KHEAA has no power to make its debts payable out
of any funds other than those of KHEAA.
In addition to its student loan guarantee functions, KHEAA offers origination
services to lenders, administers two state grant, a merit scholarship, one
teacher incentive loan, an osteopathic medicine scholarship and the state
work-study program in order to provide financial assistance to eligible
students. Such programs are substantially funded by the Commonwealth of Kentucky
supplemented by Federal Funds. Effective May 10, 1990, responsibilities for the
Kentucky Educational Savings Plan Trust (KHEAA Trust) were transferred to KHEAA
by Executive Order 90-433, ratified by the 1992 Kentucky General Assembly. The
Trust offers opportunities for families to save for future college costs. Trust
funds are fully segregated from all other funds managed by KHEAA.
KHEAA is governed by its Board of Directors, which may officially act by a
majority of its voting members. The Board of Directors of KHEAA consists of
seven voting members appointed by the Governor of the Commonwealth for terms of
four years each and the Executive Director of the Council on Postsecondary
Education of the Commonwealth and the Secretary of the Finance and
-93-
<PAGE> 94
Administration Cabinet of the Commonwealth, each of whom serve as non-voting, ex
officio members.
The Executive Director of KHEAA is Paul P. Borden; the Chief Operating Officer
is Londa L. Wolanin. KHEAA's office is located at 1050 U.S. 127 South,
Frankfort, Kentucky 40601, telephone number (502) 696-7200.
KHEAA's Loan Guarantee Program. In November 1978, KHEAA commenced guaranteeing
student loans as the state guarantee agency of the Commonwealth of Kentucky
under Section 428(c) of the Higher Education Act and under Kentucky law, and
KHEAA's agreements with the Secretary.
Under KHEAA's loan guarantee program, any eligible holder of a loan guaranteed
by the KHEAA, is entitled to reimbursement from KHEAA to the maximum extent
permitted by the Higher Education Act for any proven loss incurred resulting
from the default, death, permanent and total disability, or discharge in
bankruptcy of the borrower and with respect to specific other claims. At the
time KHEAA pays a claim for reimbursement of a defaulted loan, the holder must
assign to KHEAA all rights accruing to the holder under the note.
On April 18, 1995, an agreement between the Alabama Commission on Higher
Education (ACHE) and the Authority was approved by the U.S. Department of
Education for the transition of the Alabama Guarantee Student Loan Program to
KHEAA. KHEAA began to guarantee Federal Family Education Loans for lenders and
students in the state of Alabama on June 2, 1995. KHEAA was designated by the
U.S. Department of Education as the guarantor for Alabama effective July 1,
1996.
Loan Insurance Fund. Under the Kentucky Revised Statutes Sections 164.740
through 164.785, KHEAA has established a loan insurance fund used to account
for all loan guarantee functions.
Through the period ended June 30, 1998, sources of funds for the loan insurance
fund are insurance premiums for loans guaranteed, administrative expense
allowance from the Secretary, reinsurance from the Secretary for default and
other claims paid, default collections, and investment income derived from these
funds; uses of funds are default and other claims on loans guaranteed, and
operating expenses for loan guarantee functions.
Under Kentucky Revised Statutes Sections 164.740 to 164.785 as amended KHEAA is
authorized to issue loan guarantees to eligible lenders on any loans to
qualified students, provided that no additional loans may be guaranteed if the
total amount of all outstanding student loans guaranteed by KHEAA exceeds
seventy-five times the funds available in the loan insurance fund. Funds
available in the loan insurance fund are calculated on the basis of the net
assets before deducting unearned insurance premiums, which equals the fund
balance plus unearned insurance premiums. Funds available in the loan insurance
fund are restricted by federal regulations and the Higher Education Act.
Outstanding loan guarantee commitments by ACHE, on which no claims had been
filed or paid, were assumed by KHEAA on December 31, 1995. Accounts held by ACHE
on which default claims were paid prior to April 15, 1993, that remain in active
repayment status and accounts held by ACHE on which default claims were paid
after April 15, 1993, were transferred to KHEAA prior to June 30, 1996.
Following the transfer of defaulted accounts, remaining Alabama federal reserve
funds were transferred to KHEAA and credited to the loan insurance fund.
The Secretary of Education has advised KHEAA that, under the 1997 Amendments,
KHEAA must pay approximately $14 million (its proportionate share of guarantee
agency reserves to be paid for federal deficit reduction) to the Secretary of
Education on September 1, 2002, and make annual
-94-
<PAGE> 95
restricted account deposits toward payment beginning in federal fiscal year 1998
of approximately $2.8 million.
The following table summarizes the student loans guaranteed by KHEAA (and
reinsured by the Secretary) annually and the aggregate outstanding guarantee
commitment for the period ended June 30, 1998. The coverage ratio set forth
below was determined by dividing the funds available in the loan insurance fund
by the principal amount of the aggregate outstanding guarantee commitment.
<TABLE>
<CAPTION>
Fiscal Year Annual Principal Aggregate Principal
Ended Amount of Guarantee Coverage Claims
June 30 Loans Guaranteed Commitment Ratio Rate %**
<S> <C> <C> <C> <C>
1994 187,999,654 667,407,110 3.76 4.07
1995 251,724,866 847,996,181 3.33 4.28
1996 258,667,310* 1,584,863,271 2.54 4.79
1997 314,023,470 1,625,863,960 2.60 4.22
1998 330,006,170 1,637,204,817 2.35 3.88
</TABLE>
* An additional amount of $646,928,418 was transferred to KHEAA from ACHE.
** At federal fiscal year ending 9/30.
The funds and assets of KHEAA are not pledged to or available for payment of the
Notes.
RESERVE RATIO. A student loan guarantor's reserve ratio is determined by
dividing its fund balance by the total amount of loans outstanding. KHEAA's
reserve ratio for the last five federal fiscal years ending September 30 is as
follows:
<TABLE>
<CAPTION>
Fiscal Fund Total Loans Reserve
Year Balance Outstanding Ratio
<S> <C> <C> <C>
1994 26,846,699 785,908,442 3.42%
1995 29,150,413 962,416,562 3.03%
1996 41,474,765 1,689,321,365 2.46%
1997 42,665,673 1,702,313,823 2.51%
1998 42,919,800 1,748,034,264 2.46%
</TABLE>
RECOVERY RATE. The recovery rate is a key performance indicator in evaluating
the effectiveness of a student loan guarantor's collection efforts after the
loans have defaulted. The rate is determined by dividing the amount recovered by
the cumulative amount of default claims paid by the student loan guarantor.
KHEAA's recovery rates as of the end of each of the following five fiscal years
ending September 30 are as follows:
<TABLE>
<CAPTION>
Fiscal KHEAA's
Year Recovery Rate
<S> <C>
1994 50.38%
1995 48.61%
1996 41.59%
1997 41.87%
1998 37.76%
</TABLE>
-95-
<PAGE> 96
PROPRIETARY LOANS. Default rates for student loans made to students attending
proprietary schools have been much higher than those for students attending
two-year and four-year schools. KHEAA's approximate amount and percentage of
student loans guaranteed per type of school by KHEAA for fiscal year ended June
30, 1998.
<TABLE>
<CAPTION>
INSTITUTION TYPE LOAN AMOUNTS PERCENTAGE
- ---------------- ------------ ----------
<S> <C> <C>
Public 4-year $178,910,800 62.7
Private 4-year 73,047,000 25.6
Public 2-year 2,802,400 1.0
Private 2-year 1,341,200 .5
Proprietary 23,807,600 8.3
Public technical college 2,014,800 .7
Medical/dental 3,347,200 1.2
Foreign 274,300 0*
*Less than .1%
Total $285,545,300
</TABLE>
NOTE: Distribution does not include Federal Consolidation Loans
KHEAA represents and warrants that the advent of the year 2000 shall not
adversely affect the performance of the systems supplying products and services
with respect to date and date dependent data (including but not limited to
calculating, comparing and sequencing) and that the systems will be capable of
creating, storing and processing records related to and including year 2000 and
afterwards without deficiencies.
(Source: KHEAA)
UNITED STUDENT AID FUNDS, INC.
United Student Aid Funds, Inc. was organized as a private, nonprofit corporation
under the General Corporation Law of the State of Delaware in 1960. Under its
Certificate of Incorporation, USA Funds:
(1) maintains facilities for the provision of guarantee services with
respect to approved education loans made to or for the benefit of
eligible students who are enrolled at or plan to attend approved
educational institutions;
(2) guarantees education loans made under loan programs under the Higher
Education Act loan programs as well as loans made under private loan
programs; and
(3) serves as the designated guarantor for education loan programs under
the Higher Education Act in Alaska, Arizona, Hawaii, Indiana, Kansas,
Maryland, Mississippi, Nevada, Wyoming, and certain Pacific Islands.
In addition to the above identified activities, USA Funds is affiliated with USA
Group Guarantee Services, Inc. (formerly known as USA Services, Inc.), a
Delaware private, nonprofit corporation, which provides varying degrees of
services to the following guarantee agencies:
(1) Student Loan Guarantee Foundation of Arkansas,
(2) Iowa College Student Aid Commission,
(3) Louisiana Office of Student Financial Assistance,
(4) Finance Authority of Maine,
(5) Michigan Guaranty Agency,
(6) Montana Guaranteed Student Loan Program,
(7) New Mexico Student Loan Guarantee Corporation,
(8) Northwest Education Loan Association,
(9) Oklahoma Guaranteed Student Loan Program,
(10) Oregon State Scholarship Commission,
(11) Rhode Island Higher Education Assistance Authority.
-96-
<PAGE> 97
Some trustees and officers of USA Funds are also directors or officers of USA
Group Guarantee Services, Inc.
USA Funds is also affiliated with USA Group Loan Services, Inc. (formerly known
as Education Servicing Center, Inc.) USA Group Loan Services, Inc. was organized
under the laws of the State of Delaware in 1982 as a private, nonprofit
corporation to provide conversion services, data processing, and other
assistance necessary in connection with the acquisition and servicing of
education loans by primary lenders and secondary markets. Some trustees and
officers of USA Funds are also trustees or officers of US Group Loan Services,
Inc.
As of September 30, 1998, USA Funds had total Federal Family Education Loan
Program assets of approximately $678 million; guarantee deposits and advance
funds, allowance for future defaults, and deferred revenue of approximately $297
million; and a fund balance of approximately $374 million. The above amounts do
not reflect USA Funds' share of federal reserve funds as required by the
Balanced Budget Act of 1997. Through September 30, 1998, the outstanding,
unpaid, aggregate amount of principal and interest on loans which had been
directly guaranteed by USA Funds under the Federal Family Education Loan Program
was approximately $36.8 billion.
GUARANTEE VOLUME. USA Funds' guarantee volume for each of the following five
fiscal years ending September 30 is as follows:
<TABLE>
<CAPTION>
Fiscal USA Funds'
Year Guarantee Volume
in millions
<S> <C>
1994 5,474
1995 6,326
1996 7,250
1997 7,254
1998 7,190
</TABLE>
RESERVE RATIO. A student loan guarantor's reserve ratio is determined by
dividing its fund balance by the total amount of loans outstanding. USA Funds'
reserve ratio for the last five federal fiscal years ending September 30 is as
follows:
<TABLE>
<CAPTION>
Fiscal Reserve
Year Ratio
---- -----
<S> <C>
1994 1.2%
1995 1.5
1996 1.4
1997 1.5
1998 1.4
</TABLE>
-97-
<PAGE> 98
RECOVERY RATE. The recovery rate is a key performance indicator in evaluating
the effectiveness of a student loan guarantor's collection efforts after the
loans have defaulted. The rate is determined by dividing the amount recovered by
the cumulative amount of default claims paid by the student loan guarantor. USA
Funds' recovery rates as of the end of each of the following five fiscal years
ending September 30 are as follows:
<TABLE>
<CAPTION>
Fiscal USA Funds'
Year Recovery Rate
<S> <C>
1994 30.3%
1995 35.3
1996 39.2
1997 40.9
</TABLE>
PROPRIETARY LOANS. Default rates for student loans made to students attending
proprietary schools have been much higher than those for students attending
two-year and four-year schools. USA Funds' approximate amount and percentage of
student loans guaranteed per type of school by USA Funds as of September 30,
1998 is set forth below.
<TABLE>
<CAPTION>
Loans
Outstanding Percentage of
Type of School (in millions) Loans Outstanding
<S> <C> <C>
Two-year $ 1,306 3.55%
Four-year $ 31,231 89.93
Proprietary $ 4,236 11.52
</TABLE>
CLAIMS RATE. For the past five fiscal years ending September 30, USA Funds'
claims rate has not exceeded 5% and as a result, the highest allowable
reinsurance has been paid on all USA Funds' claims. The actual claims rates are
as follows:
<TABLE>
<CAPTION>
Fiscal Year Claims Rate
<S> <C>
1994 4.99%
1995 4.69%
1996 4.65%
1997 4.65%
1998 3.96%
</TABLE>
USA Funds is aware of concerns relating to the functional effectiveness and
usage of computer systems beyond December 31, 1999. USA Funds is dedicated to
resolving the potential impact of the year 2000 on the ability of USA Funds'
computerized information systems to accurately process information that may be
date sensitive. USA Funds 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 USA Funds or on
whose computer software and operating systems USA Funds 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. USA Funds is planning to be ready to perform normal business
functions and intends to meet its obligations both before and after January 1,
2000. However, USA Funds is unable to give any assurances at this time that all
year 2000 related problems will be avoided.
(Source: USA Funds)
-98-
<PAGE> 99
The following table provides information with respect to the portion of financed
student loans guaranteed by each guarantor:
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 128,819 $393,724,755 61.09%
Financial Assistance
Georgia Higher Education Assistance Corporation 14,394 44,695,738 6.83
United Student Aid Funds, Inc. 31,659 139,594,151 21.34
Kentucky Higher Education Assistance Authority 18,803 41,438,957 6.34
Great Lakes Higher Education Guaranty Corporation 10,650 24,987,155 3.82
Other Guarantee Agencies 1,342 9,641,050 0.58
-------- ------------- --------
Total 205,667 $654,081,086 100.00%
</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, 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 five 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 that the maximum levels permitted.
DESCRIPTION OF THE NEW NOTES
The depositor issued the old notes under an indenture dated as of December 1,
1998 between the depositor and Firstar Bank, N.A. The eligible lender trustee,
on behalf of the depositor, used the proceeds of the old notes to acquire the
initial financed student loans. The trust purchased the financed student loans
by assuming the obligations of the depositor under the old notes and the
indenture. The trust completed the assumption of the old notes on April 20,
1999. The issuer will offer the new notes under a second amended and restated
indenture, dated as of June 1, 1999, between itself and Firstar Bank, N.A. The
terms of the new notes include those stated in the indenture and those made part
of the indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
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 indenture as an exhibit to the registration statement
of which this prospectus is a part.
You can find the definitions of capitalized terms under the heading "Summary of
Terms" or in Appendix A "Glossary of Terms." In this description notes means the
outstanding old notes and the new notes we will issue to you in the exchange
offer. References to a holder or holders mean you, or all holders of the notes.
-99-
<PAGE> 100
The new notes will be limited obligations of the issuer payable solely from the
assets of the trust. The following description describes the material terms of
the new notes and does not purport to be complete and is qualified by reference
to the provisions of the new notes and the indenture.
The Series A-3 Notes, the Series A-4 Notes, the Series A-5 Notes and the Series
A-6 Notes are referred to herein collectively as the Series 1998A Notes. The
Series A-4 Notes, the Series A-5 Notes and the Series A-6 Notes are referred to
herein collectively as the auction rate notes.
The Series A-3 Notes and the Series B-3 Notes will be available for purchase in
authorized denominations of $50,000 (original issue amounts) and integral
multiples of $1,000 in excess of $50,000 in book-entry form only, and the
auction rate notes will be offered in minimum authorized denominations of
$50,000 original issue amounts and any integral multiples of $50,000 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. The
issuer may select a successor depository to DTC. The depositor has been informed
by DTC that DTC's nominee will be Cede & Co. Accordingly, Cede & Co. is expected
to be the holder of record of the notes. Unless and until definitive notes are
issued under the limited circumstances described under "-- Definitive Notes," no
holder will be entitled to receive a physical certificate representing a note.
All references herein to actions by holders refer to actions taken by DTC on
instructions from its participating organizations and all references herein 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 "-- Book-entry Registration."
INTEREST
-100-
<PAGE> 101
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 will be payable to the applicable
holders as of the record date on the Series A-3 Notes and the Series B-3 Notes
monthly on the monthly distribution date which is the last business day of each
month. Interest will be payable to the applicable holders as of the record date
on the auction rate notes on the business day following the expiration of each
auction period, an auction period distribution date. The auction period
distribution date is subject to change as described under the heading "--
Determination of the Auction Rate."
The first interest accrual period will begin on the closing date, after which,
an interest accrual period for each series of notes with respect to any
distribution date for that series begins on the preceding distribution date for
that series and ends on the day preceding the distribution date.
RECORD DATE
The record date for the Series A-3 Notes is the second business day preceding a
monthly distribution date. The record date for the Series B-3 Notes is the
business day preceding a monthly distribution date. The record date for the
auction rate notes is the business day immediately preceding an auction period
distribution date. Interest accrued as of any distribution date for a series of
notes but not paid on the distribution date will be payable on the next
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.
INTEREST DETERMINATION DATE
The interest determination date for the respective notes is as follows:
- Series A-3 Notes - the second London banking day prior
to the first day of the next
succeeding interest accrual period
- Series A-4 Notes - January 27, 1999 and each fourth
Wednesday after
- Series A-5 Notes - February 3, 1999 and each fourth
Wednesday after
-101-
<PAGE> 102
- Series A-6 Notes - February 10, 1999 and each fourth
Wednesday after
The interest determination date on the auction rate notes is subject to change
as described under the heading "Determination of the Auction Rate."
DETERMINATIONS OF INTEREST RATES
The series interest rate for each series of Series 1998A Notes for each interest
accrual period will equal the formula rate, subject to a cap of the net loan
rate for the interest accrual period.
The series interest rate for each interest accrual period for the Series B-3
Notes is a fixed rate of 6.25%. Interest on the Series B-3 Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The formula rate for each interest accrual period for the Series A-3 Notes will
equal One-Month LIBOR as of the interest determination date for the interest
accrual period plus 0.38%, but never greater than 17%. See "--Determination of
LIBOR." Interest on the Series A-3 Notes will be calculated on the basis of the
actual number of days elapsed in each interest accrual period divided by 360.
The formula rate for each interest accrual period for the Series A-4 Notes will
equal the auction rate for the interest accrual period, but never greater than
17%. The formula rate for each interest accrual period for the Series A-5 Notes
will equal the auction rate for the interest accrual period, but never greater
than 17%. The formula rate for each interest accrual period for the Series A-6
Notes will equal the auction rate for the interest accrual period, but never
greater than 17%. Interest on each series of the auction rate notes will be
calculated on the basis of the actual number of days elapsed in each interest
accrual period divided by 360. See "--Determination of the Auction Rate."
NET LOAN RATE
The net loan rate will be calculated by the administrator. The series interest
rate for the Series A-3 Notes will be determined by the calculation agent, which
initially is Salomon Smith Barney Inc. The series interest rate for each series
of auction rate notes will be determined by the auction agent, which initially
is Bankers Trust Company, New York, New York, as described under the heading
"--Determination of the Auction Rate."
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 that 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 all items of
expense allocable to financing the financed student loans with respect to the
collection period, to (2) the pool balance as of the first day of the collection
period. In calculating the net loan rate, the applicable collection period for
the Series A-3 Notes is the collection period immediately preceding the
collection period in which the monthly distribution date occurs. The applicable
collection period for the auction rate notes is the second preceding collection
period prior to the applicable auction period distribution date.
Expected interest collections means, with respect to any collection period, the
sum of:
-102-
<PAGE> 103
(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 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 the Department of Education, with
respect to financed FFELP loans in the trust, to the extent not
included in (1) above;
(3) 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 collection period prior to the related distribution
date.
CARRYOVER INTEREST
If interest at the formula rate for any series of the Series 1998A 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 "--Collection Fund." Carryover interest will continue to be so
payable although the principal amount of the applicable series of notes is zero
until (1) no new notes remain outstanding and (2) the balances in the 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 to
interest excludes carryover interest.
DETERMINATION OF LIBOR
For each interest accrual period after the initial interest accrual period,
Salomon Smith Barney Inc., the calculation agent, will determine the applicable
LIBOR rate for purposes of calculating the series interest rate on the Series
A-3 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 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 this particular a 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. Such 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
-103-
<PAGE> 104
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 as aforesaid are not quoting as
mentioned in the preceding sentence, LIBOR in effect for the applicable interest
accrual period will be LIBOR in effect for the previous interest accrual period.
DETERMINATION OF THE AUCTION RATE
The auction rate for each series of auction rate notes will be determined by the
auction agent under the auction procedures described under "Auction Procedures"
and in Appendix C on each interest determination date for each interest accrual
period, initially based on a 28-day auction period generally beginning:
- for the Series A-4 Notes, on January 27, 1999 and each fourth
Wednesday after,
- for the Series A-5 Notes, on February 3, 1999 and each fourth
Wednesday after, and
- for the Series A-6 Notes, on February 10, 1999 and each fourth
Wednesday after, in each case subject to adjustment as
described below.
If you are the current 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
- you submit any 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 on 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 some cases, as when only part of an order can be filled from
available notes or if an auction is not successful.
AUCTION PROCEDURES
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,
-104-
<PAGE> 105
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. Initially,
Nations Banc Securities of Montgomery LLC is the sole broker/dealer. The
broker/dealers submit their clients' orders to Bankers Trust Company, 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 of 0.01% 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);
(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) = $100,000
2. Interest period = 28 Days
3. Principal amount outstanding = $50 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> <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>
-105-
<PAGE> 106
Total units under existing bid/hold orders and sell orders must always equal
issue size (in this case 500 units).
(c) Auction Agent Organizes Orders In Ascending Order
<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.
For a more detailed description of the auction procedures, see "Appendix C --
Auction Procedures."
SPECIFIC LIMITATIONS ON DETERMINATIONS OF AUCTION RATE
The all hold rate with respect to each series of the auction rate notes will be
85% of the applicable LIBOR rate.
The maximum auction rate with respect to each series of the auction rate notes
will be:
(1) the applicable LIBOR rate plus 1.50% (if both of the ratings
assigned by the rating agencies to the auction rate notes are
"Aa3" and "AA-," or better),
(2) the applicable LIBOR rate plus 2.50% (if any one of the
ratings assigned by the rating agencies to the auction rate
notes is less than "Aa3" or "AA-," and at least "A") or
(3) the applicable LIBOR rate plus 3.50% (if any one of the
ratings assigned by the rating agencies to the auction rate
notes is less than "A").
The non-payment rate with respect to each series of the auction rate notes will
be one-month LIBOR plus 1.50%.
-106-
<PAGE> 107
After the initial auction period, the auction rate for each series of the
auction rate notes for each auction period will be determined under auction
procedures on the following dates:
- January 27, 1999 and each fourth Wednesday after for the
Series A-4 Notes;
- February 3, 1999 and each fourth Wednesday after for the
Series A-5 Notes; and
- February 10, 1999 and each fourth Wednesday after for the
Series A-6 Notes.
Each auction period will begin on the first business day following each interest
determination date and will terminate on and include the day preceding the first
day of the next auction period, subject to adjustment as described below if
there are fewer than three business days in any week during which the auction
period would otherwise be scheduled to expire.
The calculation agent, with the consent of the issuer, may change the interest
determination date to conform with prevailing market practice. See Appendix C,
"Auction Procedures-- Changes in the Interest Determination Date."
In any event for each series of auction rate notes:
- if the ownership of the auction rate notes is no longer
maintained in book-entry form, the auction rate for any
auction period beginning after the delivery of certificates
representing the auction rate notes will equal the lesser of
the maximum auction rate and the net loan rate for the auction
rate notes on the business day immediately preceding the first
day of the subsequent auction period; or
- if a payment default has occurred, the auction rate for the
auction period beginning on or during this default and for
each auction period after, to and including the auction
period, if any, during which, or commencing less than two
business days after, the default is cured under the indenture,
will equal the non-payment rate on the first day of each
auction period;
- if a proposed auction period conversion has failed, as
described below under the heading "-- Auction Period
Conversion of and Mandatory Tender of Auction Rate Notes" the
auction rate on the auction rate notes subject to the failed
auction period conversion will be equal to the maximum auction
rate as of the date of the failed auction period conversion
for the auction period commencing on this date, and the length
of the auction period commencing on the failed auction period
conversion date will be the same as was in effect immediately
preceding the failed auction period conversion date; or
- the auction rate for an auction period that commences on an
auction period conversion date will equal the lesser of (1)
the interest rate necessary to enable the auction agent to
sell all of the auction rate notes at par plus accrued
interest to the auction period conversion date or (2) the
maximum auction rate as of the auction period conversion date,
subject to the net loan rate.
The auction agent will promptly give written notice to the indenture trustee and
the issuer of the series interest rate and either the auction rate or the net
loan rate, as the case may be, when the rate is not the series interest rate
applicable to the auction rate notes. If, however, the series interest rate is
the non-payment rate, the indenture trustee will determine the non-payment rate
and give written notice to the issuer. The indenture trustee will notify the
holders of the auction rate notes of the applicable series interest rate on
the second business day of each auction period.
-107-
<PAGE> 108
For any auction period scheduled to end during a week that has fewer than three
business days, the calculation agent may adjust the length of that and the
following auction period as it considers appropriate. The indenture trustee will
immediately give notice of any adjustment to the holders of the affected auction
rate notes.
If the auction agent does not determine the series interest rate or the manner
of determining the rate is invalid or unenforceable, then the rate will be the
net loan rate determined by the administrator. If the administrator does not
determine the net loan rate, then a securities dealer appointed by the issuer
will determine the net loan rate.
If there are fewer than three business days in any week during which the auction
period would otherwise be scheduled to expire, the calculation agent, with the
consent of the issuer, may change the expiration date and auction period
distribution date for the auction period then in effect, and the interest
determination date and commencement date for the immediately following auction
period to dates it determines to be appropriate under any circumstances. The
calculation agent will promptly notify the indenture trustee and the auction
agent in writing of any determination. The indenture trustee, on receipt of the
notice, will immediately give written notice of that determination to the
holders of the auction rate notes.
If the auction agent no longer determines, or fails to determine, when required,
the series interest rate with respect to the auction rate notes, or, if for any
reason this manner of determination shall be held to be invalid or
unenforceable, the series interest rate for the next succeeding auction period
for the auction rate notes will be the net loan rate as determined by the
administrator for this auction period. If the administrator fails or refuses to
determine the net loan rate, the net loan rate will be determined by a
securities dealer appointed by the issuer and capable, in the reasonable
judgment of the issuer, of making this determination under the provisions of the
indenture.
AUCTION PERIOD ADJUSTMENT
With respect to each series of auction rate notes, the issuer may, subject to
the indenture, change the length of one or more auction periods in order to
conform with then current market practice or to accommodate other economic or
financial factors that may affect or be relevant to the length of the auction
period or the auction rate (as hereinafter described, an auction period
adjustment). An auction period adjustment may be made to change an auction
period to a period of between 7 and 91 days (a short auction period) or to a
period of between 92 days and the legal final maturity of the auction rate notes
(a long auction period). For auction rate notes with a short auction period, no
auction period adjustment may result in an auction period of less than 7 nor
more than 91 days. For auction rate notes with a long auction period, no auction
period adjustment may result in an auction period that is more than three months
shorter or longer than the auction period established on the issuance of a
series of auction rate notes or auction period conversion of these auction rate
notes. For any auction period adjustment, specific prescribed conditions must be
satisfied. See Appendix C, "Auction Procedures."
AUCTION PERIOD CONVERSION OF AND MANDATORY TENDER OF THE AUCTION RATE NOTES
The issuer may, from time to time, change the length of one or more auction
periods for any series of auction rate notes under an auction period conversion.
An auction period conversion means a change in the length of an auction period
for any series of the auction rate notes as follows:
- from an auction period between 7 and 91 days, inclusive, to an
auction period between 92 days and the legal final maturity
for these series, inclusive,
- from an auction period between 92 days and the legal final
maturity for these series, inclusive, to an auction period
between 7 and 91 days, inclusive, or
-108-
<PAGE> 109
- from an auction period between 92 days and the legal final
maturity for these series, inclusive, to an auction period
between 92 days and the legal final maturity for these series,
inclusive, if the latter auction period is at least 3 months
shorter or at least 3 months longer than the auction period
established on the initial issuance of these series or under
an auction period conversion.
All auction rate notes subject to auction period conversion are subject to
mandatory tender to the indenture trustee on the auction period conversion date
at the purchase price of par plus accrued interest plus accrued and unpaid
carryover interest, if any.
The holders of auction rate notes that are subject to mandatory tender do not
have the right to elect to retain the auction rate notes. If, however, any
auction rate notes of a series so tendered are not remarketed, or the indenture
trustee does not receive the purchase price for that series of auction rate
notes subject to the auction period conversion, none of the auction rate notes
of that series tendered will be converted. The series interest rate for that
series of auction rate notes will equal the lesser of the net loan rate or the
maximum auction rate, but never greater than 17%, as of the date of the failed
auction period conversion, as applicable, for the auction period commencing on
that date. The length of the auction period will remain the same. See Appendix
C, "Auction Procedures."
PRINCIPAL
UNLESS AN EVENT OF DEFAULT HAS OCCURRED, NO PRINCIPAL WILL BE PAID ON THE SERIES
A-4 NOTES UNTIL THE SERIES A-3 NOTES HAVE BEEN PAID IN FULL, NO PRINCIPAL WILL
BE PAID ON THE SERIES A-5 NOTES UNTIL THE SERIES A-3 NOTES AND SERIES A-4 NOTES
HAVE BEEN PAID IN FULL AND NO PRINCIPAL WILL BE PAID ON THE SERIES A-6 NOTES
UNTIL THE SERIES A-3 NOTES, THE SERIES A-4 NOTES AND THE SERIES A-5 NOTES HAVE
BEEN PAID IN FULL. FOLLOWING THE OCCURRENCE OF AN EVENT OF DEFAULT, PRINCIPAL
PAYMENTS ON THE SERIES 1998A NOTES WILL BE MADE PRO RATA, WITHOUT PREFERENCE OR
PRIORITY. IT IS EXPECTED THAT PRINCIPAL WILL BE PAID ON THE SERIES B-3 NOTES
FROM TIME TO TIME AND SUBJECT TO SPECIFIC CONDITIONS WHILE THE SERIES 1998A
NOTES ARE OUTSTANDING BUT ONLY FOR MONTHLY DISTRIBUTION DATES OCCURRING AFTER
JUNE 30, 2003.
Series A-3 Notes
Principal payments on the Series A-3 Notes will be made on each monthly
distribution date in an amount generally equal to the Series 1998A Holders'
Principal Distribution Amount for the monthly distribution date until the
principal balance of the notes is zero.
Series A-4 Notes
After the Series A-3 Notes have been paid in full, principal payments on the
Series A-4 Notes will be made on the first auction period distribution date of
any month in an amount generally equal to the Series 1998A Holders' Principal
Distribution Amount for the auction period distribution date until the principal
balance of the notes is zero.
Series A-5 Notes
After the Series A-3 Notes and the Series A-4 Notes have been paid in full,
principal payments on the Series A-5 Notes will be made on the first auction
period distribution date of any month in an amount generally equal to the Series
1998A Holders' Principal Distribution Amount for the auction period distribution
date until the principal balance of the notes is zero.
Series A-6 Notes
-109-
<PAGE> 110
After the Series A-3 Notes, the Series A-4 Notes and the Series A-5 Notes have
been paid in full, principal payments on the Series A-6 Notes will be made on
the first auction period distribution date of any month in an amount generally
equal to the Series 1998A Holders' Principal Distribution Amount for the auction
period distribution date until the principal balance of the notes is zero.
Principal payments on the Series A-4 Notes, on the Series A-5 Notes and on the
Series A-6 Notes will only be made in amounts equal to $50,000 and integral
multiples in excess of $50,000. Principal payments on the Series B-3 Notes will
be made on each monthly distribution date after June 30, 2003, subject to
limitations, in an amount generally equal to the Series 1998B-3 Holders'
Principal Distribution Amount for the monthly distribution date until the
principal balance of the notes is zero. In addition, parity percentage payments
will be payable on each applicable distribution date (to the series of Series
1998A Notes then receiving principal payments and afterwards to the Series B-3
Notes) until the parity percentage equals 101%.
Final Maturities
The final payment of principal and interest will be made no later than December
1, 2006 on the Series A-3 Notes, December 1, 2019 on the Series A-4 Notes,
December 1, 2019 on the Series A-5 Notes, December 1, 2019 on the Series A-6
Notes, and December 1, 2019 on the Series B-3 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."
Principal Shortfall
If available funds are insufficient to pay the Series 1998A Principal
Distribution Amount or the Series 1998B-3 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 new notes are to be
redeemed in whole, amounts in the reserve fund will be available to reduce the
principal balance of the notes to zero. See "Security for the Notes -- Reserve
Fund."
All principal payments of Series A-3 Notes and Series B-3 Notes will be made pro
rata within that Series. In connection with each principal payment of Series A-3
Notes or Series B-3 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 Series A-3 Note
and each Series B-3 Note as of a monthly distribution date (after giving effect
to any payments made on that date) as a fraction of the original principal
amount of the new note. The principal factor for the Series A-3 Notes and for
the Series B-3 Notes was initially 1.0000000 (at the time of original issue of
the notes) and will afterwards decline to reflect the reduction in the principal
balance of the new notes of that series after any payment of principal. The
principal balance of any Series A-3 Note or Series B-3 Note can be determined by
multiplying the original principal amount of this note by the principal factor
applicable to that series of notes.
BOOK-ENTRY REGISTRATION
The notes are issuable solely in fully registered form and will initially be
registered in the name of Cede & Co., as registered owner and nominee for DTC,
as securities depository for the notes. Holders may hold notes offered through
DTC, in the United States, or Cedel or Euroclear, in Europe, if they
-110-
<PAGE> 111
are participants of these systems, or indirectly through organizations that are
participants in these systems. Purchases by beneficial owners of the notes are
to be made in book-entry form in authorized denominations. These beneficial, or
book-entry interest owners, will not receive certificates evidencing their
interests in the new notes.
The description which follows of the procedures and record keeping concerning
beneficial ownership interests in the 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 base solely on
information furnished by DTC, Cedel and Euroclear and has not been independently
verified by the issuer, the administrator, the master servicer or the initial
purchasers.
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,
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.
-111-
<PAGE> 112
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.
Such 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. Such 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 new
notes, see Appendix B.
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 o 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 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 note 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.
-112-
<PAGE> 113
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 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
-113-
<PAGE> 114
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. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System. 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.
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. Such 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 initial purchasers nor the indenture trustee will have
any responsibility or obligation to participants, to indirect participants or to
any note owner with respect to (A) the accuracy of any records maintained by
DTC, Cedel or Euroclear, any participant or any indirect participant; (B) 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; (C) any notice which is permitted or required to
be given to note owners under the indenture; (D) the selection by DTC or any
-114-
<PAGE> 115
direct or indirect participant of any person to receive payment in the event of
a partial distribution of principal of the new notes; or (E) 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
The notes will be issued as definitive notes 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 in writing that DTC 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;
(2) the issuer, at its option, advises the indenture trustee in writing
that it elects to terminate the book-entry system through DTC or a
successor securities depository; or
(3) after the occurrence of an event of default under the indenture,
holders representing not less than 50% of the outstanding principal
balance of the Series 1998A Notes as long as a series of the Series
1998A Notes are outstanding, and afterwards the Series B-3 Notes,
advise the indenture trustee and DTC through DTC participants in
writing that the continuation of a book-entry system through DTC (or a
successor to DTC) is no longer in the best interest of the holders.
On the occurrence of any of the events listed above, 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 new 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 those definitive notes as holders under the indenture.
Distribution of principal of and interest on the new notes will be made by the
indenture trustee directly to holders of definitive notes under the 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 that note at the
office or agency specified in the notice of final distribution to holders. The
indenture trustee will provide 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.
REDEMPTION
The notes will be subject to redemption prior to maturity only as described
below.
AUCTION OF THE FINANCED STUDENT LOANS
On or after May 31, 2007, 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 issuer, the depositor,
-115-
<PAGE> 116
their affiliates and unrelated third parties may offer bids to purchase these
financed student loans on or prior to that 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 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 shall be under no obligation 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 as to
whether 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. Such repurchase will cause the early
retirement of the notes. The notes may be so redeemed on any applicable
distribution date for the applicable series on or after the monthly distribution
date on which the pool balance is equal to 10 or less of the initial pool
balance. 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
reserve fund. Such an optional purchase of the financed student loans will
result in the prepayment of all outstanding notes. The initial pool balance was
$680,000,000.
In addition, on and after the Series A-3 Notes have been paid in full, the
issuer, at its option, may redeem the Series A-4 Notes, the Series A-5 Notes and
the Series A-6 Notes in whole or in part on any auction period distribution date
prior to their legal final maturity. The issuer may designate which series will
be redeemed. The issuer may redeem the notes from funds deposited by or on
behalf of the issuer with the indenture trustee. The indenture trustee must give
notice to the holders of the auction rate notes not less than 15 days prior to
the redemption date in the form and manner described under the heading "--
Notice of Redemption." The redemption price will equal 100% of the principal
amount to be redeemed plus accrued interest to the date of redemption. The
issuer may not exercise its option to redeem any Series A-4 Notes, Series A-5
Notes or Series A-6 Notes unless after a redemption the parity percentage is no
less than 101% and specific other conditions relating to the minimum amount of
financed student loans bearing at a fixed rate held in the student loan
portfolio fund are satisfied. See "The Indenture -- Student Loan Portfolio
Fund." If only a part of a series is redeemed, the Series A-4 Notes, Series A-5
Notes or Series A-6 Notes to be redeemed will be selected by lot by the
indenture trustee. No Series A-4 Notes, Series A-5 Notes or Series A-6 Notes
will be subject to redemption in part in an amount less than an authorized
denomination, and no portion of the Series A-4 Notes, the Series A-5 Notes or
the Series A-6 Notes is to be retained by a holder in an amount less than an
authorized denomination.
In connection with the optional redemption of any Series 1998A Notes, all unpaid
carryover interest on the series must be paid on or before the date of optional
redemption of the series.
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
-116-
<PAGE> 117
payable at the redemption price specified in the notice. Interest on these notes
with cease to accrue, and interest on any unpaid carryover interest will also
cease to accrue.
SECURITY FOR THE NOTES
THE TRUST
The notes, together with all interest rate exchange agreements as may be entered
into from time to time related to these notes, and carryover interest, if any,
on these notes are secured by and payable solely from the assets of the trust.
The property in the trust includes:
(1) all available funds derived from amounts in the trust;
(2) the balances of all funds and accounts established under the indenture,
whether derived from proceeds of sale of the old notes, from available
funds, or from any other source;
(3) 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;
(4) all rights of the issuer and the related eligible lender trustee under
the transfer and sale agreement;
(5) any spread guaranty agreement;
(6) the eligible investments, any interest rate 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
depositor under the warranties of each seller, master servicer or
servicer, as the case may be, under those agreements; and
(7) any proceeds from the above.
NO ASSETS OTHER THAN THE ASSETS OF THE TRUST ARE PLEDGED TO THE PAYMENT OF THE
NOTES.
To secure payment of principal, interest and carryover interest, if any, on the
notes and payment of any issuer exchange payment, the issuer and the eligible
lender trustee in the indenture, subject to the lien of the indenture trustee
and the eligible lender trustee for their expenses, each grants a first priority
perfected security interest in, and pledges and assigns to the indenture trustee
all of the issuer's and the eligible lender trustee's rights in the 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 interest rate
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
- - SECOND, of the holders of any subordinate notes issued under the
indenture and the exchange counterparties under any related subordinate
interest rate exchange agreement.
Because the payment obligations of the issuer under any senior interest rate
exchange agreements would be on a parity with payment of the senior notes, an
event of default with respect to the senior interest rate exchange agreements
could result in an event of default giving rise to an acceleration of the notes
and other potentially adverse effects on the payment of the notes.
-117-
<PAGE> 118
The indenture provides for the above-described pledge of and grant of a lien on
and security interest in the assets of the trust; however, a 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 indenture trustee's possession or constructive possession
of these assets;
(2) either a filing or 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 indenture trustee.
To create, perfect and maintain a security interest in the assets of the trust,
the indenture trustee intends, to the extent possible:
(1) to file or cause to be filed appropriate duly executed financing
statements (including continuation statements) with respect to the
assets of the 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 of
the 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 a pledge of, lien on or security interest in the
assets of the trust.
SUBORDINATION OF THE SERIES B-3 NOTES
The rights of the holders of the Series B-3 Notes to receive principal (under
some circumstances) and interest payments will be subordinated to the rights of
the holders of the Series 1998A Notes and to exchange counterparties under
senior interest rate exchange agreements to the extent described herein. This
subordination is intended to enhance the likelihood of regular receipt of
principal and interest by the holders of the Series 1998A Notes and the payment
of any senior issuer exchange payments. See "The Indenture -- Collection Fund."
The rights of the holders of the Series 1998A Notes are on a parity with the
rights of any exchange counterparty under any senior interest rate exchange
agreement. The rights of the holders of all Series 1998A Notes and exchange
counterparties under any senior interest rate exchange agreements are superior
to the rights of the holders of the Series B-3 Notes and the rights of any
exchange counterparty under any subordinate exchange agreement with respect to
the trust.
The rights of the holders of the Series B-3 Notes are on a parity with the
rights of exchange counterparties under any subordinate interest rate exchange
agreements with respect to the assets of the trust.
RESERVE FUND
A reserve fund was created with respect to the old notes, and the depositor
deposited a portion of the proceeds from the old notes or eligible investments
equal to the specified reserve fund balance. To the extent necessary or
appropriate, the issuer and the indenture trustee may establish accounts in the
reserve fund and subaccounts within the accounts. The reserve fund will be
-118-
<PAGE> 119
augmented on each monthly distribution date by deposit therein of the amount, if
any, necessary to cause the balance of the reserve fund to equal the specified
reserve fund balance from the amount of available funds remaining after making
all prior distributions on this date. 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 applied as an additional principal
distribution. Amounts on deposit in the reserve fund exceeding the specified
reserve fund balance will be distributed as described under "The Indenture -
Reserve Fund."
The 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 notes or a date when the
notes are to be redeemed in whole and to decrease the likelihood that the
holders will experience losses. In some circumstances, however, the reserve fund
could be depleted. Further, amounts otherwise required to be deposited into the
reserve fund may be applied as additional principal distributions on a 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, in turn, increase
the average life of the notes. Moreover, amounts on deposit in the 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.
INTEREST RATE 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 the
interest rate exchange agreements may be on a parity with the Series 1998A
Notes, or on a parity with the Series B-3 Notes. 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 pay on each applicable distribution date, by causing the indenture trustee to
pay to the exchange counterparty, a fixed or variable exchange rate on a
notional amount. The issuer expects that an interest rate 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 interest rate exchange agreement
will be deposited to the collection account. Payments under these interest rate
exchange agreements may be on a parity with other senior notes issued under the
indenture or on a parity with subordinate notes issued under the indenture.
At such times that 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 a payment under an interest rate exchange agreement may
constitute an event of default. See "Risk Factors." The indenture requires that
prior to the date that the issuer enters into an interest rate 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 interest rate
exchange agreement will not adversely affect the rating agency's rating on the
notes.
THE INDENTURE
The old notes were issued by the depositor under an indenture dated as of
December 1, 1998 between the depositor and Firstar Bank, N.A. and were
subsequently assigned to and assumed by
-119-
<PAGE> 120
the issuer. On the assignment and assumption of the old notes, the issuer
entered into a First Amended and Restated Indenture of Trust, and First Amended
and Restated Terms Supplement, each dated as of March 15, 1999, among the issuer
and Firstar Bank, N.A. The new notes will be issued under a Second Amended and
Restated Indenture of Trust and Second Amended and Restated Terms Supplement,
each dated as of June 1, 1999, among the issuer and Firstar Bank, N.A. 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
old notes to the indenture trustee under the indenture.
The following is a summary of specific provisions of the indenture relating to
the notes and is not to be considered as a full statement of the provisions of
the indenture. This summary is qualified by reference to and is subject to the
indenture. Copies of the indenture may be obtained on request from the indenture
trustee.
INDENTURE TRUSTEE
Firstar Bank, N.A., 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, 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 and may
serve from time to time as 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 or its affiliates may maintain other banking
relationships with Firstar Bank, N.A. and its affiliates from time to time.
ELIGIBLE LENDER TRUSTEE
Firstar Bank, N.A., is also the initial eligible lender trustee for the issuer
under the Eligible Lender Trust Agreement, dated as of June 1, 1998, 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," and "Risk Factors -- Offset by Guarantee
Agencies."
The issuer, the depositor or their affiliates may maintain other banking
relationships with Firstar Bank, N.A. and its affiliates from time to time.
REPORTS TO HOLDERS
The indenture trustee will provide by each monthly distribution date 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, to the
extent applicable:
(a) the Principal Factor for the Series A-3 Notes and for the
Series B-3 Notes;
(b) the amount of the payment allocable to principal of each
series of notes;
(c) the amount of the payment allocable to interest on each series
of notes together with the interest rates applicable with
respect to the notes (indicating, whether interest rates are
based on the formula rate or on the net loan rate with respect
to each series of notes,
-120-
<PAGE> 121
and specifying what each 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 for one or more series of notes, together with the
outstanding amount, if any, of these notes after giving effect
to any 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 the monthly distribution date after giving effect
to distributions allocated to principal on the monthly
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
the 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 any
reserve fund, acquisition fund or other account established
under the indenture, the amount of any other withdrawals from
the funds or accounts for the monthly distribution date, the
balance of the funds or accounts on the distribution date,
after giving effect to changes therein on the 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 trust during the preceding collection
period; and
(k) 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.
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 year was a holder and
received any payment, a statement containing information for the purposes of
the holder's preparation of federal income tax returns. See "Federal Income Tax
Consequences."
ACQUISITION FUND
In connection with the issuance and sale of the old notes, the indenture trustee
established an acquisition fund and deposited $708,205,483 in cash from the net
proceeds of the sale of the old notes or eligible investments into the
acquisition fund. See "Use of Proceeds." The indenture trustee used this amount
to acquire, directly or indirectly through the eligible lender trustee, the
financed student loans described under the heading "The Financed Student Loans."
To the extent necessary or appropriate, the issuer and the indenture trustee may
establish accounts within the acquisition fund and subaccounts within these
accounts.
-121-
<PAGE> 122
The moneys to be applied from the acquisition fund for the financing of student
loans will equal:
(1) the unpaid principal amount of the student loans that have
been fully disbursed, plus
(2) the full remaining unpaid principal amount of the student
loans that have not been fully disbursed, plus
(3) the amount of accrued and unpaid interest on the student loans
payable by the borrowers,
(4) less a discount or plus a premium, and,
(5) when directed by the issuer, less any accrued but unpaid
interest on the student loans, plus
(6) reasonable transfer fees payable to or on behalf of the
sellers with respect to the student loans under the applicable
purchase agreements, plus
(7) 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 the student loans being financed, directly or
indirectly, from the date of transfer of the student loans
until the date funds are actually paid to said 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.
On request by the issuer, moneys in the acquisition fund may also 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 issuer and the indenture trustee or from the issuer for student
loans financed by the issuer with funds not subject to an indenture of trust. In
either case the price of the student loans shall not exceed 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, the issuer may only finance student loans
serviced by servicers and guaranteed by guarantee agencies that have been
approved by each rating agency at the time of purchase.
STUDENT LOAN PORTFOLIO FUND
In connection with the issuance of the old notes, the indenture trustee
established a student loan portfolio fund. All financed student loans shall be
included in the balances of the student loan portfolio fund. Financed student
loans may also be applied:
(1) as provided in the applicable purchase agreements with respect to
rejections and repurchases of financed student loans,
(2) as provided in the applicable servicing agreements,
(3) as provided for defeasance of the indenture,
(4) as required to obtain the benefits of a guarantee in case of default on
that financed student loan, and
(5) in connection with the consolidation of that financed student loan by
the borrower.
-122-
<PAGE> 123
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 10% 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 rates of interest,
- eligible, after exchange, for the same special allowance
payments, and
- the same status, whether interim, grace or payout.
The issuer may an exchange only if the average principal amount of all of the
financed student loans included in the trust shall not be decreased, the average
maturity of all the financed student loans shall not be increased and no student
loan shall be financed which is not at the time authorized under the indenture.
The issuer must also certify that the exchange will not materially adversely
affect the sufficiency of available funds to meet the obligations of the issuer
under the indenture. Additionally, to comply with the requirements described in
the next paragraph, the issuer may also exchange financed student loans for
other student loans which bear interest at a fixed rate, if the issuer certifies
that the exchange will not materially adversely affect the sufficiency of
available funds to meet the obligations of the issuer under the indenture.
Under the indenture, the aggregate principal balances of financed student loans
bearing interest at a fixed rate must always equal or exceed the outstanding
principal amount of the Series B-3 Notes unless each rating agency then rating
the notes confirms that any failure to meet the test will not adversely affect
the existing ratings on the notes.
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
When the issuer issued the old notes, the indenture trustee established a
collection fund and the following accounts in the collection fund: a collection
account, a note payment account, an expense account and an excess surplus
account. To the extent necessary or appropriate, the issuer and the indenture
trustee may establish other accounts within the collection fund and subaccounts
with these accounts.
-123-
<PAGE> 124
Collection Account. On the closing date, the indenture trustee deposited to the
credit of the collection account a portion of the proceeds of the old notes. See
"Use of Proceeds." The issuer will, and will cause each seller and servicer
under the applicable 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.
For purposes hereof, available funds means, with respect to any collection
period, the excess of
(A) the sum, without duplication, of the following amounts with respect to
the collection period:
(1) 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
the collection period;
(2) any payments, including without limitation interest subsidy
payments and special allowance payments, received by the
eligible lender trustee during the collection period with
respect to financed student loans;
(3) all proceeds from any sales of financed student loans during
the collection period;
(4) any payments of or with respect to interest 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
students loans purchased by the indenture trustee during the
collection period;
(6) 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 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; and
(9) investment earnings for the collection period over
(B) amounts received by the issuer in connection with balance
reconciliations required by virtue of student loan consolidations for
the collection period.
Available funds will 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 issuer for advances or any other amounts
advanced by the issuer 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 the
advance is made; and
-124-
<PAGE> 125
(3) amounts which are paid to the issuer under the indenture.
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
respective interest rate 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 as described below, the indenture trustee will
transfer from the collection account the following amounts in the following
priority, subject to available funds for the immediately preceding collection
period:
(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 monthly distribution date;
(2) to the note payment account:
(a) an amount up to (A) the Series 1998A-3 Holders'
Interest Distribution Amount for payment on the
monthly distribution date to the holders of Series
A-3 Notes, and (B) any related senior issuer exchange
payment with respect to the Series A-3 Notes for
payment to the related exchange counterparty;
(b) an amount up to (A) the Series 1998A-4 Holders'
Interest Distribution Amount for payment on each
auction period distribution date occurring in the
next succeeding calendar month to the holders of
Series A-4 Notes, and (B) any related senior issuer
exchange payment with respect to the Series A-4 Notes
for payment to the related exchange counterparty;
(c) an amount up to (A) the Series 1998A-5 Holders'
Interest Distribution Amount for payment on each
auction period distribution date occurring in the
next succeeding calendar month to the holders of
Series A-5 Notes, and (B) any related senior issuer
exchange payment with respect to the Series A-5 Notes
for payment to the related exchange counterparty; and
(d) an amount up to (A) the Series 1998A-6 Holders'
Interest Distribution Amount for payment on each
auction period distribution date occurring in the
next succeeding calendar month to the holders of
Series A-6 Notes, and (B) any related senior issuer
exchange payment with respect to the Series A-6 Notes
for payment to the related exchange counterparty;
(3) to the note payment account, an amount up to (A) the Series 1998B-3
Holders' Interest Distribution Amount for payment on the monthly
distribution date to the holders of Series B-3 Notes, and (B) any
related subordinate issuer exchange payment with respect to the Series
B-3 Notes for payment to the related exchange counterparty;
(4) to the note payment account:
(a) an amount up to the Series 1998A Holders' Principal
Distribution Amount for payment on the monthly distribution
date to the holders of Series A-3 Notes until the principal
balance of the Series 1998A-3 Notes is zero and an amount up
to the Series 1998B-3 Holders' Principal Distribution Amount
for payment on the monthly distribution date to the holders of
Series B-3 Notes, then
-125-
<PAGE> 126
(b) once the Series A-3 Notes are no longer outstanding, an amount
up to the Series 1998A Holders' Principal Distribution Amount
for payment on the next succeeding auction period distribution
date to the holders of Series A-4 Notes until the principal
balance of the Series A-4 Notes is zero and an amount up to
the Series 1998B-3 Holders' Principal Distribution Amount for
payment on the monthly distribution date to the holders of
Series B-3 Notes, then,
(c) once the Series A-3 Notes and Series A-4 Notes are no longer
outstanding, an amount up to the Series 1998A Holders'
Principal Distribution Amount for payment on the next
succeeding auction period distribution date to the holders of
Series A-5 Notes until the principal balance of the Series A-5
Notes is zero and an amount up to the Series 1998B-3 Holders'
Principal Distribution Amount for payment on the monthly
distribution date to the holders of Series B-3 Notes, and
afterwards,
(d) once the Series A-3 Notes, Series A-4 Notes and Series A-5
Notes are no longer outstanding, an amount up to the Series
1998A Holders' Principal Distribution Amount for payment on
the next succeeding auction period distribution date to the
holders of Series A-6 Notes until the principal balance of the
Series A-6 Notes is zero and an amount up to the Series
1998B-3 Holders' Principal Distribution Amount for payment on
the monthly distribution date to the holders of Series B-3
Notes;
(5) after the Series 1998A Notes are no longer outstanding, to the note
payment account, an amount up to the Series 1998B-3 Holders' Principal
Distribution Amount for payment on the monthly distribution date to the
holders of Series B-3 Notes;
(6) to the reserve fund, the amount, if any, required to increase the
balance of the reserve fund to the specified reserve fund balance as
described under the heading "-- Reserve Fund";
(7) to the note payment account, an amount up to parity percentage payments
to the extent then required:
(a) for payment to the holders of Series A-3 Notes on the monthly
distribution date until the principal balance of the Series
A-3 Notes is zero, then
(b) once the Series A-3 Notes are no longer outstanding, for
payment to the holders of Series A-4 Notes on the next
succeeding auction period distribution date until the
principal balance of the Series A-4 Notes is zero, then
(c) once the Series A-3 Notes and the Series A-4 Notes are no
longer outstanding, for payment to the holders of Series A-5
Notes on the next succeeding auction period distribution date
until the principal balance of the Series 1998A-5 Notes is
zero, then,
(d) once the Series A-3 Notes, the Series A-4 Notes and the Series
A-5 Notes are no longer outstanding, for payment to the
holders of Series A-6 Notes on the next succeeding auction
period distribution date until the principal balance of the
Series 1998A-6 Notes is zero, and afterwards,
(e) once the Series 1998A Notes are no longer outstanding, for
payment to the holders of Series B-3 Notes on the monthly
distribution date until the principal balance of the
Series 1998B-3 Notes is zero;
-126-
<PAGE> 127
(8) to the note payment account, an amount up to any carryover interest:
(a) first to the holders of Series A-3 Notes for payment on the
monthly distribution date, and on payment of all carryover
interest due to the holders of Series A-3 Notes, then
(b) to the holders of Series A-4 Notes for payment on the next
succeeding auction period distribution date, and on payment of
all carryover interest due to the holders of Series A-4 Notes,
then
(c) to the holders of Series A-5 Notes for payment on the next
succeeding auction period distribution date, and on payment of
all carryover interest due to the holders of Series A-5 Notes,
and afterwards,
(d) to the holders of Series A-6 Notes for payment on the next
succeeding auction period 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 by, or as a result of a default by, the
issuer under any interest rate exchange agreement for payment to the
exchange counterparty; and
(10) any remainder, to the excess surplus account.
If on any monthly distribution date following all distributions to be made on
the monthly distribution date, either:
(a) the outstanding principal amount of the Series 1998A Notes
would exceed the sum of the pool balance plus the aggregate
balance on deposit in the funds and accounts (exclusive of the
balance of the student loan portfolio fund) under the
indenture 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),
then, until the applicable conditions described in clauses (a) and (b) no longer
exist, the Series 1998B-3 Holders' Interest Distribution Amount and the Series
1998B-3 Holders' Principal Distribution Amount will not be paid to the holders
of Series B-3 Notes under clauses (3) and (4) above and no subordinate issuer
exchange payments will be made. For so long as any Series 1998A Notes remain
outstanding, a deferral in the payment of the Series 1998B-3 Holders' Interest
Distribution Amount, the Series 1998B-3 Holders' Principal Distribution Amount
or subordinate issuer exchange payments (except with respect to the Legal Final
Maturity of the Series B-3 Notes) will not constitute an event of default under
the indenture. In addition, as long as the applicable conditions described in
clause (b) continue to exist, the Series 1998A Holders' Principal Distribution
Amount will be allocated and paid pro rata among each series of Series 1998A
Notes, without preference or priority of any kind See "-- Events of Default."
Principal payments will be made to the holders of Series A-4 Notes, holders of
Series A-5 Notes and holders of Series A-6 Notes only in amounts equal to
$50,000 and integral multiples in excess of $50,000. If the amount in the note
payment account otherwise required to be applied as a payment of principal
either (1) is less than $50,000 or (2) exceeds an even multiple of $50,000,
then, in the case of (1), the entire amount or, in the case of (2), the excess
amount, will not be paid as principal on the upcoming auction period
distribution date, but will be retained in the note payment account until
-127-
<PAGE> 128
the amount therein available for payment of principal on the applicable series
of auction rate notes equals $50,000.
Concerning the series of auction rate notes entitled to receive payments of
principal, the indenture trustee will select the actual notes of the series that
will receive payments of principal on each applicable auction period
distribution date no later than five business days prior to the related auction
period distribution date. The indenture trustee will make the selection by lot
in a manner it determines and which will provide for the selection for payment
of principal in minimum denominations o $50,000, and integral multiples in
excess of $50,000.
The indenture trustee will give notice of the specific auction rate notes to
receive payments of principal by first-class mail, postage prepaid, mailed to
the address of the applicable holder appearing on the registration books not
less than five business days but no more than ten business days before the
applicable auction period distribution date. Any defect in or failure to give
the mailed notice shall not affect the validity of proceedings for the payment
of any other notes not affected by failure or defect. All notices of payment are
to state:
(1) the applicable auction period distribution date;
(2) the amount of principal to be paid, and
(3) the series of the auction rate notes to be paid.
Note Payment Account. On each applicable 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 offering of the old notes
was deposited into the expense account. See "Use of Proceeds." Funds also were
deposited into the expense account, as described herein, from the collection
account and from the reserve fund. See "--Collection Fund" and "--Reserve Fund."
Funds in the expense account will be applied to pay program operating expenses
and costs of issuance, 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 these expenses.
The program expense requirement is, as of any date of calculation, the amount as
may then be necessary to be accumulated in the expense account for payment,
under the indenture, of the 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 the indenture.
Program operating expenses are 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 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, the auction agent, the broker-dealers, market agent
or other agent in connection with the notes or 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;
-128-
<PAGE> 129
(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, a
guarantee agreement and any other agreement or legal requirement
affecting the administration of the program, costs of legal,
accounting, auditing, management, consulting, banking and financial
advisory services and expenses, costs of salaries, supplies, utilities,
mailing, labor, materials, office rent, maintenance, furnishings,
equipment, machinery, apparatus and insurance premiums, costs of
issuance not paid from proceeds of old notes; and
(5) other reasonable and proper expenses, including both operating expenses
and capital expenditures incurred or to be incurred in connection with
the operation of the program and, with respect to item (4) above, any
other similar program of the issuer.
Excess Surplus Account. On each monthly 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. The indenture
trustee may transfer for deposit under the trust agreement amounts on deposit in
the excess surplus account at any time on written request of the issuer to be
used for any lawful purpose if after the transfer the parity percentage is at
least 103%. Afterwards, any available funds distributed to the issuer from the
excess surplus account will not be available to make payments on the notes.
Until transfer to the issuer, the indenture trustee may transfer to the reserve
fund amounts on deposit in the excess surplus account if, and to the extent
that, 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 old notes, the indenture trustee
established a reserve fund for the new notes. See "Security for the Notes--
Reserve Fund." The indenture trustee deposited $10,917,000 of the proceeds of
the old notes 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 1.5% of the outstanding principal balance of the
notes on the distribution date after giving effect to payments on the
distribution date, or $1,500,000, but not in excess of the outstanding principal
balance of the notes.
At any time the balance of the reserve fund is below its specified reserve fund
balance, the indenture trustee will restore the reserve fund to its specified
reserve fund balance by transfers on the next monthly 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 monthly distribution date as described
under "-- Collection Fund," 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
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 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.
-129-
<PAGE> 130
On each monthly 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 B-3 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. -----
ADVANCES
If the issuer or the 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 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 this amount would be required to be distributed as a
payment of interest, the issuer or 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
(deposits by the issuer are referred to herein as advances). These advances are
recoverable by the issuer or the depositor, as applicable, first, from the
source for which the advance was made and second, from payments received
generally on or with respect to the financed student loans. Funds used to
reimburse the issuer for prior advances are excluded from available funds and,
accordingly, repayment of advances have priority over all other payments under
the 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 the indenture,
these moneys will be invested in eligible investments. Eligible investments
include the following:
(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, including:
- Export-Import Bank
-130-
<PAGE> 131
- 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;
(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 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);
(e) 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;
(f) 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;
(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 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
(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) (A) 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
redemption premium, if any, on the notes or other
obligations on the maturity date or dates of the
notes or the specified redemption date or dates under
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
-131-
<PAGE> 132
(i) 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
indenture trustee for the purposes intended. Any earnings on or income from
these eligible investments will be treated as collections of interest on the
financed student loans and will be deposited in the collection account.
COVENANTS OF THE ISSUER
The issuer covenants under the indenture that: it will administer the issuer's
program of financing student loans under the indenture (the program) under the
Higher Education Act; 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; it will diligently cause to be collected all principal and interest
payments on each financed student loan and any grants, subsidies, donations,
guarantee payments, 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 purchase agreements; it will not
create, or permit the creation of, any pledge, lien, charge or encumbrance on
the assets of the trust except as provided in or permitted by the indenture; and
it will not issue any obligations, notes, securities or other evidences of
indebtedness, other than the notes, secured by a pledge of the assets of the
trust creating a lien on the assets of the trust equal or superior to the lien
of the indenture, provided, however, that nothing in the indenture shall prevent
the issuer from issuing evidences of indebtedness secured by a pledge on the
assets of the trust subordinate in priority to that of the notes, or secured by
a pledge of the assets of the trust arising on or after the pledge of the assets
of the trust shall be satisfied and discharged, or from issuing other evidences
of indebtedness secured by assets and revenues of the issuer.
The issuer also covenants that it will file with the indenture trustee a
projection of program operating expenses for each calendar year and that it will
not, in any calendar quarter, exceed those projected for a calendar quarter
except on specific conditions described in the 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 the 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, however:
(i) 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,
(ii) for so long as any Series 1998A Notes are
outstanding under the indenture, any
shortfall on a distribution date other than
the legal final maturity of any Series B-3
Notes if available funds are insufficient to
pay the Holders' Interest Distribution
Amount on the Series B-3 Notes on this date,
and
-132-
<PAGE> 133
(iii) for so long as any Series 1998A Notes are
outstanding under the indenture, any
deferral in the payment of interest or
principal on the Series B-3 Notes on a
distribution date other than the legal final
maturity of the Series B-3 Notes, or
(b) any issuer exchange payment when due, excluding,
however:
(i) payment in respect of an early termination
of the interest rate exchange agreement,
(ii) for so long as any Series 1998A Notes are
outstanding under the indenture, any
shortfall on a distribution date other than
the legal final maturity of any Series B-3
Notes if available funds are insufficient to
pay any subordinate issuer exchange payments
relating to the Series B-3 Notes on this
date, and
(iii) for so long as any Series 1998A 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 this 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) Specific events of bankruptcy, insolvency, receivership or
liquidation of the issuer; and
(4) The entry of a final judgment against the issuer if this
judgment will not be discharged within 60 days its entry, or
if an appeal will not be taken therefrom, or from the order or
decree on which this judgment was granted or entered in a
manner as to conclusively set aside the execution under this
judgment or order or its enforcement, if this judgment
constitutes or could result in:
(a) a lien or charge on the available funds or the assets
of the trust equal or superior to the lien granted
under the indenture for the benefit of the holders of
the Series 1998A Notes,
(b) if no Series 1998A Notes are outstanding under the
indenture, a lien or charge on the available funds or
the assets of the trust equal or superior to the lien
granted under the indenture for the benefit of the
holders of the Series B-3 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 should occur and be
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.
-133-
<PAGE> 134
If an event of default described in clause (2) above should occur and be
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 should occur and be
continuing, all outstanding notes will become immediately due and payable
without notice or any action by the indenture trustee and a declaration of this
acceleration will be deemed to have been made.
If an event of default described in clause (4) above should occur and be
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
this declaration) will be cured to the satisfaction of the
indenture trustee or provision deemed by the indenture trustee
to be adequate will be made therefor, 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 this payment:
(a) all overdue installments of interest on:
(i) the Series 1998A Notes if any Series 1998A
Notes are outstanding, or
(ii) the Series B-3 Notes if no Series 1998A
Notes are outstanding, and
(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 a 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 the outstanding directing notes.
On any declaration of acceleration of the notes, the indenture trustee will give
notice of a 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 this 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
-134-
<PAGE> 135
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 (1) an event of default has occurred and is continuing, and (2) at any time
the moneys held by the indenture trustee are 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 assets of 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) 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
afterwards 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 Series 1998A Notes, with interest on overdue principal
at the rates borne by the Series 1998A Notes, and to all
senior issuer exchange payments then due, in the order that
these installments and/or senior issuer exchange payments will
have become due, and, if the amounts available are not
sufficient to pay in full installments and senior issuer
exchange payments coming due on the same date, then to the
payment of these amounts ratably to the parties entitled to
the payments without discrimination or preference;
SECOND, to the payment of the unpaid Holders' Principal
Distribution Amount and/or principal due and unpaid on the
Series 1998A Notes at the time of this payment, these payments
to be made ratably to the parties entitled the payments
without discrimination or preference;
THIRD, to the payment of all installments of interest then due
on the Series B-3 Notes, with interest on overdue principal at
the rates borne by the Series B-3 Notes, and to all
subordinate issuer exchange payments then due, in the order
that installments and/or subordinate issuer exchange payments
will have become due, and, if the amounts available are not
sufficient to pay in full all installments of interest and
subordinate issuer exchange payments coming due on the same
date, then to the payment of these amounts ratably to the
parties entitled the 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
Series B-3 Notes at the time of the payment, these payments to
be made ratably to the parties entitled the payments without
discrimination or preference.
(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 Series 1998A Notes and all senior issuer
exchange payments then due, these payments to be made ratably
to the parties entitled to the payments without discrimination
or preference;
-135-
<PAGE> 136
SECOND, to the payment of all principal and interest then due
and unpaid on the Series B-3 Notes and all subordinate issuer
exchange payments then due, these payments to be made ratably
to the parties entitled to the payments without discrimination
or preference; and
THIRD, to the payment of all carryover interest due and unpaid
on the Series 1998A Notes, these payments to be made ratably
to the parties entitled to the payments without discrimination
or preference.
Remedies on Default
Whenever moneys are to be applied as above, irrespective of and whether other
authorized remedies have been pursued, the indenture trustee may sell, with or
without entry, all or part of the assets of the trust and all right, title,
interest, claim and demand to the assets of the trust and the right of
redemption of the assets of the trust, at any place or places, and at any time
or times and on 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 the 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 therein as a part of the assets of the trust to any party who is
not an eligible lender under the Higher Education Act.
If an event of default has happened and is continuing, then the indenture
trustee, either in its own name, as trustee of an express trust, as
attorney-in-fact for the holders and/or each exchange counterparty or in any one
or more of these 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 of these
capacities, 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.
The indenture trustee, at the written request of holders of at least a majority
in aggregate principal amount of the outstanding directing notes and on being
furnished with reasonable security and indemnity, will take all steps and
institute all 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:
-136-
<PAGE> 137
(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 interest rate exchange
agreement, all obligations of all of the parties to the agreement have
not been satisfied, and the agreement has not been terminated,
(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 a proceeding in its own name as indenture
trustee,
(4) the holder or 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 a written request has been given to the
indenture trustee during the 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 holders 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;
-137-
<PAGE> 138
(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
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 o 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
-138-
<PAGE> 139
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 shall not be deemed to be defeased unless and until all of the
following shall 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:
(1) moneys sufficient to make this payment,
and/or
(2) 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
-139-
<PAGE> 140
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 lender
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. Afterwards, 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 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.
-140-
<PAGE> 141
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 thereupon, 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.
LIST OF HOLDERS
By written request to the indenture trustee, a holder may obtain access to the
list of all holders that is maintained by the indenture trustee for the purpose
of communicating with other holders with respect to their rights under the
indenture or the notes. The indenture trustee may elect not to afford the
requesting holders 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
holders, to all holders.
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 exchange of
the old notes for the new notes and the purchase, ownership and disposition of
the new notes. Thompson Hine & Flory LLP is of the opinion that the descriptions
of the law and legal conclusions contained herein are correct in all material
respects and the discussions hereunder fairly summarize the federal income tax
considerations that are material to holders. The discussion is based on the
provisions of the 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. Consequently, the Internal Revenue Service may
disagree with some of the discussion below. The statutory provisions,
regulations, and interpretations on which this discussion is based are
-141-
<PAGE> 142
subject to change, and the a change could apply retroactively. No ruling on any
of the issues discussed below will be sought from the Internal Revenue Service.
THE DISCUSSION DOES NOT PURPORT TO 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 NEW 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 PURPORT TO ADDRESS THE ANTICIPATED STATE INCOME TAX CONSEQUENCES TO
INVESTORS OF OWNING AND DISPOSING OF THE NEW NOTES. CONSEQUENTLY, IT IS
SUGGESTED THAT POTENTIAL PURCHASERS OF NEW NOTES CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES TO THEM OF THE PURCHASE,
HOLDING, AND DISPOSITION OF THE NEW NOTES.
PAYMENTS RECEIVED ON NEW NOTES
Payments received by holders on new notes will be accorded the same tax
treatment under the code as payments received on other taxable debt instruments.
Except as described below for new notes issued with original issue discount,
acquired with market discount, or issued or acquired at a premium, interest paid
or accrued on a new note will be treated as ordinary income to the holder and a
principal payment on a new 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 new notes.
SUBORDINATION OF SERIES B-3 NOTES
The Series B-3 Notes are subordinated to the Series 1998A Notes. This
subordination will not affect the federal income tax treatment of either the
Series B-3 Notes or the Series 1998A Notes.
IT IS SUGGESTED THAT EMPLOYEE BENEFIT PLANS SUBJECT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), CONSULT THEIR TAX ADVISORS
BEFORE PURCHASING ANY SUBORDINATED NEW NOTE. SEE "ERISA CONSIDERATIONS" AND
"SUMMARY OF TERMS--ERISA CONSIDERATIONS."
EXCHANGE OFFER
In the opinion of Thompson Hine & Flory LLP, the exchange of an old note for a
new note under the exchange offer will not constitute a "significant
modification" of the old note for federal income tax purposes. Accordingly, the
exchange will be disregarded and the new note received will be treated as a
continuation of the old note in the hands of each holder of a new note. As a
result, there will be no federal income tax consequences to a holder who
exchanges an old note for a new note under the exchange offer. Each holder will
have the same adjusted tax basis and holding period in the new note as that
holder had in the old note immediately before the exchange.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the assumptions and representations of the issuer and the depositor set
forth in the following sentence, in the opinion of Thompson Hine & Flory LLP,
the new notes will be characterized as debt of the depositor for federal income
tax purposes. The assumptions and representations on which the above opinion is
based are:
-142-
<PAGE> 143
(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 remain in effect and are not
otherwise amended, revised, reversed, or overruled;
(2) the eligible lender trust agreement, the indenture, the new notes, and
the servicing agreements are executed and delivered in substantially
the form attached as Exhibits hereto;
(3) there are no changes to the terms of the new notes; and
(4) the issuer, the depositor and the holders treat the new 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 trust, the depositor and the holders, by accepting the new notes have agreed
to treat the new notes as indebtedness of the depositor for federal income tax
purposes. Both the trust and the depositor intend to treat this transaction as a
financing reflecting the new notes as its indebtedness for tax and financial
accounting purposes.
Tax Consequences If New Notes Are Characterized As Equity. Contrary to the
opinion of Thompson Hine & Flory LLP, the Internal Revenue Service might assert
that the new notes do not represent debt for federal income tax purposes, but
rather the new notes should be treated as equity interests in the trust. Even if
the Internal Revenue Service were to assert successfully that the new 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 it were 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 new notes were treated as equity interest 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 limitations on their ability to deduct their share of trust
expenses. Furthermore, this a 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 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 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 would be
treated as a partnership among the holders, and, possibly, the depositor as
well. In the opinion of Thompson Hine & Flory LLP based on the representation of
both the trust and the depositor described above in "Tax Consequences If New
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. The amount and timing of items of income and deduction of the holders
may differ if the new notes were held to constitute partnership interests,
rather than indebtedness.
-143-
<PAGE> 144
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 the 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
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
New notes issued at a price less than their stated principal amount, i.e.,
discount 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.
Such original issue discount will equal the difference between the "stated
redemption price at maturity" of the new 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 code Section 1272(a)(6). 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 Internal
Revenue Code Section 1272(a)(6) 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 Internal Revenue Code
Section 1272(a)(6), and, accordingly, there can be no assurance that this
methodology, which is described below, represents the correct manner of
calculating original issue discount on the 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. Thus, in the case of
any note providing for this stated interest, the stated redemption price at
maturity generally will equal the total amount of all deemed principal payments
due on that note. The issue price of a series of notes generally will equal the
initial price at which the series is sold to the public.
-144-
<PAGE> 145
DeMinimis 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 weighted average maturity of the note. No Treasury
Regulations have been issued with respect to computing the weighted average
maturity of instruments like an old or new 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."
Example. Series 1998B-3 Notes were issued in the December 1998 private placement
with a de minimis amount of original issue discount. A Series 1998B-3 Note with
a stated redemption price at maturity of $100,000 was issued for $99,261.62 in
the private placement. Unless the holder of the note makes the election
described below in "All Original Issue Discount Election," the holder will
include the de minimis original issue discount amount of $738.38 ($100,000.00 -
$99,621.62) into income on a pro rata basis as stated principal payments on the
note are received or, if earlier, on disposition of the note. If, for example,
the holder were to receive a stated principal payment of $10,000 during a
taxable year, the holder would include $73.84 in income as shown by the
following computation:
Stated Principal Amount Received $ 10,000
------------------------------------- = -------- = 10%
Total Stated Principal Amount of Note $100,000
De Minimis Original Issue Discount Amount $738.38
X 10%
-------
Portion of De Minimis Original
Issue Discount Amount Included in Income $73.84
========
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 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.
-145-
<PAGE> 146
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 an 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 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" below), de minimis market discount that
accrues on the note, and unstated interest (as reduced by any amortizable
premium, see "Amortizable Premium" below or acquisition premium, as described
below) 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" below. 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" below.
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 such a note, immediately after its
acquisition, exceeds the sum of all deemed principal payments to be received on
the
-146-
<PAGE> 147
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" below.
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
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.
IN VIEW OF THE COMPLEXITIES AND CURRENT UNCERTAINTIES AS TO THE MANNER OF
INCLUSION IN INCOME OF ORIGINAL ISSUE DISCOUNT ON THE NOTES, IT IS SUGGESTED
THAT POTENTIAL INVESTORS 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.
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.
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 market discount that has "accrued", but that has not yet
been included in income.
-147-
<PAGE> 148
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 above 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 not 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 issue 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.
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 these 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.
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.
-148-
<PAGE> 149
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 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
and 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.
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 this 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.
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. Investors
should note that the deductibility of capital losses is subject to limitations.
-149-
<PAGE> 150
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 this
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.
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.
Such 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, 1999,
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.
-150-
<PAGE> 151
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 purport to describe any aspect of the income tax laws
of any state. Therefore, potential investors should consult their own tax
advisors with respect to the various state tax consequences of an investment in
the notes.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and other retirement plans and
arrangements that are subject to the Employee Retirement Income Security Act of
1974 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 any 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. Prospective investors should be
aware that, although exceptions from the application of the prohibited
transaction rules and the those 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. However,
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 a decision is
made. Those exemptions include, but are not limited to: (i) Prohibited
Transaction Class Exemption (PTCE) 95-60, regarding investments by insurance
company general accounts; (ii) PTCE 91-38, regarding investments by bank
collective investment funds; (iii) PTCE 90-1, regarding investments by insurance
company pooled separate accounts; or (iv) 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. A purchaser of a note should be aware, however,
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.
LEGAL MATTERS
Legal matters relating to the issuer, the depositor, the notes and federal
income tax matters will be passed on by Thompson Hine & Flory LLP. Legal matters
relating to the notes will be passed on for the depositor by Calfee, Halter &
Griswold LLP. Legal matters will be passed on for the dealer manager by Squire,
Sanders & Dempsey
-151-
<PAGE> 152
L.L.P. Each of these firms has performed legal services for the depositor and
its affiliates in the past, and it is expected that they will continue to
perform these services in the future.
RATING
Each series of the Series 1998A Notes has been rated "Aaa" by Moody's and "AAA"
by Fitch. The Series B-3 Notes have been rated "A2" by Moody's and "A" by Fitch.
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, and the ratings on the notes do not address, the likelihood of
prepayments on the notes or the likelihood of payment of the 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. Generally, a
rating agency bases its rating on this information and materials and
investigations, studies and assumptions furnished to and obtained and made by
the rating agency. There is no assurance that any rating will apply for any
given period of time or that it will not be lowered or withdrawn entirely if, in
the judgment of the rating agency, circumstances so warrant.
A rating is not a recommendation to buy, sell or hold the notes and any rating
should be evaluated independently. 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 initial purchasers have undertaken 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.
PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties in similar transactions, we believe that the new
notes issued in the exchange offer in exchange for the old notes may be offered
for resale, resold and otherwise transferred by holders (other than any holder
which is our "affiliate" within the meaning of Rule 405 under the 1933
securities act) without compliance with the registration and prospectus delivery
provisions of the 1933 securities act However, this applies only if the new
notes are acquired in the ordinary course of the holders' business and the
holders have no arrangement with any person to participate in the distribution
of the new notes. We refer you to the "Morgan Stanley & Co. Inc." SEC No-Action
Letter (available June 5, 1991), "Exxon Capital Holdings Corporation" SEC
No-Action Letter (available May 13, 1988) and "Shearman & Sterling" SEC
No-Action Letter (available July 2, 1993).
Each broker-dealer that receives new notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus with any resale of the
new notes. This prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of new notes
received in exchange for old notes where the old notes were acquired as a result
of market-making activities or other trading activities. We have agreed that
starting on the expiration date of the exchange offer and ending on the close of
business 120 days after the expiration date of the exchange offer, we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any resale.
We will not receive any proceeds from any sale of new notes by broker-dealers or
any other persons. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to prevailing market
prices or negotiated prices.
-152-
<PAGE> 153
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer and/or the purchasers of any new notes. Any broker-dealer
that resells new notes that were received by it for its own account under the
exchange offer and any broker or dealer that participates in a distribution of
the new notes may be deemed to be an underwriter within the meaning of the 1933
securities act, and any profit on any resale of new notes and any commissions or
concessions received by any persons may be underwriting compensation under the
1933 securities act. The letter of transmittal states that by acknowledging that
it will deliver and by delivering a prospectus meeting the requirements of the
1933 securities act, a broker-dealer will not be admitting that it is an
underwriter within the meaning of the 1933 securities act.
For a period of 120 days after the expiration date of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the old
notes), other than commissions or concessions of any brokers or dealers. We have
agreed to indemnify holders of the notes (including any broker-dealers) against
liabilities, including liabilities under the 1933 securities act.
-153-
<PAGE> 154
APPENDIX A
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
prospectus.
"APPLICABLE LIBOR RATE" means,
(1) for auction periods of 35 days or less, one-month LIBOR,
(2) for auction periods of more than 35 days but less than 91 days,
three-month LIBOR,
(3) for auction periods of more than 90 days but less than 181 days,
six-month LIBOR, and
(4) for auction periods of more than 180 days, one-year LIBOR. As used in
this definition and otherwise herein, the terms "one-month LIBOR,"
"three-month LIBOR," "six-month LIBOR" or "one-year LIBOR," means the
rate equal to the rate with respect to United States dollar deposits
in the London interbank market having a maturity of one month, three
months, six months or one year.
"PROGRAM OPERATING EXPENSES" means all items of expense allocable to the
operation of the program, including
<PAGE> 155
APPENDIX A
GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
prospectus.
"APPLICABLE LIBOR RATE" means,
(1) for auction periods of 35 days or less, one-month LIBOR,
(2) for auction periods of more than 35 days but less than 91 days,
three-month LIBOR,
(3) for auction periods of more than 90 days but less than 181 days,
six-month LIBOR, and
(4) for auction periods of more than 180 days, one-year LIBOR. As used in
this definition and otherwise herein, the terms "one-month LIBOR,"
"three-month LIBOR," "six-month LIBOR" or "one-year LIBOR," means the
rate equal to the rate with respect to United States dollar deposits
in the London interbank market having a maturity of one month, three
months, six months or one year.
"PROGRAM OPERATING EXPENSES" means all items of expense allocable to the
operation of the program, including
A-1
<PAGE> 156
(1) fees and expenses and any other amounts payable to the indenture
trustee and any authenticating agent and any fees charged by a
depository,
(2) the fees and expenses and any other amounts payable to the
calculation agent, the auction agent, broker-dealers, any market
agent or other agent in connection with the notes,
(3) fees and expenses 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, and any other agreement or legal requirement affecting
the administration of the program, costs of legal, accounting,
auditing, management, consulting, banking and financial advisory
services and expenses, costs of salaries, supplies, utilities,
mailing, labor, materials, office rent, maintenance, furnishings,
equipment, machinery, apparatus and insurance premiums, costs of
issuance not paid from proceeds of notes, and
(5) and other reasonable and proper expenses, including both operating
expenses and capital expenditures incurred or to be incurred in
connection with the operation of the program and with respect to item
(4) above, any other similar program of the issuer.
"SERIES 1998A HOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to
any distribution date for a Series of Series 1998A Notes, the Series 1998A
Principal Distribution Amount for the distribution date plus the Series 1998A
Principal Shortfall as of the close of the preceding distribution date; provided
that the Series 1998A Holders' Principal Distribution Amount will not exceed the
outstanding principal balance of the Series 1998A Notes. In addition,
(1) on the legal final maturity of the Series A-3 Notes, the principal
required to be distributed will include the amount required to reduce
the outstanding principal balance of the Series A-3 Notes to zero,
(2) on the legal final maturity of the Series A-4 Notes, the principal
required to be distributed to will include the amount required to
reduce the outstanding principal balance on the Series A-4 Notes to
zero,
(3) on the legal final maturity of the Series A-5 Notes, the principal
required to be distributed will include the amount required to reduce
the outstanding principal balance on the Series A-5 Notes to zero,
and
(4) on the legal final maturity of the Series A-6 Notes, the principal
required to be distributed will include the amount required to reduce
the outstanding principal balance on the Series A-6 Notes to zero.
"SERIES 1998A PRINCIPAL DISTRIBUTION AMOUNT" means
(1) with respect to the Series A-3 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, less, for each monthly distribution date
occurring after June 30, 2003, the amount of any principal to be paid
on the monthly distribution date on the Series B-3 Notes,
(2) with respect to the Series A-4 Notes on and after the principal
balance of the Series A-3 Notes has been paid in full, an amount
equal to the decline in the pool balance between the end of the third
collection period preceding an auction period distribution date and
the end of the second preceding collection period, less, for each
monthly distribution date occurring after June 30, 2003, the amount
of any principal paid on the immediately preceding monthly
distribution date on the Series B-3 Notes,
A-2
<PAGE> 157
(3) with respect to the Series A-5 Notes on and after the principal
balance of the Series A-3 Notes and the Series A-4 Notes has been
paid in full, an amount equal to the decline in the pool balance
between the end of the third collection period preceding an auction
period distribution date and the end of the second preceding
collection period, less, for each monthly distribution date occurring
after June 30, 2003, the amount of any principal paid on the
immediately preceding monthly distribution date on the Series B-3
Notes, and
(4) with respect to the Series A-6 Notes on and after the principal
balance of the Series A-3 Notes, the Series A-4 Notes and the Series
A-5 Notes has been paid in full, an amount equal to the decline in
the pool balance between the end of the third collection period
preceding an auction period distribution date and the end of the
second preceding collection period, less, for each monthly
distribution date occurring after June 30, 2003, the amount of any
principal paid on the immediately preceding monthly distribution date
on the Series B-3 Notes.
"SERIES 1998A PRINCIPAL SHORTFALL" means, as of the close of any distribution
date for a series of Series 1998A Notes, the excess of the Series 1998A
Principal Distribution Amount on the distribution date over the amount of
principal actually distributed to the holders of Series 1998A Notes on the
distribution date.
"SERIES 1998A NOTES" means the Series A-3 Notes, the Series A-4 Notes, the
Series A-5 Notes and the Series A-6 Notes.
"SERIES 1998A-3 INTEREST SHORTFALL" means, with respect to any monthly
distribution date, the excess of the Series 1998A-3 Holders' Interest
Distribution Amount on the preceding monthly distribution date over the amount
of interest actually distributed to the holders of Series A-3 Notes on the
preceding monthly distribution date ; plus interest on the amount of the excess
interest due to the holders of Series A-3 Notes, to the extent permitted by law,
at the series interest rate borne by the Series A-3 Notes from the preceding
monthly distribution date to the current monthly distribution date.
"SERIES 1998A-3 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 rates for the
related interest accrual period on the aggregate outstanding
principal balance of the Series A-3 Notes on the immediately
preceding monthly distribution date after giving effect to all
principal distributions to holders of Series A-3 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 1998A Interest Shortfall for the monthly distribution
date; provided that the Series 1998A-3 Holders' Interest Distribution
Amount will not include any carryover interest on the Series A-3
Notes.
"SERIES 1998A-3 NOTES" means the Student Loan Senior Asset-Backed Notes, Series
1998A-3 issued and outstanding as unregistered notes.
"SERIES 1998A1-3 NOTES" means the Student Loan Senior Asset-Backed Notes, Series
1998A1-3 of the issuer issued and outstanding as registered notes.
"SERIES A-3 NOTES" means the Series 1998A-3 Notes together with the Series
1998A1-3 Notes.
"SERIES 1998A-4 INTEREST SHORTFALL" means, with respect to any auction period
distribution date, the excess of the Series 1998A-4 Holders' Interest
Distribution Amount on the preceding auction period distribution date over the
amount of interest actually distributed to the holders of Series A-4 Notes on
the preceding auction period distribution date ; plus interest on the amount of
the excess interest due to the holders of Series A-4 Notes, to the extent
permitted by law, at the related series interest rate from the preceding auction
period distribution date to the current auction period distribution date.
"SERIES 1998A-4 HOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with respect to
any auction period distribution date, the sum of
A-3
<PAGE> 158
(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 A-4 Notes on the immediately
preceding auction period distribution date after giving effect to all
principal distributions to Series A-4 holders on the preceding
auction period distribution date (or, in the case of the first
auction period distribution date, on the closing date) plus
(2) the Series 1998A-4 Interest Shortfall for the auction period
distribution date; provided that the Series 1998A-4 Holders' Interest
Distribution Amount will not include any carryover interest on the
Series A-4 Notes.
"SERIES 1998A-4 NOTES" means the Student Loan Senior Asset-Backed Callable
Notes, Series 1998A-4 issued and outstanding as unregistered notes.
"SERIES 1998A1-4 NOTES" means the Student Loan Senior Asset-Backed Callable
Notes, Series 1998A1-4 of the issuer, issued and outstanding as registered
notes.
"SERIES A-4 NOTES" means the Series 1998A-4 Notes together with the Series
1998A1-4 Notes.
"SERIES 1998A-5 INTEREST SHORTFALL" means, with respect to any auction period
distribution date, the excess of the Series 1998A-5 Holders' Interest
Distribution Amount on the preceding auction period distribution date over the
amount of interest actually distributed to the holders of the Series A-5 Notes
on the preceding auction period distribution date ; plus interest on the amount
of the excess interest due to the holders of Series A-5 Notes, to the extent
permitted by law at the related series interest rate from the preceding auction
period distribution date to the current auction period distribution date.
"SERIES 1998A-5 HOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with respect to
any auction period 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 A-5 Notes on the immediately
preceding auction period distribution date after giving effect to all
principal distributions to holders of Series A-5 Notes on the
preceding auction period distribution date (or, in the case of the
first auction period distribution date, on the Closing Date) plus
(2) the Series 1998A-5 Interest Shortfall for the auction period
distribution date; provided that the Series 1998A-5 Holders' Interest
Distribution Amount will not include any carryover interest on the
Series A-5 Notes.
"SERIES 1998A-5 NOTES" means the Student Loan Senior Asset-Backed Callable
Notes, Series 1998A-5 issued and outstanding as unregistered notes.
"SERIES 1998A1-5 NOTES" means the Student Loan Senior Asset-Backed Callable
Notes, Series 1998A1-5 of the issuer, issued and outstanding as registered
notes.
"SERIES A-5 NOTES" means the Series 1998A-5 Notes together with the Series
1998A1-5 Notes.
"SERIES 1998A-6 INTEREST SHORTFALL" means, with respect to any auction period
distribution date, the excess of the Series 1998A-6 Holders' Interest
Distribution Amount on the preceding auction period distribution date over the
amount of interest actually distributed to the holders of Series A-6 Notes on
the preceding auction period distribution date ; plus interest on the amount of
the excess interest due to the holders of Series A-6 Notes, to the extent
permitted by law, at the related series interest rate from the preceding auction
period distribution date to the current auction period distribution date.
"SERIES 1998A-6 HOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with respect to
any auction period 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 A-6 Notes on the immediately
preceding
A-4
<PAGE> 159
auction period distribution date after giving effect to all principal
redemptions to holders of Series A-6 Notes on the preceding auction
period distribution date (or, in the case of the first auction period
distribution date, on the Closing Date) plus
(2) the Series 1998A-6 Interest Shortfall for the auction period
distribution date; provided that the Series 1998A-6 Holders' Interest
Distribution Amount will not include any carryover interest on the
Series A-6 Notes.
"SERIES 1998A-6 NOTES" means the Student Loan Senior Asset-Backed Callable
Notes, Series 1998A-6 issued and outstanding as unregistered notes.
"SERIES 1998A1-6 NOTES" means the Student Loan Senior Asset-Backed Callable
Notes, Series 1998A1-6 of the issuer issued and outstanding as registered notes.
"SERIES A-6 NOTES" means the Series 1998A-6 Notes together with the Series
1998A1-6 Notes.
"SERIES 1998B-3 INTEREST SHORTFALL" means, with respect to any monthly
distribution date, the excess of the Series 1998B-3 Holders' Interest
Distribution Amount on the preceding monthly distribution date over the amount
of interest actually distributed to the holders of Series B-3 Notes on the
preceding monthly distribution date ; plus interest on the amount of the excess
interest due to the holders of Series B-3 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 1998B-3 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 B-3 Notes on the immediately
preceding monthly distribution date after giving effect to all
principal distributions to Series B-3 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 1998B-3 Interest Shortfall for the monthly distribution
date.
"SERIES 1998B-3 HOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to
any monthly distribution date, the Series 1998B-3 Principal Distribution Amount
for the monthly distribution date plus the Series 1998B-3 Principal Shortfall as
of the close of the preceding monthly distribution date; provided that the
Series 1998B-3 Holders' Principal Distribution Amount will not exceed the
outstanding principal balance of the Series B-3 Notes. In addition, on the legal
final maturity of the Series B-3 Notes, the principal required to be distributed
to the holders of Series B-3 Notes will include the amount required to reduce
the outstanding principal balance on the Series B-3 Notes to zero.
"SERIES 1998B-3 PRINCIPAL DISTRIBUTION AMOUNT" means,
(1) on each monthly distribution date occurring after June 30, 2003, an
amount equal to the lesser of (a) 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 (b) the greatest amount which would
result in a senior parity percentage of no less than 109% and a
parity percentage of no less than 101% following the payment of
principal o the Series B-3 Notes and
(2) on each monthly distribution date on and after which the principal
balance of the Series 1998A 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 (reduced with
respect to the first monthly distribution date on which principal is
to be paid on the Series B-3 Notes by the Series 1998A Holders'
Principal Distribution Amount on the monthly distribution date).
A-5
<PAGE> 160
"SERIES 1998B-3 PRINCIPAL SHORTFALL" means, as of the close of any monthly
distribution date, the excess of the Series 1998B-3 Principal Distribution
Amount on the monthly distribution date over the amount of principal actually
distributed to the holders of Series B-3 Notes on the monthly distribution date.
"SERIES 1998B-3 NOTES" means the Student Loan Subordinate Asset-Backed Notes
Series 1998B-3 issued and outstanding as unregistered notes.
"SERIES 1998B1-3 NOTES" means the Student Loan Subordinate Asset-Backed Notes
Series 1998B1-3 of the issuer issued and outstanding as registered notes.
"SERIES B-3 NOTES" means the Series 1998B-3 Notes together with the Series
1998B1-3 Notes.
A-6
<PAGE> 161
APPENDIX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Notes will be available only
in book-entry form (the "Global Securities"). Investors in the Global Securities
may hold such 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 in accordance
with their nominal rules and operating procedures and in accordance with
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. Subject to compliance with the transfer restrictions
applicable to the Notes, cross-market transfers between participants in DTC, on
the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depository.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective depositories,
which in turn will hold such 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.
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.
B-1
<PAGE> 162
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 in
accordance with 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 Ne 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 upon to finance settlement. Under this procedure, Cedel participants
or Euroclear participants purchasing Global Securities would incur overdraft
charges for one day assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges although
this result will depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours., DTC
participants can employ their usual procedures for sending Global Securities to
the respective depositary for the benefit of Cedel participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC 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
depositary, 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 depositary 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) in accordance with the clearing system's customary
procedures,
B-2
<PAGE> 163
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.
B-3
<PAGE> 164
APPENDIX C
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 C,
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 such 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 (the term auction rate notes shall apply separately to
each series of Series A-4 Notes, Series A-5 Notes and Series A-6 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 pursuant to 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 pursuant to an Auction, the Existing Holder of auction rate notes so
transferred, its Participant or broker-dealer advises the auction agent of such
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 such beneficial ownership, and to
authorize such Participant to disclose to the auction agent such information
with respect to such beneficial ownership as the auction agent may request; (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 such 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 such Bid if the rate specified in such Bid is greater than, or in some cases
equal to, the Interest Rate, determined as described in this Appendix C; (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 such Bid if the rate specified in such Bid is, respectively,
less than or equal to the auction rate, determined as described in this Appendix
C; 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.
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 such interest determination date at a price equal to 100%
of the principal amount thereof plus accrued interest, if any. The auction agent
is entitled to rely upon the terms of any Order submitted to it by a
broker-dealer.
AUCTION AGENT. Bankers Trust Company is appointed in the 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 Bankers Trust Company, 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 thereof having its principal place of
business in the Borough of Manhattan, New York, or such 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 upon 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
upon the written direction of the issuer, or the holders of
C-1
<PAGE> 165
at least 66-2/3 % of the aggregate principal amount of the auction rate notes
then outstanding, by an instrument signed by such holders or their attorneys and
filed with the auction agent, the issuer, the indenture trustee and the
calculation agent upon at least 90 days' notice. Neither resignation nor removal
of the auction agent pursuant to the preceding two sentences will be effective
until and unless a substitute auction agent has been appointed and has accepted
such appointment. If required by the issuer or the calculation agent, a
substitute Auction Agent Agreement will be entered into with a substitute
auction agent. Notwithstanding the foregoing, 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 in accordance with the terms of
the Auction Agent Agreement, the auction agent does not receive such 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
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 upon its request for all reasonable expenses,
disbursements and advances incurred or made by the auction agent in accordance
with any provision of the Auction Agent Agreement or the Broker-Dealer
Agreements (including the reasonable compensation and the expenses and
disbursements of its agents and counsel). Such amounts are payable 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 such 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, such fees and expenses being
payable as described above.
BROKER-DEALER. Existing Holders and Potential Holders may participate
in Auctions only by submitting orders (in the manner described below) through a
"broker-dealer," including NationsBanc Securities of Montgomery LLC 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. Such 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 in accordance with 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
Salomon Smith Barney Inc., will act solely 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
C-2
<PAGE> 166
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. Pursuant to 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 New Notes--
Determination of the Auction Rate" in this Prospectus, 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. Upon 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
such failed auction period conversion date and give notice thereof 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 such payment default and (ii) any interest accrual period commencing less
than two business days after the cure of an 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 such interest accrual period. The determination by the indenture
trustee or the auction agent, as the case may be, of the Applicable LIBOR Rate
will (i the absence of manifest error) be final and binding upon 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 pursuant to 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 pursuant to Auctions, such
Existing Holder, its broker-dealer or its Participant advises the auction agent
of such 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
such interest determination date, in the following manner (such 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 such 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 such Existing Holder
which such 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 such
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 such
Existing Holder (a "Bid"); and/or (iii) the principal amount of outstanding
auction rate notes, if any, held by such Existing Holder which such 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 such 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 such
Potential Holder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Holder and each Potential Holder placing an Order is referred to as a "Bidder."
C-3
<PAGE> 167
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 such Bid if the
series interest rate will be less than the rate specified in such Bid, (ii) such
principal amount or a lesser principal amount of outstanding auction rate 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 such Bid or
(iii) such 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 such
Sell Order or (ii) such 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 Holder will constitute an irrevocable offer to purchase: (i)
the principal amount of outstanding auction rate notes specified in such Bid if
the series interest rate will be higher than the rate specified in such Bid or
(ii) such principal amount or a lesser principal amount of outstanding auction
rate notes as described below in "Acceptance and Rejection of Orders," if the
series interest rate is equal to the rate specified in such Bid.
Each broker-dealer will submit in writing to the auction agent prior to
the Submission Deadline on each interest determination date all Orders obtained
by such broker-dealer and will specify with respect to each such Order: (i) the
name of the Bidder placing such Order; (ii) the aggregate principal amount of
auction rate notes that are the subject of such Order; (iii) to the extent that
such Bidder is an Existing Holder: (a) the principal amount of auction rate
notes, if any, subject to any Hold Order placed by such Existing Holder; (b) the
principal amount of auction rate notes, if any, subject to any Bid placed by
such Existing Holder and the rate specified in such Bid; and (c) the principal
amount of auction rate notes, if any, subject to any Sell Order placed by such
Existing Holder; and (iv) to the extent such Bidder is a Potential Holder, the
rate specified in such Potential Holder's Bid.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the auction agent will round such rate up to the
next highest 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 such Existing Holder covering the principal amount of
outstanding auction rate notes held by such 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 such Existing Holder. An Existing Holder that offers to purchase
additional auction rate notes is, for purposes of such 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 such
Existing Holder, such Orders will be considered valid as follows and in the
order of priority described below.
HOLD ORDERS. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of outstanding auction rate notes held by such
Existing Holder, and if the aggregate principal amount of auction rate notes
subject to such Hold Orders exceeds the aggregate principal amount of auction
rate notes held by such Existing Holder, the aggregate principal amount of
auction rate notes subject to each such Hold Order will be reduced pro rata so
that the aggregate principal amount of auction rate notes subject to all such
Hold Orders equals the aggregate principal amount of outstanding auction rate
notes held by such Existing Holder.
C-4
<PAGE> 168
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 such 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 such Existing Holder and the
aggregate principal amount of outstanding auction rate notes subject to such
Bids is greater than such excess, such Bids will be considered valid up to the
amount of such excess. Subject to the two preceding sentences, if more than one
Bid with different rates are submitted on behalf of such Existing Holder, such
Bids will be considered valid first in the ascending order of their respective
rates until the highest rate is reached at which such excess exists and then at
such rate up to the amount of such excess. In any event, the aggregate principal
amount of outstanding auction rate notes, if any, subject to Bid 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
such 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 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
pursuant to the procedures described above is referred to as a "Submitted Hold
Order." a "Submitted Bid" and a "Submitted Sell Order," respectively
(collectively, "Submitted Orders").
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:
(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 (such excess being hereinafter
referred to as the "Available auction rate notes"); and
(b) from such 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 such excess or such equality exists other
than because all of the outstanding auction rate notes are subject to Submitted
Hold Orders, such 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 such Submitted Clearing Bids such that if:
(i) each such Submitted Bid from Existing Holders specifying such
lowest rate and all other Submitted Bids from Existing Holders
specifying lower rates were rejected (thus entitling such Existing
Holders to continue to hold the principal amount of auction rate notes
subject to such Submitted Bids); and
(ii) each such Submitted Bid from Potential Holders specifying such
lowest rate and all other Submitted Bids from Potential Holders
specifying lower rates, were accepted,
the result would be that such Existing Holders described in subparagraph (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 such Potential Holders
described in subparagraph (ii) above, would equal not less than the Available
auction rate notes.
C-5
<PAGE> 169
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 thereof on
the interest determination date, and based on such 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 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 17%.
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 such 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 17%, the series interest rate shall be equal to 17%. 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
17%. In any of the cases described above in this paragraph, Submitted Orders
will be accepted or rejected and the auction agent will take such other action
as describe 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 such
Existing Holder to sell the aggregate principal amount of auction rate notes
subject to such Submitted Bids;
(b) Existing Holders' Submitted Bids specifying any rate that is lower
than the series interest rate will be rejected, thus entitling each such
Existing Holder to continue to hold the aggregate principal amount of auction
rate notes subject to such Submitted Bids;
(c) Potential Holders' Submitted Bids specifying any rate that is lower
than the series interest rate will be accepted;
(d) Each Existing Holder's Submitted Bid specifying a rate that is
equal to the series interest rate will be rejected, thus entitling such Existing
Holder to continue to hold the aggregate principal amount of auction rate notes
subject to such Submitted Bid, unless the aggregate principal amount of auction
rate notes subject to such Submitted Bids will be greater than the principal
amount of auction rate notes (the "remaining principal amount")
C-6
<PAGE> 170
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 such Submitted Bid of such
Existing Holder will be rejected in part and such Existing Holder will be
entitled to continue to hold the principal amount of auction rate notes subject
to such Submitted Bid, but only in an amount 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 such Existing Holder subject to such
Submitted Bid and the denominator of which will be the sum of the principal
amount of outstanding auction rate notes subject to such Submitted Bids made by
all such 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 in an amount 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 such 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 such 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 such
Existing Holders to continue to hold the aggregate principal amount of auction
rate notes subject to such 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
(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 such Submitted Bid or Submitted Sell Order to sell the auction
rate notes subject to such Submitted Bid or Submitted Sell Order, but in both
cases only in an amount equal to the aggregate principal amount of auction rate
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 such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the denominator of which will be the
aggregate principal amount of outstanding auction rate notes subject to all such
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 such 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 thereof, the auction agent
will, in such 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
C-7
<PAGE> 171
Holder, even if such allocation results in one or more of such 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 such
aggregate principal amount of auction rate notes to be sold differs from such
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
such broker-dealer will deliver, or from which broker-dealers acting for one or
more sellers such broker-dealer will receive, as the case may be, auction rate
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 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 such Order was a Bid or Sell Order,
whether such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., 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 such Bidder of the series
interest rate for the next interest accrual period and, if such Order was a Bid
or a Sell Order, whether such Bid or Sell Order was accepted or rejected, in
whole or in part, confirm purchases and sales with each Bidder purchasing or
selling auction rate 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
such auction rate notes or to deliver such auction rate notes against payment
therefor, as appropriate. Pursuant to 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.
In accordance with 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 in accordance with its normal
procedures, which now provide for payment against delivery by its Participants
in immediately available funds.
If any Existing Holder selling auction rate notes in an Auction fails
to deliver such auction rate notes, the broker-dealer of any person that was to
have purchased auction rate notes in such Auction may deliver to such 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 such person but in any
event equal to an Authorized Denomination. In such event, the principal amount
of auction rate notes to be delivered will be determined by such broker-dealer.
Delivery of such 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 pursuant to an Auction or otherwise. For a further description
of the settlement procedures, see Appendix D, "Settlement Procedures."
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 indenture
trustee may conclusively rely upon 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
such information.
C-8
<PAGE> 172
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 such 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 such 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 such 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 upon the issuance or auction
period conversion of such 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 a 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 such auction
period, a certificate from the issuer authorizing an auction period adjustment
specified in such 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 such 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 pursuant to 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 17%, 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 pursuant to 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 of the maximum auction rate and the net loan rate
for the auction rate notes, but in no event greater than 17%, 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 in accordance with 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 wee 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 such 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
such change a written request for consent. The calculation agent will provide
notice of its determination to specify an earlier interest determination date
for one o 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. Such 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 such 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 such further notice to
such parties as is specified in the Auction Agent Agreement.
C-9
<PAGE> 173
APPENDIX D
SETTLEMENT PROCEDURES
If not otherwise defined below, capitalized terms used below will have
the meanings given such terms in the indenture. These Settlement procedures
apply separately to each series of auction rate notes.
(a) Not later than (1) 3:00 P.M., eastern time, if the series
interest rate is the auction rate or (2) 4:00 P.M., eastern time, if the series
interest rate is the net loan rate for the auction rate notes, on each interest
determination date, the auction agent will notify by telephone each
broker-dealer that participated in the Auction held on such interest
determination date and submitted an Order on behalf of an Existing Holder or
Potential Holder of:
(i) the series interest rate fixed for the next interest
accrual period;
(ii) whether there were Sufficient Clearing Bids in such
Auction;
(iii) if such broker-dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Holder, whether
such Bid or Sell Order was accepted or rejected, in whole or in part,
and the principal amount of auction rate notes, if any, to be purchased
or sold by such Existing Holder;
(iv) if such broker-dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Holder, whether such Bid was
accepted or rejected, in whole or in part, and the principal amount of
auction rate notes, if any, to be purchased by such Potential Holder;
(v) if the aggregate amount of auction rate notes to be
sold by all Existing Holders on whose behalf such Seller's
Broker-Dealer submitted Bids or Sell Orders exceeds the aggregate
principal amount of auction rate notes to be purchased by all Potential
Holders on whose behalf such Buyer's Broker-Dealer submitted a Bid, the
name or names of one or more Buyer's Broker-Dealers (and the name of
the Participant, if any, of each such Buyer's Broker-Dealer) acting for
one or more purchaser of such excess principal amount of auction rate
notes and the principal amount of auction rate notes to be purchased
from one or more Existing Holders on whose behalf such Seller's
Broker-Dealer acted by one or more Potential Holders on whose behalf
each of such Buyer's Broker-Dealers acted;
(vi) if the principal amount of auction rate notes to be
purchased by all Potential Holders on whose behalf such Buyer's
Broker-Dealer submitted a Bid exceeds the amount of auction rate notes
to be sold by all Existing Holders on whose behalf such Seller's
Broker-Dealer submitted a Bid or a Sell Order, the name or names of one
or more Seller's Broker-Dealers (and the name of the Participant, if
any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess principal amount of auction rate notes and the
principal amount of auction rate notes to be sold to one or more
Potential Holders on whose behalf such Buyer's Broker-Dealer acted by
one or more Existing Holders on whose behalf each of such Seller's
Broker-Dealers acted; and
(vii) the interest determination date for the next
succeeding Auction.
(b) On each interest determination date, each broker-dealer that
submitted an Order on behalf of any Existing Holder or Potential Holder will:
(i) advise each Existing Holder and Potential Holder on
whose behalf such broker-dealer submitted a Bid or Sell Order in the
Auction on such interest determination date whether such Bid or Sell
Order was accepted or rejected, in whole or in part;
(ii) in the case of a broker-dealer that is a Buyer's
Broker-Dealer, advise each Potential Holder on whose behalf such
Buyer's Broker-Dealer submitted a Bid that was accepted, in whole or in
part, to instruct such Potential Holder's Participant to pay to such
Buyer's Broker-Dealer (or its Participant) through the Depository the
amount necessary to purchase the principal amount of the auction rate
notes to be purchased pursuant to such Bid against receipt of such
auction rate notes;
D-1
<PAGE> 174
(iii) in the case of a broker-dealer that is a Seller's
Broker-Dealer, instruct each Existing Holder on whose behalf such
Seller's Broker-Dealer submitted a Sell Order that was accepted, in
whole or in part, or a Bid that was accepted, in whole or in part, to
instruct such Existing Holder's Participant to deliver to such Seller's
Broker-Dealer (or its Participant) through the Depository the principal
amount of auction rate notes to be sold pursuant to such Order against
payment therefor;
(iv) advise each Existing Holder on whose behalf such
broker-dealer submitted an Order and each Potential Holder on whose
behalf such broker-dealer submitted a Bid of the series interest rate
for the next interest accrual period;
(v) advise each Existing Holder on whose behalf such
broker-dealer submitted an Order of the next interest determination
date; and
(vi) advise each Potential Holder on whose behalf such
broker-dealer submitted a Bid that was accepted, in whole or in part,
of the next interest determination date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each broker-dealer that submitted a Bid or Sell Order in an
Auction is required to allocate any funds received by it in connection with such
Auction pursuant to paragraph (b)(ii) above, and any auction rate notes received
by it in connection with such Auction pursuant to paragraph (b)(iii) above,
among the Potential Holders, if any, on whose behalf such broker-dealer
submitted Bids, the Existing Holders, if any on whose behalf such broker-dealer
submitted Bids or Sell Orders in such Auction, and any broker-dealers identified
to it by the auction agent following such Auction pursuant to paragraph (a)(v)
or (a)(vi) above.
(d) On each interest determination date:
(i) each Potential Holder and Existing Holder with an
Order in the Auction on such interest determination date will instruct
its Participant as provided in (b)(ii) or (b)(iii) above, as the case
may be:
(ii) each Seller's broker-dealer that is not a Participant
of the Depository will instruct its Participant to (A) pay through the
Depository to the Participant of the Existing Holder delivering auction
rate notes to such broker-dealer following such Auction pursuant to
paragraph (b)(ii) above the amount necessary to purchase such auction
rate notes against receipt of such auction rate notes and (B) deliver
such auction rate notes through the Depository to a Buyer's
Broker-Dealer (or its Participant) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant
in the Depository will instruct its Participant to pay through the
Depository to Seller's Broker-Dealer (or its Participant) identified
following such Auction pursuant to (a)(vi) above the amount necessary
to purchase the auction rate notes to be purchased pursuant to (b)(ii)
above against receipt of such auction rate notes.
(e) On the business day following each interest determination date:
(i) each Participant for a Bidder in the Auction on such
interest determination date referred to in (d)(i) above will instruct
the Depository to execute the transactions described under (b)(ii) or
(b)(iii) above for such Auction, and the Depository will execute such
transactions;
(ii) each Seller's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(ii) above for such Auction, and the Depository will execute such
transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will
instruct the Depository to execute the transactions described in
(d)(iii) above for such Auction, and the Depository will execute such
transactions.
(f) If an Existing Holder selling auction rate notes in an Auction
fails to deliver such auction rate notes (by authorized book-entry), a
broker-dealer may deliver to the Potential Holder on behalf of which it
submitted a Bid that was accepted a principal amount of auction rate notes that
is less than the principal amount of auction rate notes that otherwise was to be
purchased by such Potential Holder. In such event, the principal amount of
auction rate notes to be so delivered will
D-2
<PAGE> 175
be determined solely by such broker-dealer. Delivery of such lesser principal
amount of auction rate notes will constitute good delivery. Notwithstanding the
foregoing terms of this paragraph (f), any delivery or nondelivery of auction
rate notes which will represent any departure from the results of an Auction, as
determined by the auction agent, will be of no effect unless and until the
auction agent will have been notified of such delivery or nondelivery in
accordance with the provisions of the Auction Agent Agreement and the
Broker-Dealer Agreements. Neither the indenture trustee nor the auction agent
shall have any responsibility or liability with respect to the failure of a
Potential Holder, Existing Holder or their respective broker-dealer or
Participant to take delivery of or deliver, as the case may be, the principal
amount of the auction rate notes or to pay for the auction rate notes purchased
or sold pursuant to an Auction or otherwise.
D-3
<PAGE> 176
APPENDIX E
FORM OF MASTER PURCHASER'S LETTER
TO BE SUBMITTED TO YOUR BROKER-DEALER
Relating to Securities Involving Rate Settings
Through Auctions or Remarketings
To: The Corporation
Remarketing Agent
The Trust Company
A Broker-Dealer
An Agent Member
Other Persons
Ladies and Gentlemen:
1. This letter is designed to apply to auctions for publicly or
privately offered debt or equity securities ("Securities") of any issuer
("Corporation") which are described in any final prospectus or other offering
materials relating to such Securities as the same may be amended or supplemented
(collectively, with respect to the particular Securities concerned, the
"Prospectus"), and which involve periodic rate settings through auctions
("Auctions"). This letter shall be for the benefit of any Corporation and of any
trust company or auction agent (collectively, "trust company"), broker-dealer,
agent member, securities depository or other interest person in connection with
any Securities and related Auctions (it being understood that such persons may
be required to execute specified agreements and nothing herein shall alter such
requirements). The terminology used herein is intended to be general in its
application and not to exclude any Securities in respect of which (in the
Prospectus or otherwise) alternative terminology is used.
2. We may from time to time offer to purchase, offer to sell and/or
sell Securities of any Corporation as described in the Prospectus relating
thereto. We agree that this letter shall apply to all such purchases, sales and
offers and to Securities owned by us. We understand that the dividend/interest
rate on Securities may be based from time to time on the result of Auctions as
set forth in the Prospectus.
3. We agree that any bid or sell order placed by us shall constitute an
irrevocable offer by us to purchase or sell the Securities subject to such bid
or sell order, or such lesser amount of Securities as we shall be required to
sell or purchase as a result of such Auction, at the applicable price, all as
set forth in the Prospectus, and that if we fail to place a bid or sell order
with respect to Securities owned by us with a broker-dealer on any auction date,
or a broker-dealer to which w communicate a bid or sell order fails to submit
such bid or sell order to the trust company concerned, we shall be deemed to
have placed a hold order with respect to such Securities as described in the
Prospectus. We authorize any broker-dealer that submits a bid or sell order as
our agent in Auctions to execute contracts for the sale of Securities covered by
such bid or sell order. We recognize that the payment by such broker-dealer for
Securities purchased on our behalf shall not relieve us of any liability to such
broker-dealer for payment for such Securities.
4. We agree that, during the applicable period as described in the
Prospectus, dispositions of Securities can be made only in the denominations set
forth in the Prospectus and we will sell, transfer or otherwise dispose of any
Securities held by us from time to time only pursuant to a bid or sell order
placed in an Auction, to or through a broker-dealer or, when permitted in the
Prospectus, to a person that has signed and delivered, or caused to be delivered
on its behalf, to the applicable trust company a letter substantially in the
form of this letter (or other applicable purchasers' letter), provided that in
case of all transfers other than pursuant to Auctions we or our broker-dealer or
our agent member shall advise such trust company of such transfer. We understand
that a restrictive legend will be placed on certificates representing the
Securities and stop-transfer instructions will be issued to the transfer agent
and/or registrar, all as set forth in the Prospectus. We agree to comply with
any other transfer restrictions or other related procedures as described in the
Prospectus.
E-1
<PAGE> 177
5. We agree that, during the applicable period as described in the
Prospectus, ownership of Securities shall be represented by a global certificate
registered in the name of the applicable securities depository or its nominee,
that we will not be entitled to receive any certificate representing the
Securities and that our ownership of any Securities will be maintained in
book-entry form by the securities depository for the account of our agent
member, which in turn will maintain records of our beneficial ownership. We
authorize and instruct our agent member to disclose to the applicable trust
company such information concerning our beneficial ownership of securities as
such trust company shall request.
6. We acknowledge that partial deliveries of Securities purchased in
Auctions may be made to us and such deliveries shall constitute good delivery as
set forth in the Prospectus.
7. This letter is not a commitment by us to purchase any Securities.
8. This letter supersedes any prior-dated version of this master
purchaser's letter, and supplements any prior or post-dated purchaser's letter
specific to particular Securities; any recipient of this letter may rely upon it
until such recipient has received a signed writing amending or revoking this
letter.
9. The descriptions of Auction procedures set forth in each
applicable Prospectus are incorporated by reference herein and, in case of any
conflict between this letter and any such description, such description shall
control.
10. Any photocopy or other reproduction of this letter, if signed,
shall be deemed of equal effect as a signed original.
11. Our agent member of the Securities Depository currently is
____________________________________________.
12. Our personnel authorized to place orders with broker-dealers for
the purposes set forth in the Prospectus in Auctions is/are ___________________,
telephone number (___) ________.
13. Our taxpayer identification number is _____________________.
14. In the case of each offer to purchase, offer to sell or sale by us
of Securities not registered under the Securities Act of 1933, as amended (the
"Act"), we represent and agree as follows:
We understand and expressly acknowledge that the Securities have
not been and will not be registered under the Act and, accordingly, that the
Securities may not be reoffered, resold or otherwise pledged, hypothecated or
transferred unless an applicable exemption for the registration requirements of
the Act is available.
14.1 We hereby confirm that any purchase of Securities by us will be
for our own account, or for the account of one or more parties for which we are
acting as trustee or agent with complete investment discretion and with
authority to bind such parties, and not with a view to any public resale or
distribution thereof. We and each other party for which we are acting which will
acquire Securities will be "qualified institutional buyers" within the meaning
of Rule 144A under the Act or "accredit investors" within the meaning of
Regulation D under the Act with respect to the Securities to be purchased by us
or such party, as the case may be, will have previously invested in similar
types of instruments and will be able and prepared to bear the economic risk of
investing in and holding such Securities.
14.2 We acknowledge that prior to purchasing any Securities we shall
have received a prospectus (private placement memorandum) with respect thereto
and acknowledge that we will have had access to such financial and other
information, and have been afforded the opportunity to ask such questions of
representatives of the Corporation and receive answers thereto, as we deem
necessary in connection with our decision to purchase Securities.
14.3 We recognize that the Corporation and broker-dealers will rely
upon the truth and accuracy of the foregoing investment representations and
agreements, and we agree that each of our purchases of Securities now or in the
future shall be deemed to constitute our concurrence in all of the foregoing
which shall be binding on us and each party for which we are acting as set forth
in Subparagraph 14.1 above.
E-2
<PAGE> 178
Dated:
---------------------------------------------
(Name of Purchaser)
By:
-----------------------------------------
Printed Name:
--------------------------------
Title:
--------------------------------------
Mailing Address of Purchaser:
---------------------------------------------
---------------------------------------------
---------------------------------------------
E-3
<PAGE> 179
The trust has not authorized anyone to provide any information in connection
with this offering other than the information contained in this prospectus. You
should rely only on the information contained in this prospectus in deciding
whether to make an investment in the new notes. This prospectus is not an offer
to sell or the solicitation of an offer to buy any security other than the new
notes. This prospectus is not an offer to sell nor the solicitation of an offer
to buy to any person in a jurisdiction where the offer or solicitation is not
permitted or in which the person making such offer or solicitation is not
qualified, or to any person to whom it is not lawful to make such offer or
solicitation. The delivery of and any sale made under this prospectus does not
imply that there has been no change in the affairs of the trust since the date
of this prospectus.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Where You Can Find More Information
The Issuer
The Depositor
Use of Proceeds
The Exchange Offer
The Financed Student Loans
Transfer and Sale Agreement
Maturity and Prepayment Considerations
Description of the FFEL Program
Servicing
The Guarantee Agencies
Description of the New Notes
Redemption
Security for the Notes
The Indenture
Federal Income Tax Consequences
State Tax Considerations
ERISA Considerations
Legal Matters
Rating
Plan of Distribution
Until August 25, 1999 (90) days after the date of this prospectus), all
dealers that effect transactions in the new notes, whether or not participating
in this exchange offer, may be required to deliver a prospectus. This is in
addition to the dealer's obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
EXCHANGE OFFER FOR
SENIOR ASSET-BACKED NOTES,
SERIES 1998A1-3 (LIBOR FLOATING RATE),
SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1998A1-4 (AUCTION RATE),
SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1998A1-5 (AUCTION RATE),
SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES 1998A1-6 (AUCTION RATE),
AND
SUBORDINATE ASSET-BACKED NOTES,
SERIES 1998B1-3 (FIXED RATE)
STUDENT LOAN FUNDING 1998-A/B
TRUST
PROSPECTUS
May 26, 1999
<PAGE> 180
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The issuer was organized as a common law trust under the laws of the State of
Delaware and has no officers or directors. The trust agreement provides,
however, that the depositor will, subject to certain exceptions, indemnify each
of the Delaware trustee, the co-owner trustee and the co-owner eligible lender
trustee and their respective agents and servants from and against any
liabilities, losses, damages, actions, suits, costs and expenses arising out of
its service to the issuer as the Delaware trustee, co-owner trustee or co-owner
eligible lender trustee, as applicable. The trust agreement further provides
that such indemnification claims shall be recourse to the trust property only
and not to the individual assets of the depositor.
The depositor's Limited Liability Company Agreement (the "LLC Agreement")
implements the provisions of the Delaware Limited Liability Company Act (the
"Act"), that provide for the limitation of liability of the depositor's members,
manager and member of its management committee. The depositor's LLC Agreement
limits the liability of its members, manager and members of its management
committee to the fullest extent permitted under the Act.
The depositor's LLC Agreement provides for the mandatory indemnification, to the
fullest extent permitted under the Act and to the extent of the depositor's
assets, subject to certain exceptions, of each of the depositor's present and
former management committee members against any liabilities, including
liabilities under the Securities Act, incurred by reason of the fact that such
person is or was a management committee member of the depositor. The depositor's
LLC Agreement also provides for the mandatory indemnification, to the fullest
extent permitted under the Act, subject to certain exceptions, of each of the
depositor's present and former managers against any liabilities, including
liabilities under the Securities Act, incurred by reason of the fact that such
person is or was a manager of the depositor. The depositor's LLC Agreement
provides for the discretionary indemnification to the same extent as the
manager, of any other officer or agent of the depositor.
The depositor has entered into an agreement with respect to its two independent
management committee members in which the depositor has agreed that such
management committee members or any of their affiliates shall not be liable to
any party, except in the cases of bad faith and negligence, in connection with
any transaction of the depositor. Furthermore, pursuant to such agreement, the
depositor has agreed to indemnify and hold harmless such management committee
members and their affiliates for any liabilities, including liabilities under
the Securities Act, incurred in good faith and without negligence in connection
with any of the transactions of the depositor.
Student Loan Funding Resources, Inc. maintains an insurance policy providing
liability insurance for any liability that the members, management committee
members, managers or officers of the depositor may incur in their capacities as
such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
1.1 Form of Dealer Manager Agreement
3.1 Certificate of Formation for Student Loan Funding LLC+
3.2 Limited Liability Company Agreement for Student Loan Funding LLC+
3.3 Form of Trust Agreement between Student Loan Funding LLC and the
eligible lender trustee+
4.1 Second Amended and Restated Indenture of Trust, dated as of June 1,
1999, by and Firstar Bank, N.A., as co-owner trustee, Firstar Bank,
N.A., as initial eligible lender trustee and Firstar Bank, N.A., as
indenture trustee
4.2 Second Amended and Restated Terms Supplement to the Second Amended and
Restated Indenture of Trust, dated as of June 1, 1999, by and Firstar
Bank, N.A., as co-owner trustee, Firstar Bank, N.A., as initial
eligible lender trustee and Firstar Bank, N.A., as indenture trustee
4.3 Registration Rights Agreement, dated as of December 1, 1998, by and
between Student Loan Funding LLC and Salomon Smith Barney, Inc.+
4.4 Form of old Senior Asset-Backed Note, Series 1998A-3 (LIBOR Rate)
4.5 Form of old Senior Asset-Backed Callable Note, Series 1998A-4 (Auction
Rate)
4.6 Form of old Senior Asset-Backed Callable Note, Series 1998A-5
(Auction Rate)
4.7 Form of old Senior Asset-Backed Callable Note, Series 1998A-6
(Auction Rate)
4.8 Form of old Subordinate Asset-Backed Note, Series 1998B-3
(Fixed Rate)
4.9 Form of new Senior Asset-Backed Note, Series 1998A1-3 (LIBOR
Rate)
4.10 Form of new Senior Asset-Backed Callable Note, Series 1998A1-4
(Auction Rate)
4.11 Form of new Senior Asset-Backed Callable Note, Series 1998A1-5 (Auction
Rate)
4.12 Form of new Senior Asset-Backed Callable Note, Series 1998A1-6 (Auction
Rate)
4.13 Form of new Subordinate Asset-Backed Note, Series 1998B1-3 (Fixed Rate)
5.1 Opinion of Thompson Hine & Flory LLP with respect to legality
8.1 Opinion of Thompson Hine & Flory LLP with respect to federal tax
matters+
10.1 Master Servicing Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as Co-owner Trustee, and Student Loan Funding
Resources, Inc.+
10.2 Administration Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as Co-owner Trustee, and Student Loan Funding
Resources, Inc.+
10.3 Transfer and Sale Agreement, dated as of March 15, 1999, by and between
Student Loan Funding LLC, Firstar Bank, N.A., as eligible lender
trustee and Firstar Bank, N.A. as co-owner trustee for the trust+
10.4 Eligible Lender Trustee Agreement, dated as of March 15, 1999, by and
between Firstar Bank, N.A. as eligible lender trustee and Firstar Bank,
N.A. as co-owner trustee+
10.5 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Florida Department of Education, Office of Student Financial
Assistance+
10.6 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Georgia Higher Education Assistance Corporation+
10.7 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and United Student Aid Funds, Inc.+
II-1
<PAGE> 181
10.8 Guarantee Agreement between the eligible lender trustee on behalf of the
issuer and Kentucky Higher Education Assistance Authority+
10.9 Guarantee Agreement between the eligible lender trustee on behalf of
the issuer and Great Lakes Higher Education Guaranty Corporation+
10.10 Consent of Georgia Higher Education Assistance Corporation
10.11 Consent of United Student Aid Funds, Inc.
10.12 Consent of Kentucky Higher Education Assistance Authority
10.13 Consent of Great Lakes Higher Education Guaranty Corporation
23.1 Consent of Thompson Hine & Flory LLP (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 Statement of eligibility and qualification of Firstar Bank, N.A., as the
trustee under the indenture filed as Exhibit 4.1 (Form T-1)+
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
+Previously filed
(b) Financial Statement Schedules:
All financial statements, schedules and historical financial information have
been omitted as they are not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof; and
II-2
<PAGE> 182
(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) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati,
State of Ohio, on May 24, 1999.
FIRSTAR BANK, N.A., not in its individual capacity
but solely in its capacity as co-owner trustee for
STUDENT LOAN FUNDING 1998-A/B TRUST
By: /s/ Brian J. Gardner
------------------------------------------
Brian J. Gardner,
Vice President & Trust Officer
STUDENT LOAN FUNDING LLC
By: /s/ Perry D. Moore
------------------------------------------
Perry D. Moore,
Vice President and Manager
II-4
<PAGE> 184
POWER OF ATTORNEY
Each person whose signature appears below constitutes and Thomas L.
Conlan, Jr. and Perry D. Moore as that person's true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for such person and in such person's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this pre-effective amendment to the registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the SEC, 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, hereby 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, as amended,
pre-effective amendment to the registration statement has been signed by the
following persons in the capacities for Student Loan Funding LLC and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Thomas L. Conlan, Jr. Management Committee member and April 26, 1999
- ------------------------------ Chief Executive Officer
Thomas L. Conlan, Jr. And President
(Principal Executive Officer)
/s/ Perry D. Moore Management Committee Member and April 26, 1999
- ------------------------------ Vice President
Perry D. Moore
/s/ Christopher P. Chapman Management Committee Member April 26, 1999
- ------------------------------
Christopher P. Chapman
/s/ Mark A Ferrucci Management Committee Member April 26, 1999
- ------------------------------
Mark A Ferrucci
/s/ Kimberly E. Lutthans Management Committee Member April 26, 1999
- ------------------------------
Kimberly E. Lutthans
</TABLE>
II-5
<PAGE> 185
EXHIBIT INDEX
1.1 Form of Dealer Manager Agreement
3.1 Certificate of Formation for Student Loan Funding LLC+
3.2 Limited Liability Company Agreement for Student Loan Funding LLC+
3.3 Form of Trust Agreement between Student Loan Funding LLC and the
eligible lender trustee+
4.1 Second Amended and Restated Indenture of Trust, dated as of June 1,
1999, by and Firstar Bank, N.A., as co-owner trustee, Firstar Bank,
N.A., as initial eligible lender trustee and Firstar Bank, N.A., as
indenture trustee
4.2 Second Amended and Restated Terms Supplement to the Second Amended and
Restated Indenture of Trust, dated as of June 1, 1999, by and Firstar
Bank, N.A., as co-owner trustee, Firstar Bank, N.A., as initial
eligible lender trustee and Firstar Bank, N.A., as indenture trustee
4.3 Registration Rights Agreement, dated as of December 1, 1998, by and
between Student Loan Funding LLC and Salomon Smith Barney, Inc.+
4.4 Form of old Senior Asset-Backed Note, Series 1998A-3 (LIBOR Rate)
4.5 Form of old Senior Asset-Backed Callable Note, Series 1998A-4 (Auction
Rate)
4.6 Form of old Senior Asset-Backed Callable Note, Series 1998A-5 (Auction
Rate)
4.7 Form of old Senior Asset-Backed Callable Note, Series 1998A-6 (Auction
Rate)
4.8 Form of old Subordinate Asset-Backed Note, Series 1998B-3 (Fixed Rate)
4.9 Form of new Senior Asset-Backed Note, Series 1998A1-3 (LIBOR Rate)
4.10 Form of new Senior Asset-Backed Callable Note, Series 1998A1-4 (Auction
Rate)
4.11 Form of new Senior Asset-Backed Callable Note, Series 1998A1-5 (Auction
Rate)
4.12 Form of new Senior Asset-Backed Callable Note, Series 1998A1-6 (Auction
Rate)
4.13 Form of new Subordinate Asset-Backed Note, Series 1998B1-3 (Fixed Rate)
5.1 Opinion of Thompson Hine & Flory LLP with respect to legality
8.1 Opinion of Thompson Hine & Flory LLP with respect to federal tax
matters+
10.1 Master Servicing Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as co-owner trustee, and Student Loan Funding
Resources, Inc.+
10.2 Administration Agreement, dated as of March 15, 1999, by and between
Firstar Bank, N.A., as co-owner trustee, and Student Loan Funding
Resources, Inc.+
10.3 Transfer and Sale Agreement, dated as of March 15, 1999, by and between
Student Loan Funding LLC, Firstar Bank, N.A., as eligible lender
trustee and Firstar Bank, N.A. as Co-owner Trustee for the trust+
10.4 Eligible Lender Trustee Agreement, dated as of March 15, 1999, by and
between Firstar Bank, N.A. as eligible lender trustee and Firstar Bank,
N.A. as Co-owner Trustee+
10.5 Guarantee Agreement between the eligible lender trustee on behalf of
the issuer and Florida Department of Education, Office of Student
Financial Assistance+
10.6 Guarantee Agreement between the eligible lender trustee on behalf of
the issuer and Georgia Higher Education Assistance Corporation+
10.7 Guarantee Agreement between the eligible lender trustee on behalf of
the issuer and United Student Aid Funds, Inc.+
10.8 Guarantee Agreement between the eligible lender trustee on behalf of
the issuer and Kentucky Higher Education Assistance Authority+
10.9 Guarantee Agreement between the eligible lender trustee on behalf of
the issuer and Great Lakes Higher Education Guaranty Corporation+
10.10 Consent of Georgia Higher Education Assistance Corporation
10.11 Consent of United Student Aid Funds, Inc.
10.12 Consent of Kentucky Higher Education Assistance Authority
10.13 Consent of Great Lakes Higher Education Guaranty Corporation
23.1 Consent of Thompson Hine & Flory LLP (contained in their opinions filed
as Exhibits 5.1 and 8.1)
24.1 Power of Attorney (contained on the signature page hereof)
II-6
<PAGE> 186
25.1 Statement of eligibility and qualification of Firstar Bank, N.A., as
the trustee under the indenture filed as Exhibit 4.1 (Form T-1)+
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
+Previously filed
II-7
<PAGE> 1
DEALER MANAGER AGREEMENT
------------------------
_______________, 1999
Salomon Smith Barney Inc.
388 Greenwich Street, 32nd Floor
New York, New York 10013
Dear Sirs:
1. EXCHANGE OFFER. Student Loan Funding 1998-A/B Trust, a common law
trust formed under the laws of the state of Delaware (the "Trust"), plans to
make an offer to exchange its $365,031,478.23 aggregate principal amount of
Student Loan Senior Asset-Backed Notes, Series 1998A1-3 (LIBOR Floating Rate),
$93,300,000 aggregate principal amount of Student Loan Senior Asset-Backed
Callable Notes, Series 1998A1-4 (Auction Rate), $90,000,000 aggregate principal
amount of Student Loan Senior Asset-Backed Callable Notes, Series 1998A1-5
(Auction Rate), $90,000,000 aggregate principal amount of Student Loan Senior
Asset-Backed Callable Notes, Series 1998A1-6 (Auction Rate) and $54,500,000
aggregate principal amount of Student Loan Subordinate Asset-Backed Notes,
Series 1998B1-3 (Fixed Rate) (collectively, the "Exchange Notes"), respectively,
for an equal principal amount of its $365,031,478.23 aggregate principal amount
of Student Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate),
$93,300,000 aggregate principal amount of Student Loan Senior Asset-Backed
Callable Notes, Series 1998A-4 (Auction Rate), $90,000,000 aggregate principal
amount of Student Loan Senior Asset-Backed Callable Notes, Series 1998A-5
(Auction Rate), $90,000,000 aggregate principal amount of Student Loan Senior
Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate) and $54,500,000
aggregate principal amount of Student Loan Subordinate Asset-Backed Notes,
Series 1998B-3 (Fixed Rate) (collectively, the "Original Notes") on the terms
and subject to the conditions set forth in the Prospectus (as hereinafter
defined) relating to the exchange and the accompanying letters of transmittal
(each a "Letter of Transmittal"). The offer to exchange the Exchange Notes for
the Original Notes on the terms and subject to the conditions set forth in the
Prospectus and the related Letters of Transmittal is referred to individually as
an "Exchange Offer", and the offers with respect to all of the Exchange Notes
are collectively referred to as the "Exchange Offers". Capitalized terms not
defined herein shall have the meanings set forth in the Prospectus.
The Exchange Offers are expected to be commenced by the Trust on or
about June __, 1999 (the "Commencement Date"). The Exchange Offers shall expire
at 5:00 p.m., New York City time, on June __ 1999 or on such later date or time
to which the Trust may extend the Exchange Offers (the "Expiration Date").
The Trust expressly reserves the right to amend or terminate the
Exchange Offers and not to accept for exchange any Original Notes not
theretofore accepted for exchange, upon the occurrence of the conditions of the
Exchange Offers specified in the Prospectus under the caption "The Exchange
Offer--Certain Conditions to the Exchange Offer". The Trust will give oral
(promptly confirmed in writing) or written notice of any amendment, termination
or nonacceptance to you as promptly as practicable.
<PAGE> 2
2. APPOINTMENT AS DEALER MANAGER. Student Loan Funding LLC, a Delaware
limited liability company (the "Depositor") and the Trust hereby appoint you as
exclusive Dealer Manager, and authorizes you to act as such, in connection with
the Exchange Offers. As Dealer Manager, you agree, in accordance with your
customary practice, to perform those services in connection with the Exchange
Offers as are customarily performed by investment banking firms in connection
with exchange offers of like nature, including, but not limited to, (i)
providing certain advice to the Depositor and the Trust regarding the terms and
timing of the Exchange Offers, (ii) using your best efforts to solicit tenders
of Original Notes pursuant to the Exchange Offers and to communicate with other
brokers, dealers, commercial banks and trust companies (individually, a "Dealer"
and collectively, "Dealers"), and (iii) mailing of the Prospectus, the related
Letters of Transmittal and other related documents to the holders of Original
Notes ("Holders"). If you and the Depositor and the Trust mutually agree that
you will provide any other services to the Trust, including financial advisory
or investment banking services, you and the Depositor and the Trust shall either
amend the terms of this Agreement or enter into a separate agreement covering
the terms and arrangements of such additional engagement.
3. NO LIABILITY FOR ACTS OF DEALERS. You shall have no liability (in
tort, contract or otherwise) to the Trust or any other person for any act or
omission on the part of any Dealer (other than yourself) and you shall have no
liability (in tort, contract or otherwise) to the Depositor or Trust or any
other person for any losses, claims, damages or liabilities arising from your
own acts or omissions in performing your obligations as Dealer Manager hereunder
or otherwise in connection with the Exchange Offers, except for any such losses,
claims, damages or liabilities attributable to your bad faith or gross
negligence. In soliciting or obtaining tenders, no Dealer, is to be deemed to be
acting as your agent or the agent of the Depositor or the Trust, and you, as
Dealer Manager, are not to be deemed the agent of the Depositor or the Trust,
any Dealer or any other person. The Depositor and the Trust acknowledge and
agrees that, in your capacity as Dealer Manager, you shall act as an independent
contractor, and any of your duties arising out of your engagement pursuant to
this Agreement shall be owed solely to the Depositor and the Trust.
4. REGISTRATION STATEMENT, PROSPECTUS AND EXCHANGE OFFER MATERIAL.
(a) The Depositor and the Trust has prepared and filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act") and the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), a registration statement on Form
S-4 covering the registration of the Exchange Notes issuable upon exchange for
the Original Notes. Such registration statement, including the exhibits thereto
and any documents incorporated by reference therein, as amended at the time it
becomes effective or as thereafter amended or supplemented from time to time, is
herein called the "Registration Statement." The final prospectus included in the
Registration Statement (including any documents incorporated in the prospectus
by reference) is herein called the "Prospectus," except that if the final
prospectus furnished to the Dealer Manager for use in connection with the
Exchange Offers differs from any prospectus set forth in the Registration
Statement (whether or not such prospectus is required to be filed pursuant to
Rule 424(b)), the term "Prospectus" shall refer to the final prospectus
furnished to the Dealer Manager for such use. The terms
-2-
<PAGE> 3
"supplement" and "amendment" or "supplemented" and "amended" as used herein with
respect to the Prospectus shall include all documents deemed to be incorporated
by reference in the Prospectus that are filed subsequent to the date of the
Prospectus and prior to the Termination Date by the Trust with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(b) The Registration Statement, Prospectus and the related Letters of
Transmittal; related letters from the Dealer Manager to securities brokers,
dealers, commercial banks, trust companies and other nominees; letters to
beneficial owners of Original Notes; notice of guaranteed delivery and any other
newspaper announcements, press releases and other offering materials and
information the Trust may use or prepare, approve or authorize for use in
connection with the Exchange Offers are herein collectively referred to as the
"Exchange Offer Material." The Trust authorizes you to use, and agrees to
furnish you with as many copies as you may reasonably request of, each of the
Exchange Offer Material in connection with the Exchange Offers and for such
period of time as any such material is required by law to be delivered in
connection therewith.
(c) The Trust agrees that, a reasonable time prior to using or filing
with the Commission or with any other Federal or other governmental agency,
authority or instrumentality ("Other Agency"), the Registration Statement or any
other Exchange Offer Material (whether preliminary or otherwise), the Trust will
submit copies of such material to you and will give reasonable consideration to
your and your counsel's comments, if any, thereon.
(d) Prior to and during the period of the Exchange Offers, the
Depositor or the Trust will inform you promptly after any senior executive
officer, senior accounting or legal officer or treasurer of the Depositor or the
Trust receives notice or becomes aware of the happening of any event, or the
discovery of any fact, which it believes would require the making of any change
in any Exchange Offer Material then being used or would affect the truth or
completeness of any representation or warranty contained in this Agreement if
such representation or warranty were being made immediately after the happening
of such event or the discovery of such fact.
(e) The Trust agrees that any reference to the Dealer Manager in any
Exchange Offer Material or in any newspaper announcements or press release or
other public document or communication is subject the Dealer Manager's prior
consent, which consent shall not be unreasonably withheld.
5. WITHDRAWAL. If the Trust (a) uses or permits the use of, or files
with the Commission or any Other Agency, any Exchange Offer Material (i) which
has not been submitted to you for your comments or (ii) which has been so
submitted and with respect to which you have made comments material to such
Exchange Offer Material but which comments have not resulted in a response
reasonably satisfactory to you and your counsel to reflect your comments or (b)
shall have breached, in any material respect, any of its representations,
warranties, agreements or covenants herein, then you shall be entitled to
withdraw as Dealer Manager in connection with the Exchange Offers without any
liability or penalty to you or any other Indemnified Person (as defined in
Section 12) for such withdrawal and without loss of any right to indemnification
or contribution provided in Section 12 or to the payment of all fees and
-3-
<PAGE> 4
expenses payable hereunder which have accrued to the date of such withdrawal. If
you withdraw as Dealer Manager for any of the reasons set forth in the preceding
sentence, the fees and reimbursement for your expenses through the date of such
withdrawal shall be paid to you promptly after such date.
6. COMPENSATION. The Depositor agrees to pay or cause the Trust to pay
you as compensation for your services as Dealer Manager a fee of $___________.
Such fee shall be payable promptly upon the acceptance for payment of Original
Notes tendered in response to the Exchange Offers or upon termination of the
Exchange Offers, as applicable.
7. EXPENSES. The Depositor will pay or cause the Trust to pay (i) all
fees and expenses relating to the preparation, printing, filing, mailing and
publishing of all documents pertaining to the Exchange Offers; (ii) all fees and
expenses of any depositary, information agent or other agents, attorneys and
other persons retained by the Depositor or the Trust in connection with the
Exchange Offers; (iii) all fees, if any, payable to Dealers (including the
Dealer Manager) as reimbursement for their customary mailing and handling
expenses in forwarding expenses related to the Exchange Offers to their
customers; (iv) all advertising charges; and (v) all other fees and expenses
incurred in connection with or relating to the Exchange Offers. In addition, the
Depositor agrees to reimburse or cause the Trust to reimburse the Dealer Manager
and its affiliates, promptly upon request, for all out-of-pocket expenses,
including without limitation the fees, costs and expenses of the Dealer
Manager's legal counsel, incurred in connection with the Exchange Offers.
8. SECURITYHOLDER LISTS; DEPOSITORY. The Trust will provide you, or
will cause the trustee under the indenture governing the Original Notes or The
Depository Trust Company ("DTC"), to provide you with copies of the Trust's
records showing the names and addresses of, and principal amounts of Original
Notes held by, the Holders as of a recent date and will use their reasonable
efforts to advise you or will cause such trustee or the DTC to advise you from
day to day during the period of the Exchange Offers as to any transfers of
record of the Original Notes. The Trust will advise you during each business day
of all Original Notes tendered or withdrawn during the preceding business day
and the names and addresses of, and the principal amount of Original Notes so
tendered or withdrawn by, each such tendering or withdrawing Holder. The Trust
will advise you of any defective tenders and of all tenders verified to be in
proper form. Not later than the opening of business on the day following the
Expiration Date, the Trust will advise you of all tendered Original Notes,
including the principal amount of Original Notes either tendered in proper form,
rejected for tender or being processed (such as Notices of Guaranteed Delivery).
The Trust has appointed Firstar Bank, N.A. to serve as exchange agent
(the "Exchange Agent") in connection with the Exchange Offers and has instructed
the Exchange Agent to advise you daily as to such matters as you may reasonably
request.
9. REPRESENTATIONS. WARRANTIES AND COVENANTS OF THE TRUST. The
Depositor, as creator of the Trust and the Trust represent, warrant and covenant
to you that:
(a) the Registration Statement has become effective;
-4-
<PAGE> 5
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Trust,
threatened by the Commission;
(c) the Registration Statement and Prospectus (as amended or
supplemented if the Trust shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and the Trust Indenture Act
and do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the date of
the Prospectus and any amendment or supplement thereto, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or supplemented,
if applicable, at the date of consummation of the Exchange Offers (the
"Closing Date") will not contain any 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; except that the foregoing representations and
warranties shall not apply to (i) that part of the Registration
Statement which constitutes the Statement of Eligibility and
Qualification (Form T-1) of the Trustee under the Trust Indenture Act,
and (ii) statements or omissions in the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
relating to you and furnished to the Trust in writing by you;
(d) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Trust has
not incurred any material liabilities, direct or contingent nor has
there been any material adverse change in the financial position,
results of operations or condition of the Trust that is not described
in the Prospectus whether or not arising from transactions in the
ordinary course of business;
(e) the Trust is a validly created Delaware common law trust
and at the Closing Date will have, full legal rights, power and
authority (i) to enter into this Agreement and Indenture and to issue
the Exchange Notes (collectively, the "Documents"), (ii) to authorize
the issuance of the Exchange Notes and to issue and deliver the
Exchange Notes to the Holders pursuant to the terms of the Exchange
Offers and the Indenture as provided herein and (iii) to carry out,
give effect to and consummate the transactions contemplated by the
Documents and the Exchange Offers;
(f) the Documents (when executed and delivered by the
respective parties thereto) will constitute legal, valid and binding
obligations of the Trust enforceable in accordance with their
respective terms except as limited by bankruptcy, reorganization,
insolvency and other similar laws affecting enforceability of
creditors' rights generally and provided that the availability of
equitable remedies is subject to the application of equitable
principles;
(g) the Exchange Notes have been duly authorized, and when
issued and delivered in accordance with the Exchange Offers, will have
been duly executed,
-5-
<PAGE> 6
authenticated, issued and delivered and will constitute valid and
binding obligations of the Trust entitled to the benefits provided by
the Second Amended and Restated Indenture of Trust and the Second
Amended and Restated Terms Supplement each dated as of June 1, 1999
between the Trust and Firstar Bank, N.A., as Trustee (collectively, the
"Indenture"); the Indenture has been duly authorized and, when the
Indenture is executed and delivered by the Trust and when authorized,
executed and delivered by the other parties thereto, the Indenture,
will constitute the valid and binding agreement of the Trust; and the
Indenture, upon effectiveness of the Registration Statement, will have
been duly qualified under the Trust Indenture Act; and the Exchange
Notes and the Indenture conform to the descriptions thereof in the
Prospectus;
(h) the Trust is not in breach of or in default under the
Trust Agreement dated as of March 1, 1999 (the "Trust Agreement") among
the Depositor, the Trust, and First Union Trust Company, National
Association, not in its individual capacity but solely as Owner Trustee
and Firstar Bank, N.A., not in its individual capacity, but solely as
Co-Owner Trustee, any applicable law or administrative regulation of
the State of Delaware, the United States or of any department,
division, agency or instrumentality of either thereof, or any
applicable court or administrative decree or order, or any indenture,
loan agreement, note, resolution, certificate, contract, agreement or
other instrument to which the Trust is a party or is otherwise subject
or bound, except for defaults that, singly or in the aggregate, have
not had and will not have a materially adverse effect on the Trust's
ability to perform its obligations thereunder;
(i) the execution and delivery of the Documents and the other
instruments contemplated by any of such documents to which the Trust is
a party, and compliance with the provisions of each thereof did not and
will not conflict with or constitute a breach of or default under the
Trust Agreement, any applicable law or administrative regulation of the
State of Ohio, the State of Delaware, the United States or of any
department, division, agency or instrumentality of any of the
foregoing, or any applicable court or administrative decree or order,
or any indenture, loan agreement, note, resolution, certificate,
contract, agreement or other instrument to which the Trust is a party
or is otherwise subject or bound;
(j) to the knowledge of the Depositor and the Trust, no
action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, regulatory agency, public board or
body, is pending or threatened in any way affecting the existence of
the Trust or the titles of its officers to their respective offices or
seeking to restrain or to enjoin the Exchange Offers or the issuance,
sale or delivery of the Exchange Notes or in any way contesting or
affecting the validity or enforceability of the Documents, or any
action on the part of the Trust contemplated by any of said documents,
or which, if adversely determined, would have a material adverse effect
on the financial condition or prospects of the Trust, nor, to the
knowledge of the Trust, is there any basis therefor;
(k) the Trust is not and, after giving effect to the offering
and exchange of the Exchange Notes, will not be an "investment company"
or an entity "controlled" by an
-6-
<PAGE> 7
"investment company", as such terms are defined in the Investment Trust
Act of 1940, as amended;
(l) all necessary action has been duly taken by the Trust to
authorize the Exchange Offers, the exchange of Exchange Notes for
Original Notes pursuant to the Exchange Offers and all other actions
contemplated by this Agreement, and no other proceedings are necessary
to authorize any such actions;
(m) the Exchange Offers, the exchange of Exchange Notes for
Original Notes pursuant to the Exchange Offers, the delivery of the
Exchange Offer Material and the execution, delivery and performance of
this Agreement will comply with the Securities Act, the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the Commission thereunder (collectively, the "Exchange
Act") and the Trust Indenture Act and any applicable Blue Sky Laws;
(n) the Trust has complied, and will at the Closing Date be in
compliance, with the Trust Agreement and the Documents;
(o) all approvals, consents, authorizations, permits,
elections and orders of or filings or registrations with any
governmental authority, board, agency or commission having
jurisdiction, including but not limited to, the United States
Department of Education under the Higher Education Act, and the Ohio
Secretary of State that would constitute a condition precedent to the
performance by the Trust of its obligations under the Exchange Offers,
the Exchange Notes and the Documents have been obtained and are in full
force and effect; and
(p) the Trust shall furnish such information, execute such
instruments and take such other action in cooperation with the Dealer
Manager as the Dealer Manager may reasonably request to qualify the
Exchange Notes for offer and sale under the Blue Sky Laws or other
securities laws and regulations of such states and other jurisdictions
of the United States as the Dealer Manager may designate; provided that
the Trust shall not be required to take any action that would subject
it to general or unlimited service of process in any jurisdiction where
it is not now so subject.
10. CONDITIONS TO DEALER MANAGER'S OBLIGATIONS. The obligations of the
Dealer Manager hereunder shall be subject (i) to the performance by the
Depositor and the Trust of their respective obligations to be performed
hereunder or under the Indenture or Supplemental Indenture prior to the Closing
Date, (ii) to the accuracy of and compliance with the representations,
warranties and covenants of the Depositor and the Trust herein, in each case as
of the Commencement Date and at all times on or prior to the Closing Date, and
(iii) in the discretion of the Dealer Manager, to the following further
conditions:
(a) At the Closing Date, the Documents shall have been duly
authorized, executed and delivered by the respective parties thereto,
and in substantially the forms heretofore submitted to the Dealer
Manager, with only such changes as shall have been agreed to in writing
by the Dealer Manager, and said documents shall not have been
-7-
<PAGE> 8
amended, modified or supplemented, except as may have been agreed to in
writing by the Dealer Manager and there shall have been taken in
connection therewith, with the Exchange Offers, with the issuance of
the Exchange Notes and with the transactions contemplated thereby and
by this Agreement, all such actions as, in the opinion of counsel to
the Trust, shall be necessary and appropriate.
(b) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, there shall not have occurred any
change, or development involving a prospective change, in the
condition, financial or otherwise, or the earnings, business or
operations of, the Trust from that described in the Prospectus that, in
the Dealer Manager's judgment, is material and adverse and that makes
it, in the Dealer Manager's judgment, impracticable to recommend that
Holders participate in the Exchange Offers on the terms and in the
manner contemplated by the Registration Statement.
(c) At or prior to the Closing Date, the Dealer Manager shall
have received the following documents, in each case satisfactory in
form and substance to the Dealer Manager:
(1) executed or conformed copies of the Documents
duly executed and delivered by the respective parties thereto,
with such amendments, modifications or supplements as may have
been agreed to in writing by the Dealer Manager;
(2) opinions, dated the Closing Date and addressed to
the Trust and to the Dealer Manager, of Richards, Layton &
Finger, P.A., Calfee, Halter & Griswold LLP and Thompson Hine
& Flory LLP, in such form as may be satisfactory to the Dealer
Manager and the Dealer Manager's counsel;
(3) an opinion, dated the Closing Date and addressed
to the Dealer Manager, of counsel to the Dealer Manager, in
such form as may be satisfactory to the Dealer Manager;
(4) a certificate, dated the Closing Date and signed
by the President or Senior Vice President and Manager of the
Depositor, in substantially the form attached hereto as
Appendix A;
(5) opinions, dated the Closing Date and addressed to
the Trust and the Dealer Manager, of counsel for the Indenture
Trustee, Owner Trustee and Co-Owner Trustee, in such form as
may be satisfactory to the Dealer Manager and the Dealer
Manager's counsel;
(6) certificates, dated the Closing Date and signed
by the chief financial officer or other officer acceptable to
the Representative of Florida Department of Education, OSFA
(to the extent reasonably obtainable), Georgia Higher
Education Assistance Corporation, United Student Aid Funds,
Inc., Kentucky Higher Education Assistance Authority and Great
Lakes Higher Education Guaranty Corporation, regarding the
accuracy and completeness of the Prospectus with
-8-
<PAGE> 9
respect to the information relating to such entities,
respectively, under the caption "THE GUARANTEE AGENCIES" in
the Prospectus in such form as may be satisfactory to the
Dealer Manager and the Dealer Manager's counsel;
(7) an opinion, dated the Closing Date and addressed
to the Dealer Manager, of the respective counsel for each
Guarantor listed in (6) above in form and substance acceptable
to the Dealer Manager, in such form as may be satisfactory to
the Dealer Manager and the Dealer Manager's counsel;
(8) an opinion, dated the Closing Date and addressed
to the Dealer Manager, of counsel to InTuition, Inc., USA
Group Loan Services, Inc., Great Lakes Higher Education
Servicing Corporation and UNIPAC in such form as may be
satisfactory to the Dealer Manager and the Dealer Manager's
counsel;
(9) an incumbency certificate for the officers of the
Depositor, the Delaware Trustee and the Co-Owner Trustee;
(10) a certified copy of the resolution of the
Management Committee of the Depositor, as the sole holder of
all beneficial interests in the Trust, authorizing the
Exchange Offers and the issuance, delivery and sale of the
Exchange Notes pursuant to the terms of the Exchange Offers;
(11) a copy of the Trust Agreement;
(12) a copy of the Certificate of Full Force and
Effect of the Depositor;
(13) evidence that the Series A-3 Notes, Series A-4
Notes, Series A-5 Notes and Series A-6 Notes are rated Aaa and
AAA and the Series B-3 Notes are rated A-2 and A by Moody's
and Fitch, respectively;
(14) Exchange Note specimens;
(15) U.C.C. financing statements and bailment notices
relating to the Indenture; and
(16) such additional legal opinions, certificates,
instruments and other documents as the Dealer Manager or
Dealer Manager's counsel may reasonably request to evidence
the truth and accuracy, as of the date hereof and as of the
Closing Date, of the Depositor's representations and
warranties contained herein and of the statements and
information contained in the Prospectus and the due
performance and satisfaction by the Trust at or prior to the
Closing of all agreements then to be performed and all
conditions then to be satisfied by the Depositor or the Trust
in connection with the transactions contemplated by the
Documents and the Prospectus.
-9-
<PAGE> 10
The opinions and certificates and other evidence referred to above
shall be in form and substance satisfactory to the Dealer Manager in its
reasonable opinion.
If the Depositor and the Trust shall be unable to satisfy the
conditions to the obligations of the Dealer Manager contained in this Agreement,
this Agreement shall terminate and neither the Dealer Manager nor the Depositor
or the Trust shall be under any further obligation hereunder, except as provided
in Section 7 hereof.
11. ADDITIONAL COVENANTS OF THE DEPOSITOR AND THE TRUST. The Depositor
or the Trust will advise you promptly of (i) the occurrence of any event which
could cause the Trust to withdraw or terminate the Exchange Offers or would
permit the Trust to exercise any right not to exchange the Exchange Notes
tendered pursuant to the Exchange Offers, (ii) any proposal or requirement to
issue, amend or supplement any Exchange Offer Material, (iii) the issuance of
any material communication, comment or order by the Commission or any Other
Agency concerning the Exchange Offers (and, if in writing, will furnish you a
copy thereof) and (iv) any other information relating to the Exchange Offers
which you may from time to time reasonably request.
12. INDEMNIFICATION. The Depositor hereby agrees to hold you harmless
and to indemnify you (including any of your affiliated companies and any
director, officer, agent or employee of you or any such affiliated company), and
any director, officer or other person controlling (within the meaning of Section
20(a) of the Exchange Act) you (including any of your affiliated companies)
(collectively, the "Indemnified Persons") from and against any and all losses,
claims, damages, liabilities or expenses (including reasonable fees and expenses
of counsel and reasonable expenses incurred in the investigation of, preparing,
pursuing or defending any action, suit, investigation or proceeding, commenced
or threatened, or any claim whatsoever and whether or not you or any other
Indemnified Person shall be a party thereto), whether in contract, tort or
otherwise and as incurred or suffered, (a) arising out of or based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus or any other Exchange Offer Material, or any omission or alleged
omission to state in the Prospectus or any other Exchange Offer Material a
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading or (ii) any withdrawal
or termination by the Trust of, or failure by the Trust to make or consummate,
the Exchange Offers or (iii) any breach by the Trust of any representation or
warranty or failure to comply with any of the agreements contained herein or (b)
otherwise arising out of, relating to or in connection with the Exchange Offers
or your role in connection therewith, whether the event allegedly giving rise to
such claim shall have occurred prior to the commencement of, during the period
of, or subsequent to the consummation of, the Exchange Offers; except, in the
case of clause (b) above, for any such loss, claim, damage, liability or expense
which resulted primarily from the bad faith, gross negligence or willful
misconduct of any Indemnified Person. In the event a court of competent
jurisdiction determines by final and nonappealable judgment that any such
losses, actions, claims, demands, damages, liabilities or expenses of any
Indemnified Person resulted from actions taken or omitted to be taken by such
Indemnified Person in bad faith or from such Indemnified Person's gross
negligence or willful misconduct, you will promptly return all funds paid to you
by the Depositor pursuant to this
-10-
<PAGE> 11
Section 12 and customary interest thereon. The foregoing indemnity shall be in
addition to any liability which the Depositor might otherwise have to you and
such other Indemnified Persons.
Neither the Depositor nor the Trust shall, without the prior written
consent of the Indemnified Person, settle, compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened action,
claim, suit, investigation or proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding. No Indemnified Person seeking
indemnification, reimbursement or contribution pursuant to this Agreement shall,
without the Depositor's prior written consent, settle, compromise, consent to
the entry of. any judgment in or otherwise seek to terminate any action, claim,
suit, investigation or proceeding referred to in the preceding paragraph. The
Depositor and the Trust agree to notify you promptly of the assertion of any
claim in connection with the Exchange Offers against either of them, any of
their respective officers or directors or any person who controls it within the
meaning of Section 20(a) of the Exchange Act.
Upon the assertion of any claim in connection with the Exchange Offers
against any Indemnified Person as to which such Indemnified Person may seek
indemnity under this Section 12, such Indemnified Person shall notify the
Depositor and the Trust promptly in writing, and the Depositor, upon the request
of such Indemnified Person, shall retain counsel reasonably satisfactory to you
to represent such Indemnified Person and any others the Depositor may designate
in such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. Failure to so notify the Depositor or the Trust
shall not, however, relieve the Depositor from any liability which it may have
on account of the indemnity under this Section 12 if the Depositor has not been
prejudiced in any material respect for such failure. In any such proceeding the
defense of which shall have been so assumed, any Indemnified Person shall have
the right to participate in such litigation or proceeding and to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Depositor and the Indemnified Person
shall have mutually agreed to the retention of such counsel, (ii) the Depositor
shall have failed within a reasonable time to retain counsel reasonably
satisfactory to you or (iii) the named parties to any such proceeding (including
any impleaded parties) include either the Depositor or the Trust and the
Indemnified Person and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
Such firm shall be designated in writing by you. It is understood that the Trust
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm (in addition to any local counsel) for all such Indemnified
Persons and that all such fees and expenses shall be reimbursed as they are
incurred upon submission to the Depositor and the Trust of itemized statements
in reasonable detail. The Depositor shall not be liable for any settlement of
any litigation or proceeding effected without its written consent, which consent
shall not be unreasonably withheld, but if settled with such consent or if there
be a final judgment for the plaintiff, the Depositor agrees, subject to the
provisions of this Section 12, to indemnify the Indemnified Person from and
against any loss, damage, liability or expense by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested the Depositor to reimburse such Indemnified Person
for
-11-
<PAGE> 12
fees and expenses of counsel as contemplated by the first sentence of this
paragraph, the Depositor agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by the Depositor of the aforesaid
request and (ii) the Depositor shall not have reimbursed the Indemnified Person
in accordance with such request prior to the date of such settlement.
If the indemnity provided for in the foregoing paragraphs of this
Section 12 is finally judicially determined by a court of competent jurisdiction
to be unavailable to an Indemnified Person in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then you and the
Depositor, in lieu of the Depositor's indemnifying such Indemnified Person,
agree that the Depositor shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Trust and by you from the Exchange Offers or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing clause (i), but also the relative
fault of either the Depositor or the Trust and of you in connection with the
statements, actions or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations;
PROVIDED, HOWEVER, that in no event shall your aggregate contribution to the
amount paid or payable exceed the aggregate amount of fees actually received by
you pursuant to this Agreement. The relative benefits received by the Trust on
the one hand and by you on the other shall be deemed to be in the same
proportion as (i) the maximum aggregate value of the Exchange Notes proposed to
be exchanged by the Trust for the Original Notes pursuant to the Exchange Offers
bears to (ii) the MAXIMUM aggregate fee proposed to be paid to you pursuant to
Section 6. The relative fault of either the Depositor or the Trust on the one
hand and of you on the other (i) in the case of an untrue or alleged untrue
statement of a material fact or an omission or alleged omission to state a
material fact, shall be determined by reference to, among other things, whether
such statement or omission relates to information supplied by the Depositor or
the Trust or by you and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission and
(ii) in the case of any other action or omission, shall be determined by
reference to, among other things, whether such action or omission was taken or
omitted to be taken by the Depositor or the Trust or by you and the parties'
relative intent, knowledge, access to information and opportunity to prevent
such action or omission.
The Depositor and you agree that it would not be just and equitable if
contribution pursuant to this Section 12 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Person in connection with investigating or defending any such action or claim.
13. TERMINATION AND SURVIVAL OF CERTAIN PROVISIONS. This Agreement may
be terminated (i) by you (A) upon a withdrawal by you as Dealer Manager pursuant
to Section 5, (B) if the Trust determines to terminate or withdraw the Exchange
Offers prior to consummation
-12-
<PAGE> 13
thereof or (C) if there is a good faith disagreement between you and the Trust
with respect to any term or condition of the Exchange Offers, or (ii) by the
Trust (A) if it determines to terminate or withdraw the Exchange Offers prior to
consummation thereof or (B) if there is a good faith disagreement between you
and the Trust with respect to any term or condition of the Exchange Offers. This
Agreement will otherwise terminate if the Commencement Date shall not have
occurred on or prior to _______________, 1999, or such later date as may be
mutually agreed upon, or upon the consummation of the Exchange Offers. The
indemnity and contribution agreements contained in Section 12, the fee and
expense reimbursement agreements contained in Sections 6 and 7, the payment
obligations, if any, provided for in Section 5 and the representations and
warranties of the Trust set forth in this Agreement shall remain operative and
in full force and effect regardless of (i) any failure to commence, or the
withdrawal, termination or consummation of, the Exchange Offers or the
termination or assignment of this Agreement, (ii) any investigation made by or
on behalf of any Indemnified Person, and (iii) the completion of your services
hereunder.
14. SEVERABILITY. If any provision hereof shall be determined to be
invalid, illegal or unenforceable in any respect, such determination shall not
affect such provision in any other respect or any other provision hereof, which
shall remain in full force and effect so long as the economic or legal substance
of the Exchange Offers and the agreements contained herein are not affected in
any manner adverse to any party.
15. COUNTERPARTS. This Agreement may be executed in one or more
separate counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
16. BINDING EFFECT. This Agreement, including any right to indemnify or
contribution hereunder, shall inure to the benefit of and be binding upon the
Trust, you and the other Indemnified Persons (as defined in Section 12), and
each of your and their respective successors and assigns. Nothing in this
Agreement is intended, or shall be construed, to give to any other person or
entity any right hereunder or by virtue hereof.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without regard to principles of
conflicts of law.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
19. NOTICES. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by registered or certified mail,
return receipt requested, postage prepaid, to the parties hereto as follows:
(a) If to you:
-13-
<PAGE> 14
Salomon Smith Barney Inc.
388 Greenwich Street, 32nd Floor
New York, New York 10013
Attention: Paul B. Sheldon
with a copy to:
Squire, Sanders & Dempsey L.L.P.
41 South High Street
Columbus, Ohio 43215
Attention: Paul F. Sefcovic, Esq.
(b) If to the Trust:
Student Loan Funding 1998-A/B Trust
c/o Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Brian J. Gardner
with copies to:
Student Loan Funding 1998-A/B Trust
c/o Student Loan Funding LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Attention: Senior Vice President and Manager
Thomson, Hine & Flory LLP
312 Walnut Street, Suite 1400
Cincinnati, Ohio 45202
Attention: Robert A. Selak
-14-
<PAGE> 15
Please indicate your willingness to act as Dealer Manager on the terms
set forth herein and your acceptance of the foregoing provisions by signing in
the space provided below for that purpose and returning to us a copy of this
Agreement, whereupon this Agreement and your acceptance shall constitute a
binding agreement between us.
Very truly yours,
First Union Trust Company, National Association,
not in its individual capacity but solely as Owner
Trustee of Student Loan Funding 1998-A/B Trust
By:
-----------------------------------------------
Name:
Title:
Firstar Bank, National Association, not in its
individual capacity but solely as Co-Owner Trustee
of Student Loan Funding 1998-A/B Trust
By:
-----------------------------------------------
Name:
Title:
Student Loan Funding LLC
By:
-----------------------------------------------
Name:
Title:
Accepted as of the date
first set forth above:
SALOMON SMITH BARNEY INC.
By:
-------------------------
Name:
Title:
-15-
<PAGE> 16
APPENDIX A
CERTIFICATE OF THE TRUST PURSUANT TO SECTION 10(C)(4)
OF THE DEALER MANAGER AGREEMENT
The undersigned, Student Loan Funding LLC, as creator of Student Loan
Funding 1998-A/B Trust (the "Trust"), pursuant to Section 10(c)(4) of the Dealer
Manager Agreement dated ______, 1999 (the "Dealer Manager Agreement") between
the Depositor, the Trust and the Dealer Manger, hereby certifies as follows (all
capitalized terms used herein are used as defined in the Dealer Manager
Agreement):
(A) Each of the representations and warranties of the Depositor and the
Trust set forth in the Dealer Manager Agreement and in the Indenture is true and
correct in all material respects on the date hereof as if on and as of the date
hereof with the same effect as if made on the date hereof;
(B) The Trust has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied under the Documents and
the Exchange Offers at or prior to the date hereof.
STUDENT LOAN FUNDING LLC
Date: June __, 1999 By:
------------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 4.1
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
INDENTURE OF TRUST,
Dated as of June 1, 1999
By and Among
STUDENT LOAN FUNDING 1998-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 1998-A/B TRUST,
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Relating to the
STUDENT LOAN ASSET-BACKED NOTES,
SERIES 1998A AND SERIES B-3
OF
STUDENT LOAN FUNDING 1998-A/B TRUST
- --------------------------------------------------------------------------------
<PAGE> 2
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
(THE "TRUST INDENTURE ACT") AND THE
SECOND AMENDED AND RESTATED INDENTURE OF TRUST, DATED AS OF JUNE 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) 12.10
</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.
2
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
PREAMBLE 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
-------------------------------------------------------
SECTION 1.1 Definitions 5
SECTION 1.2 Use of Certain Terms 21
SECTION 1.3 Compliance Certificates and Opinions 21
SECTION 1.4 Incorporation by Reference of Trust Indenture Act 24
ARTICLE II
AUTHORIZATION, TERMS AND PROVISIONS OF NOTES
--------------------------------------------
SECTION 2.1 Authorization of Notes; Terms of Notes in General; Notes to Constitute Limited
Obligations 25
SECTION 2.2 Execution of Notes; Validity of Signatures 26
SECTION 2.3 Transfer of Notes; Exchange of Notes 26
SECTION 2.4 Books of Registry 27
SECTION 2.5 Mutilated, Lost, Stolen or Destroyed Notes 28
SECTION 2.6 Disposition and Destruction of Notes 28
SECTION 2.7 Forms of Notes and Instructions for Payment 29
SECTION 2.8 Temporary Notes 29
ARTICLE III
[RESERVED]
ARTICLE IV
REDEMPTION OF THE NOTES
-----------------------
SECTION 4.1 Redemption of Notes in General 31
ARTICLE V
DISPOSITION OF PROCEEDS; ESTABLISHMENT OF FUNDS AND ACCOUNTS;
APPLICATION OF AVAILABLE FUNDS
SECTION 5.1 Disposition of Proceeds of the Notes 32
SECTION 5.2 Reserve Fund 32
SECTION 5.3 Acquisition Fund 33
SECTION 5.3.1 Financing of Student Loans 34
SECTION 5.3.3 Investment of Acquisition Fund; Transfer of Proceeds in Acquisition Fund 35
SECTION 5.4 Student Loan Portfolio Fund; Sale of Student Loans 35
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 5.5 Collection Fund 37
SECTION 5.5.1 Collection Account 38
SECTION 5.5.2 Note Payment Account 38
SECTION 5.5.3. [Reserved] 39
SECTION 5.5.4 Expense Account 39
SECTION 5.5.5 Excess Surplus Account 39
SECTION 5.5.6 Investment of Collection Fund 40
SECTION 5.6 Pledge 40
SECTION 5.7 Investments 43
SECTION 5.8 Exchange Agreements; Counterparty Exchange Payments; Issuer Exchange Payments 45
SECTION 5.9 Termination 47
ARTICLE VI
COVENANTS TO SECURE NOTES
-------------------------
SECTION 6.1 Administration of the Program 48
SECTION 6.2 Contracts of Guarantee 48
SECTION 6.3 Acquisition, Collection and Assignment of Student Loans; Compliance
with Law 48
SECTION 6.4 Enforcement of Financed Student Loans 49
SECTION 6.5 Enforcement of Master Servicing Agreement and Servicing
Agreements; Removal of Servicer 49
SECTION 6.6 Enforcement of Purchase Agreements 50
SECTION 6.7 Books of Account; Annual Audit 50
SECTION 6.8 Punctual Payment of Notes 51
SECTION 6.9 Further Assurances 51
SECTION 6.10 Protection of Security 51
SECTION 6.11 No Encumbrances 52
SECTION 6.12 Compliance with Indenture 52
SECTION 6.13 Limitation on Program Operating Expenses 53
SECTION 6.14 Notice of Additional Guarantee Agencies or Servicers 53
SECTION 6.15 Issuer to Furnish Indenture Trustee Names and Addresses of Holders 53
SECTION 6.16 Undertaking for Costs 53
ARTICLE VII
CONCERNING THE INDENTURE TRUSTEE
--------------------------------
SECTION 7.1 Appointment of, Acceptance by, and Duties of Indenture Trustee;
Qualification; Resignation; Removal; Successor 55
SECTION 7.2 Appointment of Co-Indenture Trustee 58
SECTION 7.3 Certain Rights and Obligations of the Indenture Trustee 59
SECTION 7.4 Evidence of Compliance with Conditions Precedent; Examination of
Evidence; Evidence of Rights of Holders 61
SECTION 7.5 Proofs of Claims and Other Papers and Documents 63
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
SECTION 7.6 Dealing with the Issuer 63
SECTION 7.7 Fees and Reimbursement of Indenture Trustee 63
SECTION 7.8 Fees and Reimbursements of Each Eligible Lender Trustee 63
SECTION 7.9 Covenants of Indenture Trustee Pursuant to Higher Education Act 64
SECTION 7.10 Statements and Reports by Indenture Trustee of Funds and Accounts
and Other Matters 65
SECTION 7.11 Additional Authenticating Agent 67
SECTION 7.12 Notice to Rating Agencies 67
SECTION 7.13 Indenture Trustee Not Liable for Acts of the Issuer; No Representations
by Indenture Trustee 67
SECTION 7.14 Indenture Trustee Not Responsible for Calculation Agent 67
SECTION 7.15 Indemnification of the Indenture Trustee and each Eligible Lender
Trustee 67
SECTION 7.16 Intervention by the Indenture Trustee 68
SECTION 7.17 Preferential Collection of Claims Against Issuer 68
SECTION 7.18 Preservation of Information; Communication to Holders 68
SECTION 7.19 Survival of Certain Provisions of the Indenture 69
ARTICLE VIII
DEFAULTS AND REMEDIES
---------------------
SECTION 8.1 Events of Default 70
SECTION 8.2 Inspection of Books and Records 73
SECTION 8.3 Application of Moneys 73
SECTION 8.4 Suits at Law or in Equity; Direction of Action by Holders 76
SECTION 8.5 Suits by Individual Holders or an Exchange Counterparty 77
SECTION 8.6 Remedies Not Exclusive 78
SECTION 8.7 Waivers of Default 78
SECTION 8.8 Notice of Events of Default 79
SECTION 8.9 Computations 79
SECTION 8.10 Article Subject to Certain Provisions 79
ARTICLE IX
AMENDING AND SUPPLEMENTING OF INDENTURE
---------------------------------------
SECTION 9.1 Amending and Supplementing of Indenture Without Consent of Holders 80
SECTION 9.2 Amendment of Indenture with Consent of Holders and Exchange
Counterparties 81
SECTION 9.3 Effectiveness of Supplemental Indenture 82
SECTION 9.4 Supplemental Indenture Affecting Indenture Trustee 82
SECTION 9.5 Supplemental Indentures Affecting Certain Requirements of the Higher
Education Act 82
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE X
<S> <C>
DEFEASANCE; MONEYS HELD FOR PAYMENT OF DEFEASED NOTES
-----------------------------------------------------
SECTION 10.1 Trust Irrevocable 83
SECTION 10.2 Discharge of Liens and Pledges; Notes No Longer Outstanding and Deemed to Be Paid 83
SECTION 10.3 Notes Not Presented for Payment When Due; Moneys Held for the Notes after Due Date
Thereof 85
ARTICLE XI
MEETINGS OF HOLDERS
-------------------
SECTION 11.1 Purposes of Meetings 87
SECTION 11.2 Call of Meetings; Place of Meetings 87
SECTION 11.3 Meetings; Regulations of the Indenture Trustee 88
SECTION 11.4 Voting; Speaking at Meeting; Record of Meeting 88
SECTION 11.5 Miscellaneous 89
ARTICLE XII
MISCELLANEOUS
-------------
SECTION 12.1 Benefits of Indenture Limited to Issuer, Eligible Lender Trustees,
Indenture Trustee, Exchange Counterparty and Holders 90
SECTION 12.2 Effect of Legal Holidays 90
SECTION 12.3 Partial Invalidity 90
SECTION 12.4 Notices 90
SECTION 12.5 Law and Place of Enforcement of Indenture 91
SECTION 12.6 No Recourse Against Members, Management Committee Members,
Officers or Employees of the Issuer 91
SECTION 12.7 Cross-Indemnification 91
SECTION 12.8 Suspension of Mail 92
SECTION 12.9 Opinion as to Trust Estate 92
SECTION 12.10 Conflict with Trust Indenture Act 92
SECTION 12.11 Effect of Article and Section Headings and Table of Contents 93
SECTION 12.12 Execution of Counterparts 93
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>
<PAGE> 7
EXHIBIT 4.1
THIS SECOND AMENDED AND RESTATED INDENTURE OF TRUST, dated as
of June 1, 1999, as hereafter amended or supplemented by Supplemental Indentures
(the "Base Indenture" and collectively with the hereinafter defined Terms
Supplement, the "Indenture"), by and among STUDENT LOAN FUNDING 1998-A/B TRUST,
a common law (as opposed to statutory) trust created under the laws of the State
of Delaware (the "Delaware Trust" or 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
(the "Co-Owner Trustee") of the Student Loan Funding Trust 1998-A/B, 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
initial co-owner eligible lender trustee for the benefit of the Delaware Trust
(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"), amends and restates that certain First
Amended and Restated Indenture of Trust, dated as of March 15, 1999 (the "First
Restated Base Indenture" and collectively with the First Restated Terms
Supplement thereto, the "First Restated Indenture") by and among the Issuer, the
Initial Co-Owner Eligible Lender Trustee an the Indenture Trustee, which amended
and restated that certain Indenture of Trust, dated as of December 1, 1998 (the
"Original Base Indenture"), by and among Student Loan Funding LLC, a limited
liability company formed under the laws of the State of Delaware (the "Original
Issuer"), Firstar Bank, National Association (successor by merger to Star Bank,
National Association), not in its individual capacity, but solely as initial
eligible lender trustee for the benefit of the Original Issuer ("Original
Initial ELT"), and the Indenture Trustee, with (i) references in this Base
Indenture to the "Student Loan Funding 1998-A/B Trust" or to the "Delaware
Trust" or the "Issuer" shall mean the Co-Owner Trustee, not in its individual
capacity, but solely as Co-Owner Trustee of the Delaware Trust and (ii) 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;
WITNESSETH:
WHEREAS, the Original Issuer was and is authorized by the
applicable provisions of the laws of the United States and the State of Delaware
and by its Certificate of Formation and Operating Agreement to acquire directly,
or indirectly through an Eligible Lender Trustee, as defined in the First
Restated Base Indenture, 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 Original Issuer provided under the Original Base
Indenture and the Original Terms Supplement (collectively, the "Original
Indenture") for the issuance in Series of (i) its Student Loan Asset-Backed
Senior Notes, Series 1998A (the "Unregistered Series
<PAGE> 8
1998A Notes" or the "Unregistered Senior Notes") and (ii) its Student Loan
Asset-Backed Subordinate Notes, Series 1998B (the "Unregistered Series B-3
Notes" or the "Unregistered Subordinate Notes" and collectively with the
Unregistered Series 1998A Notes, the "Unregistered Notes");
WHEREAS, the Original Issuer, the Original Initial ELT and the
Indenture Trustee executed and delivered the Original Indenture in order to
confirm and declare the terms and conditions upon which the Unregistered Notes
are secured and to secure payment of the principal thereof and interest and any
Carryover Interest thereon;
WHEREAS, pursuant to the Transfer and Sale Agreement, the
Original Issuer and the Original Initial ELT transferred all of the Trust Estate
to (i) the Issuer and (ii) the Initial Co-Owner Eligible Lender Trustee
hereunder in consideration of the assumption by (i) the Issuer of all of the
obligations of the Original Issuer hereunder and under the Unregistered Notes
and (ii) the Initial Co-Owner Eligible Lender Trustee of all of the obligations
of the Original Initial ELT hereunder; and
WHEREAS, in connection with execution and delivery of the
Transfer and Sale Agreement, the Issuer and the Initial Co-Owner Eligible Lender
Trustee executed and delivered the First Restated Indenture to continue to
secure the payment of the principal of and interest and any Carryover Interest
on the Unregistered Notes; and
WHEREAS, in connection with consummation of the Exchange Offer
(as defined in the Terms Supplement), the Issuer, the Initial Co-Owner Eligible
Lender Trustee and the Indenture Trustee now desire to amend and restate the
First Restated Indenture in this Base Indenture and the Terms Supplement hereto
to secure the payment of the principal of and interest and any Carryover
Interest on the Registered Notes and the Unregistered Notes, if any, which were
not exchanged for Registered Notes;
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
8
<PAGE> 9
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 (A) the Trust Estate, (B) the Transfer and Sale Agreement and (C) the
Ancillary Agreements, 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 (A) the Trust Estate, (B)
the Transfer and Sale Agreement, including, all other General Intangibles of the
Issuer and the Initial Co-Owner ELT related to the Transfer and Sale Agreement
and the transactions contemplated thereby, and (C) the Ancillary Agreements,
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 (A) the Trust Estate, (B) the Transfer and
Sale Agreement and (C) the Ancillary Agreements, 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 (C) the Trust Estate, (D) the Transfer and Sale Agreement and (E) the
Ancillary Agreements, 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 (A) the Trust Estate, (B) the Transfer and Sale Agreement and
(C) the Ancillary Agreements, whether now owned or hereafter 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
9
<PAGE> 10
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:
10
<PAGE> 11
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
Issuer or the Original Issuer 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.
"ANCILLARY AGREEMENTS" shall mean the Auction Agent Agreement,
the Broker-Dealer Agreement, the Calculation Agent Agreement, and the
Registration Rights Agreement.
"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.
11
<PAGE> 12
"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 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" shall mean (i) when used with reference
to the Original Issuer, the president, the secretary, the treasurer, any
assistant treasurer, any vice president or other person designated by Management
Committee Resolution to act in such capacity under the terms of the Original
Indenture and (ii) 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 on behalf of the Issuer.
"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 Issuer for Advances or any other amounts advanced by the
Issuer 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 Second Amended and Restated
Indenture of Trust, dated as of June 1, 1999, exclusive of the Terms Supplement,
but as from time to time
12
<PAGE> 13
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 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.
"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 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 Original Issuer or the Issuer, as the case may be, shall
mean 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 Original Issuer or the Issuer, respectively, by an
Authorized Officer.
"CO-OWNER TRUSTEE" shall mean Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as
co-owner trustee under the Delaware Trust Agreement.
"COLLECTION ACCOUNT" shall mean the Account so designated and
established in the Collection Fund by Section 5.5 hereof.
13
<PAGE> 14
"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.
"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.
"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, the 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.
"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 December 31, 1998, 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.
14
<PAGE> 15
"DELAWARE TRUST" shall mean the common law (as opposed to
statutory) trust created under the laws of the State of Delaware by the Delaware
Trust Agreement and designated "Student Loan Funding 1998-A/B Trust", provided,
however, that references in the Indenture to the "Student Loan Funding 1998-A/B
Trust" or to the "Delaware Trust" shall mean the Co-Owner Trustee, not in its
individual capacity, but solely as Co-Owner Trustee of the Delaware Trust, and
its lawful successors and assigns on behalf of the Trust.
"DELAWARE TRUST AGREEMENT" shall mean the Trust Agreement,
dated as of March 1, 1999, among the Original Issuer, the Delaware Trustee (as
defined therein) and the Co-Owner Trustee, and acknowledged and agreed to by the
Initial Co-Owner Eligible Lender Trustee.
"DEPARTMENT OF EDUCATION" shall mean the U.S. Department of
Education.
"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 for the benefit 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 March 15, 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
15
<PAGE> 16
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, 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) 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 829626 and any one or more of the
following: Client Code 606 and 706; Bond ID 98PP; Subportfolio Number 850626;
Branch Numbers 7 and 8; Branch Number 9; and Bond ID 01; 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
16
<PAGE> 17
or transfer.
"FINANCED STUDENT LOANS" shall mean Student Loans which are
Financed and are evidenced solely by promissory notes and applications related
thereto.
"FIRST RESTATED BASE INDENTURE" shall mean the First Amended
and Restated Indenture of Trust, dated as of March 15, 1999, among the Issuer,
the Initial Co-Owner Eligible Lender Trustee and the Indenture Trustee,
exclusive of the First Restated Terms Supplement.
"FIRST RESTATED INDENTURE" shall mean collectively, the First
Restated Base Indenture and the First Restated Terms Supplement.
"FIRST RESTATED TERMS SUPPLEMENT" shall mean the First Amended
and Restated Terms Supplement to the First Amended and Restated Indenture of
Trust, dated as of March 15, 1999, among the Issuer, the Initial Co-Owner
Eligible Lender Trustee and the Indenture Trustee.
"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.
"FUND" shall mean any of the Funds established by this
Indenture.
"GENERAL INTANGIBLES" shall have the meaning given such term
by the Uniform Commercial Code as adopted by the State of Ohio.
"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
17
<PAGE> 18
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 Base Indenture, 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, dated as of
March 15, 1999, between the Issuer and itself.
"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.
"INITIAL POOL BALANCE" shall mean the Pool Balance of the
Financed Student Loans as of the Cut-off Date.
"INITIAL PURCHASERS" shall mean Salomon Smith Barney Inc., New
York, New York, NationsBanc Montgomery Securities LLC, Charlotte, North
Carolina, and Fifth Third/The Ohio Company, Columbus, Ohio.
"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.
18
<PAGE> 19
"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, however,
that references in this Base Indenture to the name "Student Loan Funding
1998-A/B Trust" or to the terms "Delaware Trust" or the "Issuer" shall mean the
Co-Owner Trustee, not in its individual capacity, but solely as Co-Owner Trustee
of the Delaware Trust, and its lawful successors and assigns on behalf of the
Trust.
"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.
"LOAN POOL" shall mean the Financed Student Loans purchased
with the proceeds of the Notes or with moneys in Collection Account.
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.
"MANAGEMENT COMMITTEE" shall mean the Management Committee of
the Original Issuer.
"MANAGEMENT COMMITTEE RESOLUTION" shall mean a copy of a
resolution certified by the secretary or assistant secretary of the Original
Issuer to have been duly adopted by the Management Committee and to be in full
force and effect on the date of such certification, and delivered to the
Indenture Trustee.
19
<PAGE> 20
"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 March 15, 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 Unregistered 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 Original Issuer or 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.
"ORIGINAL BASE INDENTURE" shall mean the Indenture of Trust,
dated as of December 1, 1998, among the Original Issuer, the Original Initial
ELT and the Indenture Trustee, exclusive of the Original Terms Supplement.
"ORIGINAL INDENTURE" shall mean collectively, the Original
Base Indenture and the Original Terms Supplement.
"ORIGINAL INITIAL ELT" shall mean Firstar Bank, National
Association (successor by merger to Star Bank, National Association), not in its
individual capacity, but solely as eligible lender trustee for the benefit of
the Original Issuer.
"ORIGINAL ISSUER" shall mean Student Loan Funding LLC, a
Delaware limited
20
<PAGE> 21
liability company.
"ORIGINAL TERMS SUPPLEMENT" shall mean the Terms Supplement to
the Indenture of Trust, dated as of December 1, 1998, among the Original Issuer,
the Original Initial ELT and the Indenture Trustee.
"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 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 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.
21
<PAGE> 22
"PRINCIPAL FACTOR" shall have the meaning given such term in
the Terms Supplement.
"PROGRAM" shall mean the Issuer'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,
the 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; (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 Servicing Agreement and the Administrator
under the Administration Agreement, in the administration of the Program under
the Higher Education Act and any other agreement or legal requirement affecting
the administration of the Program, costs of legal, accounting, auditing,
management, consulting, banking and financial advisory services and expenses,
costs of salaries, supplies, utilities, mailing, labor, materials, office rent,
maintenance, furnishings, equipment, machinery, apparatus and insurance
premiums, Costs of Issuance not paid from proceeds of Notes; and (v) other
reasonable and proper expenses, including both operating expenses and capital
expenditures incurred or to be incurred in connection with the operation of the
Program and with respect to item (iv) above, any other similar program of the
Issuer.
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 Amended and Restated Loan
Sale Agreement, made and entered into as of the 18th day of December, 1998, by
and among InTuition Holdings, Inc., NHELP, Inc., Union Bank and Trust Company,
solely in its capacity as trustee of the InTuition Student Loan Trust II and
Student Loan Funding Resources, Inc., and any other 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.
22
<PAGE> 23
"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.
"REGISTERED SENIOR NOTES" shall mean the Registered Senior
Notes, as defined in the Terms Supplement.
"REGISTERED SUBORDINATE NOTES" shall mean the Registered
Subordinate Notes, as defined in the Terms Supplement.
"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 the
Original Issuer 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.
"SENIOR EXCHANGE COUNTERPARTY" shall mean the Exchange
Counterparty under a Senior Exchange Agreement.
"SENIOR EXCHANGE COUNTERPARTY GUARANTEE" shall mean an
Exchange Counterparty
23
<PAGE> 24
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 Registered Senior
Notes and Unregistered Senior 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" or "A1-1") 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 1998A NOTES" shall mean, collectively, all Registered
Senior Notes and Unregistered Senior Notes, designated in the Terms Supplement
as "Series A".
"SERIES B-3 NOTES" shall mean, collectively, all Registered
Subordinate Notes and Unregistered Subordinate Notes, designated in the Terms
Supplement as "Series B-3".
"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.
"SERVICING DEVELOPMENT FEES" shall mean costs, fees and
expenses relating to the
24
<PAGE> 25
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.
25
<PAGE> 26
"SUBORDINATE ISSUER EXCHANGE PAYMENT" shall mean an Issuer
Exchange Payment under a Subordinate Exchange Agreement.
"SUBORDINATE NOTES" shall mean, collectively, all Registered
Subordinate Notes and Unregistered Subordinate 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 Second Amended and Restated
Terms Supplement, dated as of June 1, 1999, 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 issued hereunder, as the same may
be amended or supplemented from time to time.
"TRANSFER AND SALE AGREEMENT" shall mean the Transfer and Sale
Agreement, dated as of March 15, 1999 and effective April 20, 1999, among the
Original Issuer, the Original Initial ELT, the Issuer, the Initial Co-Owner
Eligible Lender Trustee and the Indenture Trustee.
"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 Star Bank, National Association, Cincinnati, Ohio: Account
No. 12-7889C "SLF 1998-A/B Trust 98A-3/B-3 Note Payment Account", Account No.
12-7889G "SLF 1998-A/B Trust 98A-3/B-3 Reserve Fund", Account No. 12-7889H "SLF
1998-A/B Trust 98A-3/B-3 Expense Account", Account No. 12-7889K "SLF 1998-A/B
Trust 98A-3/B-3 Acquisition Fund", Account No. 12-7889M "SLF 1998-A/B Trust
98A-3/B-3 Collection Account" and Account No. 12-7889P "SLF 1998-A/B Trust
98A-3/B-3 Excess Surplus Account"; (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.
"UNREGISTERED SENIOR NOTES" shall mean the Unregistered Senior
Notes, as defined
26
<PAGE> 27
in the Terms Supplement.
"UNREGISTERED SUBORDINATE NOTES" shall mean the Unregistered
Subordinate Notes, as defined in the Terms Supplement.
"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:
(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 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
27
<PAGE> 28
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 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.
(a) 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.
(b) Whenever the Issuer is required to furnish to the
Indenture Trustee a
28
<PAGE> 29
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.
(b) 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.
(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 (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.
(d) 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.
(e) 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
29
<PAGE> 30
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.
(e) 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.
(f) 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.
(g) 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
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.
(h) 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.
30
<PAGE> 31
"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.
31
<PAGE> 32
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 the Original Indenture, as amended and restated by the
First Restated Indenture, each Series of Notes issued hereunder was authorized
by, has the terms set forth in and shall be subject to the further conditions,
if any, of the Original Terms Supplement which was executed and delivered in
connection with the issuance of such Series of Notes.
The Notes were issued under and secured by the Original
Indenture, as amended and restated by the First Restated Indenture, subject to
the conditions thereinafter provided, for the purpose of (i) making or acquiring
Student Loans and (ii) making deposits to certain of the Funds and Accounts
hereunder.
Such Notes were executed and authenticated substantially in
the form and manner provided in the Original Base Indenture with such changes as
were necessary or appropriate to conform to the provisions of the Original Terms
Supplement and were deposited with the Indenture Trustee for authentication, but
before such Series of Notes were authenticated and delivered by the Indenture
Trustee, there was filed with the Indenture Trustee the following:
(a) a certified copy of the Management Committee Resolution
authorizing the issuance of such Series of Notes; and
(b) a fully executed counterpart of the Original Terms
Supplement.
When the documents described above in this Section had been
filed with the Indenture Trustee and when such Series of Notes had been executed
and authenticated as required by the Original Indenture, the Indenture Trustee
delivered such Series of Notes at one time to or upon the order of the Initial
Purchasers, 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
Original Indenture were paid to the Indenture Trustee for deposit to the credit
of the Funds and Accounts as set forth in the Original Terms Supplement.
Pursuant to the Transfer and Sale Agreement and subject to the
terms and provisions of the Original Indenture, the Original Issuer and the
Original Initial ELT have assigned to the Issuer and the Initial Co-Owner
Eligible Lender Trustee all of their respective right, title and interest in the
Trust Estate and the Ancillary Agreements and the Issuer and the Initial
Co-Owner Eligible Lender Trustee have assumed all of the respective obligations
of the Original Issuer and the Original Initial ELT under the Original Indenture
which was amended and restated by the First Restated Indenture to reflect the
effect of the execution and delivery of the Transfer and Sale Agreement.
32
<PAGE> 33
In connection with the Exchange Offer and subject to the terms
and provisions of the First Restated Indenture, the Issuer and the Initial
Co-Owner Eligible Lender Trustee are executing and delivering this Second
Restated Indenture to provide for the payment and security of the Registered
Notes issued in connection with Exchange Offer, while continuing to provide for
the payment and the security of the Unregistered Notes, if any, remaining after
consummation of the Exchange Offer.
The Notes are and shall be limited obligations of the Issuer
payable solely from the Trust Estate and secured under the Original Indenture,
as amended and restated by First Restated Indenture and this Indenture, solely
by (i) the Trust Estate, (ii) the Transfer and Sale Agreement and (iii) the
Ancillary Agreements, all as provided in the Original Indenture as amended and
restated by the First Restated Indenture and this Indenture. Each Note contains
and 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, D, O, P or Q, as applicable,
to the Terms Supplement and may have such letters, numbers or other marks of
identification and such legends of 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, D, O, P or Q, as applicable, to
the Terms Supplement, duly
33
<PAGE> 34
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).
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
34
<PAGE> 35
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 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
35
<PAGE> 36
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, D, O, P or Q 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.
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.
36
<PAGE> 37
ARTICLE III
[RESERVED]
37
<PAGE> 38
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.
38
<PAGE> 39
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 were deposited with the
Indenture Trustee on the Date of Issuance, and the Indenture Trustee applied or
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
39
<PAGE> 40
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 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 B-3 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 has deposited to the credit of the
Acquisition Fund the amount required by the Original Terms Supplement and shall
deposit to the credit of the Acquisition Fund any amount required by the Terms
Supplement.
The Acquisition Fund and the Accounts 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.
40
<PAGE> 41
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
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 Issuer or the Original Issuer and
such indenture trustee or from the Issuer or the Original Issuer for Student
Loans financed by the Issuer or the Original Issuer 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 Issuer or the Original 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 Issuer or the Original Issuer) (as specified in a
41
<PAGE> 42
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 Original Issuer, other
indenture trustee and/or the Indenture Trustee in connection with 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 5.3.3 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 5.4 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.
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 or the Original 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 or with Section 8.3
hereof. Nothing in this Indenture shall be
42
<PAGE> 43
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 Original Issuer or other purchaser on behalf of the Original
Issuer 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 Original Issuer 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 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 a 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
43
<PAGE> 44
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 rates of
interest and eligible, after exchange, for the same Special Allowance Payments,
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.
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
44
<PAGE> 45
in the Collection Fund under this Section.
The Indenture Trustee has deposited to the credit of (a) the
Collection Account and (b) the Expense Account in the Collection Fund the
amounts required by the Original 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
therein transferred from the Reserve Fund and (ii) any Advances.
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 Issuer or the Original
Issuer may, no later than the
45
<PAGE> 46
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 Issuer are referred to herein as "Advances"). The
Indenture Trustee shall reimburse the Issuer or the Original Issuer, as
applicable, for such Advances with moneys in the Trust Estate, (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. Neither the
Issuer nor the Original Issuer shall have any obligation, legal or otherwise, to
make any Advance, and a determination by the Issuer or the Original Issuer to
make an Advance shall not create any obligation of the Issuer or the Original
Issuer, 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 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 Monthly
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 transferred
by the Indenture Trustee to the Issuer for deposit under and pursuant to the
provisions of the Delaware Trust 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.
46
<PAGE> 47
Such request shall be signed by an Authorized Officer. Any Available Funds
transferred to the Issuer from the Excess Surplus Account shall not thereafter
be available to the Indenture Trustee to make payments on the Notes. Until
transferred to 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 the Trust Estate and
secured hereunder solely by (i) (A) the Trust Estate, (B) the Transfer and Sale
Agreement and (C) the Ancillary Agreements, all 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 and all right, title and interest of the Issuer and
the Initial Co-Owner Eligible Lender Trustee in the Transfer and Sale Agreement
and the Ancillary Agreements 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, the Transfer and Sale Agreement and the Ancillary Agreements, 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 secured hereunder by the pledge of the Trust Estate and all
right, title and interest of the Issuer and the Initial Co-Owner Eligible Lender
Trustee in the Transfer and Sale Agreement and the Ancillary Agreements 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, the Transfer and Sale Agreement and the Ancillary Agreements.
Subordinate Issuer Exchange Payments shall be secured hereunder by the pledge of
the Trust Estate and all right, title and interest of the Issuer and the Initial
Co-Owner Eligible Lender Trustee in the Transfer and Sale Agreement and the
Ancillary Agreements granted hereby, by the lien thereon and
47
<PAGE> 48
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, the
Transfer and Sale Agreement and the Ancillary Agreements. 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 and on all right, title and interest of
the Issuer and the Initial Co-Owner Eligible Lender Trustee in the Transfer and
Sale Agreement and the Ancillary Agreements 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 and all right, title and interest of the
Issuer and the Initial Co-Owner Eligible Lender Trustee in the Transfer and Sale
Agreement and the Ancillary Agreements. 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, the Transfer and
Sale Agreement and the Ancillary Agreements:
(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 and all right, title and interest of the Issuer and the Initial
Co-Owner Eligible Lender Trustee in the Transfer and Sale Agreement and the
Ancillary Agreements, 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, the Transfer and Sale Agreement and the Ancillary Agreements 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
48
<PAGE> 49
the Trust Estate and all right, title and interest of the Issuer and the Initial
Co-Owner Eligible Lender Trustee in the Transfer and Sale Agreement and the
Ancillary Agreements, 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.
(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 and all
right, title and interest of the Issuer and the Initial Co-Owner Eligible Lender
Trustee in the Transfer and Sale Agreement and the Ancillary Agreements, 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, the Transfer and Sale Agreement or the Ancillary
Agreements 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 and all right, title
and interest of the Issuer and the Initial Co-Owner
49
<PAGE> 50
Eligible Lender Trustee in the Transfer and Sale Agreement and the Ancillary
Agreements 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 the Transfer and Sale Agreement and the Ancillary Agreements, 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:
(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 "A1+",
"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, "A-1+", "F-1+" or "P-1" by each Rating Agency
and which matures
50
<PAGE> 51
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
(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) (A) 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
51
<PAGE> 52
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 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
52
<PAGE> 53
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.
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.
53
<PAGE> 54
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.
54
<PAGE> 55
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
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.
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, 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
55
<PAGE> 56
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
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
56
<PAGE> 57
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 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
57
<PAGE> 58
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, the Transfer and Sale Agreement and the Ancillary
Agreements 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 Articles of Association, its By-Laws, the Delaware Trust
Agreement 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,
and all right, title and interest of the Issuer and the Initial Co-Owner
Eligible Lender Trustee in the Transfer and Sale Agreement and the Ancillary
Agreements in the manner and to the extent provided in this Indenture. Each of
the Trust Estate, the Transfer and Sale Agreement and the Ancillary Agreements
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 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
58
<PAGE> 59
validly taken. The Issuer is duly authorized under its Articles of Association,
its By-Laws, the Delaware Trust Agreement 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 Transfer and Sale Agreement and the
Ancillary Agreements, 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, the Transfer
and Sale Agreement and the Ancillary Agreements 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, the Transfer and Sale Agreement or
the Ancillary Agreements 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, the Transfer and Sale
Agreement and the Ancillary Agreements creating a lien or charge on the Trust
Estate, the Transfer and Sale Agreement and the Ancillary Agreements 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, the Transfer and Sale Agreement or the Ancillary
Agreements subordinate in priority to that of the Notes, or secured by a pledge
of the Trust Estate, the Transfer and Sale Agreement or the Ancillary Agreements
arising on or after such date as the pledge of the Trust Estate, the Transfer
and Sale Agreement and the Ancillary Agreements hereunder shall be discharged
and satisfied as provided in this Indenture, or from issuing 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.
59
<PAGE> 60
SECTION 6.13 LIMITATION ON PROGRAM OPERATING EXPENSES. The
Issuer shall not permit the Program Operating Expenses described in clauses (iv)
and (v) 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 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 Co-Owner Trustee 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 a 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
60
<PAGE> 61
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.
61
<PAGE> 62
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 Original Issuer
has appointed Star Bank, National Association to act as the initial Indenture
Trustee under the Original Indenture. Star Bank, National Association (now
Firstar Bank, National Association) accepted such appointment and the trusts
created under the Original Indenture, and agreed to perform said trusts, and
hereby confirms such agreement, but only upon and subject to the following terms
and conditions, to all of which the Issuer and the Holders agree, such agreement
to be evidenced (i) with respect to the Holders by their acceptance of the Notes
and (ii) with respect to the Issuer by its execution and delivery of this
Indenture::
(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
62
<PAGE> 63
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 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 Star Bank,
National Association (now 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
63
<PAGE> 64
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 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 failed 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
64
<PAGE> 65
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 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
65
<PAGE> 66
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 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
66
<PAGE> 67
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;
(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
67
<PAGE> 68
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
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
68
<PAGE> 69
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.
(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.
69
<PAGE> 70
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 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 hereunder, the Transfer and Sale Agreement and the
Ancillary Agreements, 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.
70
<PAGE> 71
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, the Transfer and Sale Agreement and the Ancillary Agreements,
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 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.
71
<PAGE> 72
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.
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
72
<PAGE> 73
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 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.
73
<PAGE> 74
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.
If a Co-Indenture Trustee is appointed pursuant to Section 7.2
hereof and pursuant to such appointment such Co-Indenture Trustee has the
obligation hereunder or under Section 313(a) and (b) of the Trust Indenture Act
to furnish to the Issuer or any other Person any statement, report or
information, such Co-Indenture Trustee shall furnish such statement, report or
information to the Indenture Trustee in sufficient time for the Indenture
Trustee to timely furnish such statement, report or information to the intended
recipient thereof.
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. 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
74
<PAGE> 75
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 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
75
<PAGE> 76
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.
76
<PAGE> 77
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
77
<PAGE> 78
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
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 Notes, (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
78
<PAGE> 79
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 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
79
<PAGE> 80
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 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) 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
80
<PAGE> 81
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
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.
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
81
<PAGE> 82
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
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.
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
82
<PAGE> 83
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,
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
83
<PAGE> 84
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.
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, the Transfer and Sale Agreement and
the Ancillary Agreements (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
84
<PAGE> 85
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.
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 to 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
85
<PAGE> 86
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, 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 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,
within ninety (90) days of the occurrence of the Event of Default or what would
be an Event of Default but for a period of grace provided herein, provided,
however, that if the Indenture Trustee does not become aware of such an Event of
Default until after such 90-day period, then in such case the Indenture Trustee
shall give notice of such Event of Default at the earliest practicable date
within thirty (30) days after the Indenture Trustee becomes aware of the
occurrence of an Event of Default.
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.
86
<PAGE> 87
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 Outstanding Notes (provided,
however, that such written confirmation shall not be required for a Supplemental
Indenture executed pursuant to item (14) 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
87
<PAGE> 88
under the Trust Indenture Act or any similar federal statute hereafter
in effect, and, if the 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 make such amendments to this 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 of bond insurance, with respect
to any Series of Notes;
(14) To add any additional Eligible Lender Trustee or replace
any existing Eligible Lender Trustee; or
(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 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
88
<PAGE> 89
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
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 or all
right, title and interest of the Issuer and the Initial Co-Owner Eligible Lender
Trustee in the Transfer and Sale Agreement or the Ancillary Agreements 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.
SECTION 9.6 COMPLIANCE OF SUPPLEMENTAL INDENTURES WITH TRUST
INDENTURE ACT. Each Supplemental Indenture executed pursuant to this Article IX
and amending the provisions of this Indenture shall be in full compliance with
all the provisions of the Trust Indenture Act on and after the date of its
execution and delivery.
89
<PAGE> 90
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 sufficient moneys to make
such payment, the sufficiency of said moneys
or Eligible Investments to be verified
90
<PAGE> 91
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 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.
91
<PAGE> 92
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 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
92
<PAGE> 93
the amounts so paid to the Issuer (without interest thereon), subject to any
applicable statute of limitation.
93
<PAGE> 94
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.
SECTION 11.3 MEETINGS; REGULATIONS OF THE INDENTURE TRUSTEE.
94
<PAGE> 95
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 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.
95
<PAGE> 96
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.
96
<PAGE> 97
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 been filed in writing by the Initial Co-Owner Eligible Lender Trustee with
the Issuer and the Indenture Trustee.
97
<PAGE> 98
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 Issuer, not in its
individual capacity, but solely as co-owner trustee under the Delaware Trust, in
Cincinnati, Ohio, 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 MEMBERS, MANAGEMENT COMMITTEE
MEMBERS, 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 of Issuance, 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.
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
98
<PAGE> 99
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 Original Issuer 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 the Original 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. In connection with
the execution and delivery of this Indenture, the Issuer shall furnish to the
Indenture Trustee an opinion of like tenor and effect.
On or before June 30 in each calendar year, beginning in 2003,
the Issuer shall furnish 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 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
99
<PAGE> 100
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.
100
<PAGE> 101
IN WITNESS WHEREOF, STUDENT LOAN FUNDING 1998-A/B TRUST, by
Firstar Bank, National Association, not in its individual capacity, but solely
as co-owner trustee of the Delaware Trust, has caused this Indenture to be
signed in its name and on its behalf by one of its Authorized Officers and
FIRSTAR BANK, NATIONAL ASSOCIATION, as Initial Co-Owner Eligible Lender Trustee,
not in its individual capacity, but solely as co-owner eligible lender trustee
for the benefit of the Delaware Trust, 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 1998-A/B TRUST,
("Issuer")
by Firstar Bank, National Association,
not in its individual capacity,
but solely as Co-Owner Trustee
By
Title:
FIRSTAR BANK, NATIONAL ASSOCIATION,
Not in its individual capacity, but
solely as Initial Co-Owner Eligible
Lender Trustee for the benefit of
the Delaware Trust
By
Title:
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By
Title:
101
<PAGE> 102
SCHEDULE I
SCHEDULE OF APPROVED GUARANTEE AGENCIES
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
Educational Credit Management Corporation New Jersey Higher Assistance Authority
- ----------------------------------------------------------- ---------------------------------------------------------
FLORIDA DEPARTMENT OF EDUCATION, OFFICE OF STUDENT New York State Higher Education Services Corporation
FINANCIAL ASSISTANCE
- ----------------------------------------------------------- ---------------------------------------------------------
GEORGIA HIGHER EDUCATION ASSISTANCE COMMISSION Oklahoma Guaranteed Student Loan Program
- ----------------------------------------------------------- ---------------------------------------------------------
GREAT LAKES HIGHER EDUCATION GUARANTY CORPORATION Pennsylvania Higher Education Assistance Agency
- ----------------------------------------------------------- ---------------------------------------------------------
KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY Tennessee Student Assistance Commission
- ----------------------------------------------------------- ---------------------------------------------------------
Finance Authority of Maine Texas Guaranteed Student Loan Corporation
- ----------------------------------------------------------- ---------------------------------------------------------
Missouri Guaranteed Student Loan Program United Student Aid Funds, Inc.
- ----------------------------------------------------------- ---------------------------------------------------------
Nebraska Student Loan Program
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
BOLD = NAMED IN S-4 REGISTRATION STATEMENT.
<PAGE> 103
SCHEDULE II
SCHEDULE OF APPROVED SERVICERS AND SERVICING AGREEMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ---------------------------------------------------------
SERVICERS SERVICING AGREEMENTS
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
Great Lakes Higher Education Servicing Center Servicing Agreement, dated as of November 1, 1998,
("GLHESC") between the Master Servicer and GLHESC, as supplemented
by (i) the Subservicing Addendum, dated as of
November 1, 1998, among the Master Servicer, GLHESC
and the Original Issuer and (ii) the Subservicing
Addendum, dated as of March 15 1999 among the Master
Servicer, GLHESC and the Issuer.
- ----------------------------------------------------------- ---------------------------------------------------------
Intuition, Inc. ("InTuition") Servicing Agreement, dated as of July 31, 1998, between
the Master Servicer and InTuition, as supplemented by
(i) the Subservicing Addendum, dated as of July 31,
1998, among the Master Servicer, InTuition and the
Original Issuer and (ii) and (ii) the Subservicing
Addendum, dated as of March 15 1999 among the Master
Servicer, InTuition and the Issuer.
- ----------------------------------------------------------- ---------------------------------------------------------
UNIPAC Service Corporation ("UNIPAC") Servicing Agreement, dated as of September 1, 1998,
between the Master Servicer and UNIPAC, as supplemented
by (i) the Subservicing Addendum, dated as of November
1, 1998, among the Master Servicer, UNIPAC and the
Original Issuer and (ii) the Subservicing Addendum,
dated as of March 15 1999 among the Master Servicer,
UNIPAC and the Issuer.
- ----------------------------------------------------------- ---------------------------------------------------------
USA Group Loan Services, Inc. ("USAGLS") Servicing Agreement, dated as of November 1, 1998,
between the Master Servicer and USAGLS, as supplemented
by (i) the Subservicing Addendum, dated as of November
1, 1998, among the Master Servicer, USAGLS and the
Original Issuer and (ii) the Subservicing Addendum,
dated as of March 15 1999 among the Master Servicer,
USAGLS`and the Issuer.
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
<PAGE> 104
EXHIBIT A
---------
to the
Second Amended and Restated Indenture of Trust,
dated as of June 1, 1999, by and among
Student Loan Funding 1998-A/B Trust,
Firstar Bank, National Association,
as Initial Co-Owner Eligible Lender Trustee,
and
Star 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 Second Amended and Restated Indenture of
Trust, dated as of June 1, 1999 (as amended and supplemented, the "Indenture"),
among Student Loan Funding 1998-A/B Trust, by Firstar Bank, National
Association, not in its individual capacity, but solely as co-owner trustee of
the Delaware Trust (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 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.
<PAGE> 105
5. The undersigned, as the _________________________ of the
Issuer, is authorized to sign and submit this Certificate on behalf of the
Issuer.
WITNESS my hand this _____ day of ___________________, 199_.
STUDENT LOAN FUNDING
1998-A/B TRUST,
By Firstar Bank,
National Association,
not in its individual
capacity, but solely as
co-owner trustee of the
Delaware Trust ("Issuer")
By:_______________________________
Title:____________________________
A-105
<PAGE> 106
EXHIBIT B
---------
to the
Second Amended and Restated Indenture of Trust,
dated as of June 1, 1999, by and among
Student Loan Funding 1998-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 Second Amended and Restated
Indenture of Trust, dated as of June 1, 1999, (as amended and supplemented, the
"Indenture"), among Student Loan Funding 1998-A/B Trust, by Firstar Bank,
National Association, not in its individual capacity, but solely as co-owner
trustee of the Delaware Trust, 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.
<PAGE> 107
WITNESS my hand this _____ day of ___________________, 199_.
STUDENT LOAN FUNDING
1998-A/B TRUST,
By Firstar Bank,
National Association,
not in its individual
capacity, but solely as
co-owner trustee of the
Delaware Trust ("Issuer")
By:
Title:
B-107
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
TERMS SUPPLEMENT
TO THE
SECOND AMENDED AND RESTATED
INDENTURE OF TRUST
Dated as of June 1, 1999,
by and among
STUDENT LOAN FUNDING 1998-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 1998-A/B TRUST,
and
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Dated as of June 1, 1999
Securing
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES A-3
(LIBOR FLOATING RATE),
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTES,
SERIES A-4, SERIES A-5 AND SERIES A-6
(AUCTION RATE)
and
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTES,
SERIES B-3
(FIXED RATE)
OF
STUDENT LOAN FUNDING 1998-A/B TRUST
- --------------------------------------------------------------------------------
<PAGE> 2
EXHIBIT 4.2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
AUTHORIZATION, TERMS AND PROVISIONS OF NOTES
<S> <C>
PAGE
SECTION 2.01 Authorization of Notes; Notes to Constitute Special Notes 23
SECTION 2.02 Terms of Notes 24
SECTION 2.03 Determination of Series Interest Rates on the Notes 29
SECTION 2.03.1 Determination of the Series Interest Rate on the Series A-3 Notes 29
SECTION 2.03.2 Determination of the Series Interest Rate on the Auction Rate Notes 29
SECTION 2.03.2.1 Auction Procedures 31
SECTION 2.03.2.2 Application of Interest Payments for the Auction Rate Notes 40
SECTION 2.03.2.3 Calculation of Maximum Auction Rate, All Hold Rate, Net Loan Rate,
Applicable LIBOR Rate and Non-Payment Rate 41
SECTION 2.03.2.4 Notification of Rates, Amounts and Payment Dates 42
SECTION 2.03.2.5 Auction Agent 43
SECTION 2.03.2.6. Broker-Dealers 43
SECTION 2.03.2.7 Changes in Auction Period or Periods 44
SECTION 2.03.2.8 Changes in the Interest Determination Date 45
SECTION 2.03.2.9 Auction Period Conversions 47
SECTION 2.03.2.10 Mandatory Tender and Purchase of Series Auction Rate Notes in connection with
Auction Period Conversion 49
SECTION 2.03.2.11 Remarketing Agent Notes 49
SECTION 2.03.3 Determination of Series Interest Rate on the Series B-3 Notes 49
SECTION 2.03.4 Carryover Interest 49
SECTION 2.03.5 Additional Provisions Regarding Series Interest Rate 50
SECTION 2.04 Forms of Notes and Instructions for Payment 51
SECTION 2.05 Transfer Restrictions 51
SECTION 2.06. Legends on Notes 55
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 2.07. Legends on Global Securities 56
SECTION 2.08. Certification Forms 56
ARTICLE III
REDEMPTION OF THE NOTES
SECTION 3.01 Redemption of Notes in General 57
SECTION 3.02 Auction of Financed Student Loans; Redemption of Outstanding
Notes from Auction Proceeds prior to the Legal Final Maturity 57
SECTION 3.03 Optional Redemption of Notes prior to the Legal Final Maturity 58
ARTICLE IV
Disposition of Proceeds of the Notes; Collection Account; Acquisition Fund
SECTION 4.01 Disposition of Proceeds of the Notes 60
SECTION 4.02 Disposition of Collection Account 60
SECTION 4.03 Transfer of Proceeds in the Acquisition Fund 65
ARTICLE V
MISCELLANEOUS
SECTION 5.01 Adoption of this Terms Supplement 66
SECTION 5.02 Effect of Terms Supplement on Indenture 66
SECTION 5.03 Execution of Counterparts 66
SECTION 5.04 Governing Law 66
SCHEDULE I Terms of Senior Notes; Terms of Subordinate Notes
Exhibit A Distribution Statement
Exhibit B Form of Senior LIBOR Floating Rate Note (Unregistered Note)
Exhibit C Form of Senior Auction Rate Note (Unregistered Note)
Exhibit D Form of Subordinate Note (Unregistered Note)
Exhibit E Instruction for Payment of Interest
Exhibit F Notice of Payment Default
</TABLE>
3
<PAGE> 4
Exhibit G Notice of Cure of Payment Default
Exhibit H Notice of Proposed Auction Period Adjustment
Exhibit I Notice Establishing Auction Period Adjustment
Exhibit J Notice of Change in Rate Determination Date
Exhibit K Notice of Proposed Auction Period Conversion
Exhibit L Notice Establishing Auction Period Conversion
Exhibit M Form of Transfer Certificate for Transfer From Restricted
Global Security to Regulation S Global Security
Exhibit N Form of Transfer Certificates for Transfer From Regulation S
Global Security to Restricted Global Security
Exhibit O Form of Senior LIBOR Floating Rate Note (Registered Note)
Exhibit P Form of Senior Auction Rate Note (Registered Note)
Exhibit Q Form of Subordinate Note (Registered Note)
4
<PAGE> 5
EXHIBIT 4.2
SECOND AMENDED AND RESTATED
TERMS SUPPLEMENT
THIS SECOND AMENDED AND RESTATED TERMS SUPPLEMENT, dated as of
June 1, 1999 (this "Terms Supplement"), by and among STUDENT LOAN FUNDING
1998-A/B TRUST, a common law (as opposed to statutory) trust created under the
laws of the State of Delaware (the "Delaware Trust" or the "Issuer") by Firstar
Bank, National Association, not in its individual capacity, but solely in its
capacity as co-owner trustee of the Delaware Trust (the "Co-Owner Trustee"),
FIRSTAR BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely
in its capacity as the initial eligible lender holding title to the Financed
Student Loans for the benefit of the Delaware Trust (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 Second Amended and
Restated Indenture of Trust, dated as of June 1, 1999 (as hereafter amended and
supplemented by Supplemental Indentures, the "Base Indenture"), among the
Delaware Trust, the Initial Co-Owner Eligible Lender Trustee and the Indenture
Trustee, amends and restates that certain First Amended and Restated Terms
Supplement, dated as of March 15, 1999 (the "First Restated Terms Supplement")
by and among the Delaware Trust, the Initial Co-Owner Trustee and the Indenture
Trustee, which amended and restated that certain Terms Supplement, dated as of
December 1, 1998 (the "Original Terms Supplement"), by and among Student Loan
Funding LLC, a limited liability company formed under the laws of the State of
Delaware (the "Original Issuer"), Firstar Bank, National Association (successor
by merger to Star Bank, National Association), not in its individual capacity,
but solely as initial eligible lender trustee for the benefit of the Original
Issuer ("Original Initial ELT"), and the Indenture Trustee and, as such, amends
and supplements the Base Indenture (as amended and supplemented by this Terms
Supplement, the "Indenture"). References in this Terms Supplement to the name
"Student Loan Funding 1998-A/B Trust" or to the terms "Delaware Trust" or the
"Issuer" shall mean the Co-Owner Trustee, not in its individual capacity, but
solely as Co-Owner Trustee of the Delaware Trust. 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.
WITNESSETH:
WHEREAS, Section 2.1 of the Original Base Indenture provides,
among other things, that the Original Issuer, each Eligible Lender Trustee and
the Indenture Trustee shall enter into the Original 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, pursuant to certain exemptions under the Securities
Act, the Original
<PAGE> 6
Issuer provided under the Original Terms Supplement for the issuance of (i) its
Student Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate)
(the "Series 1998A-3 Notes"), (ii) Student Loan Senior Asset-Backed Callable
Notes, Series 1998A-4 (Auction Rate) (the "Series 1998A-4 Notes"), (iii) its
Student Loan Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate)
(the "Series 1998A-5 Notes"), (iv) its Student Loan Senior Asset-Backed Callable
Notes, Series 1998A-6 (Auction Rate) (the "Series 1998A-6 Notes" and,
collectively with the Series 1998A-3 Notes, the Series 1998A-4 Notes and the
Series 1998A-5 Notes, the "Unregistered Senior Notes") and (iv) its Student Loan
Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate) (the "Unregistered
Subordinate Notes" and, collectively with the Unregistered Senior Notes, the
"Unregistered Notes"); and
WHEREAS, in connection with the execution and delivery of the
Transfer and Sale Agreement pursuant to which the Original Issuer, together with
the Original Initial ELT at the direction of the Original Issuer, transferred
the Trust Estate and the Ancillary Agreements to the Issuer and the Initial
Co-Owner Eligible Lender Trustee in consideration of their assumption of all of
the obligations of the Original Issuer and the Original Initial ELT under the
Unregistered Notes and the Original Indenture, the Issuer, the Initial Co-Owner
Eligible Lender Trustee and the Indenture Trustee executed and delivered the
First Amended and Restated Indenture of Trust and the First Amended and Restated
Terms Supplement, each dated as of March 15, 1999, in order to evidence the
effect of the transfer and sale on the Original Indenture and to confirm the
issuance of each Series of the Unregistered Notes and the terms upon which each
Series of the Unregistered Notes has been issued and is Outstanding;
WHEREAS, in connection with the consummation of the Exchange
Offer, the Issuer, the Initial Co-Owner Eligible Lender Trustee and the
Indenture Trustee are executing and delivering the Base Indenture, and now
desire to execute and deliver this Second Amended and Restated Terms Supplement
in order to (a) provide for the issuance of each Series of the Registered Notes
and the terms upon which each such Series of the Registered Notes will be issued
and Outstanding upon the consummation of the Exchange Offer and (b) confirm the
issuance of each Series of the Unregistered Notes and the terms upon which each
Series of the Unregistered Notes has been issued and will remain Outstanding
upon the consummation of the Exchange Offer;
NOW, THEREFORE, THIS SECOND AMENDED AND RESTATED TERMS
SUPPLEMENT WITNESSETH:
That it is hereby mutually covenanted and agreed that the
terms and conditions upon which each Series of the Notes have been 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:
6
<PAGE> 7
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):
"ACCREDITED INVESTOR" shall have the meaning specified in
Section 2.02 hereof.
"AGENT MEMBER" with respect to any Global Security shall mean
a member of or participant in the Depository for such Global Security.
"AGENT MEMBER TRANSFEREE" shall have the meaning specified in
Section 2.05(c)(i) hereof.
"AGENT MEMBER TRANSFEROR" shall have the meaning specified in
Section 2.05(c)(i) hereof.
"ALL HOLD RATE" shall mean eighty-five percent (85%) of the
Applicable LIBOR Rate.
"APPLICABLE LIBOR RATE" shall mean (a) for Auction Periods of
35 days or less, One-Month LIBOR, (b) for Auction Periods of more than 35 days
but less than 91 days, Three-Month LIBOR, (c) for Auction Periods of more than
90 days but less than 181 days, Six-Month LIBOR, and (d) for Auction Periods of
more than 180 days, One-Year LIBOR. As used in this definition and otherwise
herein, the terms "Three-Month LIBOR," "Six-Month LIBOR" or "One-Year LIBOR,"
means the rate of interest per annum equal to the rate per annum with respect to
United States dollar deposits in the London interbank market having a maturity
of three months, six months or one year, respectively.
"APPLICABLE PROCEDURES" shall mean, with respect to any
transfer or exchange of a beneficial interest in a Global Security, the rules
and procedures of the Depository for such Global Security, Euroclear and Cedel
to the extent the same are applicable to such transfer and exchange.
"AUCTION" shall mean the implementation of the Auction
Procedures on an Interest Determination Date.
"AUCTION AGENT" shall mean with respect to the Auction Rate
Notes, the Initial Auction Agent unless and until a Substitute Auction Agent
Agreement becomes effective, after which the Auction Agent shall mean the
Substitute Auction Agent.
"AUCTION AGENT AGREEMENT" shall mean with respect to the
Auction Rate Notes,
7
<PAGE> 8
the Initial Auction Agent Agreement unless and until a Substitute Auction Agent
Agreement is entered into, after which Auction Agent Agreement shall mean such
Substitute Auction Agent Agreement.
"AUCTION AGENT FEE" shall have the meaning set forth in the
applicable Auction Agent Agreement.
"AUCTION AGENT FEE RATE" shall have the meaning set forth in
the applicable Auction Agent Agreement.
"AUCTION PERIOD" shall mean with respect to each Series of
Auction Rate Notes, a period generally consisting of twenty-eight (28) days
beginning on a Thursday and ending on the fourth Wednesday thereafter, as the
same may be changed pursuant to Section 2.03.2.7 hereof.
"AUCTION PERIOD ADJUSTMENT" shall mean with respect to a
Series of Auction Rate Notes, the change, from time to time, in the length of an
Auction Period and, specifically, (i) with respect to an Auction Period between
seven (7) and ninety-one (91) days, inclusive, from such an Auction Period to
any other Auction Period between seven (7) and ninety-one (91) days, inclusive,
or (ii) with respect to an Auction Period between ninety-two (92) days and the
Legal Final Maturity of a Series of Auction Rate Notes, inclusive, from such an
Auction Period to an Auction Period between ninety-two (92) days and the Legal
Final Maturity of a Series of Auction Rate Notes, inclusive, if such latter
Auction Period is no more than three (3) months shorter or no more than three
(3) months longer than the Auction Period for such series of Auction Rate Notes
established either at the initial issuance of such Series of Auction Rate Notes
or pursuant to an Auction Period Conversion, whichever has occurred most
recently.
"AUCTION PERIOD COMMENCEMENT DATE" shall mean, with respect to
the Auction Rate Notes, the first Business Day following each Interest
Determination Date.
"AUCTION PERIOD CONVERSION" shall mean with respect to a
Series of Auction Rate Notes, the change in the length of an Auction Period (i)
from an Auction Period between seven (7) and ninety-one (91) days, inclusive, to
an Auction Period between ninety-two (92) days and the Legal Final Maturity of
such Series of Auction Rate Notes, inclusive, (ii) from an Auction Period
between ninety-two (92) days and the Legal Final Maturity of such Series of
Auction Rate Notes, inclusive, to an Auction Period between seven (7) and
ninety-one (91) days, inclusive, or (iii) from an Auction Period between
ninety-two (92) days and the Legal Final Maturity of such Series of Auction Rate
Notes, inclusive, to an Auction Period between ninety-two (92) days and the
Legal Final Maturity of such Series of Auction Rate Notes, inclusive, if such
latter Auction Period is at least three (3) months shorter or at least three (3)
months longer than the Auction Period for such Series of Auction Rate Notes
established either upon initial issuance of such Series of Auction Rate Notes or
pursuant to an Auction Period Conversion, whichever has occurred most recently.
"AUCTION PERIOD CONVERSION DATE" shall mean, with respect to a
Series of Auction Rate Notes, the date on which an Auction Period Conversion is
effective which shall be an
8
<PAGE> 9
Auction Period Distribution Date.
"AUCTION PERIOD DISTRIBUTION DATE" shall mean, with respect to
a Series of Auction Rate Notes, the Business Day immediately following the
expiration of each related Auction Period, commencing on the Initial
Distribution Date for each Series of Auction Rate Notes; provided, however, that
in connection with any Auction Period Adjustment or Auction Period Conversion,
the Auction Period Distribution Date may be changed.
"AUCTION PROCEDURES" shall mean the procedures set forth in
Section 2.03.2 hereof.
"AUCTION RATE" shall mean with respect to the Series Interest
Rate on a Series of Auction Rate Notes, the interest rate that results from
implementation of the applicable Auction Procedures.
"AUCTION RATE NOTEHOLDERS" shall mean the Holders of Auction
Rate Notes.
"AUCTION RATE NOTES" shall mean collectively, the Series A-4
Notes, the Series A-5 Notes and the Series A-6 Notes.
"AUTHORIZED DENOMINATIONS" shall mean (a) with respect to the
Series A-3 Notes and the Series B-3 Notes, (i) as applicable solely in
connection with the original issuance of each such Series of Notes, $50,000 and
integral multiples of $1,000 in excess thereof and (ii) after distribution of
principal in accordance with Section 5.5.2 of the Base Indenture, the
Outstanding principal amount that results after such distribution, and (b) with
respect to the Auction Rate Notes, $50,000 and integral multiples of $50,000 in
excess thereof.
"BID AUCTION RATE" shall have the meaning described in Section
2.03.2.1(c)(i) hereof.
"BIDDER" shall have the meaning set forth in Section
2.03.2.1(a)(i) hereof.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" shall mean a form or
system under which (i) the beneficial right to principal and interest may be
transferred only through a book entry, (ii) physical Series A-3 Notes, Series
A-4 Notes, Series A-5 Notes, Series A-6 Notes, Series B-3 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.
"BROKER-DEALER" shall mean NationsBanc Montgomery Securities
LLC or any other broker or dealer (each as defined in the Securities Exchange
Act of 1934, as amended), commercial bank or other entity permitted by law to
perform the functions required of a Broker-Dealer set forth in the Auction
Procedures that (a) is a Participant (or an affiliate of a Participant), (b) has
been confirmed as such by the Issuer pursuant to Section 2.03.2.6 hereof,
9
<PAGE> 10
and (c) has entered into a Broker-Dealer Agreement that is in effect on the date
of reference.
"BROKER-DEALER AGREEMENT" shall mean each agreement between
the Auction Agent and a Broker-Dealer, approved by the Original Issuer or the
Issuer, pursuant to which the Broker-Dealer agrees to participate in Auctions as
set forth in the Auction Procedures, as from time to time amended or
supplemented. Each Broker-Dealer Agreement from and after the effective date of
this Indenture shall be substantially in the form of the Broker-Dealer
Agreement, dated as of December 1, 1998, between Bankers Trust Company, as
Auction Agent, and NationsBanc Montgomery Securities LLC, as Broker-Dealer.
"BROKER-DEALER FEE" shall have the meaning set forth in the
applicable Auction Agent Agreement.
"BROKER-DEALER FEE RATE" shall have the meaning set forth in
the applicable Auction Agent Agreement.
"CALCULATION AGENT" shall mean Salomon Smith Barney Inc., New
York, New York, 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 December 1, 1998, among the Original 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 Luxemboeurg 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 the period
commencing on Date of Issuance and running through and including January 31,
1999, and (ii) thereafter a period of one calendar month commencing and
including the date next following the end of the preceding Collection Period.
"DATE OF ISSUANCE" shall mean (i) with respect to each Series
of the Unregistered Notes, December 22, 1998, the date of their initial issuance
and delivery and (ii) with respect to each Series of the Registered Notes, June
__, 1999, the date of their initial issuance and delivery.
"DEPOSITORY" shall mean any securities depository that is a
clearing agency under
10
<PAGE> 11
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 the Series
A-3 Notes, a Monthly Distribution Date, (ii) with respect to each Series of
Auction Rate Notes, an Auction Period Distribution Date, (iii) with respect to
the Series B-3 Notes, a Monthly Distribution Date (iv) any date on which an
Issuer Exchange Payment is due and payable, and (v) 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.
"EXCHANGE AGENT" shall mean Firstar Bank, National
Association, as agent for the Issuer in connection with the Exchange Offer.
"EXCHANGE OFFER" shall mean the offer to exchange a Series of
Notes for Registered Notes registered under the Securities Act.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean the
registration statement (together with all amendments and exhibits thereto) filed
by the Issuer with the Commission under the Securities Act and declared
effective by the Commission on May__, 1999 whereby, pursuant to the Exchange
Offer, Unregistered Notes of a Series are exchanged for Registered Notes of the
same Series.
"EXISTING HOLDER" shall mean, (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with the Auction, a
Person who is a Broker-Dealer listed in the Existing Holder Registry at the
close of business on the Business Day immediately preceding such Auction, and
(ii) with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of Auction Rate
Notes.
"EXISTING HOLDER REGISTRY" shall mean the registry of Persons
who are holders of Auction Rate Notes maintained by the Auction Agent as
provided in the Auction Agent Agreement.
"FORMULA RATE" shall mean, (i) with respect to the Series A-3
Notes, the lesser of One-Month LIBOR as of the related Interest Determination
Date for such Interest Accrual Period plus .38% per annum and 17%, (ii) with
respect to the Series A-4 Notes, the lesser of the Auction
11
<PAGE> 12
Rate for such Interest Accrual Period and 17%, (iii) with respect to the Series
A-5 Notes, the lesser of the Auction Rate for such Interest Accrual Period and
17%, and (iv) with respect to the Series A-6 Notes, the lesser of the Auction
Rate for such Interest Accrual Period and 17%.
"GLOBAL SECURITY" shall mean a Note, bearing the legend
specified in Section 2.07 hereof if such Note is an Unregistered Note,
evidencing all or part of the Notes, authenticated and delivered to, and
registered in the name of, the Depository with respect to the Notes or a nominee
thereof, and in which beneficial interests are evidenced on the records of such
Depository or its Agent Members.
"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 AUCTION AGENT" shall mean Bankers Trust Company, New
York, New York, its successors and assigns.
"INITIAL AUCTION AGENT AGREEMENT" shall mean the Auction Agent
Agreement, dated as of December 1, 1998, by and among the Original Issuer, the
Indenture Trustee and the Initial Auction Agent, including any amendment thereof
or supplement thereto, relating to the Auction Rate Notes.
"INITIAL DISTRIBUTION DATE" shall mean, (i) as to the Series
1998A-3 Notes, January 29, 1999, (ii) as to the Series 1998A-4 Notes, January
28, 1999, (iii) as to the Series 1998A-5 Notes, February 4, 1999, (iv) as to the
Series 1998A-6 Notes, February 11, 1999, and (v) as to the Series 1998B-3 Notes,
January 29, 1999.
"INITIAL INTEREST DETERMINATION DATE" shall mean (i) as to the
Series 1998A-3 Notes, January 27, 1999, (ii) as to the Series 1998A-4 Notes,
January 27, 1999, (iii) as to the Series 1998A-5 Notes, February 3, 1999, (iv)
as to the Series 1998A-6 Notes, February 10, 1999.
"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) (a) with respect to the Series
A-3 Notes, the second London Banking Day immediately preceding the first day of
each Interest Accrual Period, and (b) with respect to the Auction Rate Notes,
the Business Day on which the Auction Rate is determined by an Auction and that
immediately preceded the first day of each Interest Accrual Period, other than
(1) an Interest Accrual Period which commences on an Auction Period Conversion
Date or an Auction Period Adjustment Date; (2) each Interest Accrual Period
commencing after the ownership of the Auction Rate Notes is no longer maintained
in Book-Entry Form; (3) each Interest Accrual Period commencing after the
occurrence and during the continuance of a Payment Default;
12
<PAGE> 13
provided, however, that if such day is not a Business Day, then the next
succeeding Business Day.
"LEGAL FINAL MATURITY" shall mean with respect to (i) the
Series A-3 Notes, December 1, 2006, (ii) the Series A-4 Notes, December 1, 2019;
(iii) the Series A-5 Notes, December 1, 2019; (iv) the Series A-6 Notes,
December 1, 2019 and (v) the Series B-3 Notes, December 1, 2019.
"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.
"MAXIMUM AUCTION RATE" shall mean (i) prior to an Auction
Period Conversion, (a) the Applicable LIBOR Rate plus 1.50% (if both of the
ratings assigned by the Rating Agencies to the Auction Rate Notes are "Aa3,"
"AA-" or better) or (b) the Applicable LIBOR Rate plus 2.50% (if any one of the
ratings assigned by Rating Agencies to the Auction Rate Notes is less than "Aa3"
or "AA-" but at least "A") or (c) the Applicable LIBOR Rate plus 3.50% (if any
one of the ratings assigned by the Ratings Agencies to the Auction Rate Notes is
less than "A") and (ii) after an Auction Period Conversion, the rate set forth
in the Supplemental
13
<PAGE> 14
Indenture executed in connection with the Auction Period Conversion. For
purposes of the Auction Agent and the Auction Procedures, the ratings referred
to in this definition shall be the last ratings of which the Auction Agent has
been given notice pursuant to the Auction Agent Agreement.
"MONTHLY DISTRIBUTION DATE" shall mean, with respect to the
Series A-3 Notes and the Series B-3 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 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 Series A-3 Notes is the Collection Period immediately
preceding the Collection Period in which the Monthly Distribution Date occurs.
The applicable Collection Period for the applicable Auction Rate Notes is the
second preceding Collection Period prior to the applicable Auction Period
Distribution Date.
"NON-PAYMENT RATE" on any date of determination, shall mean
(a) prior to an Auction Period Conversion, One-Month LIBOR plus 1.50% and (b)
after an Auction Period Conversion, the interest rate per annum set forth in the
definition thereof in the Supplemental Indenture executed in connection with the
Auction Period Conversion.
"NOTICE OF FEE CHANGE" shall mean a notice of a change in the
Auction Agent Fee Rate or the Broker-Dealer Fee Rate substantially in the form
of Exhibit D to the applicable Auction Agent Agreement.
"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 103%.
"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 101%.
"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.
"PAYMENT DEFAULT" shall mean (a) a default in the due and
punctual payment of any installment of interest on a Series of Auction Rate
Notes or (b) a default in the due and punctual payment of any interest on and
principal of a Series of Auction Rate Notes at their Final Legal Maturity.
14
<PAGE> 15
"POTENTIAL HOLDER" shall mean any Person (including an
Existing Holder that is (i) a Broker-Dealer when dealing with the Auction Agent
and (ii) a potential beneficial owner when dealing with a Broker-Dealer), who
may be interested in acquiring Auction Rate Notes (or, in the case of an
Existing Holder thereof, an additional principal amount of Auction Rate Notes).
"PRINCIPAL FACTOR" shall mean a seven-digit decimal number
which, when multiplied by the initial principal amount of a Series A-3 Note or a
Series B-3 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.
"QIB" shall have the meaning specified in Section 2.02 hereof.
"RECORD DATE" shall mean, (i) with respect to the Series A-3
Notes, the second Business Day preceding a Monthly Distribution Date, (ii) with
respect to the Auction Rate Notes, the Business Day immediately preceding an
Auction Period Distribution Date, and (iii) with respect to the Series B-3
Notes, the Business Day preceding a Monthly Distribution Date.
"REGISTERED" shall mean, with respect to any notes, notes
which are registered under the Securities Act.
"REGISTERED NOTES" shall mean the Notes with terms
substantially identical to a Series of Notes which were exchanged pursuant to
the Exchange Offer and the Exchange Offer Registration Statement whereby the
Notes were registered under the Securities Act.
"REGULATION S" shall mean, Regulation S promulgated under the
Securities Act, as hereafter amended from time to time.
"REGULATION S GLOBAL SECURITY" shall have the meaning
specified in Section 2.02 hereof.
"REGULATION S GLOBAL SECURITY TRANSFERRED AMOUNT" shall have
the meaning specified in Section 2.05(c)(ii) hereof.
"REMARKETING AGENT" shall mean, with respect to the Auction
Rate Notes, the remarketing agent under the remarketing agreement related to the
Auction Rate Notes, or any successor to it as such agent.
"REMARKETING AGREEMENT" shall mean a remarketing agreement
among the Original Issuer, the Remarketing Agent and the Indenture Trustee, or
any similar agreement hereafter entered into by the Issuer with respect to the
Auction Rate Notes, in each case as originally executed and as from time to time
amended or supplemented in accordance with the terms thereof and with this
Indenture.
15
<PAGE> 16
"RESTRICTED GLOBAL SECURITY" shall have the meaning specified
in Section 2.02 hereof.
"RESTRICTED PERIOD" shall have the meaning specified in
Section 2.02 hereof.
"RESTRICTED SECURITIES" shall have the meaning specified in
Section 2.02 hereof.
"RULE 144" shall mean Rule 144 under the Securities Act or any
successor provision thereto, as hereafter amended from time to time.
"RULE 144A" shall mean Rule 144A under the Securities Act or
any successor provision thereto, as hereafter amended from time to time.
"RULE 501(A)" shall mean Rule 501(a) under the Securities Act
or any successor provision thereto, as hereafter amended from time to time.
"SENIOR PARITY PERCENTAGE" shall have the meaning given such
term in the Base Indenture.
"SERIES 1998A NOTEHOLDERS" shall mean, collectively, the
Series 1998A-3 Noteholders, the Series 1998A-4 Noteholders, the Series 1998A-5
Noteholders and the Series 1998A-6 Noteholders.
"SERIES 1998A NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT"
shall mean, with respect to any Distribution Date for a Series of Series 1998A
Notes, the Series 1998A Principal Distribution Amount for such Distribution Date
plus the Series 1998A Principal Shortfall as of the close of the preceding
Distribution Date; provided that the Series 1998A Noteholders' Principal
Distribution Amount will not exceed the outstanding principal balance of the
Series 1998A Notes. In addition, (i) on the Legal Final Maturity of the Series
A-3 Notes, the principal required to be distributed to the Series 1998A-3
Noteholders will include the amount required to reduce the outstanding principal
balance of the Series A-3 Notes to zero, (ii) on the Legal Final Maturity of the
Series A-4 Notes, the principal required to be distributed to the Series 1998A-4
Noteholders will include the amount required to reduce the outstanding principal
balance of the Series A-4 Notes to zero, (iii) on the Legal Final Maturity of
the Series A-5 Notes, the principal required to be distributed to the Series
1998A-5 Noteholders will include the amount required to reduce the outstanding
principal balance of the Series A-5 Notes to zero, and (iv) on the Legal Final
Maturity of the Series A-6 Notes, the principal required to be distributed to
the Series 1998A-6 Noteholders will include the amount required to reduce the
outstanding principal balance of the Series A-6 Notes to zero.
"SERIES 1998A NOTES" shall mean, collectively, the Series A-3
Notes, the Series A-4 Notes, the Series A-5 Notes and the Series A-6 Notes.
"SERIES 1998A PRINCIPAL DISTRIBUTION AMOUNT" shall be equal to
(i) with respect to the Series A-3 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
16
<PAGE> 17
preceding Collection Period, less, for each Monthly Distribution Date occurring
after June 30, 2003, the amount of any principal to be paid on such Monthly
Distribution Date on the Series B-3 Notes, (ii) with respect to the Series A-4
Notes on and after which the principal balance of the Series A-3 Notes has been
paid in full, an amount equal to the decline in the Pool Balance between the end
of the third Collection Period preceding an Auction Period Distribution Date and
the end of the second preceding Collection Period, less, for each Monthly
Distribution Date occurring after June 30, 2003, the amount of any principal to
be paid on the immediately preceding Monthly Distribution Date on the Series B-3
Notes and (iii) with respect to the Series A-5 Notes on and after the principal
balance of the Series A-3 Notes and the Series A-4 Notes has been paid in full,
an amount equal to the decline in the Pool Balance between the end of the third
Collection Period preceding an Auction Period Distribution Date and the end of
the second preceding Collection Period, less, for each Monthly Distribution Date
occurring after June 30, 2003, the amount of any principal to be paid on the
immediately preceding Monthly Distribution Date on the Series B-3 Notes, and
(iv) with respect to the Series A-6 Notes on and after the principal balance of
the Series A-3 Notes, the Series A-4 Notes and the Series A-5 Notes has been
paid in full, an amount equal to the decline in the Pool Balance between the end
of the third Collection Period preceding an Auction Period Distribution Date and
the end of the second preceding Collection Period, less, for each Monthly
Distribution Date occurring after June 30, 2003, the amount of any principal to
be paid on the immediately preceding Monthly Distribution Date on the Series B-3
Notes.
"SERIES 1998A PRINCIPAL SHORTFALL" shall mean, as of the close
of any Distribution Date, the excess of (i) the Series 1998A Principal
Distribution Amount on such Distribution Date over (ii) the amount of principal
actually distributed to the Series 1998A Noteholders on such Distribution Date.
"SERIES 1998A-3 INTEREST SHORTFALL" shall mean, with respect
to any Monthly Distribution Date, the excess of (i) the Series 1998A-3
Noteholders' Interest Distribution Amount on the preceding Monthly Distribution
Date over (ii) the amount of interest actually distributed to the Series 1998A-3
Noteholders on such preceding Monthly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1998A-3 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 1998A-3 NOTEHOLDERS" shall mean the Holders of the
Series A-3 Notes.
"SERIES 1998A-3 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 A-3 Notes on the immediately preceding Monthly Distribution Date after
giving effect to all principal distributions to Holders of Series A-3 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 1998A-3 Interest
Shortfall for such Distribution Date; provided that the Series 1998A-3
Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series A-3 Notes.
17
<PAGE> 18
"SERIES 1998A-3 NOTES" shall mean the Student Loan Senior
Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate), of the Issuer issued
and Outstanding under the Indenture as Unregistered Notes.
"SERIES 1998A1-3 NOTES" shall mean the Student Loan Senior
Asset-Backed Notes, Series 1998A1-3 (LIBOR Floating Rate), of the Issuer issued
and Outstanding under the Indenture as Registered Notes.
"SERIES A-3 NOTES" shall mean, collectively, the Series
1998A-3 Notes and the Series 1998A1-3 Notes.
"SERIES 1998A-4 INTEREST SHORTFALL" shall mean, with respect
to any Auction Period Distribution Date, the excess of (i) the Series 1998A-4
Noteholders' Interest Distribution Amount on the preceding Auction Period
Distribution Date over (ii) the amount of interest actually distributed to the
Series 1998A-4 Noteholders on such preceding Auction Period Distribution Date,
plus interest on the amount of such excess interest due to the Series 1998A-4
Noteholders, to the extent permitted by law, at the related Series Interest Rate
from such preceding Auction Period Distribution Date to the current Auction
Period Distribution Date.
"SERIES 1998A-4 NOTEHOLDERS" shall mean the Holders of the
Series A-4 Notes.
"SERIES 1998A-4 NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT"
shall mean with respect to any Auction Period 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 A-4 Notes on the immediately preceding Auction Period Distribution
Date after giving effect to all principal distributions to Holders of Series A-4
Notes on such preceding Auction Period Distribution Date (or, in the case of the
first Auction Period Distribution Date, on the Date of Issuance) and (ii) the
Series 1998A-4 Interest Shortfall for such Auction Period Distribution Date;
provided that the Series 1998A-4 Noteholders' Interest Distribution Amount will
not include any Carryover Interest on the Series A-4 Notes.
"SERIES 1998A-4 NOTES" shall mean the Student Loan Senior
Asset-Backed Callable Notes, Series 1998A-4 (Auction Rate), of the Issuer issued
and Outstanding under the Indenture as Unregistered Notes.
"SERIES 1998A1-4 NOTES" shall mean the Student Loan Senior
Asset-Backed Callable Notes, Series 1998A1-4 (Auction Rate), of the Issuer
issued and Outstanding under the Indenture as Registered Notes.
"SERIES A-4 NOTES" shall mean, collectively, the Series
1998A-4 Notes and the Series 1998A1-4 Notes.
"SERIES 1998A-5 INTEREST SHORTFALL" shall mean, with respect
to any Auction Period Distribution Date, the excess of (i) the Series 1998A-5
Noteholders' Interest Distribution Amount on the preceding Auction Period
Distribution Date over (ii) the amount of interest actually distributed to the
Series 1998A-5 Noteholders on such preceding Auction Period
18
<PAGE> 19
Distribution Date, plus interest on the amount of such excess interest due to
the Series 1998A-5 Noteholders, to the extent permitted by law, at the related
Series Interest Rate from such preceding Auction Period Distribution Date to the
current Auction Period Distribution Date.
"SERIES 1998A-5 NOTEHOLDERS" shall mean the Holders of the
Series A-5 Notes.
"SERIES 1998A-5 NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT"
shall mean with respect to any Auction Period 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 A-5 Notes on the immediately preceding Auction Period Distribution
Date after giving effect to all principal distributions to Holders of Series A-5
Notes on such preceding Auction Period Distribution Date (or, in the case of the
first Auction Period Distribution Date, on the Date of Issuance) and (ii) the
Series 1998A-5 Interest Shortfall for such Auction Period Distribution Date;
provided that the Series 1998A-5 Noteholders' Interest Distribution Amount will
not include any Carryover Interest on the Series A-5 Notes.
"SERIES 1998A-5 NOTES" shall mean the Student Loan Senior
Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate), of the Issuer issued
and Outstanding under the Indenture as Unregistered Notes.
"SERIES 1998A1-5 NOTES" shall mean the Student Loan Senior
Asset-Backed Callable Notes, Series 1998A1-5 (Auction Rate), of the Issuer
issued and Outstanding under the Indenture as Registered Notes.
"SERIES A-5 NOTES" shall mean, collectively, the Series
1998A-5 Notes and the Series 1998A1-5 Notes.
"SERIES 1998A-6 INTEREST SHORTFALL" shall mean, with respect
to any Auction Period Distribution Date, the excess of (i) the Series 1998A-6
Noteholders' Interest Distribution Amount on the preceding Auction Period
Distribution Date over (ii) the amount of interest actually distributed to the
Series 1998A-6 Noteholders on such preceding Auction Period Distribution Date,
plus interest on the amount of such excess interest due to the Series 1998A-6
Noteholders, to the extent permitted by law, at the related Series Interest Rate
from such preceding Auction Period Distribution Date to the current Auction
Period Distribution Date.
"SERIES 1998A-6 NOTEHOLDERS" shall mean the Holders of the
Series A-6 Notes.
"SERIES 1998A-6 NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT"
shall mean with respect to any Auction Period 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 A-6 Notes on the immediately preceding Auction Period Distribution
Date after giving effect to all principal distributions to Holders of Series A-6
Notes on such preceding Auction Period Distribution Date (or, in the case of the
first Auction Period Distribution Date, on the Date of Issuance) and (ii) the
Series 1998A-6 Interest Shortfall for such Auction Period Distribution Date;
provided that the Series 1998A-6 Noteholders' Interest Distribution Amount will
not include any Carryover Interest on the Series A-6 Notes.
19
<PAGE> 20
"SERIES 1998A-6 NOTES" shall mean the Student Loan Senior
Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate), of the Issuer issued
and Outstanding under the Indenture as Unregistered Notes.
"SERIES 1998A1-6 NOTES" shall mean the Student Loan Senior
Asset-Backed Callable Notes, Series 1998A1-6 (Auction Rate), of the Issuer
issued and Outstanding under the Indenture as Registered Notes.
"SERIES A-6 NOTES" shall mean, collectively, the Series
1998A-6 Notes and the Series 1998A1-6 Notes.
"SERIES 1998B-3 INTEREST SHORTFALL" shall mean, with respect
to any Monthly Distribution Date, the excess of (i) the Series 1998B-3
Noteholders' Interest Distribution Amount on the preceding Monthly Distribution
Date over (ii) the amount of interest actually distributed to the Series 1998B-3
Noteholders on such preceding Monthly Distribution Date, plus interest on the
amount of such excess interest due to the Series 1998B-3 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 1998B-3 NOTEHOLDERS" shall mean the Holders of the
Series B-3 Notes.
"SERIES 1998B-3 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 B-3 Notes on the immediately preceding Monthly Distribution Date after
giving effect to all principal distributions to Holders of Series B-3 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 1998B-3 Interest
Shortfall for such Monthly Distribution Date; provided that the Series 1998B-3
Noteholders' Interest Distribution Amount will not include any Carryover
Interest on the Series B-3 Notes.
"SERIES 1998B-3 NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT"
shall mean, with respect to any Monthly Distribution Date, the Series 1998B-3
Principal Distribution Amount for such Monthly Distribution Date plus the Series
1998B-3 Principal Shortfall as of the close of the preceding Monthly
Distribution Date; provided that the Series 1998B-3 Noteholders' Principal
Distribution Amount shall not exceed the outstanding principal balance of the
Series B-3 Notes. In addition, on the Legal Final Maturity of the Series B-3
Notes, the principal required to be distributed to the Series 1998B-3
Noteholders shall include the amount required to reduce the outstanding
principal balance on the Series B-3 Notes to zero.
"SERIES 1998B-3 NOTES" shall mean the Student Loan Subordinate
Asset-Backed Notes, Series B-3 (Fixed Rate), of the Issuer issued and
Outstanding under the Indenture as Unregistered Notes.
"SERIES 1998B1-3 NOTES" shall mean the Student Loan
Subordinate Asset-Backed Notes, Series 1998B1-3 (Fixed Rate), of the Issuer
issued and Outstanding under the Indenture as
20
<PAGE> 21
Registered Notes.
"SERIES B-3 NOTES" shall mean, collectively, the Series
1998B-3 Notes and the Series 1998B1-3 Notes.
"SERIES 1998B-3 PRINCIPAL DISTRIBUTION AMOUNT" shall mean (i)
on each Monthly Distribution Date occurring after June 30, 2003, an amount equal
to the lesser of (a) 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 (b) the greatest
amount which would result in a Senior Parity Percentage of no less than 109% and
a Parity Percentage of no less than 101% following such payment of principal on
the Series B-3 Notes and (ii) on each Monthly Distribution Date on and after
which the principal balance of the Series 1998A 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 (reduced with respect to the first
Monthly Distribution Date on which principal is to be paid on the Series B-3
Notes by the Series 1998A Noteholders' Principal Distribution Amount on such
Monthly Distribution Date).
"SERIES 1998B-3 PRINCIPAL SHORTFALL" shall mean, as of the
close of any Monthly Distribution Date, the excess of (i) the Series 1998B-3
Principal Distribution Amount on such Distribution Date over (ii) the amount of
principal actually distributed to the Series 1998B-3 Noteholders on such Monthly
Distribution Date.
"SUBMISSION DEADLINE" shall mean 12:30 p.m., eastern time, on
any Interest Determination Date or such 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.
"SUBMITTED BID" shall have the meaning set forth in Section
2.03.2.1(c)(i) hereof.
"SUBMITTED HOLD ORDER" shall have the meaning set forth in
Section 2.03.2.1(c)(i).
"SUBMITTED ORDER" shall have the meaning set forth in Section
2.03.2.1(c)(i).
"SUBMITTED SELL ORDER" shall have the meaning set forth in
Section 2.3.2.1(c)(i).
"SUBSTITUTE AUCTION AGENT" shall mean a Person having the
qualifications required by Section 2.03.2.5 of this Indenture with whom the
Indenture Trustee and the Issuer enter into a Substitute Auction Agent
Agreement.
"SUBSTITUTE AUCTION AGENT AGREEMENT" shall mean an auction
agent agreement containing terms substantially similar to the terms of the
Initial Auction Agent Agreement, whereby a Substitute Auction Agent agrees with
the Indenture Trustee and the Issuer to perform the duties of the Auction Agent
under this Indenture.
21
<PAGE> 22
"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).
"TRANSFER RESTRICTIONS" shall have the meaning specified in
Section 2.05 hereof.
"UNREGISTERED NOTES" shall mean notes issued under the
Original Indenture which were not exchanged pursuant to the Exchange Offer and
the Exchange Offer Registration Statement and are not registered under the
Securities Act.
22
<PAGE> 23
ARTICLE II
AUTHORIZATION, TERMS AND PROVISIONS OF NOTES
SECTION 2.01 AUTHORIZATION OF NOTES; NOTES TO CONSTITUTE
SPECIAL OBLIGATIONS There was heretofore authorized under the Original Terms
Supplement the borrowing of funds, and to evidence such borrowing there was
authorized the issuance of Unregistered Notes of the Original Issuer in the
following aggregate principal amounts and Series: (i) Four Hundred Million
Dollars ($400,000,000) originally designated "Student Loan Funding LLC Student
Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate)" (herein
referred to as the "Series 1998A-3 Notes"); (ii) Ninety-Three Million Three
Hundred Thousand Dollars ($93,300,000) originally designated "Student Loan
Funding LLC Student Loan Senior Asset-Backed Callable Notes, Series 1998A-4
(Auction Rate)" (herein referred to as the "Series 1998A-4 Notes"); (iii) Ninety
Million Dollars ($90,000,000) originally designated "Student Loan Funding LLC
Student Loan Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate)"
(herein referred to as the "Series 1998A-5 Notes") (iv) Ninety Million Dollars
($90,000,000) originally designated "Student Loan Funding LLC Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate)" (herein
referred to as the "Series 1998A-6 Notes" and collectively with the Series
1998A-3 Notes, the Series 1998A-4 Notes and the Series 1998A-5 Notes, the
"Unregistered Senior Notes"); and (v) Fifty-Four Million Five Hundred Thousand
Dollars ($54,500,000) originally designated "Student Loan Funding LLC Student
Loan Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)" (herein
referred to as the "Series 1998B-3 Notes" or the "Unregistered Subordinate
Notes" and, collectively with the Unregistered Senior Notes, the "Unregistered
Notes"). Pursuant to the Transfer and Sale Agreement, the Issuer assumed all of
the obligations of Student Loan Funding LLC under the Unregistered Notes and the
Original Indenture, as amended and restated by the First Restated Indenture, and
amended the designation of the Issuer on the Unregistered Notes to read "Student
Loan Funding 1998-A/B Trust" in lieu of "Student Loan Funding LLC".
In connection with the consummation of the Exchange Offer,
there are authorized under this Terms Supplement the issuance by the Issuer of
the following notes to be exchanged for Unregistered Notes of the same Series
and same aggregate principal amount that have been properly tendered and
accepted by the Exchange Agent: (i) in exchange for Series 1998A-3 Notes,
Registered notes designated "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Notes, Series 1998A1-3 (LIBOR Floating Rate)" (herein
referred to as the "Series 1998A1-3 Notes"); (ii) in exchange for Series 1998A-4
Notes, Registered notes designated "Student Loan Funding 1998-A/B Trust Student
Loan Senior Asset-Backed Callable Notes, Series 1998A1-4 (Auction Rate)" (herein
referred to as the "Series 1998A1-4 Notes"); (iii) in exchange for Series
1998A-5 Notes, Registered notes designated "Student Loan Funding 1998-A/B Trust
Student Loan Senior Asset-Backed Callable Notes, Series 1998A1-5 (Auction Rate)"
(herein referred to as the "Series 1998A1-5 Notes"); (iv) in exchange for Series
1998A-6 Notes, Registered notes designated "Student Loan Funding 1998-A/B Trust
Student Loan Senior Asset-Backed Callable Notes, Series 1998A1-6 (Auction Rate)"
(herein referred to as the "Series 1998A1-6 Notes" and collectively with the
Series 1998A1-3 Notes, the Series 1998A1-4 Notes and the Series 1998A1-5 Notes,
the "Registered Senior Notes" and collectively with the
23
<PAGE> 24
Unregistered Senior Notes, the "Senior Notes"; and (v) in exchange for Series
1998B-3 Notes, Registered notes designated "Student Loan Funding 1998-A/B Trust
Student Loan Subordinate Asset-Backed Notes, Series 1998B1-3 (Fixed Rate)"
(herein referred to as the "Series 1998B1-3 Notes" or the "Registered
Subordinate Notes" and, collectively with the Registered Senior Notes, the
"Registered 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 E 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) (a) the
Registered Notes shall be issued in the form of one fully registered Global
Security for each Legal Final Maturity within each Series of Notes in principal
amount equal to the principal amount of Registered Notes of such Series of Notes
bearing such Legal Final Maturity or otherwise as may be required or requested
by the Depository and agreed to by the Issuer, registered in the name of the
Depository or its nominee, as registered owner, and immobilized in the custody
or at the direction of the Depository, and (b) the Unregistered Notes shall be
issued in the form of one fully registered Global Security for each Legal Final
Maturity within each Series of Notes in principal amount equal to the principal
amount of Unregistered Notes of such Series of Notes bearing such Legal Final
Maturity or otherwise as may be required or requested by the Depository or its
nominees, as registered owner, immobilized in the custody or at the direction 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
24
<PAGE> 25
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.
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
25
<PAGE> 26
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.
Except as otherwise provided herein, Unregistered Notes
offered and sold as part of their initial distribution in reliance on Regulation
S under the Securities Act shall be issued in the form of one or more Global
Securities in definitive, fully registered form without coupons, substantially
in the form set forth herein, with such applicable legends as are provided for
in Sections 2.06 and 2.07 hereof. Such Global Securities shall be registered in
the name of the Depository for such Global Securities or its nominee and
deposited with the Indenture Trustee, at its designated corporate trust office,
as custodian for such Depository, duly executed by the Issuer and authenticated
by the Indenture Trustee as herein provided, for credit by the Depository to the
respective accounts of beneficial owners of such Unregistered Notes (or to such
other accounts as they may direct) at Euroclear or Cedel. Until such time as the
applicable Restricted Period shall have terminated, each such Global Security
shall be referred to herein as a "Regulation S Global Security". After such time
as the applicable Restricted Period shall have terminated, each such Global
Security shall be referred to herein as an "Unrestricted Global Security". The
aggregate principal amount of any Regulation S Global Security and any
Unrestricted Global Security may from time to time be increased or decreased by
adjustments made on the records of the Indenture Trustee, as custodian for the
Depository for such Global Security, as provided in Section 2.05 hereof. As used
herein, the term "Restricted Period", with respect to Global Securities
initially offered and sold in reliance on Regulation S, means the period of
forty (40) consecutive days beginning on and including the later of (i) the day
that the underwriter(s) or placement agent(s), if any, for the offering of
Unregistered Notes advised the Original Issuer and the Indenture Trustee in
writing is the day on which such Unregistered Notes were first offered to
persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the Closing Date. No Regulation S Global Security shall be
issued except as provided in this paragraph to evidence Unregistered Notes
offered and sold as part of their initial distribution in reliance on Regulation
S.
Except as otherwise provided herein, Unregistered Notes
offered and sold as part of their initial distribution in transactions exempt
from the registration requirements of the Securities Act ("Restricted
Securities") other than pursuant to Regulation S to Persons who are (i)
"qualified institutional buyers", as defined in Rule 144A under the Securities
Act ("QIBs") or (ii) institutional "Accredited Investors" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an "Accredited Investor")
shall be issued in the form of one or more Global Securities (each a "Restricted
Global Security") in definitive, fully registered form without coupons,
substantially in the form set forth in Exhibits B, C or D hereto, as
appropriate, with such applicable legends as are provided for in Sections 2.06
and 2.07 hereof. Such Global Securities shall be registered in the name of the
Depository for such Global Security or its nominee and deposited with the
Indenture Trustee, at its designated corporate trust office, as custodian for
such Depository, duly executed by the Issuer and authenticated by the Indenture
Trustee as hereinafter provided. The aggregate principal amount of any
Restricted Global Security may from time to time be increased or decreased by
adjustments made on the records of
26
<PAGE> 27
the Indenture Trustee, as custodian for the Depository for such Global Security,
as provided in Section 2.05 hereof.
For purposes of this Terms Supplement, the term "Restricted
Securities" shall include all Unregistered Notes issued upon registration of
transfer of, exchange for or in lieu of Restricted Securities except as
otherwise provided in Section 2.05 hereof.
(b) TERMS OF SENIOR NOTES GENERALLY. The Unregistered Senior Notes have
been initially issued in fully registered form in substantially the form set
forth in Exhibits B or C hereof, as appropriate. Upon the consummation of the
Exchange Offer, the Issuer shall execute and deliver Registered Note
certificates authenticated by the Indenture Trustee and evidencing Registered
Senior Notes of the applicable Series in exchange for the Unregistered Note
certificates of the same Series executed and delivered upon the execution of the
First Restated Indenture. Registered Senior Notes shall be issued in fully
registered form in substantially the form set forth in Exhibits O and P hereof,
as appropriate. The Senior Notes may be issued only in Authorized Denominations.
The Senior Notes initially issued hereunder were, and the Registered Senior
Notes shall be, dated their Date of Issuance. 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 replacement Senior Notes of each
Series shall be numbered in consecutive numerical order as set forth in Schedule
I attached hereto.
The Senior Notes were issued, and shall continue to 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 Original Issuer and
to the extent necessary or required, entered 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 would not endanger the funds or securities of the Original Issuer. 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 continued 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 Unregistered Senior Note of a Series shall
initially bear interest at the rate of interest per annum set forth in Schedule
I attached hereto.
27
<PAGE> 28
Each Registered Senior Note of a Series shall initially bear interest at the
rate of interest per annum being borne by the Unregistered Senior Note of the
same Series on the Date of Issuance of such Registered Senior Note or, if all
Unregistered Senior Notes of such Series are to be exchanged for Registered
Notes of such Series, then such Registered Senior Notes shall initially bear
interest as determined in Section 2.03. 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 Unregistered
Subordinate Notes were initially issued in fully registered form in
substantially the form set forth in Exhibit D hereof. Upon the consummation of
the Exchange Offer, the Issuer shall execute and deliver Registered Note
certificates authenticated by the Indenture Trustee and evidencing Registered
Subordinate Notes in exchange for the Unregistered Note certificates executed
and delivered upon the execution of the First Restated Indenture. Registered
Subordinate Notes shall be issued in fully registered form in substantially the
form set forth in Exhibit Q hereof. The Subordinate Notes shall be issued only
in Authorized Denominations. The Unregistered Subordinate Notes issued hereunder
were, and the Registered Subordinate Notes shall be, dated their respective Date
of Issuance. The Subordinate Notes shall mature on the Legal Final Maturity. The
Subordinate Notes shall be subject to redemption prior to their respective Legal
Final Maturity as provided in Article III hereof. The replacement Subordinate
Notes shall be numbered in consecutive numerical order as set forth in Schedule
I hereto.
The Subordinate Notes were and shall continue to 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 Original Issuer and to
the extent necessary or required, entered 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 would not endanger the funds or securities of the Original Issuer. 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 continued 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
28
<PAGE> 29
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 THE SERIES INTEREST RATE ON
THE SERIES A-3 NOTES. The Calculation Agent shall determine the Series Interest
Rate with respect to the Series A-3 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 the Series A-3 Notes shall equal
One-Month LIBOR plus .38%, but in no event greater than 17% per annum.
Interest on the Series A-3 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 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 the Series A-3 Notes on any Interest Determination Date, the
Formula Rate on the Series A-3 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 DETERMINATION OF THE SERIES INTEREST RATE ON
THE AUCTION RATE NOTES. Until an Auction Period Adjustment or Auction Period
Conversion and subject to the Net Loan Rate, the Auction Rate Notes shall bear
interest at a Series Interest Rate based on a 28-day Auction Period, as
determined pursuant to Section 2.03.2 hereof and the subsections thereunder.
For the Auction Rate Notes during each Interest Accrual
Period, interest at the applicable Series Interest Rate shall accrue daily and
shall be computed for the actual number of days elapsed on the basis of a year
consisting of 360 days.
The Series Interest Rate to be borne by each Series of Auction
Rate Notes after
29
<PAGE> 30
the initial Interest Accrual Period shall be determined by the Auction Agent,
which Series Interest Rate shall be the Formula Rate, as hereinafter described
and subject to the limitation of the Net Loan Rate, as hereinafter described.
Each Auction Period shall commence on and include the first day of such Interest
Accrual Period and end on and include the immediately succeeding Interest
Determination Date. The Series Interest Rate on each Series of Auction Rate
Notes for each Auction Period shall be the lesser of the (i) Net Loan Rate in
effect for such Auction Period and (ii) the Formula Rate in effect for such
Auction Period; provided that if, on any Interest Determination Date, an Auction
is not held for any reason, then the Series Interest Rate on the Auction Rate
Notes for the next succeeding Auction Period shall be the Net Loan Rate.
Notwithstanding the foregoing:
(A) if the ownership of Auction Rate Notes
is no longer maintained in Book-entry Form, the Auction Rate on such
Auction Rate Notes for any Interest Accrual Period commencing after the delivery
of certificates representing such series pursuant to Section 2.3 of the Base
Indenture shall equal the lesser of (i) the Maximum Auction Rate and (ii) the
Net Loan Rate on the Business Day immediately preceding the first day of such
subsequent Interest Accrual Period; or
(B) if a Payment Default shall have
occurred, the Auction Rate on the Auction Rate Notes for the Interest Accrual
Period commencing on or immediately after such Payment Default, and for each
Interest Accrual Period thereafter, to and including the Interest Accrual
Period, if any, during which, or commencing less than two Business Days after,
such Payment Default is cured in accordance with this Indenture, shall be the
Non-Payment Rate on the first day of each such Interest Accrual Period; or
(C) the Auction Rate for an Auction Period
that commences on an Auction Period Conversion Date will be equal to the
lesser of (i) the interest rate necessary to enable the Auction Agent to sell
all of such Auction Rate Notes at par plus accrued interest to the Auction
Period Conversion Date or (ii) the Maximum Auction Rate as of the Auction Period
Conversion Date, subject to the Net Loan Rate.
In accordance with Section 2.03.2.1(c)(ii) hereof, the Auction
Agent shall promptly give written notice to the Indenture Trustee and the Issuer
of each Series Interest Rate (unless the Series Interest Rate is the Non-Payment
Rate in which case the Indenture Trustee will determine the Non-Payment Rate and
give written notice thereof to the Issuer) and either the Auction Rate or the
Net Loan Rate, as the case may be, when such rate is not the Series Interest
Rate, applicable to the Auction Rate Notes. The Indenture Trustee shall notify
the Holders of Auction Rate Notes of the Series Interest Rate applicable to the
Auction Rate Notes for each Auction Period on the second Business Day of such
Auction Period.
In the event that there are fewer than three (3) Business Days
in any week during which the Auction Period for the Auction Rate Notes would
otherwise be scheduled to expire, the expiration date and the Auction Period
Distribution Date for such Auction Period then in
30
<PAGE> 31
effect, and the Interest Determination Date and commencement date for the
immediately following Auction Period for the Auction Rate Notes, may be adjusted
to fall on such dates as the Calculation Agent, with the consent of the Issuer,
may determine to be appropriate under such circumstances. The Calculation Agent
will promptly notify the Indenture Trustee and the Auction Agent in writing of
any such determination. The Indenture Trustee, upon receipt of such notice, will
immediately give written notification of such determination to the Holders of
the Auction Rate Notes.
Notwithstanding any other provision of the Auction Rate Notes
or this Indenture and except for interest payable at the Non-Payment Rate in
connection with the occurrence of a Payment Default, interest payable on the
Auction Rate Notes for an Auction Period shall never exceed for such Auction
Period the amount of interest payable at the Net Loan Rate in effect for such
Auction Period.
In the event that the Auction Agent no longer determines, or
fails to determine, when required, the Series Interest Rate with respect to each
series of Auction Rate Notes, or, if for any reason such manner of determination
shall be held to be invalid or unenforceable, the Series Interest Rate for the
next succeeding Interest Accrual Period, which period shall be an Auction
Period, for each Series of Auction Rate Notes shall be the Net Loan Rate as
determined by the Administrator for such next succeeding Auction Period, and if
the Administrator shall fail or refuse to determine said Net Loan Rate, the Net
Loan Rate 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 hereof, and written notice of
such determination shall be given by such securities dealer to the Indenture
Trustee.
SECTION 2.03.2.1 AUCTION PROCEDURES.
By purchasing Auction Rate Notes, whether in an Auction or
otherwise, each purchaser of the Auction Rate Notes, or its Broker-Dealer, must
agree and shall be deemed by such purchase to have agreed (i) to participate in
Auctions on the terms described herein, (ii) to have its beneficial ownership of
the Auction Rate Notes maintained at all times in Book-Entry Form for the
account of its Depository Participant, which in turn will maintain records of
such beneficial ownership and (iii) to authorize such Depository Participant to
disclose to the Auction Agent such information with respect to such beneficial
ownership as the Auction Agent may request.
So long as the ownership of a Series of Auction Rate Notes is
maintained in Book-Entry Form by the Depository, an Existing Holder may sell,
transfer or otherwise dispose of Auction Rate Notes only pursuant to a Bid or
Sell Order placed in an Auction or otherwise sell, transfer or dispose of
Auction Rate Notes through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Holder, its
Broker-Dealer or its Depository Participant advises the Auction Agent of such
transfer. Prior to a Period Adjustment Date and except with respect to the
Interest Determination Date immediately preceding an Auction Period Conversion
Date, Auctions shall be conducted on each Interest Determination Date, if there
is an Auction Agent on such Interest Determination Date, in the
31
<PAGE> 32
following manner:
(a) (i) Prior to the Submission Deadline on each
Interest Determination Date;
(A) each Existing Holder of Auction Rate
Notes may submit to a Broker-Dealer by telephone or otherwise any
information as to:
(1) the principal amount of
Outstanding Auction Rate Notes, if any, held by such Existing Holder which such
Existing Holder desires to continue to hold without regard to the Series
Interest Rate for the next succeeding Auction Period;
(2) the principal amount of
Outstanding Auction Rate Notes, if any, which such Existing Holder offers to
sell if the Series Interest Rate for the next succeeding Auction Period shall be
less than the rate per annum specified by such Existing Holder; and/or
(3) the principal amount of
Outstanding Auction Rate Notes, if any, held by such Existing Holder which such
Existing Holder offers to sell without regard to the Series Interest Rate for
the next succeeding Auction Period;
and
(B) one or more Broker-Dealers may contact
Potential Holders to determine the principal amount of Auction Rate Notes
which each Potential Holder offers to purchase, if the Series Interest Rate for
the next succeeding Auction Period shall not be less than the rate per annum
specified by such Potential Holder.
The statement of an Existing Holder or a Potential Holder
referred to in (A) or (B) of this paragraph (i) is hereinafter referred to as an
"Order," and each Existing Holder and each Potential Holder placing an Order is
hereinafter referred to as a "Bidder"; an Order described in clause (A)(1) is
hereinafter referred to as a "Hold Order"; an Order described in clauses (A)(2)
and (B) is hereinafter referred to as a "Bid"; and an Order described in clause
(A)(3) is hereinafter referred to as a "Sell Order."
(ii) (A) Subject to the provisions of Section
2.03.2.1(b) hereof, a Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the principal amount of
Outstanding Auction Rate Notes specified in such Bid if the Series Interest Rate
determined as provided in this Section 2.03.2.1 shall be less than the rate
specified therein; or
(2) such principal amount or a
lesser principal amount of Outstanding Auction Rate Notes to be determined as
set forth in Section 2.03.2.1(d)(i)(D), if the Series Interest Rate determined
as provided in this Section 2.03.2.1 shall be equal to the rate
32
<PAGE> 33
specified therein; or
(3) such principal amount or a
lesser principal amount of Outstanding Auction Rate Notes to be determined as
set forth in Section 2.03.2.1(d)(ii)(C) if the rate specified therein shall be
higher than the Series Interest Rate and Sufficient Clearing Bids have not been
made.
(B) Subject to the provisions of Section
2.03.2.1(b) hereof, a Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the principal amount of
Outstanding Auction Rate Notes specified in such Sell Order; or
(2) such principal amount or a
lesser principal amount of Outstanding Auction Rate Notes set forth in
Section 2.03.2.1(d)(i)(C), if Sufficient Clearing Bids have not been made.
(C) Subject to the provisions of Section
2.03.2.1(b) hereof, a Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the principal amount of
Outstanding Auction Rate Notes specified in such Bid if the Series Interest Rate
determined as provided in this Section 2.03.2.1 shall be higher than the rate
specified in such Bid; or
(2) such principal amount or a
lesser principal amount of Outstanding Auction Rate Notes set forth in Section
2.03.2.1(d)(i)(E), if the Series Interest Rate determined as provided in this
Section 2.03.2.1 shall be equal to the rate specified in such Bid.
(b) (i) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Interest Determination
Date all Orders obtained by such Broker-Dealer and shall specify with respect to
each such Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate principal amount of Auction Rate
Notes that are the subject of such Order;
(C) to the extent that such Bidder is an Existing
Holder:
(1) the principal amount of Auction
Rate Notes, if any, subject to any Hold Order placed by such Existing Holder;
(2) the principal amount of Auction
Rate Notes, if any, subject to any Bid placed by such Existing Holder and the
rate specified in such Bid; and
33
<PAGE> 34
(3) the principal amount of Auction Rate Notes, if
any, subject to any Sell Order placed by such Existing Holder;
and
(D) to the extent such Bidder is a Potential Holder,
the rate specified in such Potential Holder's Bid.
(ii) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next higher one- thousandth (.001) of 1%.
(iii) If an Order or Orders covering all Outstanding Auction
Rate Notes held by an Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to
have been submitted on behalf of such Existing Holder covering the principal
amount of Outstanding Auction Rate Notes held by such Existing Holder and not
subject to an Order submitted to the Auction Agent.
(iv) Neither the Issuer, the Indenture Trustee nor the Auction
Agent shall be responsible for any failure of a Broker-Dealer to submit an Order
to the Auction Agent on behalf of any Existing Holder or Potential Holder.
(v) If any Existing Holder submits through a Broker-Dealer to
the Auction Agent one or more Orders covering in the aggregate more than the
principal amount of Outstanding Auction Rate Notes held by such Existing Holder,
such Orders shall be considered valid as follows and in the following order of
priority:
(A) All Hold Orders shall be considered valid, but
only up to the aggregate principal amount of Outstanding Auction Rate
Notes held by such Existing Holder, and if the aggregate principal amount of
Auction Rate Notes subject to such Hold Orders exceeds the aggregate principal
amount of Auction Rate Notes held by such Existing Holder, the aggregate
principal amount of Auction Rate Notes subject to each such Hold Order shall be
reduced pro rata so that the aggregate principal amount of Auction Rate Notes
subject to such Hold Order equals the aggregate principal amount of Outstanding
Auction Rate Notes held by such Existing Holder.
(B) (1) any Bid shall be considered valid
up to an amount equal to the excess of the principal amount of Outstanding
Auction Rate Notes held by such Existing Holder over the aggregate principal
amount of Auction Rate Notes subject to any Hold Order referred to in clause (A)
of this paragraph (v);
(2) subject to subclause (1) of this
clause (B), if more than one Bid with the same rate is submitted on behalf of
such Existing Holder and the aggregate principal amount of outstanding Auction
Rate Notes subject to such Bids is greater than such excess, such
34
<PAGE> 35
Bids shall be considered valid up to an amount equal to such excess;
(3) subject to subclauses (1) and (2) of
this clause (B), if more than one Bid with different rates are submitted on
behalf of such Existing Holder, such Bids shall be considered valid first in the
ascending order of their respective rates until the highest rate is reached at
which such excess exists and then at such rate up to the amount of such excess;
and
(4) in any such event, the amount of
Outstanding Auction Rate Notes, if any, subject to Bids not valid under this
clause (B) shall be treated as the subject of a Bid by a Potential Holder at the
rate therein specified; and
(C) All Sell Orders shall be considered valid up to
an amount equal to the excess of the principal amount of Outstanding
Auction Rate Notes held by such Existing Holder over the aggregate principal
amount of Auction Rate Notes subject to Hold Orders referred to in clause (A) of
this paragraph (v) and valid Bids referred to in clause (B) of this paragraph
(v).
(vi) If more than one Bid for Auction Rate Notes is submitted
on behalf of any Potential Holder, each Bid submitted shall be a separate Bid
with the rate and principal amount therein specified.
(vii) An Existing Holder that offers to purchase
additional Auction Rate Notes is, for purposes of such offer, treated as a
Potential Holder.
(viii) Any Bid or Sell Order submitted by an Existing Holder
covering an aggregate principal amount of Auction Rate Notes not equal to an
Authorized Denomination shall be rejected and shall be deemed a Hold Order. Any
Bid submitted by a Potential Holder covering an aggregate principal amount of
Auction Rate Notes not equal to an Authorized Denomination shall be rejected.
(ix) Any Bid specifying a rate higher than the Maximum Auction
Rate shall (a) be treated as a Sell Order if submitted by an Existing Holder and
(b) not be accepted if submitted by a Potential Holder.
(x) Any Order submitted in an Auction by a Broker-Dealer to
the Auction Agent prior to the Submission Deadline on any Interest Determination
Date shall be irrevocable.
(c) (i) Not earlier than the Submission Deadline on
each Interest Determination Date, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each
such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter
referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a
"Submitted Sell Order," as the case may be, or as a "Submitted Order" and
collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell
Orders," as the case may be, or as "Submitted Orders") and shall determine:
35
<PAGE> 36
(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 (such excess being hereinafter referred to as the "Available Auction Rate
Notes"), and
(B) from the Submitted Orders
whether:
(1) 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:
(2) 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
(3) the aggregate principal amount of
Outstanding Auction Rate Notes subject to submitted Sell Orders;
(in the event such excess or such equality exists, other than
because all of the Outstanding Auction Rate Notes are subject to Submitted Hold
Orders, such Submitted Bids described in subclause (1) above shall be referred
to collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the Bid
Auction Rate (the "Bid Auction Rate") shall be the lowest rate specified in
such Submitted Bids such that if:
(1) (aa) each Submitted Bid from
Existing Holders specifying such lowest rate and (bb) all other Submitted Bids
from Existing Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the principal amount of Auction Rate Notes
subject to such Submitted Bids; and
(2) (aa) each such Submitted Bid
from Potential Holders specifying such lowest rate and (bb) all other Submitted
Bids from Potential Holders specifying lower rates were accepted; the result
would be that such Existing Holders described in subclause (1) above would
continue to 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 such Potential Holders described in subclause (2)
above, would equal not less than the Available Auction Rate Notes.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to Section 2.03.2.1(c)(i) hereof, the Auction Agent
shall advise the Indenture Trustee and the Broker-Dealers of the Net Loan Rate,
the Maximum Auction Rate and the All Hold Rate and the components thereof on the
Interest Determination Date and, based on such determinations, the
36
<PAGE> 37
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 shall 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 shall be equal to the Maximum Auction Rate; or
(C) if all Outstanding Auction Rate Notes are subject
to Submitted Hold Orders, that the Auction Rate for the next succeeding
Interest Accrual Period shall be equal to the All Hold Rate.
(iii) Promptly after the Auction Agent has determined the
Auction Rate, the Auction Agent shall determine and advise the Indenture Trustee
of the Series Interest Rate, which rate shall be the lesser of (a) the Formula
Rate and (b) the Net Loan Rate. In no event shall the Series Interest Rate
exceed 17%.
(d) Existing Holders shall continue to hold the
principal amount of Auction Rate Notes that are subject to Submitted Hold
Orders. If the Net Loan Rate is equal to or greater than the Bid Auction Rate
and if Sufficient Clearing Bids 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 such other
action as described below in subparagraph (i).
If the Net Loan Rate is greater than the Auction Rate, the
Series Interest Rate for the Outstanding Auction Rate Notes will be the Auction
Rate. If the Net Loan Rate is less than the Auction Rate, the Series Interest
Rate for the Outstanding Auction Rate Notes will be the Net Loan Rate. If the
Auction Rate and the Net Loan Rate for the Auction Rate Notes are both greater
than 17%, the Series Interest Rate shall be equal to 17%. If the Auction Agent
has not received Sufficient Clearing Bids (other than because all of the
Outstanding Auction Rate Notes are subject to Submitted Hold Orders), the Series
Interest Rate will be the lesser of the Auction Rate (which shall be the Maximum
Auction Rate) and the Net Loan Rate, but in no event greater than 17%. In any of
the cases described above, Submitted Orders will be accepted or rejected and the
Auction Agent will take such other action as described below in subparagraph
(ii).
(i) if Sufficient Clearing Bids have been made and the Net
Loan Rate is equal to or greater than the Bid Auction Rate (in which case the
Series Interest Rate shall be the Bid Auction Rate), all Submitted Sell Orders
shall be accepted and, subject to the provisions of paragraphs (iv) and (v) of
this Section 2.03.2.1(d), Submitted Bids shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids shall be
rejected:
(A) Existing Holders' Submitted Bids specifying any
rate that is higher than the Series Interest Rate shall be accepted, thus
requiring each such Existing Holder to sell the aggregate principal amount of
Auction Rate Notes subject to such Submitted Bids;
37
<PAGE> 38
(B) Existing Holders' Submitted Bids specifying any
rate that is lower than the Series Interest Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the aggregate principal
amount of Auction Rate Notes subject to such Submitted Bids;
(C) Potential Holders' Submitted Bids specifying any
rate that is lower than the Series Interest Rate shall be accepted;
(D) Each Existing Holders' Submitted Bid specifying a
rate that is equal to the Series Interest Rate shall be rejected, thus
entitling such Existing Holder to continue to hold the aggregate principal
amount of Auction Rate Notes subject to such Submitted Bid, unless the aggregate
principal amount of Outstanding Auction Rate Notes subject to all such Submitted
Bids shall 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 clauses (B) and (C) of this Section 2.03.2.1(d)(i),
in which event such Submitted Bid of such Existing Holder shall be rejected in
part, and such Existing Holder shall be entitled to continue to hold the
principal amount of Auction Rate Notes subject to such Submitted Bid, but only
in an amount equal to the aggregate principal amount of Auction Rate Notes
obtained by multiplying the remaining principal amount by a fraction, the
numerator of which shall be the principal amount of Outstanding Auction Rate
Notes held by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the principal amount of Outstanding
Auction Rate Notes subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the Series Interest Rate; and
(E) Each Potential Holder's Submitted Bid specifying
a rate that is equal to the Series Interest Rate shall be accepted, but
only in an amount 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 clauses (B), (C) and (D) of this Section
2.03.2.1(d)(i) by a fraction the numerator of which shall be the aggregate
principal amount of Outstanding Auction Rate Notes subject to such Submitted Bid
and the denominator of which shall be the sum of the principal amount of
Outstanding Auction Rate Notes subject to Submitted Bids made by all such
Potential Holders that specified a rate equal to the Series Interest Rate; and
(F) Each Potential Noteholder's Bid specifying a rate
that is higher than the Series Interest Rate will be rejected.
(ii) 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 is less than the Bid Auction Rate (in
which case the Series Interest Rate shall equal the Net Loan Rate), or if the
Series Interest Rate would be greater than 17%, subject to the provisions of
Section 2.03.2.1(d)(iv), Submitted Orders shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids shall be
rejected:
38
<PAGE> 39
(A) Existing Holders' Submitted Bids specifying any
rate that is equal to or lower than the Series Interest Rate shall be
rejected, thus entitling such Existing Holders to continue to hold the aggregate
principal amount of Auction Rate Notes subject to such Submitted Bids;
(B) Potential Holders' Submitted Bids specifying
(1) any rate that is equal to or lower than the Series Interest Rate shall be
accepted and (2) any rate that is higher than the Series Interest Rate shall be
rejected; and
(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 shall be accepted, thus entitling each
Existing Holder that submitted any such Submitted Bid or Submitted Sell Order to
sell the Auction Rate Notes subject to such Submitted Bid or Submitted Sell
Order, but in both cases only in an amount equal to the aggregate principal
amount of Auction Rate Notes obtained by multiplying the aggregate principal
amount of Auction Rate Notes subject to Submitted Bids described in clause (B)
of this Section 2.03.2.1(d)(ii) by a fraction the numerator of which shall be
the aggregate principal amount of Outstanding Auction Rate Notes held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the aggregate principal amount of Outstanding
Auction Rate Notes subject to all such Submitted Bids and Submitted Sell Orders.
(iii) If all Outstanding Auction Rate Notes are subject to
Submitted Hold Orders, all Submitted Bids shall be rejected.
(iv) If, as a result of the procedures described in paragraph
(i) or (ii) of this Section 2.03.2.1(d), any Existing Holder would be entitled
or required to sell, or any Potential Holder would be entitled or required to
purchase, a principal amount of Auction Rate Notes that is not equal to an
Authorized Denomination, the Auction Agent shall, in such manner as in its sole
discretion it shall determine, round up or down the principal amount of Auction
Rate 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 shall be equal to an Authorized
Denomination.
(v) If, as a result of the procedures described in paragraph
(ii) of this Section 2.03.2.1(d), any Potential Holder would be entitled or
required to purchase less than an Authorized Denomination of Auction Rate Notes,
the Auction Agent shall, in such manner as in its sole discretion it shall
determine, allocate Auction Rate Notes for purchase among Potential Holders so
that only Auction Rate Notes in Authorized Denominations are purchased by any
Potential Holder, even if such allocation results in one or more of such
Potential Holders not purchasing any Auction Rate Notes.
(e) Based on the result of each Auction, the Auction Agent
shall 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
39
<PAGE> 40
behalf each Broker-Dealer submitted Bids or Sell Orders and, with respect to
each Broker-Dealer, to the extent that such aggregate principal amount of
Auction Rate Notes to be sold differs from such 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 such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or
more sellers such Broker-Dealer shall receive, as the case may be, Auction Rate
Notes.
(f) The Issuer and any affiliate may not submit an Order in
any Auction.
(g) Any calculation by the Auction Agent (or 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 and the Non-Payment Rate shall, in the absence of manifest error, be
binding on all other parties.
SECTION 2.03.2.2 APPLICATION OF INTEREST PAYMENTS FOR THE
AUCTION RATE NOTES.
(a) The Indenture Trustee shall determine not later than 12:00
Noon, eastern time, on the Business Day next succeeding an Auction Period
Distribution Date, whether a Payment Default has occurred. If a Payment Default
has occurred, the Indenture Trustee shall, not later than 12:15 p.m., eastern
time, on such Business Day, send a notice thereof in substantially the form of
Exhibit F attached hereto to the Auction Agent by telecopy or similar means and,
if such Payment Default is cured, the Indenture Trustee shall immediately send a
notice in substantially the form of Exhibit G attached hereto to the Auction
Agent by telecopy or similar means.
(b) Not later than 12:00 Noon, eastern time, on each Auction
Period Distribution Date the Indenture Trustee shall pay to the Auction Agent,
in immediately available funds out of amounts in the Expense Account, an amount
equal to the Auction Agent Fee and the Broker-Dealer Fee as calculated in the
Auction Agent Agreement. The Indenture Trustee shall, from time to time at the
request of the Auction Agent and with the approval of an Authorized Officer of
the Issuer, reimburse the Auction Agent for its reasonable expenses as provided
in the Auction Agent Agreement, such expenses to be paid out of amounts in the
Expense Account.
SECTION 2.03.2.3 CALCULATION OF MAXIMUM AUCTION RATE, ALL HOLD
RATE, NET LOAN RATE, APPLICABLE LIBOR RATE AND NON-PAYMENT RATE. The Auction
Agent shall calculate the Maximum Auction Rate, the All Hold Rate and the
Applicable LIBOR Rate on each Interest Determination Date and shall notify the
Indenture Trustee and the Broker-Dealers of the Maximum Auction Rate, the All
Hold Rate and the Applicable LIBOR Rate as provided in the Auction Agent
Agreement. The Administrator shall calculate the Net Loan Rate and no later than
the Business Day immediately preceding each Interest Determination Date shall
report to the Auction Agent in writing, the Net Loan Rate. Upon receipt of
notice from the Indenture Trustee of a failed Auction Period Conversion as
described in Section 2.03.2.9 hereof, the Auction Agent shall calculate the
Maximum Auction Rate and the Administrator will report to the Auction Agent in
writing the Net Loan Rate as of such failed Auction Period Conversion and give
notice thereof as provided and to the parties specified in Section 2.3(b)(iv) of
the Auction Agent Agreement. If the ownership of a Series of Auction Rate Notes
is no longer maintained in
40
<PAGE> 41
Book-Entry form by the Depository, the Indenture Trustee shall calculate the
Maximum Auction Rate and Administrator shall report to the Indenture Trustee in
writing the Net Loan Rate on the Business Day immediately preceding the
commencement of each Interest Accrual Period after the delivery of certificates
representing such Series of Auction Rate Notes pursuant to this Indenture. If a
Payment Default shall have occurred, the Indenture Trustee shall 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 such Payment Default and (ii) any Interest Accrual Period commencing less
than two Business Days after the cure of any Payment Default. The Auction Agent
shall determine the Applicable LIBOR Rate for each Interest Accrual Period other
than the Initial Period; provided, that if the ownership of the Auction Rate is
no longer maintained in Book-Entry form, or if a Payment Default has occurred,
then the Indenture Trustee shall determine the Applicable LIBOR Rate for each
such Interest Accrual Period. The determination by the Indenture Trustee or the
Auction Agent, as the case may be, of the Applicable LIBOR Rate shall (in the
absence of manifest error) be final and binding upon all parties. If determined
by the Auction Agent, the Auction Agent shall promptly advise the Indenture
Trustee of the Applicable LIBOR Rate.
SECTION 2.03.2.4 NOTIFICATION OF RATES, AMOUNTS AND PAYMENT
DATES.
(a) By 10:00 a.m., eastern time, on the Business Day following
each Record Date, the Indenture Trustee shall determine the aggregate amounts of
interest distributable on the next succeeding Auction Period Distribution Date
to the beneficial owners of Auction Rate Notes.
(b) Promptly after the Closing Date and after the beginning of
each subsequent Interest Accrual Period, and in any event at least four (4) days
prior to any Auction Period Distribution Date, as the case may be, the Indenture
Trustee shall:
(i) confirm with the Auction Agent, so long as
no Payment Default has occurred and is continuing and the ownership of the
Auction Rate Notes is maintained in Book-Entry form by the Depository, (1) the
date of such next Auction Period Distribution Date and (2) the amount payable to
the Auction Agent on the Interest Determination Date pursuant to Section
2.03.2.2(b) hereof;
(ii) pursuant to Section 2.03.3 hereof, advise the
Holders of any Carryover Interest accruing on any series of Series Auction
Rate Notes; and
(iii) advise the Depository, so long as the ownership
of the Auction Rate Notes is maintained in Book-entry form by the
Depository, upon request, of the Series Interest Rate payable on the Auction
Rate Notes and the interest amount.
If any day scheduled to be an Auction Period Distribution Date
shall be changed after the Indenture Trustee shall have given the notice or
confirmation referred to in clause (i) of the preceding sentence, the Indenture
Trustee shall, not later than 9:15 a.m., eastern time, on the Business Day next
preceding the earlier of the new Auction Period Distribution Date or the old
41
<PAGE> 42
Auction Period Distribution Date, by such means as the Indenture Trustee deems
practicable, give notice of such change to the Auction Agent, so long as no
Payment Default has occurred and is continuing and the ownership of the Auction
Rate Notes is maintained in Book-Entry Form by the Depository.
SECTION 2.03.2.5 AUCTION AGENT.
(a) Bankers Trust Company has been appointed as Auction Agent
to serve as agent for the Issuer in connection with Auctions with respect to the
Auction Rate Notes. The Indenture Trustee has entered into the Initial Auction
Agent Agreement with Bankers Trust Company, as the Initial Auction Agent. Any
Substitute Auction Agent shall be (i) a bank, national banking association or
trust company duly organized under the laws of the United States of America or
any state or territory thereof having its principal place of business in the
Borough of Manhattan, New York, or such other location as is 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 upon it hereunder and under the Auction Agent Agreement. The
Auction Agent may at any time resign and be discharged of the duties and
obligations created by this 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 upon the written direction of an
Authorized Officer of the Issuer or the Holders of 66-2/3% of the aggregate
principal amount of the Auction Rate Notes then Outstanding, and if by the
Holders, by an instrument signed by such Holders or their attorneys and filed
with the Auction Agent, the Issuer, the Indenture Trustee and the Calculation
Agent upon at least 90 days' notice. Neither resignation nor removal of the
Auction Agent pursuant to the preceding two sentences shall be effective until
and unless a Substitute Auction Agent has been appointed and has accepted such
appointment. If required by the Issuer or by the Calculation Agent, with the
Issuer's consent, a Substitute Auction Agent Agreement shall be entered into
with a Substitute Auction Agent. Notwithstanding the foregoing, the Auction
Agent may terminate the Auction Agent Agreement if, within fifteen (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 in
accordance with the terms of the Auction Agent Agreement, the Auction Agent does
not receive such payment.
(b) If the Auction Agent shall resign or be removed or be
dissolved, or if the property or affairs of the Auction Agent shall be taken
under the control of any state or federal court or administrative body because
of bankruptcy or insolvency, or for any other reason, the Indenture Trustee at
the direction of an Authorized Officer 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 immediately preceding
paragraph), shall use its best efforts to appoint a Substitute Auction Agent.
(c) The Auction Agent shall act 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
42
<PAGE> 43
Auction Agent shall not be liable for any action taken, suffered or omitted or
any error of judgment made by it in the performance of its duties under the
Auction Agent Agreement and shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
(or failing to ascertain) the pertinent facts.
(d) In the event of a change in the Auction Agent Fee Rate
pursuant to Section 6.4(b) of the Auction Agent Agreement, the Auction Agent
shall give a Notice of Fee Rate Change to the Indenture Trustee in accordance
with the Auction Agent Agreement.
SECTION 2.03.2.6. BROKER-DEALERS.
(a) The Auction Agent has entered into a Broker-Dealer
Agreement with NationsBanc Montgomery Securities LLC, as the initial
Broker-Dealer. An Authorized Officer of the Issuer may, from time to time,
approve one or more additional persons to serve as Broker-Dealers under
Broker-Dealer Agreements and shall be responsible for providing such
Broker-Dealer Agreements to the Indenture Trustee and the Auction Agent;
provided, however, that while NationsBanc Montgomery Securities LLC is serving
as a Broker-Dealer, NationsBanc Montgomery Securities LLC shall have the right
to consent to the approval of any additional Broker-Dealers, which consent will
not be unreasonably withheld.
(b) Any Broker-Dealer may be removed at any time, at the
request of an Authorized Officer of the Issuer, but there shall, at all times,
be at least one Broker-Dealer appointed and acting as such.
SECTION 2.03.2.7 CHANGES IN AUCTION PERIOD OR PERIODS.
(a) While any of the Auction Rate Notes are Outstanding, the
Issuer may, from time to time, convert on an Auction Period Distribution Date
the length of one or more Auction Periods pursuant to an Auction Period
Adjustment, in order to conform with then current market practice with respect
to similar securities or to accommodate economic and financial factors that may
affect or be relevant to the length of the Auction Period and the interest rate
borne by the Auction Rate Notes; provided, however that the Issuer shall only
initiate a change in the length in the Auction Period to an Auction Period of
other than seven (7) or twenty-eight (28) days upon written evidence based on a
Cash Flow Statement from each of the Rating Agencies then rating any Outstanding
Auction Rate Notes that such a change will not adversely affect any rating of
such Rating Agencies on any Outstanding Auction Rate Notes; provided, further,
however, that each Rating Agency may waive the requirement for delivery of a
Cash Flow Statement. The Issuer shall not initiate an Auction Period Adjustment
unless it shall have received the written consent of the Calculation Agent,
which consent shall not be unreasonably withheld, not less than fifteen (15)
days nor more than twenty (20) days prior to the Auction Period Adjustment. The
Issuer shall initiate the 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 such
Auction Period Adjustment in substantially the form of, or containing
substantially the information contained in, Exhibit H to this Indenture at least
ten (10) days prior to the Interest Determination Date for such
43
<PAGE> 44
Auction Period.
(b) The length of any such adjusted Auction Period pursuant to
an Auction Period Adjustment shall be subject to the limitations thereon set
forth in the definition of an Auction Period Adjustment in this Indenture.
(c) An Auction Period Adjustment shall not be allowed unless
Sufficient Clearing Bids existed or all of the Outstanding Auction Rate Notes
were subject to Submitted Hold Orders at both the Auction, if any, before the
date on which the notice of the proposed change was given as provided in this
Section 2.03.2.7 and the Auction immediately preceding the proposed change.
(d) An Auction Period Adjustment shall take effect on an
Auction Period Distribution Date 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 such Auction Period, a certificate
from the Issuer in substantially the form attached as, or containing
substantially the same information contained in, Exhibit I to this Indenture,
authorizing the Auction Period Adjustment specified in such certificate along
with a copy of the certificate of the Calculation Agent described above in
subparagraph (a) and (B) Sufficient Clearing Bids exist or all of the
Outstanding Auction Rate Notes are subject to Submitted Hold Orders on the
Interest Determination Date for such first Auction Period. If the condition
referred to in (A) above is not met, the Auction Rate for the Auction Period
commencing on the Effective Date (as defined in Exhibit I) will be determined
pursuant to the Auction Procedures and the Auction Period shall be the Auction
Period determined without reference to the proposed change. If the condition
referred to in (A) is met but the condition referred in (B) above is not met,
the Series Interest Rate for the next Auction Period shall be the lesser of the
Auction Rate (which shall be the Maximum Auction Rate) and the Net Loan Rate,
but in no event greater than 17%, and the Auction Period shall be the Auction
Period determined without reference to the proposed change.
(e) In connection with any Auction Period Adjustment, the
Auction Agent will provide such further notice as is specified in Section 2.5 of
the Auction Agent Agreement.
(f) While any of the Auction Rate Notes are Outstanding, the
Issuer may, from time to time, change the length of one or more Auction Periods
pursuant to an Auction Period Conversion. In such case, the Issuer, the
Indenture Trustee and the Auction Agent shall comply with the provisions of
Section 2.03.2.9 of this Indenture for effecting such an Auction Period
Conversion. If the conditions set forth in Section 2.03.2.9 are not met, the
Series Interest Rate for the Auction Period with respect to which the proposed
Auction Rate Conversion was to have been effective shall be the lesser of the
Auction Rate (which shall be the Maximum Auction Rate) and the Net Loan Rate,
but in no event greater than 17%, and the Auction Period shall be the Auction
Period determined without reference to the proposed change.
SECTION 2.03.2.8 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 in accordance
with the definition of "Interest Determination
44
<PAGE> 45
Date" in Article I of this Terms Supplement 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 Series Interest Rate borne on the Auction
Rate Notes. The Authorized Officer of the Issuer shall not consent to such
change in the Interest Determination Date unless he or she shall have received a
written request for consent from the Calculation Agent not less than fifteen
(15) days nor more than twenty (20) days prior to the effective date of such
change. The Calculation Agent shall 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 ten (10) days prior to the
proposed changed Interest Determination Date to the Indenture Trustee, the
Auction Agent, the Issuer and the Depository. Such notice shall be substantially
in the form of, or contain substantially the information contained in, Exhibit J
to this Indenture.
In connection with any change described in this Section
2.03.2.8, the Auction Agent will provide such further notice as is specified in
Section 2.5 of the Auction Agent Agreement.
SECTION 2.03.2.9 AUCTION PERIOD CONVERSIONS. At the option of
the Issuer, the length of an Auction Period for a Series of Auction Rate Notes
is subject to an Auction Period Conversion on an Auction Period Conversion Date.
The length of the new Auction Period, the new Interest Determination Dates, if
any, and the Auction Period Distribution Dates with respect to the new Auction
Period shall be set forth in a Supplemental Indenture executed in connection
with such Auction Period Conversion. No such Auction Period Conversion shall be
effective unless prior to the Auction Period Conversion Date the Issuer shall
have furnished to the Indenture Trustee written evidence from each of the Rating
Agencies then rating any Outstanding Auction Rate Notes that execution of the
Supplemental Indenture and the related Auction Period Conversion will not
adversely affect the ratings on any series of Outstanding Auction Rate Notes.
With respect to an Auction Period Conversion, the Issuer shall
give written notice to the Indenture Trustee, the Auction Agent, the Calculation
Agent and the Remarketing Agent of any such proposed Auction Period Conversion
not less than twenty-eight (28) days prior to the Auction Period Conversion Date
in substantially the form of, or containing substantially the information
contained in, Exhibit K to this Indenture.
Upon receipt of such written notice from the Issuer, the
Indenture Trustee shall give written notice to the Holders of such Series of
Auction Rate Notes in the manner set forth in Section 3.01 of this Terms
Supplement not less than twenty-five (25) days prior to the Auction Period
Conversion Date. Such notice shall state (i) that (a) the length of the Auction
Period will be converted (1) from an Auction Period between seven (7) and
ninety-one (91) days, inclusive, to an Auction Period between ninety-two (92)
days and the Final Legal Maturity of such Series of Auction Rate Notes,
inclusive, (2) from an Auction Period between ninety-two (92) days and the Final
Legal Maturity of such Series of Auction Rate Notes, inclusive, to an Auction
Period between seven (7) and ninety-one (91) days, inclusive, or (3) from an
Auction Period between
45
<PAGE> 46
ninety-two (92) days and the Final Legal Maturity of such Series of Auction Rate
Notes, inclusive, to an Auction Period between ninety-two (92) days and the
Final Legal Maturity of such Series of Auction Rate Notes, inclusive, if such
latter Auction Period is at least three (3) months shorter or at least three (3)
months longer than the Auction Period established for such series at its initial
issuance or pursuant to an Auction Period Conversion, as applicable; (ii) the
Auction Period Conversion Date, (iii) that all Holders of such Series of Auction
Rate Notes are required to tender their Auction Rate Notes to the Indenture
Trustee or its agent no later than the Auction Period Conversion Date for
purchase at a price equal to 100% of the principal amount thereof plus accrued
interest and any unpaid Carryover Interest (and interest accrued thereon) to the
Auction Period Conversion Date; provided, however, that all such Auction Rate
Notes that are not tendered to the Indenture Trustee by such date shall be
deemed tendered to the Indenture Trustee as of the Auction Period Conversion
Date, subject, however, to remarketing or purchase by the Remarketing Agent for
settlement on the Auction Period Conversion Date and receipt by the Indenture
Trustee of the purchase price equal to 100% of the principal amount of Auction
Rate Notes from the purchasers thereof or the Remarketing Agent; (iv) that in
the event that on the Auction Period Conversion Date, the Remarketing Agent has
been unable to remarket all Auction Rate Notes for settlement on the Auction
Period Conversion Date and has elected not to purchase for its own account such
unremarketed Auction Rate Notes, or on the Auction Period Conversion Date the
Indenture Trustee has not received the purchase price equal to 100% of the
principal amount of the Auction Rate Notes from the purchasers thereof or the
Remarketing Agent, the proposed Auction Period Conversion of the Auction Rate
Notes shall be canceled and such Auction Rate Notes shall remain in the Auction
Period applicable to such Auction Rate Notes prior to the proposed Auction
Period Conversion; (v) that the proposed Auction Period Conversion is
conditioned upon there being sufficient moneys available in the Note Payment
Account, after making provision for the payment of accrued interest on such
Auction Rate Notes and interest on other Auction Rate Notes due and payable on
such Auction Period Conversion Date to pay on the Auction Period Conversion Date
all Carryover Interest (and accrued interest thereon), if any, on such Auction
Rate Notes through the Auction Period Conversion Date; and (vi) that a Holder
has no right to elect to retain any such Auction Rate that have been remarketed,
or will be purchased, by the Remarketing Agent, on the Auction Period
Conversion. The Indenture Trustee shall mail a copy of such notice to each of
the Rating Agencies.
Notwithstanding anything to the contrary in this Section
2.03.2.9 or elsewhere in this Indenture, if all of the Auction Rate Notes
subject to Auction Period Conversion are not remarketed or purchased by the
Remarketing Agent for settlement on the Auction Period Conversion Date, or if
the Indenture Trustee does not, by 11:00 a.m., eastern time, on the Auction
Period Conversion Date receive from the purchaser or the Remarketing Agent the
purchase price equal to 100% of the principal amount thereof or if there are not
sufficient moneys available in the Note Payment Account, after making provision
for the payment of accrued interest on such Auction Rate Notes due and payable
on Auction Period Conversion Date to pay on the Auction Period Conversion Date
all Carryover Interest (and accrued interest thereon), if any, on such Auction
Rate Notes through the Auction Period Conversion Date, none of such Auction Rate
Notes shall be subject to such Auction Period Conversion, but all such Auction
Rate Notes shall bear interest at the lesser of the Net Loan Rate or the Auction
Rate (which shall be the Maximum Auction Rate), but in no event greater than
17%, for the Interest
46
<PAGE> 47
Accrual Period commencing on such date and shall continue to be held by and
registered to the Holders that held such Auction Rate Notes immediately prior to
the failed Auction Period Conversion. Upon the occurrence of a failed Auction
Period Conversion, the Indenture Trustee shall give written notice to the
Issuer, the Auction Agent, the Calculation Agent, the Remarketing Agent and each
Rating Agency then rating the Auction Rate Notes, as appropriate, confirming
such failure.
SECTION 2.03.2.10 MANDATORY TENDER AND PURCHASE OF SERIES
AUCTION RATE NOTES IN CONNECTION WITH AUCTION PERIOD CONVERSION.
In the event that an Auction Period Conversion with respect to
Auction Rate Notes is to take place, such Auction Rate Notes shall be tendered
to the Authenticating Agent no later than the related Auction Period Conversion
Date for purchase at a purchase price equal to 100% of the principal amount
thereof plus accrued interest and any unpaid Carryover Interest (and any
interest accrued thereon) to the Auction Period Conversion Date; provided,
however, that any Auction Rate Note not tendered to the Authenticating Agent by
such date shall be deemed tendered to the Authenticating Agent. The Indenture
Trustee shall give notice by mail to the Holders of such Auction Rate Notes not
less than twenty-five (25) days prior to the Auction Period Conversion Date, of
the mandatory tender of such Series of Auction Rate Notes, which notice shall be
contained in the notice given in accordance with the provisions of Section
2.03.2.9 hereof.
Pursuant to a Remarketing Agreement, the Remarketing Agent
shall be obligated (i) to use its best efforts to remarket the Auction Rate
Notes subject to an Auction Period Conversion at a purchase price of not less
than 100% of the principal amount thereof, (ii) not later than 3:00 p.m.,
eastern time, on the Business Day before the Auction Period Conversion Date, to
give notice to the Indenture Trustee stating whether all of the Auction Rate
Notes have been remarketed or will be purchased by the Remarketing Agent on the
Auction Period Conversion Date, and (iii) to cause the purchase price of each
Auction Rate Note so remarketed or to be purchased by the Remarketing Agent to
be deposited in the fund to be established under a Remarketing Agreement and
maintained by the Indenture Trustee pursuant to a Remarketing Agreement (the
"Note Purchase Fund") in immediately available funds. Pursuant to a Remarketing
Agreement, all amounts deposited in the Note Purchase Fund as aforesaid shall be
held by the Indenture Trustee uninvested and in cash and in trust for the sole
and exclusive benefit of the Holders of the Auction Rate Notes for the purchase
of which such amounts were deposited in the Note Purchase Fund and shall be
applied by the Indenture Trustee to such purchase by payment to such Holders
without further authorization or direction. Accrued interest and any unpaid
Carryover Interest (and any interest accrued thereon) on the Auction Rate Notes
shall be paid by the Indenture Trustee to such Holders from the Note Payment
Account.
If by 11:00 a.m., eastern time, on the Auction Period
Conversion Date, there is on deposit in the Note Purchase Fund and the Note
Payment Account an aggregate amount sufficient to pay the purchase price of all
Auction Rate Notes subject to Auction Period Conversion equal to 100% of the
principal amount thereof plus accrued interest and any unpaid Carryover Interest
(and any interest accrued thereon) due and payable on the Auction Period
47
<PAGE> 48
Conversion Date, all Auction Rate Notes which have not been delivered to the
Indenture Trustee shall be deemed to have been tendered in accordance with the
provisions hereof. In connection with an Auction Period Conversion, if
necessary, replacement note certificates, if any, amending and restating the
tendered or deemed tendered note certificates with respect to changes to the
terms of such tendered or deemed tendered note certificates, shall be
authenticated by the Indenture Trustee and delivered to the purchasers thereof;
provided, however, that in the case of Auction Rate Notes held in a Book-Entry
System, any such replacement Auction Rate Notes shall be authenticated by the
Indenture Trustee and delivered to the Depository or its agent. The Holder of
any undelivered Auction Rate Notes shall not be entitled to any payment
(including any interest to accrue on and subsequent to the Auction Period
Conversion Date) other than the purchase price for such undelivered Auction Rate
Notes, and undelivered Auction Rate Notes shall no longer be entitled to the
benefit of this Indenture, except for the purpose of payment of the purchase
price therefor.
As of such Auction Period Conversion Date, the Auction Rate
Notes subject to Auction Period Conversion shall be registered to the purchasers
thereof, regardless of tender of the predecessor Auction Rate Notes by the
Holders thereof and shall bear interest at the new Auction Rate for the new
Auction Period. The Issuer shall give written notice to the Indenture Trustee,
the Auction Agent, the Calculation Agent and the Depository of any such
successful Auction Period Conversion no later than 5:00 p.m., eastern time, on
the Auction Period Conversion Date in substantially the form of, or containing
substantially the information contained in, Exhibit L to this Indenture.
The Holders of Auction Rate Notes which are subject to
mandatory tender on the Auction Period Conversion Date do not have the right to
elect to retain such Auction Rate Notes. Subject only to receipt by the
Indenture Trustee from the purchaser of the purchase price equal to 100% of the
principal amount of all Auction Rate Notes on the Auction Period Conversion Date
and the payment of accrued interest and any unpaid Carryover Interest (and
accrued interest thereon) as described above, such Auction Rate Notes will be
deemed to be tendered to the Indenture Trustee on such Auction Period Conversion
Date and registered in the names of the purchasers thereof.
If by 11:00 a.m., eastern time, on the Auction Period
Conversion Date there is not on deposit in the Note Purchase Fund and the Note
Payment Account (after taking into account other amounts to be paid from the
Note Payment Account as hereinbefore described) an aggregate amount sufficient
to pay the purchase price of all Auction Rate Notes subject to Auction Period
Conversion all Auction Rate Notes that have been tendered to the Indenture
Trustee shall be returned by the Indenture Trustee to the tendering Holders
thereof, and the Indenture Trustee shall give written notice on the date that
the proposed Auction Period Conversion was to have occurred to each Holder of
Auction Rate Notes, whether such Holder has actually tendered his Auction Rate
Notes or not, that (i) the Auction Period Conversion of such Auction Rate Notes
has been canceled because (A) not all Auction Rate Notes were remarketed or
purchased by the Remarketing Agent or (B) there were not moneys available to pay
accrued interest on such Auction Rate Notes due and payable on the Auction
Period Conversion Date, and any unpaid Carryover Interest (and accrued interest
thereon), if any, on
48
<PAGE> 49
such Auction Rate Notes and (ii) such Auction Rate Notes will bear interest at
the lesser of the Net Loan Rate or the Auction Rate (which shall be the Maximum
Auction Rate) as of the failed Auction Period Conversion Date for the Interest
Accrual Period commencing on such date, but in no event greater than 17%,
written notice of which Series Interest Rate will be given by the Indenture
Trustee to each such Holder on the second Business Day of the new Auction
Period.
SECTION 2.03.2.11 REMARKETING AGENT NOTES. Notwithstanding the
fact that the Remarketing Agent is under no obligation to purchase any Auction
Rate Notes in connection with an Auction Period Conversion, in the event that
the Remarketing Agent should elect, in its sole discretion, to purchase Auction
Rate Notes, then the Auction Rate Notes so purchased by the Remarketing Agent
will constitute "Remarketing Agent Notes" until the date, if any, on which such
Auction Rate Notes are sold by the Remarketing Agent. For so long as such
Auction Rate Notes constitute Remarketing Agent Notes, the Remarketing Agent
will be entitled to payment of the Remarketing Agent Recovery Amount, as
hereinafter defined, with respect to the principal amount of Remarketing Agent
Notes. For purposes of this Section 2.03.2.11, "Remarketing Agent Recovery
Amount" shall mean, with respect to any Remarketing Agent Notes, an amount equal
to the Daily Deferred Rate, as hereinafter defined, multiplied by the daily
principal balance of such Remarketing Agent Notes for the actual number of days
such Auction Rate Notes constitute Remarketing Agent Notes. For purposes of this
Section 2.03.2.11, "Daily Deferred Rate" shall mean an amount equal to the
excess, if any, of (x) the rate published as the "Broker Call" in THE WALL
STREET JOURNAL on each day the Remarketing Agent is the owner of such
Remarketing Agent Notes over (y) the new Series Interest Rate in effect for such
Auction Rate Notes from and after the Auction Period Conversion Date. Any
accrued but unpaid Remarketing Agent Recovery Amount is payable from the Note
Payment Account, to the extent funds are available therefor after payment of all
other amounts payable therefrom, on each Auction Period Distribution Date.
In the event that the Remarketing Agent acquires Auction Rate
Notes other than in connection with a mandatory tender in anticipation of an
Auction Period Conversion, such Auction Rate Notes will not constitute
Remarketing Agent Notes prior to Auction Period Conversion. In the event that
the Remarketing Agent holds such Auction Rate Notes and such Auction Rate Notes
become subject to Auction Period Conversion, the Remarketing Agent will tender
them to the Indenture Trustee, and in connection with such Auction Period
Conversion such Auction Rate Notes may become Remarketing Agent Notes in
accordance with the provisions of this Section 2.03.2.11.
SECTION 2.03.3 DETERMINATION OF SERIES INTEREST RATE ON THE
SERIES B-3 NOTES The Series Interest Rate for the Series B-3 Notes shall equal a
fixed rate of 6.25% per annum. Interest on the Series B-3 Notes shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
SECTION 2.03.4 CARRYOVER INTEREST The Calculation Agent and
Auction Agent, as appropriate, shall announce the Formula Rate and the Net Loan
Rate to the Indenture Trustee and the Issuer.
49
<PAGE> 50
If, with respect to any Series of Series 1998A Notes for any
Interest Accrual Period, interest at the Formula Rate exceeds interest at the
Net Loan Rate with respect to such Series of Series 1998A 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 Series 1998A Notes interest at the Net Loan Rate. With respect to
such Series of Series 1998A 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 Series
1998A 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 Series 1998A 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.
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 Series 1998A 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 2.03.5 ADDITIONAL PROVISIONS REGARDING SERIES INTEREST
RATE. The determination of a Series Interest Rate by the Calculation Agent,
Auction 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.
50
<PAGE> 51
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 Exhibits
B, C, O or P hereof, as appropriate, 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 Exhibits D or Q hereof, as appropriate, 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 hereof,
with necessary or appropriate variations, omissions or insertions, as permitted
or required by this Indenture.
SECTION 2.05 TRANSFER RESTRICTIONS (a) RESTRICTED SECURITIES.
Restricted Securities shall be subject to the restrictions on transfer (the
"Transfer Restrictions") provided in the applicable legend(s) the ("Restrictive
Legends") required to be set forth on the face of each Restricted Security
pursuant to Section 2.06 hereof, and each Holder of a Restricted Security, by
its acceptance thereof, agrees to be bound by, and to comply with, the Transfer
Restrictions, in each case unless compliance with the Transfer Restrictions
shall be waived by the Issuer in writing delivered to the Indenture Trustee.
51
<PAGE> 52
The Transfer Restrictions shall cease and terminate with
respect to any particular Restricted Security upon receipt by the Issuer of
evidence satisfactory to it (which may include an opinion of independent counsel
experienced in matters of United States federal securities law) that, as of the
date of determination, such Restricted Security (a) could be transferred by the
Holder thereof to a QIB or to an Accredited Investor pursuant to Rule 144A
promulgated under the Securities Act, (b) has been sold pursuant to an effective
registration statement under the Securities Act, or (c) has been transferred (i)
to the Issuer, (ii) in a transaction satisfying all the requirements of Rule 903
or 904 (as applicable) of Regulation S promulgated under the Securities Act or
(iii) pursuant to Rule 144A under the Securities Act, and receipt by the
Indenture Trustee of a certificate from an Authorized Officer certifying that
the Issuer has received such evidence and that the Transfer Restrictions have
ceased and terminated with respect to such Restricted Security. All references
in the preceding sentence to any Regulation, Rule or provision thereof shall be
deemed also to refer to any successor provisions thereof. In addition, the
Issuer may terminate the Transfer Restrictions with respect to any particular
Restricted Security in such other circumstances as it determines are appropriate
for this purpose and shall deliver to the Indenture Trustee a certificate from
an Authorized Officer certifying that the Transfer Restrictions have ceased and
terminated with respect to such Restricted Security.
At the request of the Holder and, upon the surrender of such
Restricted Security to the Indenture Trustee or the Registrar for exchange in
accordance with the provisions of Section 2.3 of the Base Indenture, any
Restricted Security as to which the Transfer Restrictions shall have terminated
in accordance with the preceding paragraph shall be exchanged for a new Note of
like tenor and aggregate principal amount, but without the Restrictive Legends.
Any Restricted Security as to which the Restrictive Legends shall have been
removed pursuant to this paragraph (and any Unregistered Notes issued upon
registration of transfer of, exchange for or in lieu of such Restricted
Security) shall thereupon cease to be "Restricted Securities" for all purposes
of this Indenture.
The Issuer shall notify the Indenture Trustee of the effective
date of any registration statement registering any Restricted Securities under
the Securities Act and shall ensure that any opinion of counsel received by it
in connection with the removal of any Restrictive Legend is also addressed to
the Indenture Trustee. The Indenture Trustee shall not be liable for any action
taken or omitted to be taken by it in good faith and without negligence on its
part in reliance upon a certificate of the Issuer executed by an Authorized
Officer in accordance with this Section 2.05(a).
As used in this Section 2.5(a), the term "transfer"
encompasses any sale, pledge, transfer or other disposition of any Unregistered
Notes referred to herein.
(b) GLOBAL SECURITIES. Each Global Security authenticated
under the Indenture shall be registered in the name of the Depository designated
for such Global Security or a nominee thereof and delivered to such Depository
or a nominee thereof or custodian therefor at its designated corporate trust
office, and each such Global Security shall constitute a single Note for all
purposes of this Indenture.
52
<PAGE> 53
Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Unregistered Notes
registered, and no transfer of a Global Security in whole or part may be made or
registered, in the name of any Person other than the Depository for such Global
Security or a nominee thereof unless (A) such Depository (i) has notified the
Issuer that it is unwilling or unable to continue to act as Depository for such
Global Security or (ii) has ceased to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, or any other applicable statute or
regulation, and, in either case, a successor Depository is not appointed by the
Issuer within ninety (90) days of such event (B) there shall have occurred and
be continuing an Event of Default with respect to such Global Security, or (C)
the Issuer in its sole discretion shall have notified the Depository that the
Global Securities shall be exchanged for such Unregistered Notes. Any Global
Security exchanged pursuant to clause (A) above shall be so exchanged in whole
and not in part and any Global Security exchanged pursuant to clause (B) or (C)
above may be exchanged in whole or from time to time in part as directed by the
Depository for such Global Security. Notwithstanding any other provision in this
Indenture, a Global Security to which the restriction set forth in the second
preceding sentence shall have ceased to apply may be transferred only to, and
may be registered and exchanged for Notes registered only in the name or names
of, such Person or Persons as the Depository for such Global Security shall have
directed and no transfer thereof other than such a transfer may be registered.
Nothing in this Section 2.05(b) shall prohibit or render ineffective any
transfer of a beneficial interest in a Global Security effected in accordance
with this Section 2.05 or Section 2.3 of the Base Indenture.
Subject to the preceding paragraph, any exchange of a Global
Security for other Notes may be made in whole or in part, and all Unregistered
Notes issued in exchange for a Global Security or any portion thereof shall be
registered in such names as the Depository for such Global Security shall
direct.
Every Unregistered Note authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Security
or any portion thereof shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Unregistered Note is registered in the
name of a Person other than the Depository for such Global Security or a nominee
thereof.
Until the termination of the Restricted Period with respect to
Unregistered Notes, interests in any Regulation S Global Security may be held
only through Agent Members acting for and on behalf of Euroclear and Cedel;
provided, however, that the Indenture Trustee shall have no responsibility to
determine compliance with this requirement.
(c) TRANSFERS BETWEEN GLOBAL SECURITIES.
(i) RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL
SECURITY. If the owner of a beneficial interest (an "Owner Transferor") in a
Restricted Global Security wishes at any time to transfer such beneficial
interest to a person (an "Owner Transferee") who wishes to take delivery thereof
in the form of a beneficial interest in an Regulation S Global Security, such
transfer may be effected, subject to the Applicable Procedures, only in
accordance with the provisions of this
53
<PAGE> 54
Section 2.05(c)(i). Upon receipt by the Indenture Trustee, as custodian, at its
designated corporate trust office of (1) written instructions given in
accordance with the Applicable Procedures from the Agent Member whose account is
to be debited (an "Agent Member Transferor") with respect to the Restricted
Global Security directing the Indenture Trustee, as Registrar, to credit or
cause to be credited to a specified account of another Agent Member (an "Agent
Member Transferee") (which shall be an account with Euroclear or Cedel or both)
a beneficial interest in a Regulation S Global Security in a principal amount
equal to the beneficial interest in the Restricted Global Security to be
transferred (the "Restricted Global Transferred Amount"), (2) a written order
given in accordance with the Applicable Procedures containing information
regarding the account of the Agent Member Transferee to be credited with, and
the account of the Agent Member Transferor to be debited for, the Restricted
Global Transferred Amount, and (3) a certificate in substantially the form set
forth in Section 2.08(a) given by the Owner Transferor, the Indenture Trustee,
as Registrar, shall instruct the Depository for such Global Securities to reduce
the principal amount of the Restricted Global Security, and to increase the
principal amount of the Regulation S Global Security, by the Restricted Global
Transferred Amount, and to credit or cause to be credited to the account of the
Agent Member Transferee a beneficial interest in the Regulation S Global
Security, and to debit or cause to be debited to the account of the Agent Member
Transferor a beneficial interest in the Restricted Global Security, in each case
having a principal amount equal to the Restricted Global Transferred Amount.
(ii) REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL
SECURITY. If an Owner Transferor wishes at any time to transfer a beneficial
interest in a Regulation S Global Security to an Owner Transferee who wishes to
take delivery thereof in the form of a beneficial interest in a Restricted
Global Security, such transfer may be effected, subject to the Applicable
Procedures, only in accordance with this Section 2.05(c)(ii). Upon receipt by
the Indenture Trustee, as Registrar, at its designated corporate trust office of
(1) written instructions given in accordance with the Applicable Procedures from
the Agent Member Transferor directing the Indenture Trustee, as Registrar, to
credit or cause to be credited to a specified account of an Agent Member
Transferee a beneficial interest in the Restricted Global Security in a
principal amount equal to that of the beneficial interest in the Regulation S
Global Security to be so transferred (the "Regulation S Global Transferred
Amount"), (2) a written order given in accordance with the Applicable Procedures
containing information regarding the account of the Agent Member Transferee to
be credited with, and the account of the Agent Member Transferor (which must be
an account with Euroclear or Cedel or both) to be debited for, the Regulation S
Global Amount, and (3) a certificate in substantially the form set forth in
Section 2.08(b) given by the Owner Transferor or Owner Transferee, as the case
may be, the Indenture Trustee, as Registrar, shall instruct the Depository for
such Global Securities to reduce the principal amount of the Regulation S Global
Security, and increase the principal amount of the Restricted Global Security,
by the Regulation S Global Transferred Amount, and to credit or cause to be
credited to the account of the Agent Member Transferee a beneficial interest in
the Restricted Global Security, and to debit or cause to be debited to the
account of the Agent Member Transferor a beneficial interest in the Regulation S
Global Security, in each case having a principal amount equal to the Regulation
S Global Transferred Amount.
54
<PAGE> 55
(d) OTHER TRANSFERS AND EXCHANGES. In case of any transfer or
exchange the procedures and requirements for which are not addressed in detail
in this Section 2.05, such transfer or exchange will be subject to such
procedures and requirements as may be reasonably prescribed by the Issuer and
the Indenture Trustee from time to time and, in the case of a transfer or
exchange involving a Global Security, the Applicable Procedures.
SECTION 2.06. LEGENDS ON UNREGISTERED NOTES. Unless otherwise
specified pursuant to and in accordance with Section 2.05 hereof, every
Unregistered Note authenticated and delivered hereunder, including any issued
upon transfer, exchange or replacement of such Unregistered Notes, shall bear,
and shall be subject to the restrictions on transfer provided in Section 2.05
hereof, if such Unregistered Note is issued as a Global Security. Any
Unregistered Notes issued upon transfer, exchange or replacement of Unregistered
Notes which in accordance with Section 2.05 have ceased to be Restricted
Securities shall not bear such legends.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE
55
<PAGE> 56
APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
SECTION 2.07. LEGENDS ON GLOBAL SECURITIES. In addition to the
legend required by Section 2.06 hereof, every Global Security authenticated and
delivered hereunder shall bear a legend in substantially the following form:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
SECTION 2.08. CERTIFICATION FORMS. (a) Whenever any
certification is required to be given pursuant to Section 2.05(c)(i) of this
Terms Supplement in connection with the transfer of a beneficial interest in a
Restricted Global Security to a person who wishes to take delivery thereof in
the form of a beneficial interest in a Regulation S Global Security, such
certification shall be provided substantially in the form of Exhibit M to this
Terms Supplement, with only such changes as shall be approved in writing by the
Issuer.
(b) Whenever any certifications are required to be given pursuant to
Section 2.05(c)(ii) of this Terms Supplement in connection with the transfer of
a beneficial interest in the Regulation S Global Security to a person who wishes
to take delivery thereof in the form of a beneficial interest in the Restricted
Global Security, such certifications shall be provided substantially in the form
of Exhibit N to this Terms Supplement, with only such changes as shall be
approved in writing by the Issuer.
56
<PAGE> 57
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 May 31, 2007, 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 Reserve Fund, will pay accrued and unpaid
57
<PAGE> 58
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. 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. (a) 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 Reserve Fund.
In connection with the optional redemption of any Series 1998A
Notes, all unpaid Carryover Interest on such Series (and accrued interest, if
any, thereon) shall be paid on or before the date of optional redemption of such
Series.
(b) On and after such date that there are no Series A-3 Notes
Outstanding, the Auction Rate Notes shall be subject to redemption in whole or
in part on any Auction Period Commencement Date prior to their Final Legal
Maturity, at the option of the Issuer (including the designation of which Series
is to be redeemed) from funds deposited by or on behalf of the Issuer or
otherwise to the credit of the Note Payment Account, upon notice given by the
Indenture Trustee to the Noteholders thereof not less than fifteen (15) days
prior to the redemption date in the form and manner described in 3.01 hereof, at
a redemption price of 100% of the principal amount redeemed plus accrued
interest to the date of redemption. The Issuer may not exercise its option to
redeem any Auction Rate Notes unless after any such redemption the Parity
Percentage is no less than 101% and the provisions of Section 5.4 of the Base
Indenture regarding the minimum amount of Financed Student Loans bearing
interest at a fixed rate held in the Student Loan Portfolio Fund are satisfied.
With respect to the optional redemption of Auction Rate Notes pursuant to this
Section 3.03, in the event of a redemption in part of a Series, the Auction Rate
Notes to be redeemed will be selected by lot by the Indenture Trustee. No
Auction Rate Notes will be subject to redemption in part in an amount less than
an
58
<PAGE> 59
Authorized Denomination thereof, and no portion of the Auction Rate Notes is
to be retained by a Noteholders in an amount less than an Authorized
Denomination.
In connection with the optional redemption of any Auction Rate
Notes, all unpaid Carryover Interest on such Auction Rate Notes (and accrued
interest, if any, thereon) shall be paid on or before the date of optional
redemption of such Auction Rate Notes.
Any amounts in the Note Payment Account in excess of the
amounts thereof applied to an optional redemption pursuant to this Section
3.03(b) shall remain in such Account until such amounts are applied by the
Indenture Trustee to any other payments to be made from such Account as provided
in Section 5.5.1 of the Base Indenture and Section 4.02 hereof or transferred to
the Issuer upon its written request if such amounts represent funds deposited by
or on behalf of the Issuer.
Auction Rate Notes to be redeemed pursuant to this Section
3.03(b) shall be redeemed by the Indenture Trustee only upon written notice from
the Issuer to the Indenture Trustee. That notice shall specify the redemption
date and shall be given at least twenty (20) days prior to the redemption date
or such shorter period as shall be acceptable to the Indenture Trustee in its
sole discretion. Before the Indenture Trustee shall give notice of redemption to
the Noteholders as provided in Section 3.01 hereof, the Indenture Trustee shall
confirm that there is on deposit in the Note Payment Account funds which will be
sufficient to pay on the date fixed for redemption the redemption price of the
Auction Rate Notes to be redeemed pursuant to such notice.
59
<PAGE> 60
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 were
deposited with the Indenture Trustee on the Date of Issuance, and the Indenture
Trustee deposited such proceeds to the following Funds and Accounts:
(a) $10,917,000 of the proceeds of the Notes, an amount equal
to the Specified Reserve Fund Balance, were deposited by the Indenture
Trustee upon receipt in the Reserve Fund;
(b) $5,000,000 of the proceeds of the Notes were deposited by
the Indenture Trustee upon receipt to the Collection Account in the
Collection Fund;
(c) $3,275,100 of the proceeds of the Notes were deposited by
the Indenture Trustee upon receipt to the Expense Account in the
Collection Fund; and
(d) The balance of the proceeds of the Notes was deposited by
the Indenture Trustee upon receipt in the Acquisition Fund.
SECTION 4.02 DISPOSITION OF COLLECTION ACCOUNT. 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; provided that, if any moneys are transferred on January 31, 1999 to the
Collection Account from the Acquisition Fund pursuant to Section 4.03 hereof in
an amount equal to or greater than $1,000,000, all such moneys shall be used
solely to pay principal on the Series A-4 Notes on the first Auction Period
Distribution Date thereof (rounded down, to the extent necessary, to the nearest
Authorized Denomination):
(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,
(a) an amount up to (1) the Series 1998A-3 Noteholders'
Interest Distribution Amount for payment on such Monthly
Distribution Date to the Series 1998A-3 Noteholders,
ratably, without preference or priority of any kind and (2)
any related Senior Issuer Exchange Payment with respect to
the Series A-3 Notes for payment to the related Senior
Exchange Counterparty,
60
<PAGE> 61
(b) an amount up to (1) the Series 1998A-4 Noteholders'
Interest Distribution Amount for payment on each Auction
Period Distribution Date occurring in the next succeeding
calendar month to the Series 1998A-4 Noteholders, ratably,
without preference or priority of any kind and (2) any
related Senior Issuer Exchange Payment with respect to the
Series A-4 Notes for payment to the related Senior Exchange
Counterparty,
(c) an amount up to (1) the Series 1998A-5 Noteholders'
Interest Distribution Amount for payment on each Auction
Period Distribution Date occurring in the next succeeding
calendar month to the Series 1998A-5 Noteholders, ratably,
without preference or priority of any kind and (2) any
related Senior Issuer Exchange Payment with respect to the
Series A-5 Notes for payment to the related Senior Exchange
Counterparty, and
(d) an amount up to (1) the Series 1998A-6 Noteholders'
Interest Distribution Amount for payment on each Auction
Period Distribution Date occurring in the next succeeding
calendar month to the Series 1998A-6 Noteholders, ratably,
without preference or priority of any kind and (2) any
related Senior Issuer Exchange Payment with respect to the
Series A-6 Notes for payment to the related Senior Exchange
Counterparty;
(iii) to the Note Payment Account, an amount up to (a) the Series
1998B-3 Noteholders' Interest Distribution Amount for
payment on such Monthly Distribution Date to the Series
1998B-3 Noteholders, ratably, without preference or priority
of any kind and (b) any related Subordinate Issuer Exchange
Payment with respect to the Series B-3 Notes for payment to
the related Subordinate Exchange Counterparty;
(iv) to the Note Payment Account,
(a) (1) an amount up to the Series 1998A Noteholders'
Principal Distribution Amount for payment on such Monthly
Distribution Date to the Series 1998A-3 Noteholders until
the Outstanding principal balance of Series A-3 Notes has
been reduced to zero, and (2) an amount up to the Series
1998B-3 Noteholders' Principal Distribution Amount for
payment on such Monthly Distribution Date for payment on
such Monthly Distribution Date to the Series 1998B-3
Noteholders,
(b) once the Series A-3 Notes are no longer Outstanding, (1)
an amount up to the Series 1998A Noteholders' Principal
Distribution Amount for payment on the next succeeding
Auction Period Distribution Date to the Series 1998A-4
Noteholders until the Outstanding principal balance of the
Series A-4 Notes has been reduced to zero, and (2) an amount
up to the Series 1998B-3 Noteholders' Principal Distribution
Amount for payment on such Monthly Distribution Date for
payment on such Monthly Distribution Date to the Series
1998B-3
61
<PAGE> 62
Noteholders,
(c) once the Series A-3 Notes and the Series A-4 Notes are
no longer Outstanding, (1) an amount up to the Series 1998A
Noteholders' Principal Distribution Amount for payment on
the next succeeding Auction Period Distribution Date to the
Series 1998A-5 Noteholders until the Outstanding principal
balance of the Series A-5 Notes has been reduced to zero,
and (2) an amount up to the Series 1998B-3 Noteholders'
Principal Distribution Amount for payment on such Monthly
Distribution Date for payment on such Monthly Distribution
Date to the Series 1998B-3 Noteholders, and
(d) once the Series A-3 Notes, the Series A-4 Notes and the
Series A-5 Notes are no longer Outstanding, (1) an amount up
to the Series 1998A Noteholders' Principal Distribution
Amount for payment on the next succeeding Auction Period
Distribution Date to the Series 1998A-6 Noteholders until
the Outstanding principal balance of the Series A-6 Notes
has been reduced to zero, and (2) an amount up to the Series
1998B-3 Noteholders' Principal Distribution Amount for
payment on such Monthly Distribution Date for payment on
such Monthly Distribution Date to the Series 1998B-3
Noteholders;
(v) once the Series 1998A Notes are no longer Outstanding, to
the Note Payment Account, an amount up to the Series 1998B-3
Noteholders' Principal Distribution Amount for payment on
such Monthly Distribution Date to the Series 1998B-3
Noteholders until the Outstanding principal balance of the
Series B-3 Notes has been reduced to zero;
(vi) to the Reserve Fund on each Monthly Distribution Date, 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 1998A-3 Noteholders until the principal balance of
the Series A-3 Notes has been reduced to zero, then
(b) once the Series A-3 Notes are no longer Outstanding, for
payment on the next succeeding Auction Period Distribution
Date to the Series 1998A-4 Noteholders until the principal
balance of the Series A-4 Notes has been reduced to zero,
then
(c) once the Series A-3 Notes and the Series A-4 Notes are
no longer Outstanding, for payment on the next succeeding
Auction Period Distribution Date to the Series 1998A-5
Noteholders until the principal balance of the Series
62
<PAGE> 63
A-5 Notes has been reduced to zero, then
(d) once the Series A-3 Notes, the Series A-4 Notes and the
Series A-5 Notes are no longer Outstanding, for payment on
the next succeeding Auction Period Distribution Date to the
Series 1998A-6 Noteholders until the principal balance of
the Series A-6 Notes has been reduced to zero, then
(e) once the Series 1998A Notes are no longer Outstanding,
for payment on such Monthly Distribution Date to the Series
1998B-3 Noteholders until the principal balance of each such
Series of Series B-3 Notes has been reduced to zero;
(viii) to the Note Payment Account on any Monthly Distribution
Date, an amount up to any Carryover Interest,
(a) first to the Series 1998A-3 Noteholders for payment on
such Monthly Distribution Date, and upon payment of all
Carryover Interest due to the Series 1998A-3 Noteholders,
then,
(b) to the Series 1998A-4 Noteholders for payment on the
next succeeding Auction Period Distribution Date, and upon
payment of all Carryover Interest due to the Series 1998A-4
Noteholders, then,
(c) to the Series 1998A-5 Noteholders for payment on the
next succeeding Auction Period Distribution Date, and upon
payment of all Carryover Interest due to the Series 1998A-5
Noteholders, thereafter
(d) to the Series 1998A-6 Noteholders for payment on the
next succeeding Auction Period Distribution Date, and upon
payment of all Carryover Interest due to the Series 1998A-6
Noteholders;
(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 by, or
as a result of 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 Monthly Distribution Date after giving
effect to all distributions to be made on such Monthly Distribution Date,
either:
(a) the Outstanding principal amount of the Series 1998A Notes would
exceed the sum of (i) the Pool Balance plus (ii) the aggregate
balance on deposit in the Funds and Accounts (exclusive of the
balance of the Student Loan Portfolio Fund) under the Indenture
at the end of the immediately preceding Collection Period, less
all
63
<PAGE> 64
distributions to be made on such Distribution 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 1998B-3 Noteholders' Interest Distribution Amount and the
Series 1998B-3 Noteholders' Principal Distribution Amount will not be paid to
the Series 1998B-3 Noteholders pursuant to clauses (iii) and (iv) above and no
Subordinate Issuer Exchange Payment shall be made. For so long as any Series
1998A Notes remain Outstanding, such deferral in the payment of the Series
1998B-3 Noteholders' Interest Distribution Amount, the Series 1998B-3
Noteholders' Principal Distribution Amount or Subordinate Issuer Exchange
Payments (except with respect to the Legal Final Maturity of the Series B-3
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
1998A Noteholders' Principal Distribution Amount shall be paid pro rata among
each Series of Series 1998A Notes, without preference or priority of any kind.
In connection with transfers made pursuant to subclauses (b),
(c), and (d) of item (ii) above, if the Series Interest Rate for a Series of
Auction Rate Notes is unable to be calculated on any Monthly Distribution Date
with regard to one or more Auction Period Distribution Dates for such Series
occurring in the calendar month next succeeding such Monthly Distribution Date,
the Indenture Trustee shall calculate the related Noteholders' Interest
Distribution Amount using the Net Loan Rate for the preceding Collection Period.
To the extent the Series Interest Rate once calculated is lower than the Net
Loan Rate, any excess deposited to the Note Payment Account pursuant to
subclauses (b), (c), and (d) of item (ii) above shall be transferred to the
Collection Account.
Notwithstanding the foregoing, principal payments will be made to
the Auction Rate Noteholders only in amounts equal to $50,000 and integral
multiples in excess thereof. If the amount in the Note Payment Account otherwise
required to be applied as a payment of principal either (i) is less than $50,000
or (ii) exceeds an even multiple of $50,000, then, in the case of (i), such
entire amount or, in the case of (ii), such excess amount, will not be paid as
principal on the upcoming Auction Period Distribution Date, but will be retained
in the Note Payment Account until the amount therein available for payment of
principal equals $50,000.
With respect to the Series of Auction Rate Notes entitled to
receive payments of principal, the actual Notes of such Series that will receive
payments of principal on each applicable Auction Period Distribution Date will
be selected no later than five (5) Business Days prior to the such Auction
Period Distribution Date by the Indenture Trustee by lot in such manner as the
Indenture Trustee in its discretion may determine and which will provide for the
selection for payment of principal in the minimum denominations of $50,000, and
integral multiples in excess thereof.
Notice of the specific Auction Rate Notes to receive payments of
principal is to be
64
<PAGE> 65
given by the Indenture Trustee by first-class, postage prepaid, mailed not less
than five (5) Business Days but no more than ten (10) Business Days before the
applicable Auction Period Distribution Date at the address of the applicable
Noteholder appearing on the registration books. Any defect in or failure to give
such mailed notice shall not affect the validity of proceedings for the payment
of any other Notes not affected by such failure or defect. All notices of
payment are to state: (i) the applicable Auction Period Distribution Date, (ii)
the amount of principal to be paid, and (iii) the Series of Auction Rate Notes
to be paid.
SECTION 4.03 TRANSFER OF PROCEEDS IN THE ACQUISITION FUND 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 January 31, 1999 shall, at the written direction of the Original
Issuer, have been transferred by the Indenture Trustee to the Collection Account
and if such moneys equal or exceed $1,000,000, substantially all of such moneys
shall be applied to pay principal on the Series A-4 Notes on the next succeeding
Auction Period Distribution Date in accordance with Section 4.02 hereof.
65
<PAGE> 66
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.
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]
66
<PAGE> 67
IN WITNESS WHEREOF, STUDENT LOAN FUNDING 1998-A/B TRUST, as
Issuer, has caused this Terms Supplement to be signed in its name and on its
behalf by an Authorized Officer; 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 1998-A/B TRUST,
as Issuer
By: Firstar Bank, National Association,
not in its individual capacity but
solely in its capacity as co-owner
trustee of the Delaware Trust
By: ____________________________________
Title:
FIRSTAR BANK, NATIONAL ASSOCIATION,
not in its individual capacity, but solely
as Initial Co-Owner Eligible Lender Trustee
for the benefit of the Delaware Trust
By
Title:
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
By
Title
67
<PAGE> 68
SCHEDULE I
TERMS OF SENIOR NOTES
---------------------
INITIAL INTEREST RATE (A-3) 5.94906%
INITIAL INTEREST RATE (A-4): 5.85%
INITIAL INTEREST RATE (A-5): 5.85%
INITIAL INTEREST RATE (A-6) 5.85%
DATED DATE: December 22, 1998.
INITIAL INTEREST DETERMINATION DATE FOR
SERIES 1998A-3 NOTES: January 27, 1999
INITIAL INTEREST DETERMINATION DATE FOR (i) January 27, 1999, with
AUCTION RATE NOTES: respect to the Series
1998A-4 Notes, (ii)
February 3, 1999, with
respect to the Series
1998A-5 Notes, and (iii)
February 10, 1999, with
respect to the Series
1998A-6 Notes.
UNREGISTERED SERIES 1998A-3 -
NUMBERED FROM: C-3
REGISTERED SERIES 1998A1-3
NUMBERED FROM: H-1
UNREGISTERED SERIES 1998A-4 -
NUMBERED FROM: D-3
REGISTERED SERIES 1998A1-4 -
NUMBERED FROM: J-1
UNREGISTERED SERIES 1998A-5 -
NUMBERED FROM: E-3
REGISTERED SERIES 1998A1-5 -
NUMBERED FROM: K-1
<PAGE> 69
UNREGISTERED SERIES 1998A-6 - NUMBERED FROM:
F-3
REGISTERED SERIES 1998A1-6 -NUMBERED FROM:
L-1
TERMS OF SUBORDINATE NOTES
--------------------------
INITIAL INTEREST RATE: 6.25%
DATED DATE: December 22, 1998
UNREGISTERED SERIES 1998B-3 - NUMBERED FROM:
G-3
REGISTERED SERIES 1998B1-3 - NUMBERED FROM:
M-1
I-69
<PAGE> 70
EXHIBIT 4.2
EXHIBIT A
---------
DISTRIBUTION STATEMENT
NOTEHOLDERS' STATEMENT FOR STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN ASSET-BACKED NOTES SERIES A-3, A-4, A-5, A-6 AND B-3
FOR COLLECTION PERIOD ENDING
Monthly Distribution Date:______________________
(A) Principal Factor
(i) Series A-3 Notes:____________
(ii) Series B-3 Notes:____________
(B) Amount of principal being paid or distributed:
(i) Series A-3 Notes:$___________
(ii) Series A-4 Notes:$___________
(iii) Series A-5 Notes:$___________
(iv) Series A-6 Notes:$___________
(v) Series B-3 Notes:$___________
(C) (i) Amount of Interest being paid or distributed:
(a) Series A-3 Notes:$____________
(b) Series A-4 Notes:$____________
(c) Series A-5 Notes:$____________
(d) Series A-6 Notes:$____________
(e) Series B-3 Notes:$____________
(ii) Applicable Interest Rates (based on the
[Formula Rate/Net Loan Rate]:
(a) Series A-3 Notes:____________%
(b) Series A-4 Notes:____________%
(c) Series A-5 Notes:____________%
(d) Series A-6 Notes:____________%
(e) Series B-3 Notes:____________%
(D) Amount of Distribution allocable to any Carryover Interest:
(i) Series A-3 Notes:$____________
(ii) Series A-4 Notes:$____________
(iii) Series A-5 Notes:$____________
(iv) Series A-6 Notes:$____________
(v) Series B-3 Notes:$____________
<PAGE> 71
(E) Pool Balance at end of preceding Collection
Period:$___________
(F) After giving effect to distributions on this Distribution
Date:
(i) outstanding principal amount of Series A-3
Notes:$_____________
(ii) outstanding principal amount of Series A-4
Notes:$_____________
(iii) outstanding principal amount of Series A-5
Notes:$______________
(iv) outstanding principal amount of Series A-6
Notes:$______________
(v) outstanding principal amount of Series B-3
Notes:$______________
(G) Amount of Program Operating Expenses to be allocated for the
upcoming Distribution Date:$______________
(H) (i) Aggregate amount of Realized Losses (if any) for the
Collection Period immediately preceding the
Distribution Date:$_____________
(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:$__________
(iii) that are 91 through 120 days delinquent:$___________
A-71
<PAGE> 72
(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: Firstar Bank, National Association as Indenture Trustee for Student Loan
Funding 1998-A/B Trust Student Loan Asset-Backed Notes, Series 1998A and Series
B-3.
A-72
<PAGE> 73
EXHIBIT B
---------
FORM OF SENIOR LIBOR FLOATING RATE NOTE
---------------------------------------
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998A-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. C-__ $__,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1998A-3
(LIBOR FLOATING RATE)
Dated: December 22, 1998 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2006
<PAGE> 74
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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 1998A-3 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Notes, Series A-3 (LIBOR Floating Rate)" in the aggregate
principal amount of $400,000,000 (the Unregistered Notes of this series herein
referred to as the "Series 1998A-3 Notes" and collectively with the Registered
Notes of this Series, the "Series A-3 Notes"), initially issued (a) pursuant to
a resolution duly adopted by the Management Committee of the Student Loan
Funding LLC, a Delaware limited liability company (the "Original Issuer")
authorizing the issuance of the Series 1998A-3 Notes and (b) under (i) the
authority of the Certificate of Formation and Limited Liability Company
Agreement of the Original Issuer and (ii) an Indenture of Trust, dated as of
December 1, 1998 (the "Original Base Indenture"), and a Terms Supplement, dated
as of even date with the Original Base Indenture (the "Original Terms
Supplement"). In connection with the sale and transfer of the Trust Estate to
the Issuer by the Original Issuer and the assumption by the Issuer of all of the
Original Issuer's obligations under the Original Base Indenture and Original
Terms Supplement, the Original Base Indenture and Original Terms Supplement have
been amended and restated by the First Amended and Restated Indenture of Trust
and the First Amended and Restated Terms Supplement to the First Amended and
Restated Indenture of Trust, respectively, each dated as of March 15, 1999
(collectively, the "First Restated Indenture"), and each by and among the
Issuer, Firstar Bank, National Association, not in its individual capacity, but
solely in its capacity as the initial eligible lender trustee for the benefit of
the Issuer (the "Initial Eligible Lender Trustee" and together with any other
eligible lender trustee thereunder, each an "Eligible Lender Trustee"), and
Firstar Bank, National Association, as indenture trustee (the "Indenture
Trustee"). In connection with the consummation of an exchange offer, the First
Restated Indenture has been amended and restated by the Second Amended and
Restated Indenture of Trust and the Second Amended and Restated Terms
Supplement, each dated June 1, 1999, each by and among the Issuer, the Initial
Eligible Lender Trustee and the Indenture Trustee (collectively, the
"Indenture"). The Series A-3 Notes are issued simultaneously and on a parity
with Student Loan Funding 1998-A/B Trust's $93,900,000 Student Loan Senior
Asset-Backed Callable Notes, Series A-4 (Auction Rate) (the "Series A-4 Notes"),
Student Loan Funding 1998-A/B Trust's $90,000,000 Student Loan Senior
Asset-Backed Callable Notes, Series A-5 (Auction Rate) (the "Series A-5 Notes"),
Student Loan Funding 1998-A/B Trust's $90,000,000 Student Loan Senior
Asset-Backed Callable Notes, Series A-6 (Auction Rate) (collectively with the
Series 1998A-3 Notes, the Series A-4 Notes and the Series A-5 Notes, the "Series
1998A Notes"), and simultaneously with and on a basis senior to Student Loan
Funding 1998-A/B Trust's $54,500,000 Student Loan Subordinate Asset-Backed
Notes, Series B-3 (Fixed Rate) (collectively with the Series 1998A Notes, the
"Notes"). References in this Series 1998A-3 Note to the name "Student Loan
Funding 1998-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.
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 1998A-3 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 A-3 Notes; the student loan
purchase program being financed by the issuance of the Series A-3 Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest and any
B-74
<PAGE> 75
Carryover Interest on the Series A-3 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 A-3 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 1998A-3 Note, this Series 1998A-3 Note thereafter no longer being secured
by the Indenture or being deemed to be outstanding thereunder; and for the other
terms and provisions thereof.
Words and terms used as defined words and terms in this Series 1998A-3
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 A-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-3 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A-3 NOTE AND REDEMPTION OF THIS SERIES 1998A-3 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 1998A-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A-3 Note on behalf of the Issuer shall be liable personally on
this Series 1998A-3 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A-3 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 1998A-3 Note is held in a Book-entry System,
this Series 1998A-3 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 1998A-3 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 1998A-3 Note or Series
1998A-3 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A-3 Note. The person in whose name this Series
1998A-3 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 A-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A-3 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 1998A-3 Notes may be
exchanged at said office of the
B-75
<PAGE> 76
Indenture Trustee for a like aggregate principal amount of Series 1998A-3 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 1998A-3 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 1998A-3 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 1998A-3 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 1998A-3 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 1998A-3 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 1998A-3
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By: Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
------------------------- ------------------------
Title: Title:
--------------------- ---------------------
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series A-3 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
B-76
<PAGE> 77
_______________ (Tax Identification or Social Security Number: _______________)
the within Student Loan Senior Asset-Backed Note, Series A-3 (LIBOR Floating
Rate) of Student Loan Funding 1998-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-77
<PAGE> 78
EXHIBIT C
---------
FORM OF SENIOR AUCTION RATE NOTES
---------------------------------
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998A-_ NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. [D/E/F]-__ $__,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A-_
(AUCTION RATE)
Dated: December 22, 1998 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
<PAGE> 79
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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 1998A-_ Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series A-_ (Auction Rate)" in the aggregate
principal amount of $______,000 (the Unregistered Notes of this series herein
referred to as the "Series 1998A-_ Notes and collectively with the Registered
Notes of this Series, the "Series A-3 Notes"), initially issued (a) pursuant to
a resolution duly adopted by the Management Committee of Student Loan Funding
LLC, a Delaware limited liability company (the "Original Issuer") authorizing
the issuance of the Series 1998A-_ Notes and (b) under (i) the authority of the
Certificate of Formation and Limited Liability Company Agreement of the Original
Issuer and (ii) an Indenture of Trust, dated as of December 1, 1998 (the
"Original Base Indenture"), and a Terms Supplement, dated as of even date with
the Base Indenture (the "Original Terms Supplement"). In connection with the
sale and transfer of the Trust Estate to the Issuer by the Original Issuer and
the assumption by the Issuer of all of the Original Issuer's obligations under
the Original Base Indenture and Original Terms Supplement, the Original Base
Indenture and Original Terms Supplement have been amended and restated by the
First Amended and Restated Indenture of Trust and the First Amended and Restated
Terms Supplement to the First Amended and Restated Indenture of Trust,
respectively, each dated as of March 15, 1999 (collectively, the "First Restated
Indenture"), and each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the consummation of an exchange offer, the First Restated Indenture has been
amended and restated by the Second Amended and Restated Indenture of Trust and
the Second Amended and Restated Terms Supplement, each dated June 1, 1999, each
by and among the Issuer, the Initial Eligible Lender Trustee and the Indenture
Trustee (collectively, the "Indenture"). The Series A-_ Notes are issued
simultaneously and on a parity with the Student Loan Funding 1998-A/B Trust's
$400,000,000 Student Loan Senior Asset-Backed Notes, Series A-3 (LIBOR Floating
Rate) (the "Series A-3 Notes"), Student Loan Funding 1998-A/B Trust's
$___,000,000 Student Loan Senior Asset-Backed Callable Notes, Series A-_
(Auction Rate) (the "Series 1998A-_ Notes"), and Student Loan Funding 1998-A/B
Trust's $___,000,000 Student Loan Senior Asset-Backed Callable Notes, Series A-_
(Auction Rate) (collectively with the Series A-3 Notes, the Series A-_ Notes and
Series A-_ Notes, the "Series 1998A Notes") and simultaneously with and on a
basis senior to Student Loan Funding 1998-A/B Trust's $54,500,000 Student Loan
Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate) (collectively with the
Series 1998A Notes, the "Notes"). References in this Series 1998A-_ Note to the
name "Student Loan Funding 1998-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.
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 1998A-_ 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 A-_ Notes; the student loan
purchase program being financed by the issuance of the Series A-_ Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest and any
C-79
<PAGE> 80
Carryover Interest on the Series A-_ 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 A-_ 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 1998A-_ Note, this Series 1998A-_ Note thereafter no longer being secured
by the Indenture or being deemed to be outstanding thereunder; and for the other
terms and provisions thereof.
Words and terms used as defined words and terms in this Series A-_ 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 A-_ 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-_ NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A-_ NOTE AND REDEMPTION OF THIS SERIES 1998A-_ NOTE WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A-_ Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A-_ Note on behalf of the Issuer shall be liable personally on
this Series 1998A-_ Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A-_ 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 1998A-_ Note is held in a Book-entry System,
this Series 1998A-_ 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 1998A-_ 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 1998A-_ Note or Series
1998A-_ Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A-_ Note. The person in whose name this Series
1998A-_ 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 A-_ Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A-_ 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 1998A-_ Notes may be
exchanged at said office of the
C-80
<PAGE> 81
Indenture Trustee for a like aggregate principal amount of Series 1998A-_ 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 1998A-_ 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 1998A-_ 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 1998A-_ 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 1998A-_ 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 1998A-_ 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 1998A-_
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
------------------------------ -------------------------
Title: Title:
------------------------------ -------------------------
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series A-_ 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 ___
C-81
<PAGE> 82
____________ (Tax Identification or Social Security Number: _______________) the
within Student Loan Senior Asset-Backed Callable Note, Series A-___ (Auction
Rate), of Student Loan Funding 1998-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-82
<PAGE> 83
EXHIBIT D
---------
FORM OF SUBORDINATE NOTE
------------------------
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998B-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. G-__ $54,500,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTE
SERIES 1998B-3
(FIXED RATE)
Dated: December 22, 1998 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
<PAGE> 84
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
FIFTY-FOUR MILLION FIVE HUNDRED THOUSAND 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 1998B-3 Note is one of a duly authorized issue of
notes of the Issuer designated as "Student Loan Funding 1998-A/B Trust Student
Loan Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate)" in the aggregate
principal amount of $54,500,000 (the Unregistered Notes of this series herein
referred to as the "Series 1998B-3 Notes" and collectively with the Registered
Notes of this Series, the "Series B-3 Notes"), initially issued (a) pursuant to
a resolution duly adopted by the Management Committee of Student Loan Funding
LLC, a Delaware limited liability company (the "Original Issuer") authorizing
the issuance of the Series 1998B-3 Notes and (b) under (i) the authority of the
Certificate of Formation and Limited Liability Company Agreement of the Original
Issuer and (ii) an Indenture of Trust, dated as of December 1, 1998 (the
"Original Base Indenture"), and a Terms Supplement, dated as of even date with
the Base Indenture (the "Original Terms Supplement"). In connection with the
sale and transfer of the Trust Estate to the Issuer by the Original Issuer and
the assumption by the Issuer of all of the Original Issuer's obligations under
the Original Base Indenture and Original Terms Supplement, the Original Base
Indenture and Original Terms Supplement have been amended and restated by the
First Amended and Restated Indenture of Trust and the First Amended and Restated
Terms Supplement to the First Amended and Restated Indenture of Trust,
respectively, each dated as of March 15, 1999 (collectively, the "First Restated
Indenture"), and each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the consummation of an exchange offer, the First Restated Indenture has been
amended and restated by the Second Amended and Restated Indenture of Trust and
the Second Amended and Restated Terms Supplement, each dated June 1, 1999, each
by and among the Issuer, the Initial Eligible Lender Trustee and the Indenture
Trustee (collectively, the "Indenture"). The Series B-3 Notes are issued
simultaneously with and on a basis subordinate to the Student Loan Funding
1998-A/B Trust's $400,000,000 Student Loan Senior Asset-Backed Notes, Series A-3
(LIBOR Floating Rate) (the "Series 1998A-3 Notes"), the Student Loan Funding
1998-A/B Trust's $93,000,000 Student Loan Senior Asset-Backed Callable Notes,
Series A-4 (Auction Rate) (the "Series A-4 Notes"), the Student Loan Funding
1998-A/B Trust's $90,000,000 Student Loan Senior Asset-Backed Callable Notes,
Series A-5 (Auction Rate) (the "Series A-5 Notes"), and the Student Loan Funding
1998-A/B Trust's $90,000,000 Student Loan Senior Asset-Backed Callable Notes,
Series A-6 (Auction Rate) (collectively with the Series 1998A-3 Notes, the
Series A-4 Notes and the Series A-5 Notes, the "Series 1998A Notes", and
collectively with the Series B-3 Notes, the "Notes"). References in this Series
B-3 Note to the name "Student Loan Funding 1998-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.
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 1998B-3 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 B-3 Notes; the student loan
purchase program being financed by the issuance of the Series B-3 Notes; the
D-84
<PAGE> 85
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest on the Series B-3 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 B-3 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 1998B-3 Note, this Series 1998B-3 Note thereafter no longer being secured
by the Indenture or being deemed to be outstanding thereunder; and for the other
terms and provisions thereof.
Words and terms used as defined words and terms in this Series 1998B-3
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest on the Series B-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES B-3 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST, ON THIS SERIES 1998B-3 NOTE AND
THE REDEMPTION OF THIS SERIES 1998B-3 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 1998B-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998B-3 Note on behalf of the Issuer shall be liable personally on
this Series 1998B-3 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998B-3 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 1998B-3 Note is held in a Book-entry System,
this Series 1998B-3 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 1998B-3 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 1998B-3 Note or Series
1998B-3 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998B-3 Note. The person in whose name this Series
1998B-3 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 B-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998B-3 Note is held in a
Book-entry System and subject to the limitations and upon payment of
D-85
<PAGE> 86
the charges, if any, provided in the Indenture, Series 1998B-3 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998B-3 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 on this Series 1998B-3 Note shall not be a Business Day, then payment
of such principal or 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 1998B-3 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 1998B-3 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 1998B-3 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 1998B-3 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 B-3 Note to be
executed in its name and on its behalf by the facsimile signatures of the
undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely in its capacity
as co-owner trustee of Student Loan Funding 1998-A/B Trust,
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
------------------------------ ------------------------
Title: Title:
--------------------------- ---------------------
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series B-3 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]
D-86
<PAGE> 87
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
B-3 (Fixed Rate) of Student Loan Funding 1998-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:______________________________
D-87
<PAGE> 88
EXHIBIT E
---------
[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 1998[A/B[1]-_], of Student Loan Funding 1998-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:
____________________________________
<PAGE> 89
EXHIBIT F
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE OF PAYMENT DEFAULT
-------------------------
NOTICE IS HEREBY GIVEN that a Payment Default has occurred and
is continuing with respect to the Notes identified above. The next Auction for
the Series 1998A-_ Notes will not be held. The Auction Rate for the Series
1998A-_ Notes for the next succeeding Interest Accrual Period shall be the
Non-Payment Rate.
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Dated: ____________________ By: ____________________________
<PAGE> 90
EXHIBIT G
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE OF CURE OF PAYMENT DEFAULT
---------------------------------
NOTICE IS HEREBY GIVEN that a Payment Default with respect to
the Notes identified above has been waived or cured. The next Distribution Date
for the Series 1998A-_ Notes is _____________________ and the next Interest
Determination Date is ___________________.
FIRSTAR BANK, NATIONAL ASSOCIATION,
as Indenture Trustee
Dated:_____________________ By: ___________________________
<PAGE> 91
EXHIBIT H
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE OF PROPOSED AUCTION PERIOD ADJUSTMENT
--------------------------------------------
Notice is hereby given that Student Loan Funding 1998-A/B
Trust, by Firstar Bank, National Association, not in its individual capacity,
but solely in its capacity of co-owner trustee of the Student Loan Funding
1998-A/B Trust, proposes to change with respect to the captioned Notes the
length of the Auction Period pursuant to the Indenture as follows:
1. The change shall take effect on __________________,
the Distribution Date for the current Auction Period and the date of
commencement of the next Auction Period (the "Effective Date").
2. The Auction Period Adjustment in Paragraph 1 shall
take place only if (A) the Indenture Trustee and the Auction Agent receive, by
11:00 A.M., eastern time, on the Business Day before the Auction Date for the
Auction Period commencing on the Effective Date, a certificate from the
Calculation Agent, as required by the Indenture authorizing the change in length
of one or more Auction Periods and (B) Sufficient Clearing Bids exist on the
Interest Determination Date for the Auction Period commencing on the Effective
Date.
3. If the condition referred to in (A) above is not met,
the Auction Rate for the Auction Period commencing on the Effective Date will be
determined pursuant to the Auction Procedures and the Auction Period shall be
the Auction Period determined without reference to the proposed change. If the
condition referred to in (A) is met but the condition referred to in (B) above
is not met, the Auction Rate for the Auction Period commencing on the Effective
Date shall be the lesser of the Maximum Auction Rate and the Net Loan Rate and
the Auction Period shall be the Auction Period determined without reference to
the proposed change.
4. It is hereby represented, upon advice of the Auction
Agent for the Notes described herein, that there were Sufficient Clearing Bids
for such Notes at the Auction immediately preceding the date of this Notice.
5. Terms not defined in this Notice shall have the
meanings set forth in the Indenture entered into in connection with the
captioned Notes.
STUDENT LOAN FUNDING 1998-A/B TRUST
By: Firstar Bank, National Association,
<PAGE> 92
not in its individual capacity, but
solely in its capacity as co-owner
trustee of Student Loan Funding 1998-A/B
Trust,
Date:______________________ By:___________________________
B-92
<PAGE> 93
EXHIBIT I
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE ESTABLISHING AUCTION PERIOD ADJUSTMENT
---------------------------------------------
Notice is hereby given that Student Loan Funding 1998-A/B
Trust, by Firstar Bank, National Association, not in its individual capacity,
but solely in its capacity of co-owner trustee of the Student Loan Funding
1998-A/B Trust hereby establishes with respect to the captioned Notes new
lengths for one or more Auction Periods pursuant to the Indenture:
1. The change shall take effect on _______________, the
Distribution Date for the current Auction Period and the date of commencement of
the next Auction Period (the "Effective Date").
2. For the Auction Period commencing on the Effective Date,
the Distribution Date shall be __________________, or the next succeeding
Business Day if such date is not a Business Day.
3. For Auction Periods occurring after the Auction Period
commencing on the Effective Date the Distribution Dates shall be
[___________(date) and every ____________(number) _____________ (day of week)
thereafter] [every ____________ (number) _____________ (day of week) after the
date set forth in paragraph 2 above], or the next Business Day if any such day
is not a Business Day; provided, however, that the length of subsequent Auction
Periods shall be subject to further change hereafter as provided in Section
2.03.2.7 of the Indenture.
4. For all purposes of the Indenture, from and after the
Effective Date, "RATE ADJUSTMENT DATE" shall mean the Effective Date, and
thereafter _________ of each __________, if each such __________ is a Business
Day; provided, however, that if each such __________ is not a Business Day, then
the first Business Day next succeeding such ____________.
5. The changes described in paragraphs 2 and 3 above shall
take place only upon delivery of this Notice and the satisfaction of other
conditions set forth in the Indenture and our prior notice dated
________________ regarding the proposed change.
6. Terms not defined in this Notice shall have the meanings
set forth in the Indenture relating to the captioned Notes.
STUDENT LOAN FUNDING 1998-A/B TRUST
By: Firstar Bank, National Association,
not in its individual capacity, but
solely in its capacity as co-owner
trustee of Student Loan
<PAGE> 94
Funding 1998-A/B Trust,
Date:______________________ By:___________________________
I-94
<PAGE> 95
EXHIBIT J
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE OF CHANGE IN INTEREST DETERMINATION DATE
-----------------------------------------------
Notice is hereby given by SALOMON SMITH BARNEY INC., as
Calculation Agent for the captioned Notes, that with respect to the Series
1998A-_ Notes, the Interest Determination Date is hereby changed as follows:
1. The definition of "Interest Determination Date" shall be
deemed amended by substituting "________________ (number) Business Day" as set
forth in the definition thereof in the Indenture and by substituting
"___________________ (number) Business Days" for "two Business Days" in
subsection (d) thereof.
2. This change shall take effect on ________________ which
shall be the Auction Date for the Auction Period commencing on
___________________.
3. The Interest Determination Date for the Series 1998A-_
Notes shall be subject to further change hereafter as provided in the Indenture.
4. Terms not defined in this Notice shall have the meanings
set forth in the Indenture relating to the captioned Notes.
SALOMON SMITH BARNEY INC.,
as Calculation Agent
Dated:____________________ By: ___________________________
<PAGE> 96
EXHIBIT K
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE OF PROPOSED AUCTION PERIOD CONVERSION
--------------------------------------------
Notice is hereby given that Student Loan Funding 1998-A/B
Trust, by Firstar Bank, National Association, not in its individual capacity,
but solely in its capacity of co-owner trustee of Student Loan Funding 1998-A/B
Trust, proposes to change for the captioned Notes the length of one or more
Auction Periods pursuant to an Auction Period Conversion under the Indenture as
follows:
1. The change shall take effect on __________________, the
Distribution Date for the current Auction Period and the date of commencement of
the next Auction Period (the "Auction Period Conversion Date").
2. The Auction Period Conversion in Paragraph 1 shall take
place only if the provisions set forth in Sections 2.03.2.9 and 2.03.2.10 of the
Indenture are fully satisfied. In connection with such proposed Auction Period
Conversion, the Auction Agent shall not conduct an Auction on the Interest
Determination Date immediately preceding the Auction Period Conversion Date.
3. Regardless of whether the provisions in Sections 2.03.2.9
and 2.03.2.10 of the Indenture are met or are not met, the Auction Agent shall
resume conducting an Auction on the Interest Determination Date that immediately
succeeds such Auction Period Conversion Date.
4. Terms not defined in this Notice shall have the meanings
set forth in the Indenture entered into in connection with the captioned Notes.
STUDENT LOAN FUNDING 1998-A/B TRUST
By: Firstar Bank, National Association,
not in its individual capacity, but
solely in its capacity as co-owner
trustee of Student Loan Funding 1998-A/B
Trust,
<PAGE> 97
Date:______________________ By:___________________________
K-97
<PAGE> 98
EXHIBIT L
---------
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTES,
SERIES 1998A-_
NOTICE ESTABLISHING AUCTION PERIOD CONVERSION
---------------------------------------------
Notice is hereby given that Student Loan Funding 1998-A/B
Trust, by Firstar Bank, National Association, not in its individual capacity,
but solely in its capacity of co-owner trustee of Student Loan Funding 1998-A/B
Trust, hereby establishes for the captioned Notes new lengths for one or more
Auction Periods pursuant an Auction Period Conversion under the Indenture:
1. The Auction Period Conversion is effective _______________,
being the Distribution Date for the Auction Period immediately preceding the
date of commencement of the Auction Period with respect to which the Auction
Period Conversion is initially effective (the "Effective Date").
2. Terms and provisions applicable to the new Auction Periods
established pursuant to the Auction Period Conversion are set forth in the
Supplemental Indenture attached hereto as Attachment 1 and effective on the
Effective Date.
3. Attached hereto as Attachment 2 is the written evidence
required by Section 2.03.2.9 of the Indenture to the effect that the Auction
Period Conversion described herein will not adversely affect the ratings on the
obligations described in such Section 2.03.2.9.
4. Terms not defined in this Notice shall have the meanings
set forth in the Indenture relating to the captioned Notes.
STUDENT LOAN FUNDING 1998-A/B TRUST
By: Firstar Bank, National Association,
not in its individual capacity, but solely
in its capacity as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
Date:______________________ By:___________________________
<PAGE> 99
EXHIBIT M
---------
FORM OF TRANSFER CERTIFICATE
----------------------------
FOR TRANSFER FROM RESTRICTED GLOBAL
-----------------------------------
SECURITY TO REGULATION S GLOBAL SECURITY
----------------------------------------
(Transfers pursuant to Section 2.05(c)(i)
of the Base Indenture)
Firstar Bank, National Association
as Indenture Trustee
Cincinnati, Ohio
Attn: Corporate Trust Department
Re: Student Loan Funding 1998-A/B Trust Student Loan
[Senior/Subordinate] Asset-Backed Notes, Series
1998_-_ (the "Notes")
Reference is hereby made to the Second Amended and Restated
Indenture of Trust, dated as of ______ 1, 1999 (the "Base Indenture"), as
supplemented by the Second Amended and Restated Terms Supplement, dated as of
______ 1, 1999 (the "Terms Supplement" and collectively with the Base Indenture,
the "Indenture"), among Student Loan Funding 1998-A/B Trust, by Firstar Bank,
National Association, not in its individual capacity, but solely in its capacity
of co-owner trustee of Student Loan Funding 1998-A/B Trust (the "Issuer"),
Firstar Bank, National Association, not in its individual capacity, but solely
in its capacity as eligible lender trustee for the benefit of the Issuer, and
Firstar Bank, National Association, as Indenture Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This letter relates to US $______________ principal amount of
Notes which are evidenced by one or more Restricted Global Securities (CUSIP No.
_________) and held with the Depository in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested a transfer of such
beneficial interest in the Notes to a person who will take delivery thereof in
the form of an equal principal amount of Notes evidenced by one or more
Regulation S Global Securities (CUSIP No. _______), which amount, immediately
after such transfer, is to be held with the Depository through Euroclear or
Cedel or both (Common Code:
_______; ISIN: _________________).
In connection with such request and in respect of such Notes,
the Transferor does hereby certify that such transfer has been effected pursuant
to and in accordance with Rule 903 or Rule 904 (as applicable) under the United
States Securities Act of 1933, as amended (the "Securities Act"), and
accordingly the Transferor does hereby further certify that:
<PAGE> 100
(1) the offer of the Notes was not made to a person in the United
States;
(2) either:
(A) At the time the buy order was originated, the
transferee was outside the United States or the Transferor and any person acting
on its behalf reasonably believed that the transferee was outside the United
States, or
(B) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the transaction was
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest
being transferred as described above is to be held with the Depository through
Euroclear or Cedel or both.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuer and the initial purchasers or
initial purchasers, if any, of the initial offering of such Notes being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
Name:
Title:
Dated: ____________.
M-100
<PAGE> 101
EXHIBIT N
---------
FORM OF TRANSFER CERTIFICATES
-----------------------------
FOR TRANSFER FROM REGULATION S GLOBAL
-------------------------------------
SECURITY TO RESTRICTED GLOBAL SECURITY
--------------------------------------
(Transfers pursuant to Section 2.05(c)(ii)
of the Terms Supplement)
[Transferor Certificate]
Firstar Bank, National Association
as Indenture Trustee
Cincinnati, Ohio
Attn: Corporate Trust Department
Re: Student Loan Funding 1998-A/B Trust, Student Loan
[Senior/Subordinate] Asset-Backed Notes, Series 1998_-_ (the
"Notes")
Reference is hereby made to the Second Amended and Restated
Indenture of Trust, dated as of ______ 1, 1999 (the "Base Indenture"), as
supplemented by the Second Amended and Restated Terms Supplement, dated as of
______ 1, 1999 (the "Terms Supplement" and collectively with the Base Indenture,
the "Indenture"), among Student Loan Funding 1998-A/B Trust, by Firstar Bank,
National Association, not in its individual capacity, but solely in its capacity
of co-owner trustee of Student Loan Funding 1998-A/B Trust (the "Issuer"),
Firstar Bank, National Association, not in its individual capacity, but solely
in its capacity as eligible lender trustee for the benefit of the Issuer, and
Firstar Bank, National Association, as Indenture Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This letter relates to US $______________ principal amount of
Notes which are evidenced by one or more Regulation S Global Securities (CUSIP
No. _________) and held with the Depository through [Euroclear] [Cedel] (Common
Code ___________) in the name of [insert name of transferor] (the "Transferor").
The Transferor has requested a transfer of such beneficial interest in the Notes
to a person that will take delivery thereof (the "Transferee") in the form of an
equal principal amount of Notes evidenced by one or more Restricted Global
Securities (CUSIP No. _______).
In connection with such request and in respect of such Notes,
the Transferor does
<PAGE> 102
hereby certify that such Transferor did not purchase such Notes as part of their
initial distribution and the transfer is being effected pursuant to and in
accordance with an exemption from the United States Securities Act of 1933, as
amended (the "Securities Act") and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuer and the initial purchasers and
initial purchasers, if any, of the Notes being transferred.
[Insert Name of Transferor]
By:
Name:
Title:
Dated: ____________.
N-102
<PAGE> 103
FORM OF TRANSFER CERTIFICATES
-----------------------------
FOR TRANSFER FROM REGULATION S GLOBAL
-------------------------------------
SECURITY TO RESTRICTED GLOBAL SECURITY
--------------------------------------
(Transfers pursuant to Section 2.05(c)(ii)
of the Terms Supplement)
[Transferee Certificate]
Firstar Bank, National Association
as Indenture Trustee
Cincinnati, Ohio
Attn: Corporate Trust Department
Re: Student Loan Funding 1998-A/B Trust, Student Loan
[Senior/Subordinate] Asset-Backed [Callable] Notes, Series
1998_-_ (the "Notes")
Reference is hereby made to the Second Amended and Restated
Indenture of Trust, dated as of ______ 1, 1999 (the "Base Indenture"), as
supplemented by the Second Amended and Restated Terms Supplement, dated as of
______ 1, 1999 (the "Terms Supplement" and collectively with the Base Indenture,
the "Indenture"), among Student Loan Funding 1998-A/B Trust, by Firstar Bank,
National Association, not in its individual capacity, but solely in its capacity
of co-owner trustee of Student Loan Funding 1998-A/B Trust (the "Issuer"),
Firstar Bank, National Association, not in its individual capacity, but solely
in its capacity as eligible lender trustee for the benefit of the Issuer, and
Firstar Bank, National Association, as Indenture Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This letter relates to US $________________ principal amount
of Notes which are evidenced by one or more Regulation S Global Securities
(CUSIP No. _____________) and held with the Depository through
[Euroclear][Cedel] (Common Code ______________) in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested a transfer of such
beneficial interest in the Notes to [insert name of transferee] (the
"Transferee") that will take delivery thereof in the form of an equal principal
amount of Notes evidenced by one or more Restricted Global Securities (CUSIP No.
__________).
In connection with such request and in respect of such Notes,
the Transferee does hereby certify that it is purchasing the Notes for its own
account, or for one or more accounts with respect to which the Transferee
exercises sole investment discretion, and the Transferee and each such account
is [a "qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act (a "QIB")][an institutional "Accredited Investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Accredited
Investor")].
The Transferee hereby agrees that any future resale, pledge or
transfer of such
N-103
<PAGE> 104
Notes may be made only (i) to the Issuer, (ii) to a person who the seller
reasonably believes is (a) a QIB in a transaction meeting the requirements of
Rule 144A under the Securities Act or (b) an Accredited Investor as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act, (iii) in an offshore
transaction complying with Rule 903 or 904 (as applicable) of Regulation S under
the Securities Act, (iv) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 (if available), (v) pursuant to any other
available exemption from the registration requirements under the Securities Act
(provided that as a condition to the registration of transfer of any such Notes
pursuant to this clause (v) the Issuer or the Indenture Trustee may require
delivery of any documents or other evidence (including, but not limited to, an
opinion of counsel) that it, in its sole discretion, may deem necessary or
appropriate to evidence compliance with such exemption), or (vi) pursuant to an
effective registration statement under the Securities Act, and in each of such
cases in accordance with any applicable securities laws of any state of the
United States. The Transferee will notify any purchaser of Notes from it of the
resale restrictions referred to above, if then applicable.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuer and the initial purchasers and
initial purchasers, if any, of the Notes being transferred.
[Insert Name of Transferee]
By:
Name:
Title:
Dated: ____________.
N-104
<PAGE> 105
EXHIBIT O
---------
FORM OF SENIOR LIBOR FLOATING RATE NOTE
---------------------------------------
THE INTEREST ON THIS SERIES 1998A1-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. H-__ $__,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1998A1-3
(LIBOR FLOATING RATE)
Dated: June __, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2006
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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 1998A1-3 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Notes, Series A-3 (LIBOR Floating Rate)" in the aggregate
principal amount of $400,000,000 (the Registered Notes of this series herein
referred to as the "Series 1998A1-3 Notes" and collectively with the
Unregistered Notes of this Series, the "Series A-3 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware
<PAGE> 106
limited liability company (the "Original Issuer") and the assumption by the
Issuer of all of the Original Issuer's obligations under the Indenture of Trust,
dated as of December 1, 1998 (the "Original Base Indenture"), and a Terms
Supplement, dated as of even date with the Original Base Indenture (the
"Original Terms Supplement"), the Original Base Indenture and Original Terms
Supplement have been amended and restated by the First Amended and Restated
Indenture of Trust and the First Amended and Restated Terms Supplement to the
First Amended and Restated Indenture of Trust, respectively, each dated as of
March 15, 1999 (collectively, the "First Restated Indenture"), and each by and
among the Issuer, the Initial Eligible Lender Trustee and the Indenture Trustee.
In connection with the consummation of an Exchange Offer, the First Restated
Indenture has been amended and restated by the Indenture. The Series A-3 Notes
are issued simultaneously and on a parity with Student Loan Funding 1998-A/B
Trust's $93,900,000 Student Loan Senior Asset-Backed Callable Notes, Series A-4
(Auction Rate) (the "Series A-4 Notes"), Student Loan Funding 1998-A/B Trust's
$90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series A-5 (Auction
Rate) (the "Series A-5 Notes"), Student Loan Funding 1998-A/B Trust's
$90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series A-6 (Auction
Rate) (collectively with the Series A-3 Notes, the Series A-4 Notes and the
Series A-5 Notes, the "Series 1998A Notes"), and simultaneously with and on a
basis senior to Student Loan Funding 1998-A/B Trust's $54,500,000 Student Loan
Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate) (collectively with the
Series 1998A Notes, the "Notes"). References in this Series 1998A1-3 Note to the
name "Student Loan Funding 1998-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.
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 1998A1-3 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 A-3 Notes; the student loan
purchase program being financed by the issuance of the Series A-3 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 A-3 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 A-3 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 1998A1-3
Note, this Series 1998A1-3 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
Words and terms used as defined words and terms in this Series 1998A1-3
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 A-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-3 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A1-3 NOTE AND REDEMPTION OF THIS SERIES 1998A1-3 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 1998A1-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity,
O-106
<PAGE> 107
and none of such officers, directors, agents or employees nor any person
executing this Series 1998A1-3 Note on behalf of the Issuer shall be liable
personally on this Series 1998A1-3 Note or be subject to any personal liability
or accountability by reason of the issuance of this Series 1998A1-3 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 1998A1-3 Note is held in a Book-entry System,
this Series 1998A1-3 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 1998A1-3 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 1998A1-3 Note or Series
1998A1-3 Notes of Authorized Denominations of the same aggregate principal
amount and date as this Series 1998A1-3 Note. The person in whose name this
Series 1998A1-3 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 A-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A1-3 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 A-3 Notes may be exchanged at
said office of the Indenture Trustee for a like aggregate principal amount of
Series A-3 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 1998A1-3 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 1998A1-3 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 1998A1-3 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 1998A1-3 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 1998A1-3 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
1998A1-3 Note to be executed in its name and on its behalf by the facsimile
signatures of the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By: Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
O-107
<PAGE> 108
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
------------------------------ ------------------------
Title: Title:
--------------------------- ---------------------
O-108
<PAGE> 109
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A1-3 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 A-3
(LIBOR Floating Rate) of Student Loan Funding 1998-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:______________________________
O-109
<PAGE> 110
EXHIBIT P
FORM OF SENIOR AUCTION RATE NOTE
--------------------------------
THE INTEREST ON THIS SERIES 1998A1-_ NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. [I/J/K]-__ $__,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A1-_
(AUCTION RATE)
Dated: June __, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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 1998A1-_ Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series A-_ (Auction Rate)" in the aggregate
principal amount of $______,000 (the Registered Notes of this series herein
referred to as the "Series 1998A1-_ Notes, and collectively with the
Unregistered Notes of the Series, the "Series A-3 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware
<PAGE> 111
limited liability company (the "Original Issuer") and the assumption by the
Issuer of all of the Original Issuer's obligations under Indenture of Trust,
dated as of December 1, 1998 (the "Original Base Indenture"), and a Terms
Supplement, dated as of even date with the Base Indenture (the "Original Terms
Supplement"), the Original Base Indenture and Original Terms Supplement have
been amended and restated by the First Amended and Restated Indenture of Trust
and the First Amended and Restated Terms Supplement to the First Amended and
Restated Indenture of Trust, respectively, each dated as of March 15, 1999
(collectively, the "First Restated Indenture"), and each by and among the
Issuer, the Initial Eligible Lender Trustee and the Indenture Trustee. In
connection with the consummation of the Exchange Offer, the First Restated
Indenture has been amended and restated by the Indenture. The Series A-_ Notes
are issued simultaneously and on a parity with the Student Loan Funding 1998-A/B
Trust's $400,000,000 Student Loan Senior Asset-Backed Notes, Series A-3 (LIBOR
Floating Rate) (the "Series A-3 Notes"), Student Loan Funding 1998-A/B Trust's
$___,000,000 Student Loan Senior Asset-Backed Callable Notes, Series A-_
(Auction Rate) (the "Series A-_ Notes"), and Student Loan Funding 1998-A/B
Trust's $___,000,000 Student Loan Senior Asset-Backed Callable Notes, Series A-_
(Auction Rate) (collectively with the Series A-3 Notes, the Series A-_ Notes and
Series A-_ Notes, the "Series 1998A Notes") and simultaneously with and on a
basis senior to Student Loan Funding 1998-A/B Trust's $54,500,000 Student Loan
Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate) (collectively with the
Series 1998A Notes, the "Notes"). References in this Series 1998A1-_ Note to the
name "Student Loan Funding 1998-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.
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 1998A1-_ 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 A-_ Notes; the student loan
purchase program being financed by the issuance of the Series 1998A-_ 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 A-_ 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 A-_ 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 1998A1-_
Note, this Series 1998A1-_ Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
Words and terms used as defined words and terms in this Series
1998A1-_ 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 A-_ 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-_ NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A1-_ NOTE AND REDEMPTION OF THIS SERIES 1998A1-_ NOTE WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A1-_ Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A1-_ Note on
P-111
<PAGE> 112
behalf of the Issuer shall be liable personally on this Series 1998A1-_ Note or
be subject to any personal liability or accountability by reason of the issuance
of this Series 1998A1-_ 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 1998A1-_ Note is held in a Book-entry System,
this Series 1998A1-_ 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 1998A1-_ 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 1998A-_ Note or Series
1998A-_ Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A1-_ Note. The person in whose name this Series
1998A1-_ 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 A-_ Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A1-_ 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 A-_ Notes may be exchanged at
said office of the Indenture Trustee for a like aggregate principal amount of
Series A-_ 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 1998A1-_ 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 1998A1-_ 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 1998A1-_ 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 1998A-_ 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 1998A-_ 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
1998A1-_ Note to be executed in its name and on its behalf by the facsimile
signatures of the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
P-112
<PAGE> 113
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
------------------------------ -------------------------
Title: Title:
--------------------------- ----------------------
P-113
<PAGE> 114
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A-_ 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 Callable Note,
Series A-___ (Auction Rate), of Student Loan Funding 1998-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.
P-114
<PAGE> 115
EXHIBIT Q
FORM OF SUBORDINATE NOTE
THE INTEREST ON THIS SERIES 1998B-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. L-__ $54,500,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTE
SERIES 1998B-3
(FIXED RATE)
Dated: June __, 1999 CUSIP: ______________
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
FIFTY-FOUR MILLION FIVE HUNDRED THOUSAND 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 1998B1-3 Note is one of a duly authorized issue of
notes of the Issuer designated as "Student Loan Funding 1998-A/B Trust Student
Loan Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate)" in the aggregate
principal amount of $54,500,000 (the Registered Notes of this series herein
referred to as the "Series 1998B1-3 Notes", and collectively with the
Unregistered Notes of this Series, the "Series B-3 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In
<PAGE> 116
connection with the sale and transfer of the Trust Estate to the Issuer by the
Student Loan Funding LLC, a Delaware limited liability company (the "Original
Issuer") and the assumption by the Issuer of all of the Original Issuer's
obligations under Indenture of Trust, dated as of December 1, 1998 (the
"Original Base Indenture"), and a Terms Supplement, dated as of even date with
the Base Indenture (the "Original Terms Supplement"), the Original Base
Indenture and Original Terms Supplement have been amended and restated by the
First Amended and Restated Indenture of Trust and the First Amended and Restated
Terms Supplement to the First Amended and Restated Indenture of Trust,
respectively, each dated as of March 15, 1999 (collectively, the "First Restated
Indenture"), and each by and among the Issuer, the Initial Eligible Lender
Trustee and the Indenture Trustee. In connection with the consummation of the
Exchange Offer, the First Restated Indenture has been amended and restated by
the Indenture. The Series B-3 Notes are issued simultaneously with and on a
basis subordinate to the Student Loan Funding 1998-A/B Trust's $400,000,000
Student Loan Senior Asset-Backed Notes, Series A-3 (LIBOR Floating Rate) (the
"Series A-3 Notes"), the Student Loan Funding 1998-A/B Trust's $93,000,000
Student Loan Senior Asset-Backed Callable Notes, Series A-4 (Auction Rate) (the
"Series A-4 Notes"), the Student Loan Funding 1998-A/B Trust's $90,000,000
Student Loan Senior Asset-Backed Callable Notes, Series A-5 (Auction Rate) (the
"Series A-5 Notes"), and the Student Loan Funding 1998-A/B Trust's $90,000,000
Student Loan Senior Asset-Backed Callable Notes, Series A-6 (Auction Rate)
(collectively with the Series A-3 Notes, the Series A-4 Notes and the Series A-5
Notes, the "Series 1998A Notes", and collectively with the Series B-3 Notes, the
"Notes"). References in this Series 1998B1-3 Note to the name "Student Loan
Funding 1998-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.
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 1998B1-3 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 B-3 Notes; the student loan
purchase program being financed by the issuance of the Series B-3 Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest on the Series B-3 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 B-3 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 1998B1-3 Note, this Series 1998B1-3 Note thereafter no longer being
secured by the Indenture or being deemed to be outstanding thereunder; and for
the other terms and provisions thereof.
Words and terms used as defined words and terms in this Series
1998B1-3 Note and not otherwise defined herein shall have the meanings given
them in the Indenture.
The principal of and interest on the Series B-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES B-3 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST, ON THIS SERIES 1998B1-3 NOTE AND
THE REDEMPTION OF THIS SERIES 1998B1-3 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 1998B1-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity,
Q-116
<PAGE> 117
and none of such officers, directors, agents or employees nor any person
executing this Series 1998B1-3 Note on behalf of the Issuer shall be liable
personally on this Series 1998B1-3 Note or be subject to any personal liability
or accountability by reason of the issuance of this Series 1998B1-3 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 1998B1-3 Note is held in a Book-entry System,
this Series 1998B1-3 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 1998B1-3 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 B-3 Note or Series B-3
Notes of Authorized Denominations of the same aggregate principal amount and
date as this Series 1998B1-3 Note. The person in whose name this Series 1998B1-3
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 B-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998B1-3 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 B-3 Notes may be exchanged at
said office of the Indenture Trustee for a like aggregate principal amount of
Series B-3 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 on this Series 1998B1-3 Note shall not be a Business Day, then payment
of such principal or 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 1998B1-3 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 1998B1-3 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 1998B1-3 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 1998B1-3 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 1998B1-3 Note to
be executed in its name and on its behalf by the facsimile signatures of the
undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely in its capacity
as co-owner trustee of Student Loan Funding 1998-A/B Trust,
Q-117
<PAGE> 118
BY: [FACSIMILE SIGNATURE] BY: [FACSIMILE SIGNATURE]
---------------------------- ------------------------
Title: Title:
------------------------- -------------------
Q-118
<PAGE> 119
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series B-3 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
B-3 (Fixed Rate) of Student Loan Funding 1998-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:
---------------------------------------
Q-119
<PAGE> 1
Exhibit 4.4
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998A-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. C-2 $400,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1998A-3
(LIBOR FLOATING RATE)
Date of Original Issuance: December 22, 1998 CUSIP: 86387QAA2
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2006
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
<PAGE> 2
principal sum of
FOUR HUNDRED MILLION 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 1998A-3 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate)" in the
aggregate principal amount of $400,000,000 (this series herein referred to as
the "Series 1998A-3 Notes"), initially issued (a) pursuant to a resolution duly
adopted by the Management Committee of the Student Loan Funding LLC, a Delaware
limited liability company (the "Original Issuer") authorizing the issuance of
the Series 1998A-3 Notes and (b) under (i) the authority of the Certificate of
Formation and Limited Liability Company Agreement of the Original Issuer and
(ii) an Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Original
Base Indenture (the "Original Terms Supplement"). In connection with the sale
and transfer of, or alternatively, the pledge and grant of a security interest
in the Trust Estate to the Issuer by the Original Issuer and the assumption by
the Issuer of all of the Original Issuer's obligations under the Original Base
Indenture and Original Terms Supplement, the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "Indenture"), and each by and
among the Issuer, Firstar Bank, National Association, not in its individual
capacity, but solely in its capacity as the initial eligible lender trustee on
behalf of the Issuer (the "Initial Eligible Lender Trustee" and together with
any other eligible lender trustee thereunder, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1998A-3 Notes are issued simultaneously and on
a parity with Student Loan Funding 1998-A/B Trust's $93,300,000 Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-4 (Auction Rate) (the "Series
1998A-4 Notes"), Student Loan Funding 1998-A/B Trust's $90,000,000 Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate) (the "Series
1998A-5 Notes"), Student Loan Funding 1998-A/B Trust's $90,000,000 Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate) (collectively
with the Series 1998A-3 Notes, the Series 1998A-4 Notes and the Series 1998A-5
Notes, the "Series 1998A Notes"), and simultaneously with and on a basis senior
to Student Loan Funding 1998-A/B Trust's $54,500,000 Student Loan Subordinate
Asset-Backed Notes, Series 1998B-3 (Fixed Rate) (collectively with the Series
1998A Notes, the "Notes"). References in this Series 1998A-3 Note to the name
"Student Loan Funding 1998-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.
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 1998A-3 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 1998A-3 Notes; the student loan
purchase program being financed by the issuance of the Series 1998A-3 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 1998A-3 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 1998A-3 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 1998A-3
Note, this Series 1998A-3 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
<PAGE> 3
Words and terms used as defined words and terms in this Series 1998A-3
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 1998A-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1998A-3
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1998A-3 NOTE AND REDEMPTION OF THIS SERIES 1998A-3 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 1998A-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A-3 Note on behalf of the Issuer shall be liable personally on
this Series 1998A-3 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A-3 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 1998A-3 Note is held in a Book-entry System,
this Series 1998A-3 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 1998A-3 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 1998A-3 Note or Series
1998A-3 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A-3 Note. The person in whose name this Series
1998A-3 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 1998A-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A-3 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 1998A-3 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A-3 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 1998A-3 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 1998A-3 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
<PAGE> 4
required by law; and that this Series 1998A-3 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 1998A-3 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 1998A-3 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 1998A-3
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By: Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: _______________________
Title: ___________________
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A-3 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
1998A-3 (LIBOR Floating Rate) of Student Loan Funding 1998-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
<PAGE> 5
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:______________________________
<PAGE> 1
Exhibit 4.5
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998A-4 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. D-2 $93,300,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A-4
(AUCTION RATE)
Date of Original Issuance: December 22, 1998 CUSIP: 86387QAB0
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
<PAGE> 2
principal sum of
NINETY-THREE MILLION THREE HUNDRED THOUSAND 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 1998A-4 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-4 (Auction Rate)" in the
aggregate principal amount of $93,300,000 (this series herein referred to as the
"Series 1998A-4 Notes"), initially issued (a) pursuant to a resolution duly
adopted by the Management Committee of Student Loan Funding LLC, a Delaware
limited liability company (the "Original Issuer") authorizing the issuance of
the Series 1998A-4 Notes and (b) under (i) the authority of the Certificate of
Formation and Limited Liability Company Agreement of the Original Issuer and
(ii) an Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"). In connection with the sale and
transfer of, or alternatively, the pledge and grant of a security interest in
the Trust Estate to the Issuer by the Original Issuer and the assumption by the
Issuer of all of the Original Issuer's obligations under the Original Base
Indenture and Original Terms Supplement, the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "Indenture"), and each by and
among the Issuer, Firstar Bank, National Association, not in its individual
capacity, but solely in its capacity as the initial eligible lender trustee on
behalf of the Issuer (the "Initial Eligible Lender Trustee" and together with
any other eligible lender trustee thereunder, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1998A-4 Notes are issued simultaneously and on
a parity with the Student Loan Funding 1998-A/B Trust's $400,000,000 Student
Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate) (the
"Series 1998A-3 Notes"), Student Loan Funding 1998-A/B Trust's $90,000,000
Student Loan Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate)
(the "Series 1998A-5 Notes"), and Student Loan Funding 1998-A/B Trust's
$90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series 1998A-6
(Auction Rate) (collectively with the Series 1998A-3 Notes, the Series 1998A-4
Notes and Series 1998A-5 Notes, the "Series 1998A Notes") and simultaneously
with and on a basis senior to Student Loan Funding 1998-A/B Trust's $54,500,000
Student Loan Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)
(collectively with the Series 1998A Notes, the "Notes"). References in this
Series 1998A-4 Note to the name "Student Loan Funding 1998-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.
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 1998A-4 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 1998A-4 Notes; the student loan
purchase program being financed by the issuance of the Series 1998A-4 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 1998A-4 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 1998A-4 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 1998A-4
Note, this Series 1998A-4 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
<PAGE> 3
Words and terms used as defined words and terms in this Series 1998A-4
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 1998A-4 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1998A-4
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1998A-4 NOTE AND REDEMPTION OF THIS SERIES 1998A-4 NOTE WILL
BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A-4 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A-4 Note on behalf of the Issuer shall be liable personally on
this Series 1998A-4 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A-4 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 1998A-4 Note is held in a Book-entry System,
this Series 1998A-4 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 1998A-4 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 1998A-4 Note or Series
1998A-4 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A-4 Note. The person in whose name this Series
1998A-4 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 1998A-4 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A-4 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 1998A-4 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A-4 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 1998A-4 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 1998A-4 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
<PAGE> 4
required by law; and that this Series 1998A-4 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 1998A-4 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 1998A-4 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 1998A-4
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: _______________________
Title: ___________________
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A-4 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 Callable Note,
Series 1998A-4__ (Auction Rate), of Student Loan Funding 1998-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
<PAGE> 5
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:______________________________
<PAGE> 1
Exhibit 4.6
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998A-5 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. E-2 $90,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A-5
(AUCTION RATE)
Date of Original Issuance: December 22, 1998 CUSIP: 86387QAC8
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
<PAGE> 2
principal sum of
NINETY MILLION 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 1998A-5 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate)" in the
aggregate principal amount of $90,000,000 (this series herein referred to as the
"Series 1998A-5 Notes"), initially issued (a) pursuant to a resolution duly
adopted by the Management Committee of Student Loan Funding LLC, a Delaware
limited liability company (the "Original Issuer") authorizing the issuance of
the Series 1998A-5 Notes and (b) under (i) the authority of the Certificate of
Formation and Limited Liability Company Agreement of the Original Issuer and
(ii) an Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"). In connection with the sale and
transfer of , or alternatively, the pledge and grant of a security interest in
the Trust Estate to the Issuer by the Original Issuer and the assumption by the
Issuer of all of the Original Issuer's obligations under the Original Base
Indenture and Original Terms Supplement, the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "Indenture"), and each by and
among the Issuer, Firstar Bank, National Association, not in its individual
capacity, but solely in its capacity as the initial eligible lender trustee on
behalf of the Issuer (the "Initial Eligible Lender Trustee" and together with
any other eligible lender trustee thereunder, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1998A-5 Notes are issued simultaneously and on
a parity with the Student Loan Funding 1998-A/B Trust's $400,000,000 Student
Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate) (the
"Series 1998A-3 Notes"), Student Loan Funding 1998-A/B Trust's $93,300,000
Student Loan Senior Asset-Backed Callable Notes, Series 1998A-4 (Auction Rate)
(the "Series 1998A-4 Notes"), and Student Loan Funding 1998-A/B Trust's
$90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series 1998A-6
(Auction Rate) (collectively with the Series 1998A-3 Notes, the Series 1998A-4
Notes and Series 1998A-5 Notes, the "Series 1998A Notes") and simultaneously
with and on a basis senior to Student Loan Funding 1998-A/B Trust's $54,500,000
Student Loan Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)
(collectively with the Series 1998A Notes, the "Notes"). References in this
Series 1998A-5 Note to the name "Student Loan Funding 1998-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.
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 1998A-5 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 1998A-5 Notes; the student loan
purchase program being financed by the issuance of the Series 1998A-5 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 1998A-5 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 1998A-5 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 1998A-5
Note, this Series 1998A-5 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
<PAGE> 3
Words and terms used as defined words and terms in this Series 1998A-5
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 1998A-5 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1998A-5
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1998A-5 NOTE AND REDEMPTION OF THIS SERIES 1998A-5 NOTE WILL
BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A-5 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A-5 Note on behalf of the Issuer shall be liable personally on
this Series 1998A-5 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A-5 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 1998A-5 Note is held in a Book-entry System,
this Series 1998A-5 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 1998A-5 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 1998A-5 Note or Series
1998A-5 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A-5 Note. The person in whose name this Series
1998A-5 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 1998A-5 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A-5 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 1998A-5 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A-5 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 1998A-5 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 1998A-5 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
<PAGE> 4
required by law; and that this Series 1998A-5 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 1998A-5 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 1998A-5 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 1998A-5
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: _______________________
Title: ___________________
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A-5 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 Callable Note,
Series 1998A-5__ (Auction Rate), of Student Loan Funding 1998-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
<PAGE> 5
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:______________________________
<PAGE> 1
Exhibit 4.7
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998A-6 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. F-2 $90,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A-6
(AUCTION RATE)
Date of Original Issuance: December 22, 1998 CUSIP: 86387QAD6
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
<PAGE> 2
principal sum of
NINETY MILLION 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 1998A-6 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate)" in the
aggregate principal amount of $90,000,000 (this series herein referred to as the
"Series 1998A-6 Notes"), initially issued (a) pursuant to a resolution duly
adopted by the Management Committee of Student Loan Funding LLC, a Delaware
limited liability company (the "Original Issuer") authorizing the issuance of
the Series 1998A-6 Notes and (b) under (i) the authority of the Certificate of
Formation and Limited Liability Company Agreement of the Original Issuer and
(ii) an Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"). In connection with the sale and
transfer of, or alternatively, the pledge and grant of a security interest in
the Trust Estate to the Issuer by the Original Issuer and the assumption by the
Issuer of all of the Original Issuer's obligations under the Original Base
Indenture and Original Terms Supplement, the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "Indenture"), and each by and
among the Issuer, Firstar Bank, National Association, not in its individual
capacity, but solely in its capacity as the initial eligible lender trustee on
behalf of the Issuer (the "Initial Eligible Lender Trustee" and together with
any other eligible lender trustee thereunder, each an "Eligible Lender
Trustee"), and Firstar Bank, National Association, as indenture trustee (the
"Indenture Trustee"). The Series 1998A-6 Notes are issued simultaneously and on
a parity with the Student Loan Funding 1998-A/B Trust's $400,000,000 Student
Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR Floating Rate) (the
"Series 1998A-3 Notes"), Student Loan Funding 1998-A/B Trust's $93,300,000
Student Loan Senior Asset-Backed Callable Notes, Series 1998A-4 (Auction Rate)
(the "Series 1998A-4 Notes"), and Student Loan Funding 1998-A/B Trust's
$90,000,000 Student Loan Senior Asset-Backed Callable Notes, Series 1998A-5
(Auction Rate) (collectively with the Series 1998A-3 Notes, the Series 1998A-4
Notes and Series 1998A-6 Notes, the "Series 1998A Notes") and simultaneously
with and on a basis senior to Student Loan Funding 1998-A/B Trust's $54,500,000
Student Loan Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)
(collectively with the Series 1998A Notes, the "Notes"). References in this
Series 1998A-6 Note to the name "Student Loan Funding 1998-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.
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 1998A-6 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 1998A-6 Notes; the student loan
purchase program being financed by the issuance of the Series 1998A-6 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 1998A-6 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 1998A-6 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 1998A-6
Note, this Series 1998A-6 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
<PAGE> 3
Words and terms used as defined words and terms in this Series 1998A-6
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 1998A-6 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1998A-6
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF
ANY, ON THIS SERIES 1998A-6 NOTE AND REDEMPTION OF THIS SERIES 1998A-6 NOTE WILL
BE DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A-6 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A-6 Note on behalf of the Issuer shall be liable personally on
this Series 1998A-6 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A-6 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 1998A-6 Note is held in a Book-entry System,
this Series 1998A-6 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 1998A-6 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 1998A-6 Note or Series
1998A-6 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998A-6 Note. The person in whose name this Series
1998A-6 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 1998A-6 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A-6 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 1998A-6 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A-6 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 1998A-6 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 1998A-6 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
<PAGE> 4
required by law; and that this Series 1998A-6 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 1998A-6 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 1998A-6 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 1998A-6
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: _______________________
Title: ___________________
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A-6 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 Callable Note,
Series 1998A-6__ (Auction Rate), of Student Loan Funding 1998-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
<PAGE> 5
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:______________________________
<PAGE> 1
Exhibit 4.8
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE INDENTURE
TRUSTEE OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION THEREOF IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NEITHER THIS GLOBAL SECURITY NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
EACH OF THE HOLDER HEREOF AND EACH OWNER OF A BENEFICIAL INTEREST HEREIN, BY
HOLDING THIS GLOBAL SECURITY AND ACQUIRING THEIR BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF STUDENT LOAN FUNDING 1998-A/B TRUST (THE
"ISSUER") THAT THIS GLOBAL SECURITY AND BENEFICIAL INTERESTS HEREIN MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER, (2) SO LONG AS
THIS GLOBAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN ACCORDANCE WITH RULE
144A OR AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT WHICH PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR AN INSTITUTIONAL ACCREDITED
INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144(A), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) (RESALES DESCRIBED IN
SUBCLAUSES (1) THROUGH (4) BEING REFERRED TO AS "SAFE HARBOR RESALES"), (5)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF
TRANSFER OF THIS GLOBAL SECURITY OTHERWISE THAN IN A SAFE HARBOR RESALE THE
ISSUER OR THE INDENTURE TRUSTEE MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER
EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO
EVIDENCE COMPLIANCE WITH SUCH EXEMPTION AND WITH ANY STATE SECURITIES LAWS THAT
MAY BE APPLICABLE), OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OR ANY STATE OF THE UNITED STATES. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL SECURITY, BY ACQUIRING SUCH BENEFICIAL INTEREST,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT WILL NOTIFY ANY
PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED ONLY IN THE CIRCUMSTANCES
SPECIFIED IN THE INDENTURE.
THE INTEREST ON THIS SERIES 1998B-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME FOR
FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. G-2 $54,500,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTE
SERIES 1998B-3
(FIXED RATE)
Date of Original Issuance: December 22, 1998 CUSIP: 86387QAE4
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
<PAGE> 2
principal sum of
FIFTY-FOUR MILLION FIVE HUNDRED THOUSAND 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 1998B-3 Note is one of a duly authorized issue of
notes of the Issuer designated as "Student Loan Funding 1998-A/B Trust Student
Loan Subordinate Asset-Backed Notes, Series 1998B-3 (Fixed Rate)" in the
aggregate principal amount of $54,500,000 (this series herein referred to as the
"Series 1998B-3 Notes"), initially issued (a) pursuant to a resolution duly
adopted by the Management Committee of Student Loan Funding LLC, a Delaware
limited liability company (the "Original Issuer") authorizing the issuance of
the Series 1998B-3 Notes and (b) under (i) the authority of the Certificate of
Formation and Limited Liability Company Agreement of the Original Issuer and
(ii) an Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"). In connection with the sale and
transfer of the Trust Estate to the Issuer by the Original Issuer and the
assumption by the Issuer of all of the Original Issuer's obligations under the
Original Base Indenture and Original Terms Supplement, the Original Base
Indenture and Original Terms Supplement have been amended and restated by the
First Amended and Restated Indenture of Trust and the First Amended and Restated
Terms Supplement to the First Amended and Restated Indenture of Trust,
respectively, each dated as of March 15, 1999 (collectively, the "Indenture"),
and each by and among the Issuer, Firstar Bank, National Association, not in its
individual capacity, but solely in its capacity as the initial eligible lender
trustee on behalf of the Issuer (the "Initial Eligible Lender Trustee" and
together with any other eligible lender trustee thereunder, each an "Eligible
Lender Trustee"), and Firstar Bank, National Association, as indenture trustee
(the "Indenture Trustee"). The Series 1998B-3 Notes are issued simultaneously
with and on a basis subordinate to the Student Loan Funding 1998-A/B Trust's
$400,000,000 Student Loan Senior Asset-Backed Notes, Series 1998A-3 (LIBOR
Floating Rate) (the "Series 1998A-3 Notes"), the Student Loan Funding 1998-A/B
Trust's $93,300,000 Student Loan Senior Asset-Backed Callable Notes, Series
1998A-4 (Auction Rate) (the "Series 1998A-4 Notes"), the Student Loan Funding
1998-A/B Trust's $90,000,000 Student Loan Senior Asset-Backed Callable Notes,
Series 1998A-5 (Auction Rate) (the "Series 1998A-5 Notes"), and the Student Loan
Funding 1998-A/B Trust's $90,000,000 Student Loan Senior Asset-Backed Callable
Notes, Series 1998A-6 (Auction Rate) (collectively with the Series 1998A-3
Notes, the Series 1998A-4 Notes and the Series 1998A-5 Notes, the "Series 1998A
Notes", and collectively with the Series 1998B-3 Notes, the "Notes"). References
in this Series 1998B-3 Note to the name "Student Loan Funding 1998-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.
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 1998B-3 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 1998B-3 Notes; the student loan
purchase program being financed by the issuance of the Series 1998B-3 Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest on the Series 1998B-3 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 1998B-3 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 1998B-3 Note, this Series 1998B-3 Note thereafter no
longer being secured by the Indenture or being deemed to be outstanding
thereunder; and for the other terms and provisions thereof.
<PAGE> 3
Words and terms used as defined words and terms in this Series 1998B-3
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest on the Series 1998B-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES 1998B-3
NOTES, THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST, ON THIS SERIES 1998B-3
NOTE AND THE REDEMPTION OF THIS SERIES 1998B-3 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 1998B-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998B-3 Note on behalf of the Issuer shall be liable personally on
this Series 1998B-3 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998B-3 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 1998B-3 Note is held in a Book-entry System,
this Series 1998B-3 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 1998B-3 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 1998B-3 Note or Series
1998B-3 Notes of Authorized Denominations of the same aggregate principal amount
and date as this Series 1998B-3 Note. The person in whose name this Series
1998B-3 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 1998B-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998B-3 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 1998B-3 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998B-3 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 on this Series 1998B-3 Note shall not be a Business Day, then payment
of such principal or 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 1998B-3 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 1998B-3 Note and
the issue of which it is one do not exceed any limitations of
<PAGE> 4
indebtedness prescribed by law or otherwise applicable to the Issuer.
This Series 1998B-3 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 1998B-3 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 1998B-3 Note to
be executed in its name and on its behalf by the facsimile signatures of the
undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely in its capacity
as co-owner trustee of Student Loan Funding 1998-A/B Trust,
BY: _______________________
Title: ___________________
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998B-3 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
1998B-3 (Fixed Rate) of Student Loan Funding 1998-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
<PAGE> 5
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:______________________________
<PAGE> 1
Exhibit 4.9
FORM OF SENIOR LIBOR FLOATING RATE NOTE
THE INTEREST ON THIS SERIES 1998A1-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. H-1 $___,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED NOTE
SERIES 1998A1-3
(LIBOR FLOATING RATE)
Dated: June __, 1999 CUSIP: 86387QAA2
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2006
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
___________________ MILLION 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 1998A1-3 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Notes, Series A-3 (LIBOR Floating Rate)" in the aggregate
original principal amount of $400,000,000 (the Registered Notes of this series
herein referred to as the "Series 1998A1-3 Notes" and collectively with the
Unregistered Notes of this Series, the "Series A-3 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware limited liability company (the "Original Issuer") and
the assumption by the Issuer of all of the Original Issuer's obligations under
the Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Original
Base Indenture (the "Original Terms Supplement"), the Original Base Indenture
and Original Terms Supplement have been amended and restated by the First
Amended and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "First Restated Indenture"),
and each by and among the Issuer, the Initial Eligible Lender Trustee and the
Indenture Trustee. In connec tion with the consummation of an Exchange Offer,
the First Restated Indenture has been amended and
Page 1 of 4
<PAGE> 2
restated by the Indenture. The Series A-3 Notes are issued simultaneously and on
a parity with Student Loan Funding 1998-A/B Trust's $93,300,000 original
principal amount Student Loan Senior Asset-Backed Callable Notes, Series A-4
(Auction Rate) (the "Series A-4 Notes"), Student Loan Funding 1998-A/B Trust's
$90,000,000 original principal amount Student Loan Senior Asset-Backed Callable
Notes, Series A-5 (Auction Rate) (the "Series A-5 Notes"), Student Loan Funding
1998-A/B Trust's $90,000,000 original principal amount Student Loan Senior
Asset-Backed Callable Notes, Series A-6 (Auction Rate) (collectively with the
Series A-3 Notes, the Series A-4 Notes and the Series A-5 Notes, the "Series
1998A Notes"), and simultaneously with and on a basis senior to Student Loan
Funding 1998-A/B Trust's $54,500,000 original principal amount Student Loan
Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate) (collectively with the
Series 1998A Notes, the "Notes"). References in this Series 1998A1-3 Note to the
"Student Loan Funding 1998-A/B Trust" or to the "Issuer" shall mean the Co-Owner
Trustee, not in its individual capacity, but solely as Co-Owner Trustee under
the Trust Agreement.
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 1998A1-3 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 A-3 Notes; the student loan
purchase program being financed by the issuance of the Series A-3 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 A-3 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 A-3 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 1998A1-3
Note, this Series 1998A1-3 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
Words and terms used as defined words and terms in this Series 1998A1-3
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 A-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-3 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A1-3 NOTE AND REDEMPTION OF THIS SERIES 1998A1-3 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 1998A1-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A1-3 Note on behalf of the Issuer shall be liable personally on
this Series 1998A1-3 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A1-3 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.
Page 2 of 4
<PAGE> 3
Except when this Series 1998A1-3 Note is held in a Book-entry System,
this Series 1998A1-3 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 1998A1-3 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 1998A1-3 Note or Series
1998A1-3 Notes of Authorized Denominations of the same aggregate principal
amount and date as this Series 1998A1-3 Note. The person in whose name this
Series 1998A1-3 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 A-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A1-3 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 1998A1-3 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A1-3 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 1998A1-3 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 1998A1-3 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 1998A1-3 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 1998A1-3 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 1998A1-3 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 1998A1-3
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By: Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: [facsimile signature] BY: [facsimile signature]
----------------------------------- --------------------------
Title: Title:
-------------------------------- -----------------------
Page 3 of 4
<PAGE> 4
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A1-3 Notes described in the within
mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: June __, 1999
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
1998A1-3 (LIBOR Floating Rate) of Student Loan Funding 1998-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
Signature Guarantee:______________________________
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.
Page 4 of 4
<PAGE> 1
Exhibit 4.10
FORM OF SENIOR AUCTION RATE NOTE - SERIES 1998A1-4
THE INTEREST ON THIS SERIES 1998A1-4 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. I-1 $__,_00,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A1-4
(AUCTION RATE)
Dated: June __, 1999 CUSIP: 86387QAB0
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
_______________________ MILLION 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 1998A1-4 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series A-4 (Auction Rate)" in the aggregate
original principal amount of $93,300,000 (the Registered Notes of this series
herein referred to as the "Series 1998A1-4 Notes, and collectively with the
Unregistered Notes of the Series, the "Series A-4 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware limited liability company (the "Original Issuer") and
the assumption by the Issuer of all of the Original Issuer's obligations under
Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"), the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "First Restated Indenture"),
and each by and among the Issuer, the Initial Eligible Lender Trustee and the
Indenture Trustee. In connection with the consummation of the Exchange Offer,
the First Restated Indenture has been amended and restated by the Indenture. The
Series A-4 Notes are issued simultaneously and on a parity with the Student Loan
Funding 1998-A/B Trust's
Page 1 of 4
<PAGE> 2
$400,000,000 original principal amount Student Loan Senior Asset-Backed Notes,
Series A-3 (LIBOR Floating Rate) (the "Series A-3 Notes"), Student Loan Funding
1998-A/B Trust's $90,000,000 original principal amount Student Loan Senior
Asset-Backed Callable Notes, Series A-5 (Auction Rate) (the "Series A-5 Notes"),
and Student Loan Funding 1998-A/B Trust's $90,000,000 original principal amount
Student Loan Senior Asset-Backed Callable Notes, Series A-6 (Auction Rate)
(collectively with the Series A-3 Notes, the Series A-4 Notes and Series A-5
Notes, the "Series 1998A Notes") and simultaneously with and on a basis senior
to Student Loan Funding 1998-A/B Trust's $54,500,000 original principal amount
Student Loan Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate)
(collectively with the Series 1998A Notes, the "Notes"). References in this
Series 1998A1-4 Note to the "Student Loan Funding 1998-A/B Trust" or to the
"Issuer" shall mean the Co-Owner Trustee, not in its individual capacity, but
solely as Co-Owner Trustee under the Trust Agreement.
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 1998A1-4 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 A-4 Notes; the student loan
purchase program being financed by the issuance of the Series A-4 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 A-4 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 A-4 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 1998A1-4
Note, this Series 1998A1-4 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
Words and terms used as defined words and terms in this Series 1998A1-4
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 A-4 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-4 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A1-4 NOTE AND REDEMPTION OF THIS SERIES 1998A1-4 NOTE WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A1-4 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A1-4 Note on behalf of the Issuer shall be liable personally on
this Series 1998A1-4 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A1-4 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.
Page 2 of 4
<PAGE> 3
Except when this Series 1998A1-4 Note is held in a Book-entry System,
this Series 1998A1-4 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 1998A1-4 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 1998A1-4 Note or Series
1998A1-4 Notes of Authorized Denominations of the same aggregate principal
amount and date as this Series 1998A1-4 Note. The person in whose name this
Series 1998A1-4 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 A-4 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A1-4 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 1998A1-4 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A1-4 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 1998A1-4 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 1998A1-4 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 1998A1-4 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 1998A1-4 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 1998A1-4 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 1998A1-4
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: [facsimile signature] BY: [facsimile signature]
-------------------------- ------------------------
Title: Title:
----------------------- ---------------------
Page 3 of 4
<PAGE> 4
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A1-4 Notes described in the within
mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: June __, 1999
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 Callable Note,
Series 1998A1-4 (Auction Rate), of Student Loan Funding 1998-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
Signature Guaranteed:______________________________________
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.
Page 4 of 4
<PAGE> 1
Exhibit 4.11
FORM OF SENIOR AUCTION RATE NOTE - SERIES 1998A1-5
THE INTEREST ON THIS SERIES 1998A1-5 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. J-1 $__,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A1-5
(AUCTION RATE)
Dated: June __, 1999 CUSIP: 86387QAC8
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
________________ MILLION 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 1998A1-5 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series A-5 (Auction Rate)" in the aggregate
original principal amount of $90,000,000 (the Registered Notes of this series
herein referred to as the "Series 1998A1-5 Notes, and collectively with the
Unregistered Notes of the Series, the "Series A-5 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware limited liability company (the "Original Issuer") and
the assumption by the Issuer of all of the Original Issuer's obligations under
Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"), the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "First Restated Indenture"),
and each by and among the Issuer, the Initial Eligible Lender Trustee and the
Indenture Trustee. In connection with the consummation of the Exchange Offer,
the First Restated Indenture has been amended and restated by the Indenture. The
Series A-5 Notes are issued simultaneously and on a parity with the Student Loan
Funding 1998-A/B Trust's
Page 1 of 4
<PAGE> 2
$400,000,000 original principal amount Student Loan Senior Asset-Backed Notes,
Series A-3 (LIBOR Floating Rate) (the "Series A-3 Notes"), Student Loan Funding
1998-A/B Trust's $93,300,000 original principal amount Student Loan Senior
Asset-Backed Callable Notes, Series A-4 (Auction Rate) (the "Series A-4 Notes"),
and Student Loan Funding 1998-A/B Trust's $90,000,000 original principal amount
Student Loan Senior Asset-Backed Callable Notes, Series A-6 (Auction Rate)
(collectively with the Series A-3 Notes, the Series A-4 Notes and Series A-5
Notes, the "Series 1998A Notes") and simultaneously with and on a basis senior
to Student Loan Funding 1998-A/B Trust's $54,500,000 original principal amount
Student Loan Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate)
(collectively with the Series 1998A Notes, the "Notes"). References in this
Series 1998A1-5 Note to the "Student Loan Funding 1998-A/B Trust" or to the
"Issuer" shall mean the Co-Owner Trustee, not in its individual capacity, but
solely as Co-Owner Trustee under the Trust Agreement.
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 1998A1-5 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 A-5 Notes; the student loan
purchase program being financed by the issuance of the Series A-5 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 A-5 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 A-5 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 1998A1-5
Note, this Series 1998A1-5 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
Words and terms used as defined words and terms in this Series 1998A1-5
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 A-5 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-5 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A1-5 NOTE AND REDEMPTION OF THIS SERIES 1998A1-5 NOTE WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A1-5 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A1-5 Note on behalf of the Issuer shall be liable personally on
this Series 1998A1-5 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A1-5 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.
Page 2 of 4
<PAGE> 3
Except when this Series 1998A1-5 Note is held in a Book-entry System,
this Series 1998A1-5 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 1998A1-5 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 1998A1-5 Note or Series
1998A1-5 Notes of Authorized Denominations of the same aggregate principal
amount and date as this Series 1998A1-5 Note. The person in whose name this
Series 1998A1-5 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 A-5 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A1-5 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 1998A1-5 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A1-5 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 1998A1-5 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 1998A1-5 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 1998A1-5 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 1998A1-5 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 1998A1-5 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 1998A1-5
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: [facsimile signature] BY: [facsimile signature]
--------------------------- -------------------------
Title: Title:
------------------------ ----------------------
Page 3 of 4
<PAGE> 4
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A1-5 Notes described in the
within mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: June __, 1999
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 Callable Note,
Series 1998A1-5 (Auction Rate), of Student Loan Funding 1998-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
Signature Guarantee:____________________________________
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.
Page 4 of 4
<PAGE> 1
Exhibit 4.12
FORM OF SENIOR AUCTION RATE NOTE - SERIES 1998A1-6
THE INTEREST ON THIS SERIES 1998A1-6 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. K-1 $__,000,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SENIOR ASSET-BACKED CALLABLE NOTE
SERIES 1998A1-6
(AUCTION RATE)
Dated: June __, 1999 CUSIP: 86387QAD6
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
___________________ MILLION 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 1998A1-6 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Senior Asset-Backed Callable Notes, Series A-6 (Auction Rate)" in the aggregate
original principal amount of $90,000,000 (the Registered Notes of this series
herein referred to as the "Series 1998A1-6 Notes, and collectively with the
Unregistered Notes of the Series, the "Series A-6 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware limited liability company (the "Original Issuer") and
the assumption by the Issuer of all of the Original Issuer's obligations under
Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"), the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "First Restated Indenture"),
and each by and among the Issuer, the Initial Eligible Lender Trustee and the
Indenture Trustee. In connection with the consummation of the Exchange Offer,
the First Restated Indenture has been amended and restated by the Indenture. The
Series A-6 Notes are issued simultaneously and on a parity with the Student Loan
Funding 1998-A/B Trust's
Page 1 of 4
<PAGE> 2
$400,000,000 original principal amount Student Loan Senior Asset-Backed Notes,
Series A-3 (LIBOR Floating Rate) (the "Series A-3 Notes"), Student Loan Funding
1998-A/B Trust's $93,300,000 original principal amount Student Loan Senior
Asset-Backed Callable Notes, Series A-4 (Auction Rate) (the "Series A-4 Notes"),
and Student Loan Funding 1998-A/B Trust's $90,000,000 original principal amount
Student Loan Senior Asset-Backed Callable Notes, Series A-5 (Auction Rate)
(collectively with the Series A-3 Notes, the Series A-4 Notes and the Series A-6
Notes, the "Series 1998A Notes") and simultaneously with and on a basis senior
to Student Loan Funding 1998-A/B Trust's $54,500,000 original principal amount
Student Loan Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate)
(collectively with the Series 1998A Notes, the "Notes"). References in this
Series 1998A1-6 Note to the "Student Loan Funding 1998-A/B Trust" or to the
"Issuer" shall mean the Co-Owner Trustee, not in its individual capacity, but
solely as Co-Owner Trustee under the Trust Agreement.
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 1998A1-6 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 A-6 Notes; the student loan
purchase program being financed by the issuance of the Series A-6 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 A-6 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 A-6 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 1998A1-6
Note, this Series 1998A1-6 Note thereafter no longer being secured by the
Indenture or being deemed to be outstanding thereunder; and for the other terms
and provisions thereof.
Words and terms used as defined words and terms in this Series 1998A1-6
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 A-6 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES A-6 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST AND CARRYOVER INTEREST, IF ANY, ON
THIS SERIES 1998A1-6 NOTE AND REDEMPTION OF THIS SERIES 1998A1-6 NOTE WILL BE
DETERMINED IN ACCORDANCE WITH THE TERMS, CONDITIONS AND PROVISIONS OF THE
INDENTURE AND THE AUCTION 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 1998A1-6 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998A1-6 Note on behalf of the Issuer shall be liable personally on
this Series 1998A1-6 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998A1-6 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.
Page 2 of 4
<PAGE> 3
Except when this Series 1998A1-6 Note is held in a Book-entry System,
this Series 1998A1-6 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 1998A1-6 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 1998A1-6 Note or Series
1998A1-6 Notes of Authorized Denominations of the same aggregate principal
amount and date as this Series 1998A1-6 Note. The person in whose name this
Series 1998A1-6 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 A-6 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998A1-6 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 1998A1-6 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998A1-6 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 1998A1-6 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 1998A1-6 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 1998A1-6 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 1998A1-6 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 1998A1-6 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 1998A1-6
Note to be executed in its name and on its behalf by the facsimile signatures of
the undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely as co-owner trustee of
Student Loan Funding 1998-A/B Trust,
BY: [facsimile signature] BY: [facsimile signature]
------------------------------- ---------------------------
Title: Title:
---------------------------- ------------------------
Page 3 of 4
<PAGE> 4
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998A1-6 Notes described in the within
mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: June __, 1999
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 Callable Note,
Series 1998A1-6 (Auction Rate), of Student Loan Funding 1998-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
Signature Guarantee:____________________________________
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.
Page 4 of 4
<PAGE> 1
Exhibit 4.13
FORM OF SUBORDINATE NOTE
THE INTEREST ON THIS SERIES 1998B1-3 NOTE IS NOT EXCLUDABLE FROM GROSS INCOME
FOR FEDERAL INCOME TAX PURPOSES.
Registered Registered
No. L-1 $__,_00,000
STUDENT LOAN FUNDING 1998-A/B TRUST
STUDENT LOAN SUBORDINATE ASSET-BACKED NOTE
SERIES 1998B1-3
(FIXED RATE)
Dated: June __, 1999 CUSIP: 86387QAE4
Interest Rate: As Herein Provided Legal Final Maturity: December 1, 2019
Student Loan Funding 1998-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, not in its individual
capacity, but solely as co-owner trustee of Student Loan Funding 1998-A/B Trust
(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
___________________ MILLION 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 1998B1-3 Note is one of a duly authorized issue of notes of
the Issuer designated as "Student Loan Funding 1998-A/B Trust Student Loan
Subordinate Asset-Backed Notes, Series B-3 (Fixed Rate)" in the original
aggregate principal amount of $54,500,000 (the Registered Notes of this series
herein referred to as the "Series 1998B1-3 Notes", and collectively with the
Unregistered Notes of this Series, the "Series B-3 Notes"), initially issued
pursuant to the authority granted to the Issuer in the Trust Agreement and the
Second Amended and Restated Indenture of Trust and the Second Amended and
Restated Terms Supplement thereto, each dated as of June 1, 1999 (collectively,
the "Indenture"), each by and among the Issuer, Firstar Bank, National
Association, not in its individual capacity, but solely in its capacity as the
initial eligible lender trustee for the benefit of the Issuer (the "Initial
Eligible Lender Trustee" and together with any other eligible lender trustee
thereunder, each an "Eligible Lender Trustee"), and Firstar Bank, National
Association, as indenture trustee (the "Indenture Trustee"). In connection with
the sale and transfer of the Trust Estate to the Issuer by the Student Loan
Funding LLC, a Delaware limited liability company (the "Original Issuer") and
the assumption by the Issuer of all of the Original Issuer's obligations under
Indenture of Trust, dated as of December 1, 1998 (the "Original Base
Indenture"), and a Terms Supplement, dated as of even date with the Base
Indenture (the "Original Terms Supplement"), the Original Base Indenture and
Original Terms Supplement have been amended and restated by the First Amended
and Restated Indenture of Trust and the First Amended and Restated Terms
Supplement to the First Amended and Restated Indenture of Trust, respectively,
each dated as of March 15, 1999 (collectively, the "First Restated Indenture"),
and each by and among the Issuer, the Initial Eligible Lender Trustee and the
Indenture Trustee. In connection with the
Page 1 of 4
<PAGE> 2
consummation of the Exchange Offer, the First Restated Indenture has been
amended and restated by the Indenture. The Series B-3 Notes are issued
simultaneously with and on a basis subordinate to the Student Loan Funding
1998-A/B Trust's $400,000,000 original principal amount Student Loan Senior
Asset-Backed Notes, Series A-3 (LIBOR Floating Rate) (the "Series A-3 Notes"),
the Student Loan Funding 1998-A/B Trust's $93,300,000 original principal amount
Student Loan Senior Asset-Backed Callable Notes, Series A-4 (Auction Rate) (the
"Series A-4 Notes"), the Student Loan Funding 1998-A/B Trust's $90,000,000
original principal amount Student Loan Senior Asset-Backed Callable Notes,
Series A-5 (Auction Rate) (the "Series A-5 Notes"), and the Student Loan Funding
1998-A/B Trust's $90,000,000 original principal amount Student Loan Senior
Asset-Backed Callable Notes, Series A-6 (Auction Rate) (collectively with the
Series A-3 Notes, the Series A-4 Notes and the Series A-5 Notes, the "Series
1998A Notes", and collectively with the Series B-3 Notes, the "Notes").
References in this Series 1998B1-3 Note to the "Student Loan Funding 1998-A/B
Trust" or to the "Issuer" shall mean the Co-Owner Trustee, not in its individual
capacity, but solely as Co-Owner Trustee under the Trust Agreement.
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 1998B1-3 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 B-3 Notes; the student loan
purchase program being financed by the issuance of the Series B-3 Notes; the
revenues and other assets pledged (the "Trust Estate") to the payment of the
principal of and interest on the Series B-3 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 B-3 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 1998B1-3 Note, this Series 1998B1-3 Note thereafter no longer being
secured by the Indenture or being deemed to be outstanding thereunder; and for
the other terms and provisions thereof.
Words and terms used as defined words and terms in this Series 1998B1-3
Note and not otherwise defined herein shall have the meanings given them in the
Indenture.
The principal of and interest on the Series B-3 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
METHOD OF DETERMINING THE SERIES INTEREST RATE ON EACH OF THE SERIES B-3 NOTES,
THE DISTRIBUTION OF PRINCIPAL OF AND INTEREST, ON THIS SERIES 1998B1-3 NOTE AND
THE REDEMPTION OF THIS SERIES 1998B1-3 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 1998B1-3 Note or in
the Indenture shall be deemed to be a covenant or agreement of any officer,
director, agent or employee of the Issuer in his or her individual capacity, and
none of such officers, directors, agents or employees nor any person executing
this Series 1998B1-3 Note on behalf of the Issuer shall be liable personally on
this Series 1998B1-3 Note or be subject to any personal liability or
accountability by reason of the issuance of this Series 1998B1-3 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
Page 2 of 4
<PAGE> 3
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 1998B1-3 Note is held in a Book-entry System,
this Series 1998B1-3 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 1998B1-3 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 1998B1-3 Note or Series
1998B1-3 Notes of Authorized Denominations of the same aggregate principal
amount and date as this Series 1998B1-3 Note. The person in whose name this
Series 1998B1-3 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 B-3 Notes are issuable only as fully registered notes in
Authorized Denominations. Except when this Series 1998B1-3 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 1998B1-3 Notes may be
exchanged at said office of the Indenture Trustee for a like aggregate principal
amount of Series 1998B1-3 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 on this Series 1998B1-3 Note shall not be a Business Day, then payment
of such principal or 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 1998B1-3 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 1998B1-3 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 1998B1-3 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 1998B1-3 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 1998B1-3 Note to
be executed in its name and on its behalf by the facsimile signatures of the
undersigned authorized officers of the Issuer.
STUDENT LOAN FUNDING 1998-A/B TRUST,
By Firstar Bank, National Association,
not in its individual capacity, but solely in its capacity
as co-owner trustee of Student Loan Funding 1998-A/B Trust,
BY: [facsimile signature] BY: [facsimile signature]
-------------------------- -------------------------
Title: Title:
----------------------- ----------------------
Page 3 of 4
<PAGE> 4
[FORM OF CERTIFICATE OF AUTHENTICATION AND REGISTRATION]
This is one of the Series 1998B1-3 Notes described in the within
mentioned Indenture, and has been registered this date:
Date of Registration and Authentication: June __, 1999
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
1998B1-3 (Fixed Rate) of Student Loan Funding 1998-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
Signature Guarantee:______________________________
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.
Page 4 of 4
<PAGE> 1
Exhibit 5.1
May 24, 1999
Student Loan Funding LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Student Loan Funding 1998-A/B Trust
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding LLC Registration Statement on Form S-4
(No. 333-73455)
Ladies and Gentlemen:
We have acted as counsel to Student Loan Funding LLC, a Delaware
limited liability company (the "Company") and Student Loan Funding 1998 A/B
Trust, a Delaware common law trust (the "Issuer") in connection with the
Company's and the Issuer's registration statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to the previously issued
Student Loan Asset-Backed Notes (the "Old Notes") to be exchanged for the new
Student Loan Asset-Backed Notes (the "New Notes") of the Issuer. Terms used but
not defined herein shall have the definitions assigned to such terms in the
Registration Statement.
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 attached to the Registration
Statement as Exhibits 3.1 and 3.2, respectively;
(iii) the Trust Agreement attached to the Registration Statement
as Exhibit 3.3;
<PAGE> 2
Student Loan Funding LLC
Student Loan Funding 1998-A/B Trust
May 24, 1999
Page 2
(iv) the Second Amended and Restated Indenture and Second Amended
and Restated Terms Supplement to the Indenture attached to
the Registration Statement as Exhibits 4.1 and 4.2,
respectively; and
(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 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 Issuer) of all documents that 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. We have investigated such questions of law for the purpose of rendering
this opinion as we have deemed necessary. We express no opinion with respect to
compliance with state securities laws or with respect to any state or federal
law relating to fraudulent conveyances.
Based upon the foregoing examinations and assumptions and subject to
the further assumptions, exceptions and qualifications set forth below, it is
our opinion that:
1. When (i) the agreements, documents and certificates that are
required to be executed and delivered pursuant to, or are contemplated by, the
Indenture in connection with the issuance of the New Notes have been executed
and delivered by the applicable parties, (ii) the New Notes have been duly
executed, authenticated and delivered in accordance with the Indenture and (iii)
one or more global certificates in definitive, fully registered form has been
delivered by the Issuer to the Indenture Trustee and deposited by the Indenture
Trustee with, and accepted by, The Depository Trust Company, the New Notes will
be legally issued and fully paid and will constitute the legal, valid and
binding obligations of the Issuer, enforceable against the Issuer in accordance
with their terms, except as follows:
(A) the enforceability of the New Notes and the 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;
<PAGE> 3
Student Loan Funding LLC
Student Loan Funding 1998-A/B Trust
May 24, 1999
Page 3
(B) the enforceability of the New Notes and the 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), commercial reasonableness and
conscionability, under which a court might, among other things, decline
to permit acceleration of indebtedness with respect to breach of a
covenant deemed not material by the court, or to require a party
thereto to act with reasonableness and good faith;
(C) no opinion is expressed with respect to the
enforceability of any provisions of the New Notes or the Indenture that
purport to require payment or reimbursement of attorneys' fees or
litigation expenses of another party.
To the extent that the obligations of the Issuer under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
the Indenture Trustee is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; that the Indenture Trustee
is duly qualified to engage in the activities contemplated by the Indenture;
that the Indenture has been duly authorized, executed and delivered by the
Indenture Trustee and constitutes the legally valid, binding and enforceable
obligation of the Indenture Trustee; that the Indenture Trustee is in
compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Indenture
Trustee has the requisite corporate and legal power and authority to perform its
obligations under the Indenture.
We are members of the Bar of the State of Ohio and we express no
opinion as to matters covered by any laws other than those of the State of Ohio,
the federal laws of the United States and the Limited Liability Company Act of
the State of Delaware.
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. This opinion is
being furnished solely to you and is solely for the benefit of the Indenture
Trustee and the holders of the Old Notes. This opinion may not be relied upon
for any other purpose, or by any other person, firm or corporation for any
purpose, without our prior written consent.
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 constituting
<PAGE> 4
Student Loan Funding LLC
Student Loan Funding 1998-A/B Trust
May 24, 1999
Page 4
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,
/s/Thompson Hine & Flory LLP
Thompson Hine & Flory LLP
<PAGE> 1
Exhibit 10.10
[Georgia Higher Education Assistance Corporation Letterhead]
May 19, 1999
Student Loan Funding 1998-A/B Trust
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Student Loan Funding, LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1998-A/B Trust
Student Loan Funding LLC
Student Loan Senior Asset Backed Notes, Series 1998A1-3
Student Loan Senior Asset Backed Notes, Series 1998A1-4
Student Loan Senior Asset Backed Notes, Series 1998A1-5
Student Loan Senior Asset-Backed Notes, Series 1998A1-6
Student Loan Subordinated Asset Backed Notes, Series 1998B
The information regarding Georgia Higher Education Assistance
Corporation, to be included in the Prospectus for the above-captioned Notes, as
of the date of the Prospectus, does not contain any 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 are made, not
misleading.
GEORGIA HIGHER EDUCATION ASSISTANCE
CORPORATION
By: /s/ Glenn Newsome
--------------------------------
Name: Glen Newsome
Title: Executive Director
<PAGE> 1
Exhibit 10.11
[USA Group Letterhead]
May 19_, 1999
Student Loan Funding 1998-A/B Trust
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Student Loan Funding, LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1998-A/B Trust
Student Loan Funding LLC
Student Loan Senior Asset Backed Notes, Series 1998A1-3
Student Loan Senior Asset Backed Notes, Series 1998A1-4
Student Loan Senior Asset Backed Notes, Series 1998A1-5
Student Loan Senior Asset-Backed Notes, Series 1998A1-6
Student Loan Subordinated Asset Backed Notes, Series 1998B-3
The information regarding United Student Aid Funds, Inc., to be
included in the Prospectus for the above-captioned Notes, as of the date of the
Prospectus, does not contain any 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 are made, not misleading.
UNITED STUDENT AID FUNDS, INC.
By: /s/ Dennis Wentworth
---------------------------
Name: Dennis Wentworth
Title: Vice President
<PAGE> 1
Exhibit 10.12
[Kentucky Higher Education Assistance Authority Letterhead]
May 21, 1999
Student Loan Funding 1998-A/B Trust
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Student Loan Funding, LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1998-A/B Trust
Student Loan Funding LLC
Student Loan Senior Asset Backed Notes, Series 1998A1-3
Student Loan Senior Asset Backed Notes, Series 1998A1-4
Student Loan Senior Asset Backed Notes, Series 1998A1-5
Student Loan Senior Asset-Backed Notes, Series 1998A1-6
Student Loan Subordinated Asset Backed Notes, Series 1998B
The information regarding Kentucky Higher Education Assistance
Authority, to be included in the Prospectus for the above-captioned Notes, as of
the date of the Prospectus, does not contain any 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 are made, not misleading.
KENTUCKY HIGHER EDUCATION
ASSISTANCE AUTHORITY
By /s/ Londa L. Wolanin
-----------------------
Name: Londa L. Wolanin
Title: Chief Operating Officer
<PAGE> 1
Exhibit 10.13
[Great Lakes Higher Education Guaranty Corporation Letterhead]
May 19, 1999
Student Loan Funding 1998-A/B Trust
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Student Loan Funding, LLC
One West Fourth Street, Suite 210
Cincinnati, Ohio 45202
Re: Student Loan Funding 1998-A/B Trust
Student Loan Funding LLC
Student Loan Senior Asset Backed Notes, Series 1998A1-3
Student Loan Senior Asset Backed Notes, Series 1998A1-4
Student Loan Senior Asset Backed Notes, Series 1998A1-5
Student Loan Senior Asset-Backed Notes, Series 1998A1-6
Student Loan Subordinated Asset Backed Notes, Series 1998B
The information regarding Great Lakes Higher Education Guaranty
Corporation to be included in the Prospectus for the above-captioned Notes, as
of the date of the Prospectus, does not contain any untrue statement of a
material fact.
GREAT LAKES HIGHER EDUCATION
GUARANTY CORPORATION
By: /s/ Richard H. Johnston
----------------------------
Name: Richard H. Johnston
Title: Executive Vice President
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER
1998A-3 (LIBOR FLOATING RATE) SENIOR ASSET-BACKED NOTES
1998A-4 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES
1998A-5 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES
1998A-6 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES
AND
1998B-3 (FIXED RATE) SUBORDINATE NOTES
OF
STUDENT LOAN FUNDING 1998 - A/B TRUST
Pursuant to the Exchange Offer and Prospectus
Dated May 26, 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JUNE 28, 1999, UNLESS EXTENDED BY THE TRUST.
- --------------------------------------------------------------------------------
The exchange agent for the Exchange Offer is:
FIRSTAR BANK, N.A.
<TABLE>
<S> <C>
By Overnight Delivery or Hand: By Registered or Certified Mail:
Firstar Bank, N.A. Firstar Bank, N.A.
425 Walnut Street 425 Walnut Street
6th Floor Mail Location 5155
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Brian J. Gardner Attention: Brian J. Gardner
</TABLE>
By Facsimile: (513) 632-5511
To Confirm by Telephone or for Information: (513) 762-8870
Originals of all documents sent by facsimile should be promptly sent to
the exchange agent by registered or certified mail, by hand, or by overnight
delivery service.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
The undersigned acknowledges that it has received the Prospectus,
dated May , 1998, of Student Loan Funding 1998-A/B Trust, a Delaware common law
trust (the "Trust"), and this Letter of Transmittal, which together constitute
the Trust's offer to exchange an aggregate principal amount of up to
$385,000,000 of its Series 1998A1-3 (LIBOR Floating Rate) Senior Asset-Backed
Notes, $93,300,000 of its Series 1998A1-4 (Auction Rate) Senior Asset-Backed
Callable Notes, $90,000,000 of its Series 1998A1-5 (Auction rate) Senior
Asset-Backed Callable Notes, $90,000,000 of its Series 1998A1-6 (Auction Rate)
Senior Asset-Backed Callable Notes and $54,500,000 of its Series 1998B1-3 (Fixed
Rate) Subordinate Notes, all of which have been registered under the Securities
Act of 1933, for a corresponding principal amount of its outstanding Series
1998A-3 (LIBOR Floating Rate) Senior Asset-Backed Notes, Series 1998A-4 (Auction
Rate) Senior Asset-Backed Callable Notes, Series 1998A-5 (Auction Rate) Senior
Asset-Backed Callable Notes, Series 1998A-6 (Auction Rate) Senior Asset-Backed
Callable Notes and Series 1998B-3 (Fixed Rate) Subordinate Notes.
<PAGE> 2
IF YOU DESIRE TO EXCHANGE YOUR SERIES 1998A-3 (LIBOR FLOATING RATE)
SENIOR ASSET-BACKED NOTES, SERIES 1998A-4 (AUCTION RATE) SENIOR ASSET-BACKED
CALLABLE NOTES, SERIES 1998A-5 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE
NOTES, SERIES 1998A-6 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES OR
SERIES 1998B-3 (FIXED RATE) SUBORDINATE NOTES FOR AN EQUAL AGGREGATE PRINCIPAL
AMOUNT OF SERIES 1998A1-3 (LIBOR FLOATING RATE) SENIOR ASSET-BACKED NOTES,
SERIES 1998A1-4 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES, SERIES
1998A1-5 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES, SERIES 1998A1-6
(AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES OR SERIES 1998B1-3 (FIXED
RATE) SUBORDINATE NOTES, YOU MUST VALIDLY TENDER (AND NOT VALIDLY WITHDRAW) YOUR
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER.
YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW. PLEASE
READ THE INSTRUCTIONS SET FORTH BELOW CAREFULLY BEFORE COMPLETING THIS LETTER OF
TRANSMITTAL.
This Letter of Transmittal is to be completed by holders of the Trust's
outstanding notes either if such notes are to be forwarded herewith or if
tenders of such notes are to be made by book-entry transfer to an account
maintained by the exchange agent at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer - Book-Entry Transfer" in the Prospectus and, in accordance with
the Automated Tender Offer Program ("ATOP") established by the Book-Entry
Facility, a tendering holder will become bound by the terms and conditions
hereof in accordance with the procedures under ATOP.
If you are a registered holder of outstanding notes and desire to
tender your notes but (i) your notes are currently unavailable, (ii)
insufficient time exists for your notes or other required documents to reach the
exchange agent before the expiration of the Exchange Offer, or (iii) you cannot
complete the procedure for book-entry transfer on a timely basis, you must
tender your notes in accordance with the guaranteed delivery procedures set
forth in the Prospectus under the heading "The Exchange Offer -- Guaranteed
Delivery Procedures." SEE INSTRUCTION 2.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED
- --------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AS THE SAME CERTIFICATE NUMBER(S) AGGREGATE PRINCIPAL
APPEARS ON THE TENDERED NOTES OF TENDERED NOTES* AMOUNT OF
( PLEASE FILL IN, IF BLANK) TENDERED NOTES**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL PRINCIPAL
AMOUNT TENDERED
- --------------------------------------------------------------------------------------------------------------------
* Need not be completed by noteholders delivering shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that the entire principal amount evidenced by each note listed
above and delivered to the exchange agent is being tendered hereby.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
BOXES BELOW TO BE CHECKED BY
ELIGIBLE GUARANTOR INSTITUTIONS ONLY
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING.
Name of Tendering Institution:
-----------------------------------------
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
[ ] CHECK HERE IF NOTES ARE BEING TENDERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED
DELIVERY).
Name(s) of Registered Holder(s):
---------------------------------------
Window Ticket Number (if any):
-----------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------
Name of Institution which Guaranteed Delivery:
------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution:
-----------------------------------------
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
[ ] CHECK HERE IF YOU TENDERED BY BOOK-ENTRY TRANSFER AND DESIRE ANY
NON-EXCHANGED NOTES TO BE RETURNED TO YOU BY CREDITING THE BOOK-ENTRY
TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER THAT ACQUIRED YOUR TENDERED NOTES
FOR YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS
AND ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
------------------------------------------------------------------
Address:
---------------------------------------------------------------
<PAGE> 4
Ladies and Gentlemen:
The undersigned hereby tenders to Student Loan Funding 1998-A/B Trust,
a Delaware common law trust, the notes listed above pursuant to the Trust's
offer to exchange its Series 1998A1-3 (LIBOR Floating Rate) Senior Asset-Backed
Notes, Series 1998A1-4 (Auction Rate) Senior Asset-Backed Callable Notes, Series
1998A1-5 (Auction Rate) Senior Asset-Backed Callable Notes, Series 1998A1-6
(Auction Rate) Senior Asset-Backed Callable Notes and Series 1998B1-3 (Fixed
Rate) Subordinate Notes for its Series 1998A-3 (LIBOR Floating Rate) Senior
Asset-Backed Notes, Series 1998A-4 (Auction Rate) Senior Asset-Backed Callable
Notes, Series 1998A-5 (Auction Rate) Senior Asset-Backed Callable Notes, Series
1998A-6 (Auction Rate) Senior Asset-Backed Callable Notes and Series 1998B-3
(Fixed Rate) Subordinate Notes, upon the terms and subject to the conditions
contained in the Prospectus dated May 26, 1999, receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together with the
Prospectus constitute the Exchange Offer).
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT (a) THE UNDERSIGNED
HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
NOTES LISTED ABOVE AND TENDERED HEREBY, (b) WHEN THE NOTES LISTED ABOVE AND
TENDERED HEREBY ARE ACCEPTED FOR EXCHANGE, THE TRUST WILL ACQUIRE GOOD,
MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ANY AND ALL LIENS,
RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND (c) THE NOTES LISTED ABOVE AND
TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.
The undersigned understands that the tender of the notes listed above
pursuant to any one of the procedures set forth in the Prospectus and in the
instructions to this Letter of Transmittal will, upon the Trust's acceptance of
notes for exchange, constitute a binding agreement between the undersigned and
the Trust as to the terms and conditions set forth in the Prospectus.
The undersigned hereby represents and warrants that:
- the undersigned (or the person or entity receiving notes pursuant
to this Letter of Transmittal) is acquiring the offered notes in
the ordinary course of business of the undersigned (or such other
person);
- neither the undersigned nor any such person or entity is engaging
in or intends to engage in a distribution of the offered notes;
- neither the undersigned nor any such person or entity has an
arrangement or understanding with any person or entity to
participate in a distribution of the offered notes;
- neither the undersigned nor any such person or entity is an
"affiliate," as such term is defined under Rule 405 promulgated
under the Securities Act of 1933, of the Trust; and
- the undersigned is not acting on behalf of any person or entity
who could not truthfully make the foregoing representations.
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
the offered notes. If the undersigned is a broker-dealer that will receive
offered notes for its own account in exchange for outstanding notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such offered notes; however, by so acknowledging and delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities
<PAGE> 5
Act of 1933. If the undersigned is a broker-dealer and the outstanding notes
held for its own account were not acquired as a result of market-making or other
trading activities, such outstanding notes cannot be exchanged pursuant to the
Exchange Offer.
Unless otherwise indicated in this Letter of Transmittal under "Special
Delivery Instructions," certificates for the offered notes will be issued in the
name of the undersigned.
Holders of outstanding notes whose notes are accepted for exchange will
not receive accrued interest on such outstanding notes for any period from and
after the last interest payment date to which interest has been paid or duly
provided for on such outstanding notes prior to the original issue date of the
offered notes or, if no such interest has been paid or duly provided for, will
not receive any accrued interest on such outstanding notes. The undersigned
waives the right to receive any interest on such outstanding notes accrued from
and after such last interest payment date or, if no such interest has been paid
or duly provided for, from and after the original issue date of the offered
notes.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the exchange agent or the Trust to be necessary or desirable
to complete the exchange, assignment and transfer of the notes listed above and
tendered hereby and will comply with its obligations under the registration
rights agreement. All authority herein conferred or agreed to be conferred in
this Letter of Transmittal shall survive the death or incapacity of the
undersigned and all obligations of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of the undersigned.
Except as stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED HAS READ AND UNDERSTANDS ALL OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER. THE UNDERSIGNED, BY COMPLETING THE BOX
ENTITLED "DESCRIPTION OF NOTES TENDERED" ABOVE AND SIGNING THIS LETTER OF
TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED THE NOTES LISTED IN SUCH BOX ABOVE.
<PAGE> 6
------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY if the offered notes are to be
issued or sent to someone other than the undersigned
or to the undersigned at an address other than that
provided above under "Description of Notes Tendered."
Check appropriate box:
[ ] Mail certificates to:
[ ] Issue certificates to:
Name:__________________________________________________
(PLEASE PRINT)
Address:_______________________________________________
-------------------------------------------------------
-------------------------------------------------------
(INCLUDING ZIP CODE)
-------------------------------------------------------
<PAGE> 7
- --------------------------------------------------------------------------------
TENDERING NOTEHOLDERS: SIGN HERE
To be completed by all tendering noteholders. Must be signed by the registered
holder exactly as name appears on the tendered notes. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
X_______________________________________________________________________________
X_______________________________________________________________________________
Signature(s) of Registered Holder(s) or Authorized Signature
Name(s):
------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Dated:
--------------------------------------------------------------------------
Capacity (full title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
----------------------------------------------------
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 1 BELOW)
- --------------------------------------------------------------------------------
Name of Eligible Institution Guaranteeing Signature
- --------------------------------------------------------------------------------
Address, Including Zip Code, and Telephone Number, Including Area Code, of Firm
PLACE MEDALLION GUARANTEE HERE
- ------------------------------------
Authorized Signature
- ------------------------------------
Printed Name
- ------------------------------------
Date
- --------------------------------------------------------------------------------
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal
must be guaranteed by an "eligible guarantor institution" that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or by an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Securities Exchange Act of 1934 unless the box
entitled "Special Delivery Instructions" has not been completed or the notes
described above are tendered for the account of an "eligible guarantor
institution."
2. DELIVERY OF LETTER OF TRANSMITTAL AND TENDERED NOTES; GUARANTEED
DELIVERY PROCEDURES. The tendered notes, together with a properly completed and
duly executed Letter of Transmittal (or a copy thereof), should be mailed or
delivered to the exchange agent at one of the addresses listed above.
Noteholders who wish to tender their notes and (i) whose notes are not
immediately available or (ii) who cannot deliver their notes, this Letter of
Transmittal and all other required documents to the exchange agent on or before
the expiration of the Exchange Offer or (iii) who cannot complete the procedures
for delivery by book-entry transfer on a timely basis, may tender their notes by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth in the Prospectus under the
heading "The Exchange Offer -- Guaranteed Delivery Procedures." Pursuant to such
procedures: (i) such tender must be made by or through an "eligible guarantor
Institution" (as defined in Instruction 1 above); (ii) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form made
available by the Trust with the Prospectus, must be received by the exchange
agent before the expiration of the Exchange Offer; and (iii) the certificates
(or a book-entry confirmation) representing all tendered notes, in proper form
for transfer, together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the exchange agent within three New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in the
Prospectus under the heading "The Exchange Offer -- Guaranteed Delivery
Procedures."
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the exchange agent, and must include a
guarantee by an "eligible guarantor institution" (see Instruction 1 above) in
the form set forth in such Notice of Guaranteed Delivery. For outstanding notes
to be properly tendered pursuant to the guaranteed delivery procedures, the
exchange agent must receive a Notice of Guaranteed Delivery before the
expiration of the Exchange Offer.
The method of delivery of outstanding notes and the Letter of
Transmittal and all other required documents to the exchange agent is at the
election and risk of the noteholder. Instead of delivery by mail, you should use
an overnight or hand delivery service. In all cases, you should allow for
sufficient time to ensure delivery to the exchange agent before the expiration
of the Exchange Offer. You may request your broker, dealer, commercial bank,
trust company or nominee to effect these transactions for you. YOU SHOULD NOT
SEND ANY TENDERED NOTE, LETTER OF TRANSMITTAL OR OTHER REQUIRED DOCUMENT TO THE
TRUST.
3. SIGNATURE ON THE LETTER OF TRANSMITTAL, BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than the
registered holder of the tendered notes, such notes must be endorsed or
accompanied by appropriate bond powers, signed by the registered holder exactly
as such registered holder's name appears on the tendered notes. Signatures on
such notes and bond powers must be guaranteed by an "eligible guarantor
institution."
<PAGE> 9
If this Letter of Transmittal or any tendered notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons must so indicate when signing and, unless waived by the
Trust, submit proper evidence satisfactory to the Trust of their authority to so
act with this Letter of Transmittal.
4. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Notes Tendered" is inadequate, the certificate number(s) and/or
the principal amount of tendered notes and any other required information should
be listed on a separate signed schedule which is attached to this Letter of
Transmittal.
5. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the exchange agent at one of its
addresses or telephone numbers listed on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the exchange agent
or from your broker, dealer, commercial bank, trust company or other nominee.
6. MISCELLANEOUS. All questions as to the validity, form, eligibility,
time of receipt, acceptance, and withdrawal of tendered notes will be resolved
by the Trust in its sole discretion, which determination will be final and
binding on all parties. The Trust reserves the absolute right to reject any or
all notes not properly tendered or any notes the acceptance of which would, in
the opinion of counsel for the Trust, be unlawful. The Trust also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular notes tendered. The Trust's interpretation of the terms and
conditions of the Exchange Offer (including the Instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding notes must
be cured within such time as the Trust shall determine. None of the Trust, the
exchange agent or any other person shall be under any duty to give notification
of defects in such tenders or shall incur any liability for failure to give such
notification. Tenders of outstanding notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any outstanding
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering noteholder promptly after the
expiration of the Exchange Offer.
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
SERIES 1998A-3 (LIBOR FLOATING RATE) SENIOR ASSET-BACKED NOTES
SERIES 1998A-4 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES
SERIES 1998A-5 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES
SERIES 1998A-6 (AUCTION RATE) SENIOR ASSET-BACKED CALLABLE NOTES
AND
SERIES 1998B-3 (FIXED RATE) SUBORDINATE ASSET-BACKED NOTES
OF
STUDENT LOAN FUNDING 1998 - A/B TRUST
(Not To Be Used For Signature Guarantees)
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JUNE 28, 1999, UNLESS EXTENDED BY THE TRUST.
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer if (i) certificates for the
(A) Series 1998A-3 (LIBOR Floating Rate) Senior Asset-Backed Notes , (B) Series
1998A-4 (Auction Rate) Senior Asset-Backed Callable Notes, (C) Series 1998A-5
(Auction Rate) Senior Asset-Backed Callable Notes, (D) Series 1998A-6 (Auction
Rate) Senior Asset-Backed Callable Notes or (E) Series 1998B-3 (Fixed Rate)
Subordinate Asset-Backed Notes of Student Loan Funding 1998 - A/B Trust (the
"Trust") are not immediately available, (ii) such certificates, the Letter of
Transmittal and all other required documents cannot be delivered to the exchange
agent before the expiration of the Exchange Offer, or (iii) the procedures for
delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the exchange agent. In
addition, in order to utilize the guaranteed delivery procedures to tender
outstanding notes pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) relating to the
outstanding notes must also be received by the exchange agent prior to
expiration of the Exchange Offer. See "The Exchange Offer -- Guaranteed Delivery
Procedures" in the Prospectus.
The exchange agent for the Exchange Offer is:
FIRSTAR BANK, N.A.
<TABLE>
<S> <C>
By Hand or Overnight Delivery: By Registered or Certified Mail:
Firstar Bank, N.A. Firstar Bank, N.A.
425 Walnut Street 425 Walnut Street
6th Floor Mail Location 5155
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Brian J. Gardner Attention: Brian J. Gardner
</TABLE>
By Facsimile (Eligible Institutions Only): (513) 632-5511
To Confirm by Telephone or for Information: (513) 632-4278
Originals of all documents sent by facsimile should be promptly sent to
the exchange agent by registered or certified mail, by hand, or by overnight
delivery service.
<PAGE> 2
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION" UNDER THE INSTRUCTIONS
THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED
IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Student Loan Funding 1998 - A/B
Trust, a Delaware common law trust, upon the terms and subject to the conditions
set forth in the Prospectus, dated May 26, 1999, and the related Letter of
Transmittal (which together constitute the Exchange Offer), receipt of which is
hereby acknowledged, the aggregate principal amount of each series of notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus. All authority conferred or agreed to be conferred herein shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned.
Name(s) of Registered Holder(s):
------------------------------------------------
Aggregate Principal Amount Tendered:
--------------------------------------------
Series 1998A-3 (LIBOR Floating Rate): $
--------------------------------
Series 1998A-4 (Auction Rate): $
---------------------------------------
Series 1998A-5 (Auction Rate): $
---------------------------------------
Series 1998A-6 (Auction Rate): $
---------------------------------------
Series 1998B-3 (Fixed Rate): $
-----------------------------------------
Certificate Number(s) (if available):
Total Principal Amount Represented by Certificate(s): $
If notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number: ______________________ Date: ______________________
PLEASE SIGN HERE
X Date:
----------------------------------------- -----------------------
X Date:
----------------------------------------- -----------------------
Signature(s) of Owner(s) or Authorized Signatory
Area Code and Telephone Number:
-------------------------------------------------
Must be signed by the holder(s) of the tendered notes as their name(s)
appear(s) on certificates for such notes or on a security position listing, or
by person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
<PAGE> 4
Capacity:
-----------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING SIP CODE)
THE GUARANTEE BELOW MUST BE COMPLETED
<PAGE> 5
- --------------------------------------------------------------------------------
GUARANTEE OF DELIVERY
(Not To Be Used For Signature Guarantees)
The undersigned, a member of or participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Signature Program, the
Stock Exchange Medallion Program or a firm or other entity identified in Rule
17Ad-15 under the Securities Exchange Act of 1934 as an "eligible guarantor
institution," including (as such terms are defined in Rule 17Ad-15): (i) a bank;
(ii) a broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program, hereby guarantees to deliver
to the exchange agent, at one of the addresses set forth above, either the notes
tendered hereby in proper form for transfer or confirmation of the book-entry
transfer of such notes to the exchange agent's account at The Depositary Trust
Company, pursuant to the procedures for book-entry transfer set forth in the
Prospectus, in either case together with one or more properly completed and duly
executed Letter(s) of Transmittal (or facsimile thereof) and any other required
documents within three New York Stock Exchange trading days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the notes tendered hereby to the exchange agent within the time
period set forth above. Failure to do so could result in a financial loss to the
undersigned.
Name of Firm:___________________________________________________________________
Address:________________________________________________________________________
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
AUTHORIZED SIGNATURE:___________________________________________________________
Name:___________________________________________________________________________
(PLEASE PRINT)
Title:__________________________________________________________________________
Area Code and Telephone Number:_________________________________________________
Dated:_________________________
NOTE: DO NOT SEND CERTIFICATE(S) WITH THIS NOTICE OF GUARANTEED DELIVERY.
CERTIFICATE(S) SHOULD BE SENT WITH THE LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
